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Unilever’s battle with ex-employee over patent compensation

It is the standard position in employer-employee relationships, and usually reflected in employment contracts, that any intellectual property created by an employee during the course of their employment belongs to the employer. This is the default position for copyright, designs and also for patents. What is less well known however is that there are provisions in the Patents Act 1977 for employees to receive additional compensation for the inventions created in the course of their employment in certain circumstances.

The above is illustrated by the recent award in the Supreme Court to Professor Ian Shanks of compensation of £2m against his former employer, Unilever. Prof Shanks was employed by UK Central Resources (UKCR), a subsidiary of Unilever, for a period of four years in the 1980’s and his role was to invent biosensors. During this time he used, at home, his daughter’s microscope kit and some bull dog clips to put together a prototype for a glucose testing kit. These activities were held to fall under the scope of his employment and Unilever subsequently filed patents for the kit.

As the glucose testing market expanded rapidly in the 1990’s this prototype began appearing in most of the testing kits in the market, with the technology being licensed from Unilever. Prof Shanks first brought a claim for compensation to the UK Intellectual Property Office in 2006 (13 years ago!) when it was held that the net profit made by Unilever from licensing these patents was £24.3 million.

Section 40 of the Patents Act 1977 says that an employee may be awarded compensation for their patented invention if it provided an ‘outstanding benefit’ to the employer for which the employee’s standard remuneration was inadequate. This provision cannot be contracted out of, however the difficulty is in deciding what constitutes an outstanding benefit as this must be determined in the context of the employer’s business. This means that what might be an outstanding benefit for a small start-up would not be for a huge multi-national like Unilever.

It was against this backdrop that Prof Shanks fought a 13 year battle for compensation, being unsuccessful at the UKIPO, in the Patents Court of the High Court and in the Court of Appeal before this week ultimately being successful in the Supreme Court. A key aspect of the Supreme Court’s decision was that an employer should not be ‘too big to pay’ as if you looked at the patent license income against its overall profits it could never be considered to have received an outstanding benefit.

Instead, the Supreme Court said the analysis should not be of Unilever as a whole whose profits derive from a huge range of diverse goods, but of UKCR, the subsidiary where Prof Shanks was employed. It also needed to be considered that the size and success of Unilever’s wider business did not play any material part in the success of these patents, particularly as the licensing of patents was unusual business activity for Unilever, who normally hold patents to protect their own activities and not for licensing purposes.

It was the decision of the Supreme Court to look at the benefit gained from UKCR rather than the whole of Unilever which was crucial in the decision to award compensation to Prof Shanks, and this demonstrates how the Court is keen to avoid any precedent being set of a company being ‘too big to pay’.

If you have any queries in relation to Intellectual Property, please contact, Adam Turley on a.turley@baineswilson.co.uk or 01228 552600

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