In Shanks v Unilever  EWCA Civ 2 the Court of Appeal refused to overturn a Hearing Officer's decision that a major conglomerate was not obliged to pay compensation to a former employee to reflect the value of a commercially successful invention. The Court found that compensation under Patents Act 1977, ss 40(1) and 41, required the employee to show that:
- an invention made in the course of duties while an employee conferred an "outstanding benefit" on the employer, defined in terms of "money or money's worth"; and
- it was just that the employee should be awarded compensation.
The patented invention involved a medical application of biosensor technology. It fell outside the mainstream of the employee's duties, and was developed in part during the employee's own time. It generated a benefit in the region of £24.5 million for the employer, Unilever.
A key argument in the appeal was that simply measuring a benefit of £24.5 million against the overall turnover and profitability of the Unilever Group would inevitably result in a finding that the benefit was not so unusual as to be "outstanding". For a business with the scale and complexity of Unilever, even though £24.5 million is a "not inconsiderable" sum, it was "simply dwarfed by the turnover and profits of the group as a whole". On that simple test, Counsel for the claimant argued that Unilever's size would lead to the unjust result that it was "too big to pay".
Patten LJ analysed the Hearing Officer's reasoning and concluded that while the straightforward financial comparison was (legitimately) an element, it was not the sole basis for the decision that the benefit could not be regarded as "outstanding". Patten LJ emphasised that the test included a wider consideration taking in:
- the scope of the employee's duties
- the expectations which the employer may be taken to have had about the level of return it would normally expect to see generated from its average research programme.
The court considered whether the benefit to the employer exceeded what would normally be expected to result from the work for which the employee was paid, bearing in mind that the focus was on the benefit to the employer, and not the inventiveness of the employee. On the facts, Professor Shanks' invention was undoubtedly successful, but from the employer's perspective not "outstanding".
Briggs LJ agreed that the appeal should be dismissed, but he did so reluctantly. The Court rejected the submission that Unilever was simply "too big to pay", and that any claim for compensation against a business of (or even approaching) Unilever's scale would inevitably fail. Briggs LJ commented:
It may be going too far to say that Unilever was simply "too big to pay", but there is no escaping the fact that Professor Shanks might well have succeeded had his employer had a much smaller undertaking than did Unilever
Patten LJ also seems to have had some misgivings. He observed that:
…a straightforward comparison of profitability may be sufficient, in the case of a much smaller company, to satisfy the test of outstanding benefit without recourse to a much wider consideration of the employee's duties and the expectations which the employer may be taken to have had about the level of return it would normally expect to see generated from its average research programme.
Those comments may give cause for concern to small and medium sized enterprises (SMEs). Startups and small businesses are playing a crucial role in technological innovation. For example, significant steps in the development of the "internet of things" have been taken by businesses with their roots in University research and silicon roundabout-type startups. Working at much smaller scale than long-established conglomerates such as Unilever, new and growing businesses might find that an obligation to pay compensation is triggered by a straightforward comparison of the "money or money's worth" benefit against previous turnover and profits.
Consequently, where businesses are currently operating at a relatively small scale, but have employees who are not also founders, investors or equity-holders, there is a very strong argument in favour of reviewing employee contracts, research and development plans and business plans to provide a documented audit trail in relation to the factors that would be taken into account when calculating an employee's entitlement to compensation. Those factors, set out at section 41(4), are:
- the nature of the employee’s duties, his remuneration and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act
- the effort and skill which the employee has devoted to making the invention
- the effort and skill which any other person has devoted to making the invention jointly with the employee concerned, and the advice and other assistance contributed by any other employee who is not a joint inventor of the invention
- the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance, by the provision of opportunities and by his managerial and commercial skill and activities.
Compensation should be reserved for exceptional cases
The rationale for the "outstanding benefit" test in Patents Act 1977 was that an employee will already have received compensation for the invention through remuneration for employment. An employer who is able to show clear and documented evidence of the scope of the employee's duties, his remuneration and benefits would have at least a reasonable starting point for arguing that the employee's inventiveness has already been sufficiently compensated. Add to that clear evidence of input from others, and of the provision by the employer of advice, facilities and other assistance and SMEs would increase their chances of successfully resisting a claim for compensation, rather than simply being found on a simple comparison to be "small enough to have to pay".