The Supreme Court yesterday handed down its judgment in the long-running employee compensation case of Shanks v Unilever Plc. The claim was brought under s.40 of the Patents Act 1977 by an inventor seeking a share of the benefit gained by his employer, a division of Unilever, on the basis that the patents resulting from his invention provided it with an “outstanding benefit”.

Professor Shanks had invented a system in 1982 for measuring the glucose concentration in blood, serum or urine using capillary action.

The patents were not exploited by Unilever itself. Instead, it granted licences to various companies at a total consideration of just over £20 million. It later sold the patent portfolio for a sum, so the total benefit from the patents was around £24 million.

Professor Shanks applied for compensation at the UKIPO in 2006. The UKIPO found that the benefit provided by the patents fell short of being outstanding. Shanks appealed to the High Court and then the Court of Appeal but was unsuccessful on both occasions.

The Supreme Court gave permission to appeal – the first time an employee compensation case had got this far – and found that Professor Shanks’ patents were of outstanding benefit to Unilever, and he was entitled to a fair share of that benefit. The court decided to assess that fair share there and then, without referring the case back down for a rehearing, and arrived at a figure of £2 million. The judgment was delivered by Lord Kitchin, a former Patents Court Judge now elevated to the Supreme Court.

Section 40 does not provide a precise formula to use in assessing whether an invention is of outstanding benefit, nor does it give any useful clues about the mechanism to use in assessing fair compensation. These questions have been left to the courts, and the few cases that have gone to trial do not provide much assistance in extracting general principles.

So far as “outstanding” is concerned, the Supreme Court emphasised that it is an ordinary English word meaning exceptional or “such as to stand out”. Many potential claims would be against larger corporations, which are frequently structured in ways that make it difficult to quantify the “outstanding benefit”. The Patents Act seeks to put this in context by requiring the assessment to have regard to “the size and nature of the employer’s undertaking”. Doing this is difficult where, as in the Shanks case, the invention was made within a small research subdivision (CRL) of a large multinational, Unilever, and it was the multinational that took the benefit, not the research company.

The relevant benefit was also necessarily limited to that which accrued to the employer. After Unilever disposed of the patents, other companies used the invention in the development of biosensors, including those for detecting blood glucose levels in diabetes. Those products have been hugely successful, but the revenue from them was not part of the enquiry.

In comparison to Unilever’s income and profits, the benefit from this patent, even though a tidy sum of some £24 million, was insignificant. The inventor’s counsel complained that if one had to consider the revenue of the parent company alone, then the inventor would get nothing because the parent was “too big to pay”. The Supreme Court approached this issue in a flexible way. It said :

“….Many different aspects of the size and nature of the employer’s business may be relevant to the enquiry. For example, the benefit may be more than would normally have been expected to arise from the duties for which the employee was paid; it may have been arrived at without any risk to the business; it may represent an extraordinarily high rate of return; or it may have been the opportunity to develop a new line of business or to engage in unforeseen licensing opportunities. In the circumstances of this case and for the reasons I have given, a highly material consideration must be the extent of the benefit of the Shanks patents to the Unilever group and how that compares with the benefits the group derived from other patents resulting from the work carried out at CRL.”

The Court was unhappy about the notion that a patent is not of outstanding benefit simply because it has had no significant impact on the company’s overall profitability. It said of Unilever:

“….the rewards it enjoyed were substantial and significant, were generated at no significant risk, reflected a very high rate of return, and stood out in comparison with the benefit Unilever derived from other patents. What was more, they could not be attributed to the deployment or application of Unilever’s wider business assets or infrastructure.”

In the hearings below the “fair share” (if there had been an exceptional benefit) was assessed at 5%. In the Court of Appeal this figure was reduced to 3% but the Supreme Court preferred the original figure, with an adjustment to take account of the time that had passed.

The Supreme Court's decision in this case improves the prospects of employee inventors being able to obtain compensation for the outstanding benefits generated by their inventions, particularly in circumstances where they are employed by large corporations.

The clarity provided by the Court's judgment also means that future claims by employee inventors should be resolved much more quickly and at lesser expense than that suffered by Professor Shanks, who has indicated that after fighting the case for thirteen years a significant proportion of the compensation he has eventually been awarded will go towards his legal costs.