Unilever v Shanks [2019] UKSC 45 - Landmark decision for employee compensation

The UK Supreme Court recently issued a landmark decision relating to an inventor’s right to compensation if the invention provides outstanding benefit to their employer in Unilever v Shanks [2019] UKSC 45. In only the second successful UK case of this type, Professor Shanks was awarded £2 million in compensation from his former employer, Unilever.

Inventors are entitled to compensation if their invention and/or patent for it is “of outstanding benefit to the employer”. There is no legal definition of “outstanding” but it has to take into consideration the size and nature of the employers undertaking.  The Shanks patents were calculated to be worth £24.5 million to Unilever over the lifetime of the patents, mainly from the licence fee income. However, this amount was not deemed to be an “outstanding benefit” by the lower courts as Unilever’s total profit margins were huge in comparison. Shanks appealed to the Supreme Court on the grounds that any company with such high profit margins would always be “too big to pay”.

Professor Shanks was employed by a subsidiary of Unilever, UK Central Resources Ltd  (CRL) in the 1980s, to develop biosensors. During his employment he developed an early prototype for an electrochemical capillary fill device (ECFD), using bulldog clips and slides from a microscope kit. Even though he carried out this work at home, it was considered to fall under the scope of his duties as an employee and so the rights to the invention belonged to his employer. Patent applications were filed for the device, but the company chose not to develop the device further.

The ECFD technology was used in personal glucose testing kits, which became a rapidly expanding market in the 1990s. Many of the kit manufacturers licensed the technology from Unilever. Importantly Unilever usually filed patent applications to protect their own business activities, and patent licensing was not normal practice. Therefore the licensing income was unusual for Unilever. This was a key factor taken into account when determining if the benefit received by Unilever was “outstanding.”

The Supreme Court overturned the decision of the lower Courts, ruling that they had erred in their calculation of the benefit derived from the patents in 4 ways:

1. Firstly Professor Shanks was employed by a subsidiary of Unilever, CRL, and so the analysis should have been based on the benefit of the patents to CRL and not the Unilever as a whole.
2. Analysis should not have focused “upon the overall turnover and profits generated by Unilever, as illustrated by the size of its business in making and selling ice cream, spreads and deodorants”. While these products may be protected by a patent, only a small proportion of the sales could be attributed to any patent protection. In terms of the benefit which Unilever’s patents had generated, the Shanks patents stood out.
3. The size and success of Unilever’s business as a whole did not play any part in securing the benefit from the Shanks patents. For example they did not have to make, manufacture or market the device to generate a profit. The licence fees, which formed the major part of the benefit, were paid by licensees who had approached Unilever. The rewards from the patents were substantial and significant, and generated at very little risk with a high rate of return. These facts were not taken into account.
4. Whilst warning against analysis that would mean an employer was “too big to pay”, this approach was then used to reach the conclusion that the Shanks Patents did not provide an outstanding benefit.

The Supreme Court agreed with the Hearing Officer that a “fair share” of the benefit derived from the patents would be 5%. However, Lord Kitchin disagreed with the Hearing Officer, and that the time value of the money should be taken into account. The £2m awarded to Professor Shanks included an uplift to account of the average inflation rate of 2.8%.

This case provides a more reasonable approach for determining whether a company has derived “outstanding benefit” from a patent, but this is unlikely to lead to a larger number of successful cases for inventors.

The circumstances surrounding both this and the earlier successful case for employee compensation (Kelly v GE Healthcare [2009] EWHC 181 (Pat)) were key in arriving at the decision. This case reaffirms that “outstanding benefit” has to be assessed within the context of the situation, on a case by case basis.

Whilst comparing the total profits of the company to the financial benefit derived from the patents is useful, these should not be the only factors considered when assessing “outstanding benefit”. The size and nature of the business also needs to be taken into account, and it is important that the correct undertaking is studied.

This case confirms that the bar for “outstanding benefit” is still very high. However, it is now clear law that a company cannot dilute the outstanding benefit derived from patents through sheer financial size alone.

As always, employers should have their own reward schemes to ensure inventors are treated loyally and fairly.