Shanks v Unilever - Employee inventor awarded £2m after 13 year-long legal battle

A former employee of Unilever has been awarded £2m in compensation for an invention he created during the course of his employment almost 40 years ago. The case[1] was an appeal, heard in the Supreme Court which raised important issues concerning the circumstances in which an employee inventor should be awarded compensation and how the appropriate amount is to be determined. 

Background

In 1982, Professor Shanks was employed as a developer by Unilever’s UK research arm, Unilever UK Central Resources Ltd (CRL).  During his employment, he conceived an invention known as the Electrochemical Capillary Fill Device, or ECFD, which has since become a technology used in most glucose testing products for diabetics.

Under Section 39 of the Patents Act 1977, any invention made in the course of an employee’s normal duties belongs to the employer. However, under Section 40 of the Act, an employee can apply for compensation for that invention if that invention is of “outstanding benefit” to his employer.

The rights in Professor Shanks’ invention were assigned to Unilever Plc, which later made successful patent applications. Unilever then licensed the patents to various companies for a total of around £19.5m and subsequently sold them in 2001 for about £5m. Professor Shanks accepted that the intellectual property rights to his invention belonged to Unilever pursuant to s39 of the Patents Act, but he claimed that he was entitled to a fair share of the approximately £24m benefit that Unilever had enjoyed.

In 2006, Professor Shanks’ application for compensation was refused by the Patent Office, with the Hearing Officer deciding that having regard to the size and nature of Unilever’s undertaking, the benefit provided by the patents fell short of being “outstanding”. Following two failed appeals, the case was referred to the Supreme Court, which had to decide:

1. the principles governing the assessment of ‘outstanding benefit’ to an employer; and
2. how a ‘fair share’ of the outstanding benefit should be assessed.

Unilever not too big to pay

The Supreme Court held that in establishing whether the invention is of “outstanding benefit”, it is incorrect simply to compare the revenue generated from the patents to the overall profitability of the business as the Hearing Officer had done.  A number of different aspects of the size and nature of the employer’s business should be taken into account. In this case, where CRL was a research facility for the benefit of the whole group, a “highly material consideration” was to compare the benefit to the group of the Shanks patents with the benefit derived from other patents resulting from CRL’s work. The Court held Unilever had enjoyed "substantial and significant rewards which were generated at no significant risk, reflected a very high rate of return, and stood out in comparison with the benefit the Unilever group derived from other patents.” The benefit that had been enjoyed from the patents was therefore held to be “outstanding” within the meaning of s40 of the 1977 Act.

Fair Share

In assessing what constitutes a “fair share” of the benefit, the Supreme Court took into account, among other things, Professor Shanks’ remuneration, which was commensurate with his level of responsibility, the fact that he had been employed to invent and Unilever’s contribution, particularly in relation to the licence negotiations in which Professor Shanks had played no part. It was held that the appropriate fair share was 5% of the benefit, which would be uplifted to reflect inflation. Professor Shanks was awarded £2m.

Comment

The Supreme Court’s decision provides welcome clarity on the question of what constitutes an “outstanding benefit” and potentially lowers the bar to succeed in a claim for compensation, avoiding the risk that large, profitable businesses such as Unilever’s will simply be regarded as ‘too big to pay’.  Whether the decision will increase the number of applications from former employees who consider that their invention delivered an outstanding benefit to their employer remains to be seen.