In Shanks v Unilever, the High Court has provided further guidance on the interpretation of the employee compensation provisions in the Patents Act 1977.

Background

S40 of the Patents Act provides that an employee may be awarded compensation for inventing something of outstanding benefit to the employer where it is just in the circumstances that the employee should be awarded compensation. S41(1) deals with how the amount of compensation should be assessed. The sum should be such as to give the employee a fair share of the benefit that the employer derives from exploiting the invention or “from the assignment … of the … invention ... or patent … to a person connected with the employer”.  

This case concerned the interpretation of s41(2), which provides:

  1. For the purposes of subsection (1) above the amount of any benefit derived or expected to be derived by an employer from the assignment, assignation or grant of—
  1. the … patent; or
  2. the … invention;

to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.

Facts

Mr Shanks was an employee of Unilever UK Central Resources Limited (CRL). In that capacity he was responsible for an invention subsequently used in blood testing kits for diabetics. CRL applied to patent the invention. CRL subsequently assigned the patent application to Unilever plc (PLC) in return for the nominal sum of £200. PLC and CRL were connected persons within the meaning of s533 of the Income and Corporation Taxes Act 1970. PLC did not exploit the invention for ten years after the assignment but when it did it achieved £23m in royalties. Mr Shanks applied for compensation under S40.

The question for the court was how S41(2) should be interpreted. How should the benefit to the employer be assessed where there has been an assignment of the invention/patent to a connected person? It was clear that the benefit should be based on what an assignee without a connection to the employer would pay for it. But should that assignee be the actual assignee with all of its unique qualities but with the connection to the employer hypothetically removed (Unilever’s contention) or should it be any arms-length purchaser in the market to buy an invention of this nature (Shanks contention)?

Decision

Mr Justice Mann in the High Court preferred Shanks interpretation. The words “that person” in s41(2) clearly referred back to the person just referred to, namely the actual assignee. That would point to interpreting the section as Unilever contended. But this would lead to a “very uncommercial” and absurd result. Parliament’s intention in enacting s41(2) was to ensure that any commercial factors in the assignment which might have the effect of depressing the price (and so affecting the compensation payable) were removed. Even if the fact of the connection was ignored, the connected person was an unlikely arms length purchaser. Absent the connection, they may not have wanted to acquire the invention/patent at all. This would mean that they would only be willing to pay a low price for it. It may well be that any features which made the connected person an unlikely arms length purchaser were, in fact, attributable to the connection. If so, and these were also stripped away as s41(2) required, one would be left with an entirely arms-length purchaser. If that was right, one might as well imagine such a person in the first place.

Comment

The result of this judgment is that when assessing what benefit an employer has received from an assignment of a patent/invention to a connected person, the court should consider what an unconnected arms-length purchaser would have paid for it. This means that an employee’s compensation will not be reduced as a result of the connected person paying a lower than market price for the assignment because of the existence of the connection with the assignor.

This case comes hot on the heels of the decision in Kelly v GE Healthcare which was the first case in which an employee succeeded in obtaining compensation under s40.

Further reading

Click here for a copy of the judgment