A recent United Kingdom case has illustrated an international shift to greater recognition of the interests of employees with respect to successful inventions. Compensation for successful inventions is not currently part of the Australian patent regime as it is in the United Kingdom. However, courts in Australia have demonstrated a willingness to find employees, and not employers, are entitled to inventions. While the Australian situation can be dealt with by clear employment contracts, Australian employers should be aware they cannot contract out of the English employee compensation legislation if it is relevant to their international business.

Employee compensation for successful inventions in England

The English Patents Act 1977 (UK) (English Patents Act) provides for the compensation of employees where the employee is an inventor of a patented invention that has been of ‘outstanding benefit’ to the employer. An employee may also receive compensation where the employee has assigned or exclusively licensed a patent to the employer and in light of the success of the invention the benefit derived by the employee from the assignment or licence is ‘inadequate’.

Compensation is awarded where it is ‘just’ to do so. The rationale for compensating is to provide the employee with a ‘fair share’ of the benefit the employer has derived from the invention. This establishes a curious case for compensation where the employee has not suffered loss in the traditional sense.

GE Healthcare – an historic English case

His Honour Mr Justice Floyd of the English Patents Court made the first award of compensation to employee inventors in Kelly and another v GE Healthcare Limited [2009] EWHC 181 (GE Healthcare case). In that case Amersham International Plc (now GE Healthcare Limited) employed Duncan Kelly and Kwok Wai Chiu. Kelly and Chiu were research scientists involved in the first synthesis of P53 which was patented as a radioactive imaging agent and became a highly successful commercial product called Myoview. Kelly and Chiu sought and were awarded employee compensation for the invention under section 40 of the English Patents Act.

The patents were held to be of ‘outstanding benefit’ because they provided:

  • protection from generic competition in an environment where the loss of revenue due to a generic competitor was a major concern of the company
  • protection of a highly successful invention which recovered research and development costs in the first year of sales and was responsible for a large proportion of the company’s profits, and
  • ownership of a blockbuster radiopharmaceutical which was a major factor in achieving several corporate deals that transformed the company.

Dr Kelly was awarded two per cent (£1 million) and Dr Chui one per cen (£500,000) of the £50 million of Myoview profit that the court attributed to patent protection.

Future awards may be larger as the legislation has been amended to provide compensation based on the benefit of the invention itself rather than the benefit of the patents protecting the invention.

Employee compensation in Australia

There is no employee compensation regime in the Australian Patents Act 1990 (Cth) (Australian Patents Act). Unless an Australian company has employees located in the United Kingdom who can sue under the English Patents Act it will not be liable for employee compensation claims.

However, the first award of compensation under this regime is part of an international shift to greater recognition of the interests of employee inventors. In Australia, as illustrated by the recent case University of Western Australia v Gray [2008] FCA 49, the increase in recognition is in the form of a greater willingness to find that the employee and not the employer is entitled to an invention the employee made during employment.

The advantage of the Australian situation is that clear contracts will overcome any uncertainty as to the ownership of inventions. On the other hand, employers cannot contract out of the English employee compensation legislation.

Problems for quantifying liability

One of the difficulties with the English employee compensation legislation is the uncertainty it creates regarding a company’s liability. If compensation is claimed it is difficult to predict whether the employee is eligible for compensation—that is, whether the benefit of the invention was sufficiently ‘outstanding’. It is also difficult to determine the amount of compensation the employee is entitled to.

Liability for potential employee compensation claims should be considered when acquiring an interest in an English company as it now appears any blockbuster drug developed by skilled and imaginative employees leading to patents and high profit margins could result in a claim for employee compensation.

Collaborations with English researchers

Under the English employee compensation legislation collaborative inventors may not be able to claim compensation if their employer was, for example, a university collaborating with the company marketing the invention. In such cases, the employer would potentially not be deriving the outstanding benefit of the invention.