Employee claims for inventor compensation – what is the impact of Shanks v Unilever?

The result - a payment of £2 million from the researcher’s former employer as a reward for a particularly valuable invention. This decision raises the prospect of fresh claims brought against employers, with the potential for substantial undefined payment awards. We consider the risk to employers and what to look out for.

Professor Shanks and his outstanding invention

Talented scientist Professor Shanks came up with an invention for a glucose biosensor in the 1980s. This coincided with his employment by Unilever group company CRL. The invention was not directly applicable to the projects he was working on – his area of focus was biosensors for process control and process engineering. Later on, the glucose testing market took off and the biosensor technology became highly desirable. Most equipment producers in the field turned to Unilever for licences of the Professor Shanks patents. Unilever gained windfall licence fees of around £20 million. It also sold its medical diagnostics business, Unipath, with about £5 million attributable to the Shanks patents.

Under UK law, the invention belonged automatically to CRL. Patents were duly applied for by Unilever and granted, although not put into practice. So far so good. However, a rarely-used rule allows an employee to claim a compensatory payment where a patent or an invention turns out to be of “outstanding benefit” to his or her employer. This is looked at in context, with attention paid to the size and nature of the employer’s business and the overall fairness of the situation. The inventiveness of the claimed technical advance is not relevant – it is the benefit accruing to the inventor’s employer that is paramount. Professor Shanks applied for an award under this rule.

Was Unilever too big to pay?

Professor Shanks’s employer, CRL, was a relatively small research unit within the wider Unilever group. Its role was to generate inventions for use within the businesses of other group companies. What should be the correct context for assessing the value of the invention – CRL or the entire group? 

The patents tribunal looked at the Unilever group, meaning that the value of the Shanks patents was a drop in the ocean. In contrast, the Supreme Court focused on the flow of inventions from CRL, and the value that Unilever derived from its patent portfolio. Alongside direct benefit to CRL as the employing company, relevant considerations were:

• the contribution of the Shanks patents, as compared to other patent families, to the success of the wider group.
• the extent to which patents were responsible for value creation within the group business. Much of Unilever’s revenue derived from the sale of consumer goods reliant on branding and marketing spend rather than patented technology. The assessment of the contribution made by the Shanks patents should be compared to value generation from other patented technologies rather than group revenues as a whole.
• the role played by the wider group in terms of manufacturing capacity, sales and distribution facilities, goodwill, licensing muscle and patent enforcement activity.

In that context, the Shanks patents were exceptional and should trigger an award for compensation.

A change in 2004

Employees’ prospects under this rule were enhanced by a change made in 2004. This extended the scope of the “outstanding benefit” test to include value flowing from the invention itself, as well as any patents obtained. This change came too late for the Shanks patents, but could support a wider group of claimants now that the outstanding benefit test has been altered.

How much did Professor Shanks get?

The law does not specify how the employee’s reward should be calculated, beyond giving broad guidelines as to factors the court should consider. The Supreme Court was happy to accept the assessment of the patents tribunal that 5% was appropriate.

The calculation should ignore any corporation tax paid on the revenues generated by the patents, and should benefit from an uplift to take account of inflation since Unilever realised the benefit of the invention. A sum of £2 million was considered a fair reward.   

The international perspective

The Supreme Court’s ruling applies to individuals who are mainly employed in the UK. It can also apply to staff who are not fixed to any particular location, but who have an attachment to their employer’s UK business premises. So what about staff who are based elsewhere?

This is not an area of law that has been harmonised internationally and so organisations cannot look to a consistent set of principles.

There are similar rules in other countries, although unfortunately the detail varies considerably. Employers will need to take advice locally in the jurisdiction where an individual is employed.

Take away points

The Shanks ruling makes an important change to UK law. Employees who are UK-based may now be encouraged to bring new compensation claims. This does present a new risk to employers, but one which, we believe, is limited.

Although the standard of what amounts to “outstanding benefit” has been lowered, it is still a difficult one to reach. Most research staff working in project teams on their assigned areas of work will still be unlikely to qualify.

Context is all-important. Organisations that are very active in generating patented technology may be less exposed as an employee will have to show that their invention is exceptional compared to revenues derived from other inventions.

The percentage of the relevant revenue that was awarded to Professor Shanks was not large - 5%. It is of course possible that larger percentages could be considered appropriate in other situations.

However, the award of 5% provides a starting point likely to influence a court looking at these cases in future.

Employee revenue sharing policies, widespread in many research institutions, are likely to be a relevant factor. Where a member of staff has access to this kind of benefit scheme, a further award under the “outstanding benefit” rule looks less probable.

If you do receive claims triggered by this ruling, it makes sense to take legal advice to assess their likelihood of success, and assemble relevant information to guide any negotiations.