For Cambridge businesses involved in leading edge technology the issue of ownership of inventions is fundamental to their business. Although the rules on who owns what as between an employer and employee have been around a long time, there is very little publically available information on what (if any) compensation an employee receives when she invents something which is belongs to her employer under those rules but which results in huge profits for that employer. That has all changed now as we have had two cases recently which focus on just that issue. In the most recent case the patent in question earned the company £23 million in royalties - so quite a lot to fight for!  

In the first of the cases GE Healthcare was ordered to pay compensation of £1.5 million to two of its ex-employees, for their contribution in creating a diagnostic tool for detecting heart defects. Amazingly this was the first ever case in the UK where the courts actually awarded compensation to an employee inventor.

It’s vital to understand that when an employee makes an invention, an employer can’t assume that it will always own that invention nor that it can exploit that invention without any obligation to compensate the employee. So before looking at the case itself it’s therefore worth reminding ourselves exactly what the rules say about ownership of patents and compensation.

Under the Patents Act, an invention made by an employee will only belong to her employer if it was made in the course of her normal duties (or duties specifically assigned to her). But that of itself is not enough – there is a second test which must also be satisfied ie the circumstances must be such that an invention might “reasonably be expected” to result from the carrying out those duties.

Any other invention made by an employee will not automatically be owned by the employer and in any event no clause in a contract which diminishes the rights of an employee in future inventions can be enforced against those employees. The other point to note is that the initial written contract of employment isn’t necessarily the sole determinant of what the “normal duties” of an employee actually are. Extra or different duties arising from an extension or narrowing of the employee’s initial duties may, over the course of time, become “normal”.

So what does the employee get out of all this cleverness? In the UK the Patents Act recognises that it would be unfair for an employer to make huge sums of money out of an employee’s work without some form of compensation to that employee. It therefore provides a procedure allowing the employee to apply to court for an award of compensation. However the courts will only actually award such compensation if the invention or the patent for it (or the combination of the two) is of “outstanding benefit” to the employer having regard among other things to the size and nature of the employer's undertaking and because of that it is “just” that the employee should be awarded compensation from the employer.

Of course the two hundred dollar (or in this £23 million) question is what is meant by ‘outstanding benefit’? The GE Healthcare case has made it clear that in determining the benefit and its value, the law calculates the benefit by comparing the company’s actual position with the position it would have been in if the invention hadn’t been made or the patent not been granted. The court also said that the employee has to prove that the invention or patent actually caused the benefit.

The second question relates to what is a “just and fair” reward to the employee? In this respect the court said that you have to look at the pay and any other rewards that the employee has already received for making the invention; you also have to consider the extent of the employee’s effort and skill in making the invention balanced against advice and assistance from by any other employee, whilst at the same time taking account of the employer’s contribution of advice, facilities and other assistance, opportunities and managerial and commercial skills.

The most recent case concerns a battle between Unilever and a retired employee, Professor Shanks. The professor invented a glucose measuring device used in blood testing kits for diabetics. The patent in question was transferred to a Unilever subsidiary for £220,000 but went on to earn the subsidiary company £23 million in royalties. Unilever tried to run the argument that the court should look at what it got for the patent not what it’s associated company received. However, the court said that it is not possible for an employer to evade its duty to pay compensation to an inventor employee by transferring the rights in the invention to another associated company, for a nominal amount.

Clearly, common sense prevailed and so this case makes it clear that any benefit gained by the associated company can be treated as the benefit gained by the employer.

However all is not yet over on this one – Professor Shanks has won on the principle that he should receive compensation but has to go back to court to argue as to exactly how much he should – so watch this space to see how much of £23 million is fair and reasonable for the professor to get – hopefully something useful for his retirement!

This article was first published in Business Weekly, 17-21 February 2011.