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Employee claim to compensation under the Patents Act rejected

25 January 2017

Employees may claim statutory compensation if they are responsible for a patent of “outstanding benefit” to their employer.

In Shanks v Unilever plc and Others [2017] EWCA Civ 2, the Court of Appeal defines what is required for a patent to be considered of outstanding benefit.

Background

Under the Patents Act 1977, an employee may, under certain restrictive circumstances be entitled to additional financial compensation where their employer has had the benefit of a patent invented by that employee. This additional reward is over and above the employee’s normal salary or bonus. In many industries, particularly those with a heavy research and development component, the fruits of employees’ labours would be expected to result in patentable inventions. In order to qualify for additional compensation the patent must yield an “outstanding benefit” to the employer.

Although benefit is defined as being money or money’s worth, there is no corresponding definition of outstanding, in the content of employee compensation. In this case the Court of Appeal has given guidance on what may and may not be an outstanding benefit.

Shanks’ claim

Professor Shanks was the inventor of technology used in biosensors. The patents were assigned to Unilever, his employer and licensed through the Unilever corporate group. The initial development work was undertaken by Shanks at negligible cost to Unilever, and it was estimated that the total cost to Unilever in obtained the patents was somewhere in the region of £2 million. Unilever gained £24.5 million in licensing revenue from the Shanks patents. The revenue from the Shanks patents was effectively a windfall for Unilever, which did not normally licence its patents. Furthermore, although Unilever had products yielding much larger revenues, the cost to Unilever was correspondingly much greater.

Shanks argued, that given the significant profitability of the patents and the nature of the windfall revenue that the benefit to Unilever was indeed outstanding. Shanks argued that the court should not simply look at the contribution of the patents as a percentage of overall revenue, otherwise it would be impossible for employees to show that very large companies have received an outstanding benefit, referred to in the judgment as the “too big to pay” argument.

It was also argued that the benefit in such claims should be limited solely to the actual employer and not the benefit to the group as a whole.

Court’s decision

Shanks’ arguments on outstanding benefit were not accepted by the Court. The Court acknowledged that there was a benefit from the patents; they yielded additional revenue in the tens of millions of patents and were very profitable. The Court accepted that looking at the purely financial contribution of a patent to the overall revenue as a single was not the correct approach. However, it was relevant to look at size of the employer when attempted to ascertain whether there was an outstanding benefit.

In this case, the absence of the patent revenue would have reduced the turnover of Unilever by a very small amount, but the patents did not have the magnitude of effect to render them in outstanding. The revenue did not help Unilever avoid a financial crisis, or produce a dramatic change in its revenues, which were already in the billions of pounds.

The Court also refused to look at the benefit solely in terms of Shanks employing company but did so in terms of the corporate group. In this case, the employer was undertaking research for the benefit of the group and the rights were exploited as a group. To restrict the analysis to Shanks employing company would ignore the practical and commercial reality of the situation.

However, the Court did raise a glimmer of hope for employees’ compensation claims in the future, when it said that Shanks may well have succeeded in his claim, if he had been employee by an employer much smaller than Unilever.

Key points

The relatively small number of claims in this area shows the difficulty that employees have in proving that the benefit went beyond significant and passed a higher threshold of outstanding. However, where one can point to a patent which can be shown to have changed the commercial environment for an employer there may well be a basis to show that the benefit was indeed outstanding.

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