The UK High Court has granted its first-ever award of compensation under section 40 of the Patents Act 1977 to employees for making an invention belonging to their then employer for which a patent has been granted which has proved to be of outstanding benefit to that employer.
The employee claimants were Dr Duncan Kelly and Dr Kwok Wai Chiu who at the time of the invention were two research scientists at Amersham International Plc (since taken over by General Electric Company and now called GE Healthcare Limited). The invention to which the two patents families in issue related was the radioactive heart imaging agent which was eventually sold very successfully under the trade mark Myoview.
Dr Kelly was awarded a lump sum of £1 million and Dr Chiu £500,000. However, as the judge remarked, this amounts to only "about three days of the profits from Myoview at current rates" or "0.1% of turnover".
All prior claims based on section 40 have failed. Before its amendment this provision required that the patent itself must have been of "outstanding benefit" rather the invention or commercial factors. This requirement was regarded by many as almost impossible to fulfil. Accordingly in 2004 the Patents Act 1977 was amended to change the requirement to the invention being of outstanding benefit (rather than the patent). This amendment only took effect with respect to patents applied for after 1 January 2005.
GE argued that the claimant had to show the patent was the dominant cause of benefit which accrued to the patentee. The High Court judge rejected this argument, finding that it was only necessary to show that the patent was a cause of benefit to the patentee. Accordingly the award granted here resulted from a conclusion that the patent itself had been "a cause" of the outstanding benefit to accrue to Amersham/GE from the invention for the following reasons -
"The first and most obvious contribution the patents have made to Amersham is in protecting the business against generic competition and reduced profits after the expiry of Regulatory Data Exclusivity (RDE). The expiry of the patents in about 2008 and the advent of generic competition was one of the major issues facing the company from 2000 onwards. If the patents had not existed in 2000, and Amersham had been facing the expiry of RDE in 2002, this would not simply have been a major issue, it would have been a crisis for Amersham.
The benefit of patent protection is not limited to [increased] profits from sales. As I have held, the fact that Amersham had a patented blockbuster radiopharmaceutical has been a major factor in achieving the corporate deals. In this way the patents have helped transform Amersham. Considering the totality of the evidence I had no difficulty in recognising that the patents were of outstanding benefit to Amersham."
The judge provided a very useful summary of the law - much of which applies equally to the amended section 40.
Summary of the law
i. Section 40 is available to an inventor in the sense of the "actual deviser" of the invention, but not to those who merely contribute to the invention without being joint inventors;
ii. Section 40 is available to an employee who makes an invention (which is subsequently patented by the employer) in the ordinary course of his employment or in the course of duties specifically assigned to him;
iii. Under the section prior to its amendment, it is the patent (as opposed to the invention) which must be of outstanding benefit to the employer, having regard to the size and nature of the employer's undertaking [the position in relation to patents applied for after 1 January 2005 has changed – see above] ;
iv. "Outstanding" means "something special" or "out of the ordinary" and more than "substantial", "significant" or "good". The benefit must be something more than one would normally expect to arise from the duties for which the employee is paid;
v. On the other hand it is not necessary to show that the benefit from the patent [or in respect of patents applied for after 1 January 2005 from "the invention"] could not have been exceeded;
vi. Section 40 is not concerned with whether the invention is outstanding, although the nature of the employee's contribution may fall to be considered at the section 41 stage, if it is reached;
vii. It will normally be useful to consider what would have been the position of the company if a patent had not been granted, and compare this with the company's position with the benefit of the patent [this is no longer relevant in respect of patents applied for after 1January 2005 ];
viii. The patent [for patents applied for after 1 January 2005 substitute "the invention"] must have been a cause of the benefit, although it does not have to be the only cause. The existence of multiple causes for a benefit does not exclude the benefit from consideration, although the benefit may have to be apportioned to isolate the benefit derived from the patent;
ix. "Patent" in section 40 does not include regulatory data exclusivity. Thus the scenario without patent protection is one where RDE nevertheless exists;
x. It must be "just" to make an award: the consideration of what is just is not limited to the facts set out in section 40;
xi. It is not a requirement of obtaining compensation that the employee can prove a loss (for example by reference to inadequate remuneration for his employment) or by the expenditure of effort and skill beyond the call of duty. These are nevertheless factors to take into account under section 41;
xii. The valuation of any benefit is to be performed ex-post and in the light of all the available evidence as to benefit derived from the patent: not "ex-ante";
xiii. Where the employee shows that the invention has been of outstanding benefit, the amount of compensation is to be determined in the light of all the available evidence in accordance with section 41 so as to secure a just and fair reward to the employee, neither limiting him to compensation for loss or damage, nor placing him in as strong a position as an external patentee or licensor.
Amersham/GE argued it was not just to grant an award because to single out just the inventors for special reward when the project was collaborative and involved significant contributions from many non-inventive members of the team was "invidious". This is a similar argument to that which was put forward by those who campaigned against the introduction of section 40 in the first place.
However the judge was not impressed by this argument because: "It is inherent in sections 40 and 41 that employees who have contributed to the invention and its development but who are not joint inventors will not receive an award. To the extent, as Sir Richard Sykes [who was one of Amersham's witnesses] indicated, this can be described as invidious it is a consequence of legislation which Parliament has enacted. It cannot be a factor which renders it unjust to make an award."
However the contributions of such others would be taken into account when determining the fair share of the benefit the claimants should receive.
When considering what the claimants' fair share of the benefit should be Floyd J considered the factors listed in section 41(1), which are:
a. 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;
b. the effort and skill which the employee has devoted to making the invention;
c. 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; and
d. 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.
He noted that "the employee's share of the value of a patent might in principle lie somewhere in the broad range from nil to as much as 33% or beyond".
He concluded that in the circumstances of this case and taking what he considered to be a conservative approach "the employee's share lies towards the bottom of the scale.., I consider that 3% of the value of the benefit represents a just and fair award to the employee claimants". Again taking what the judge described as a conservative approach, he assessed the relevant benefit to Amersham at £50 million. Accordingly the employees' share was £1.5 million.
Due to the publicity this decision is likely to generate, companies may wish to consider any patented inventions which have been particularly successful and risk assess the likelihood of receiving such a claim from current and ex-employees and the chances of defending such claims.
As a result of frequent heavy reliance on "blockbuster" patented products, pharmaceutical companies may be particularly vulnerable to such claims.
Companies may wish to consider setting up voluntary invention reward schemes to dissuade employees from making such claims (although the rewards received under such schemes can be challenged). Those with such schemes already in place may wish to review them to determine whether they remain adequate in the changed legal climate.