Are employee inventions of outstanding benefit to your business?

February 2020

Are employee inventions of outstanding benefit to your business?

In October of 2019 the UK Supreme Court provided some insight into the meaning of outstanding benefit derived by employers from employee inventions. The case heard by the Supreme Court was an appeal against earlier decisions from a case between Professor Shanks and Unilever PLC. Professor Shanks had previously worked for CRL, a subsidiary of Unilever PLC, from 1982 to 1986 during which time he developed his Electrochemical Capillary Fill Device invention.

Under section 39 of the Patents Act 1977 (and as amended by the Patents Act 2004) an invention made by an employee shall automatically be taken to belong to his employer, particularly when an invention might reasonably be expected to result from the course of the employee’s normal duties. It was never contested by Shanks’ that his invention belonged to his employer.

Under section 40 of the Patents Act, where a patent belonging to an employer has been granted for an employee’s invention, and the patent has been of outstanding benefit to the employer, the employee should be awarded compensation to be paid by the employer. The amount of compensation to be paid is determined in section 41 of the Patents Act, such compensation being defined as a “fair share” of the benefit derived by the employer from the patent(s). Subsections 41(2) and 41(4) deal with determination of what constitutes a fair share of the benefit.

In earlier decisions of this case, a hearing officer and judges decided whether or not patents for Shanks’ inventions were of outstanding benefit to Unilever PLC. All of the preceding decisions in this case were that the benefit derived from Shanks’ patents fell short of being “outstanding” given the size and nature of Unilever’s business. While the decisions were against Shanks’ application, each of the judges and hearing officers provided different assessments of the fair share of the benefit. Therefore, the appeal to the Supreme Court addressed the following issues:

a) What are the principles governing the assessment of outstanding benefit to an employer?

b) How should a fair share of an outstanding benefit be assessed?

Unilever’s patents for Shanks’ invention were initially of low interest to Unilever commercially but the patents were still maintained in force by Unilever. However, as the glucose testing market expanded in the late 1990s and 2000s, biosensors incorporating Shanks’ technology had gained significant commercial interest and Unilever granted seven licences for the patents relating to Shanks’ invention. This in turn produced a net figure of about £19.55 million for Unilever. The Shanks (and other associated patents) were then later sold. This resulted in a total net figure of £24 million generated by Unilever from licensing and selling the Shanks patents.

In addressing the above issues, the Supreme Court turned to case law, wherein the term “outstanding” in relation to outstanding benefit in section 40 of the patents act, means something special or out of the ordinary, rather than substantial or significant ([2009] EWHC 181 (Pat), [1992] RPC 403). The Supreme Court also considered section 40 of the patents act gives guidance on determining outstanding benefit, since it stipulates that the court should have regard to the size and nature of the employer’s undertaking, i.e. the employer’s business. Unilever’s central argument was that £24 million was dwarfed by the turnover and profits of Unilever as a whole. The Supreme court considered that while in some cases the overall contribution of the benefit to an employer’s profits would be an indicator of outstanding benefit, it would not necessarily be the only reason for the benefit to be outstanding. The Supreme Court also considered that the employer’s undertaking should have been understood by the hearing officer to be CRL as Shanks’ employer, not Unilever PLC as a whole.

In this case the court concluded that, among other reasons, because the benefit was generated through licensing, which was something that was said to not be part of Unilever’s normal business dealings, and selling the Shanks patents, then the benefit could be considered to be outstanding. After all, licensing and selling the patents was a new revenue stream and of low risk and relatively low cost for Unilever and therefore the court considered that the benefit generated from the Shanks patents stood out.

It thus appears that the circumstances, or nature, in which the benefit was derived is most relevant to determining if the benefit is outstanding, rather than the size of the employer’s undertaking. The Supreme court decided that the Shanks patents were of outstanding benefit and decided to overturn the earlier decision of the Court of Appeal.

Following guidance of sub-section 41(4) of the patents act, the Supreme court then upheld the hearing officer’s initial assessment of a fair share of the benefit as 5% of the benefit. Shanks was awarded £2 million in compensation. Shanks was employed to invent and therefore development of his Electrochemical Capillary Fill Device was considered to be part of his normal duties as an employee. Therefore, the court saw no reason to increase the value of the fair share.

While it can be difficult to predict whether an invention will lead to outstanding benefit to an employer, a strong IP portfolio may still add value to your business. We can advise on suitable patent filing strategies to help create and extract maximum value from your IP in the UK and around the world.

If you would like any further information, please contact us via email at docketing@secerna.co.uk

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