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A Scottish scientist, Professor Ian Shanks, has been awarded £2 million by the Supreme Court for inventing the Electrochemical Capillary Fill Device (ECFD) for Unilever in 1982. The technology is used in glucose detection, for self-monitoring by diabetics.  Unilever had filed a number of patents naming Professor Shanks as the inventor. After Professor Shanks left the company, Unilever continued to license the patents to third parties. The value of the Shanks patents was estimated at £24.5 million.

Under Section 39 of the Patents Act 1977, any invention created as part of an inventor’s employment belongs to their employer. Under Section 40, the employee is entitled to compensation if the invention or patent for it “is of outstanding benefit to the employer”. This benefit is judged having regard to “the size and nature of the employer’s undertaking”. Throughout this case the term “outstanding” would prove to be a sticking point.

Unilever’s argued that the income derived from licencing the patents, though considerable, was relatively small. When Professor Shanks began proceedings against Unilever in 2006, the hearing officer ruled that compensation could not be awarded. This was on the basis that the patents weren’t of “outstanding benefit”. Any profit derived from the patents had been relatively inconsequential to Unilever and was not “outstanding” when viewed relative to the total profits of the Unilever Group. This decision was upheld on appeal at both the Court of Appeals and the High Court.

The Judgement

The Supreme Court judged these rulings to be flawed. Rather than viewing the sums generated from the Shanks patents against the whole size of the huge and diverse Unilever portfolio, the Supreme Court held that the  “rewards [Unilever] enjoyed were substantial and significant, were generated at no significant risk, reflected a very high rate of return, and stood out in comparison with the benefit Unilever derived from other patents.” In other words, the Supreme Court looked at the profits from the patent research-based activities as a basis for considering the benefit afforded by the Shanks patents, rather than the whole Unilever commercial activity. The court awarded Professor Shanks a 5% share of the profits earned by Unilever.

What does this mean for Employers?

Section 40 of the UK Patents Act is one of the least used provisions within IP law. This is only the second time that compensation has been granted under Section 40 by the courts. In this case, the large amount of money made by Unilever was via low-risk, low-effort licensing of the Shanks patents. This Supreme Court judgement changes the way that the meaning of “outstanding benefit” is likely to be interpreted for larger entities, where the overall turnover and profit is high relative to the benefit of the patented invention.

It is not possible for employers to limit or exclude an employee from having the right to bring a claim for compensation under Section 40 of the UK Patents Act. The question of what is “outstanding” is always going a point of argument. However, having a clear bonus scheme for rewarding employees on key stages of an invention’s journey through to successful commercialisation could avoid such claims for compensation whilst also acting as an incentive for creativity and boosting staff morale.

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