Shanks v Unilever – Landmark decision about employers’ intellectual property rights
After a 13-year legal battle, a former employee of Unilever has been awarded £2m in compensation for a diabetes testing invention he created during his employment almost 40 years ago.
This landmark decision provides welcome clarity on the matters to be taken into account when assessing the benefit of an invention, and the amount of compensation to be awarded to the inventor. Employers and conglomerates who currently employ inventors in a small subsidiary within a larger group of companies may wish to consider a potential re-structure so that the inventors are directly employed by a larger manufacturing company in the group so that the “employer’s undertaking” is a larger entity and a higher threshold is set when assessing whether the invention has provided an “outstanding benefit”. We consider these definitions and issues in detail below.
Professor Shanks was employed from 1982 to 1986 by Unilever UK Central Resources Limited, a research facility for the Unilever Group. During his employment, he invented a system for measuring the glucose concentration in blood, serum or urine.
Under section 39 of the Patents Act 1977 (the “Act”), any invention made during 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.
Under the terms of Professor Shanks’ employment contract, the rights in his invention were assigned to Unilever Plc, which later made successful patent applications. Unilever granted licences to various companies at a total consideration of just over £20million. It later sold the patent portfolio, so that the total benefit from the patents was around £24million.
In 2006, Professor Shanks applied for compensation at the UK Intellectual Property Office (“UKIPO”). The UKIPO found that the benefit provided by the patents fell short of being “outstanding”. Professor Shanks appealed to the High Court and then the Court of Appeal but was unsuccessful on both occasions. The Supreme Court gave permission to appeal considering two distinct points in detail:
What is an “outstanding benefit”?
When assessing an “outstanding benefit” to an employer, the Supreme Court held that it is incorrect simply to compare the revenue generated from the patents to the overall profitability of the business as the original hearing officer had done. Rather, a number of different aspects of the size and nature of the employer’s business should also be taken into account.
Here, the organisation which Professor Shanks worked for (Unilever UK Central Resources Limited) was a research facility for the benefit of the entire Unilever Group Group and is a “highly material consideration” to compare the benefits of the Group of the Shanks patents with the benefits derived from this work. The Court held that 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 Court determined these benefits to be “outstanding” within the meaning of section 40 of the Act.
What does “fair share” mean?
When assessing what constitutes a “fair share” of the benefit, the Supreme Court took into account, (amongst other things);
1. Professor Shanks remuneration;
2. The fact that he had been employed to invent; and
3. 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 therefore awarded £2m.
This case provides important guidance as to the way a claim for compensation under section 40 of the Act will be dealt with going forward. Large businesses employing inventors should, therefore, consider employment contract provisions relating to ownership and assignment of rights created in an employee/inventor situation carefully. If you are involved in a dispute relating to ownership of an invention, please do get in touch.
Our manufacturing specialists provide focussed legal advice to multiple manufacturing businesses, both regionally and internationally. The combination of our industry knowledge and sector-specific legal insight means we can work as an integral part of our clients’ business swiftly getting to grips with the nuts and bolts of key issues. Manufacturing team lead, Samantha East, is happy to discuss any issues you may face arising from this topic. Please do get in touch.Back to Legal Updates →