Under UK Patent Law, employees who are paid to invent are considered to have been suitably compensated by their employer in the form of salary and other benefits such as bonuses — meaning that employers have the right to ownership of inventions devised during the employee’s day-to-day duties (find out what happens when employees invent out-of-hours, here).

This position can vary — when an invention has been of ‘outstanding benefit’ to an employer, an employee may (under certain conditions) be due further compensation. That’s exactly what happened in Shanks vs Unilever, a decision which may well open the floodgates for inventors looking to challenge their employers for just rewards.

As indicated by my colleague Dr Clair Curran, who spoke on BBC Two’s Victoria Derbyshire show this morning, the case represents the culmination of thirteen years of legal wrangling before the UK Court system. While Professor Shanks has been successful in being awarded £2m for his inventive efforts, anyone looking to follow suit should tread with caution. You’re likely to face an expensive legal battle to convince the courts that your invention is of ‘outstanding benefit’ to your employer.

Important lessons

This story, as presented in the media, has focused on a ‘David vs Goliath’-type narrative where an individual (Professor Shanks) has overcome the might of a multinational conglomerate (Unilever). However, it should be said that this aspect of the law has seldom been tested in the UK. Part of the reason for this is that many employers have reward schemes in place which do reward employee inventors appropriately for their contributions.

The Shanks case is special because it relates to where an invention has been of ‘outstanding benefit’ — it’s from this aspect that employers can take lessons and may be advised to look again at their policies surrounding inventor rewards.

Many large companies set up smaller companies (as Unilever has done) which simply perform a research function and don’t generally sell products or services. Additionally, many also set up holding companies to own their IP.

One of the key issues discussed by the UK Supreme Court was the definition of “undertaking” in the context of section 40 of the UK Patents Act, as this was pivotal in deciding who was making any money out of the invention. The UK Supreme Court allowed a broad interpretation of “undertaking” — setting out that it should be interpreted using the commercial reality of the situation. Using this interpretation, the undertaking was defined as Unilever’s group of companies as a whole — not just the research function.

This implies that, when companies are assessing the contribution of an invention to their overall business, they need to consider the whole commercial picture. The law will likely not accept a narrow definition of their undertakings if an inventor alleges that he or she is due a ‘fair share’ of the benefit of an invention, if it has resulted in large revenues for the employer.

You’re never ‘too big’ to pay

Crucial to the evolution of this case, and one of the pivotal legal aspects which pushed it towards the Supreme Court, was the notion that Unilever was ‘too big’ to pay out, because the benefit of Professor Shanks’ invention didn’t have any material impact on Unilever’s overall revenues.

The Court advised caution on this point and identified that a “highly material consideration” is the extent of the benefit of the patent to the Unilever group and how it compares to the benefit derived from the other patents owned by the group.

In judgement, the Court said that although Unilever maintained a patent portfolio to protect the invention devised by Professor Shanks, this presented no significant risk or investment and the overall benefit was much higher in comparison with the benefit derived from other patents. This indicated an ‘outstanding benefit’ to Unilever.

The ruling suggests that the determination of ‘outstanding benefit’ isn’t based on a comparison to the size of the undertaking as a whole, but how much the employer commits to the invention by comparison to the benefit it receives.

The key lesson here is that employers should assess the overall benefit of an invention based on the risk and investment they incur in developing the invention and getting it to market, compared to how much they’ve benefited relative to other inventions. That’s to say, if the risk and investment was relatively low and the benefit was unexpectedly high, it’s likely that the inventor is due his or her fair share of the spoils.

The importance of being proactive

Part of the reason for such a large pay-out is that inflation has been included in the calculation of the benefit due to Professor Shanks. The patent in question was filed in 1984 and the financial benefit received by Unilever was received in the late 1990s/early 2000s. The Court deemed it necessary to ensure that inflation is included, so by not addressing this problem years ago, Unilever became a hostage to fortune before the Court.

The key point to take away here is that companies should try to keep track of how successful their inventions are and who the key individuals are that contribute to those inventions. In many instances these records will serve no further purpose, but could help to anticipate a claim like the one put forward by Professor Shanks.

Employers should act now to avoid Court battles

While many will have their opinions on this case, in my view the key observation is that the Supreme Court (the highest court in the UK legal system) has sided with an inventor in his claim for compensation. However (and perhaps more helpfully), the Court has set out the relevant factors for determining whether an invention is of ‘outstanding benefit’. It’s essential that employers use this as a learning point, particularly if they don’t currently utilise a fair employee reward scheme for inventors.

The anticipated slew of inventor claims means that companies should seek to apply the lessons of this case immediately to ensure that they aren’t dragged through the court system in the near future.

The Shanks vs Unilever judgement can be found here and the press summary from the UK Supreme Court can be found here.