Today the Supreme Court has upheld an appeal by Professor Shanks against his former employer, Unilever, awarding him £2M in compensation for his invention. This case is of real significance for all innovative businesses since it potentially increases the level of exposure to claims by their research employees to a share of the benefit derived from their invention.

The case concerns a statutory regime in the UK intended to provide additional rewards for employee inventors. In the UK, inventions made by anyone in a research role will almost always belong to the employer if made while carrying out their normal or specially assigned duties. It is generally assumed that the employee's salary and other benefits compensate for this. However, for inventions the subject of a patent which proves to be of "outstanding benefit" to the employer, employees are entitled to compensation by way of a "fair share … of the benefit which the employer has derived, or may reasonably be expected to derive".

There are thus two main criteria for an employee obtaining compensation: the invention must have been subject of a granted patent and the benefit that the employer receives must be "outstanding". For older inventions (including Prof. Shanks') the benefit must be derived from the patent but since 2005 this has been broadened to include an outstanding benefit from "the invention or the patent for it (or the combination of both)".

Prof. Shanks claimed compensation for his invention of a biosensor used for diabetics to monitor glucose and insulin levels. The invention was made while he was employed by part of the Unilever group and the patents resulting from it were assigned within the group. These assignments involved nominal sums passing between the Unilever companies. The patented technology was not part of Unilever's main business early in the patents lives but towards the end of the patents' lives the market for blood glucose testing expanded and the patents generated substantial licensing revenue from third party licensees. The gross total benefit obtained by the Unilever group from the patents was assessed at £24.5M.

The statutory regime requires consideration of the "size and nature of" the employer undertaking, among other things, when considering whether the benefit from the invention qualifies as "outstanding". These statutory criteria created significant difficulties for Prof. Shanks in this case since Unilever's revenues and profits are so large that they dwarfed the £24.5M attributable to his invention. He argued that the regime should not be applied such that a business such as Unilever could be 'too big to pay'. His claim, however, was dismissed by the UKIPO, on appeal first to the Patents Court and on second appeal to the Court of Appeal, each of whom concluded that the benefit was not "outstanding". This conclusion flowed in large part from treating the whole Unilever group as the 'employer' for the purpose of the assessment and comparing the £24.5M with the group's enormous revenues and profits. Each tribunal also considered nevertheless how to assess the "fair share" that would be payable, considering here two main points of contention: whether the time value of the money received by Unilever could be included in that assessment and whether the employer's tax liability should be taken into account.

The Supreme Court was asked to consider (1) the principles applicable to assessing whether there is an "outstanding benefit" to an employer; and (2) how the "fair share" of such a benefit should be assessed.

In considering the first point, the Supreme Court sought to analyse "in relation to what must the benefit from the patent be outstanding?" or, in other words, what must the benefit attributable to the patent be compared to so as to determine if it is outstanding? This was in part to address the 'too big to pay' point but it also took into account previous case law in which an outstanding benefit had been recognised where the invention had transformed the fortunes of the employer, diverting a likely financial crisis and achieving billions in revenue. Was such a dramatic effect required in order for a benefit to be "outstanding". The Court acknowledged that the statutory requirement to consider the "size and nature" of the employer's business gave rise to questions as to what is the employer's business for this purpose and what is the relevance of the size and nature of it to whether the benefit is "outstanding".

On the first point, the Supreme Court adopted a position between the two extremes of identifying the 'employer' either as Prof. Shanks' immediate employer company or as the group as a whole. The Court stated that "[w]here, as here, a group company operates a research facility for the benefit of the whole group and the work results in patents which are assigned to other group members for their benefit, the focus of the inquiry … must be the extent of the benefits derived by the group from other patents for inventions arising from the research carried out by that company". This appears to be the result of the Court seeking to "compare like with like", thus directing that whether the benefit of an invention is outstanding must be assessed by considering the benefit of other inventions of that company, not other revenue streams. As quoted above, it would also appear to distinguish between different research arms within a single group: this seems fair both to employees and employer for groups with very diverse research interests. It is not clear, however, that this principle was applied to Unilever since the judgment does not record an attempt to distinguish the value of the different patents derived from the company for which Prof. Shanks worked from other research arms of Unilever. It may be that the evidence did not point to any such distinction in this case. In any event, the general conclusion was carried through to the Supreme Court's re-assessment of the factual findings, disagreeing with the finding that how any benefit was obtained should be disregarded: the benefit of interest had to be attributable to the patent and the assessment of whether it stands out should not take into account other kinds of revenue streams unrelated to patented inventions.

On the second point, the Supreme Court accepted that there could be a variety of ways in which the size and nature of a business affected the value of any specific benefit it derived from a patent: for example, its size might affect its bargaining position in negotiating licence revenues or its ability to effectively enforce its patents against competitors. The Court firmly rejected the proposition a patent could not be of outstanding benefit if the value of the benefit attributably to it had no significant impact on the overall profitability of the whole business.

Quantification of the benefit is required not only for assessing it as "outstanding" or not but also to allow calculation of a "fair share" to award the employee if it is "outstanding". The Supreme Court agreed with Prof Shanks that the benefit should not be subject to a deduction for the employer's tax liability. The Court also agreed that the benefit should include the time value of the money, i.e. an assessment of the additional value the revenues from the patent were worth to the employer because it had the ability to use those sums some years in the past.

In upholding Prof. Shank's appeal the Supreme Court adopted a key finding at first instance that the benefit of licensing the relevant patents stood out compared to the revenues Unilever had derived from licensing other patents. The Court also noted that the benefit derived did not depend on Unilever bringing to bear its large size so as to, for example, extract high than expected licence fees – the magnitude of the benefit was attributable to the invention and not the size of Unilever.

Having found the benefit to be outstanding it remained for the Supreme Court to asses a "fair share" to award Prof Shanks. The Court briefly reviewed the findings at first instance that had determined a fair share to be 5% on the basis of evidence concerning matters such as the compensation rates in various corporate and university compensation schemes and some published literature on the subject. The reduction of this proportion on first appeal to 3% was rejected and the 5% restored. Following the Court's determination that the time value of money should also be taken into account, the Court applied an inflationary adjustment of 2.8% average to the calculated benefit of about £24M over the time from the middle of when the benefit was received. This produced a figure for compensation at 5% of "about £2M". The Court awarded £2M. This illustrates the substantial impact of the time value of the benefit, increasing the award by over 60%.

Overall, by excluding from the assessment of whether the benefit of other revenue streams was "outstanding", the Supreme Court's decision is likely to have a larger impact on businesses such as Unilever which include research and development among a much larger business with substantial revenue streams from other sources. Those other revenue streams will be irrelevant to assessing the nature of the benefit derived from an invention in the future. For businesses whose revenues are largely derived from patented research-based activities – such as innovative drug companies – the impact of the decision should be less significant, although the time value of the benefit may substantially increase the size of any award made, as for Prof. Shanks. Applying these principles to the technology sector where there may be multiple patents included in a licence or covering a highly successful product will also continue to be challenging because of the need to identify the benefit from the particular patent (and/or invention) in order to then assess whether it stands out.

Overall, this decision should not open the floodgates to inventor claims: the benefit must still be "outstanding", which is a high hurdle. However, by focussing the assessment of the benefit on other patent research-based activities the Supreme Court has acted on the claimant's complaint that the previous interpretation of the law would result in some businesses being 'too big to pay'. The size of any award made in any given case is also likely to be increased because of the inclusion in the assessment of the time value of money and exclusion of tax.