Patents: Unilever Plc and Others v Shanks
 |
| Jane Lambert |
Revised 27 Oct 2017
This appeal was a rare inventor’s compensation case. S.7 (2) (a) of the Patents Act 1977 provides that a patent for an invention may be granted primarily to the inventor or joint inventors. However, this provision is trumped by paragraph (b) where a person by virtue of any enactment or rule of law or by virtue of an enforceable term of any agreement entered into with the inventor before the making of the invention was at the time of the making of the invention entitled to the whole of the property in it (other than equitable interests) in the United Kingdom. Such a person would typically be the inventor’s employer either by virtue of an express term in the inventor’s contract of employment or s.39 of the Patents Act 1977. If the inventor is employed in a capacity in which he or she is likely to invent something such as a member of a research and development team in a private company or other institution he or she will be paid a salary for such work. Also, he or she will be given credit for the invention by being mentioned as inventor under s.13 which will do doubt do the inventor’s career prospects no harm at all.
Inventions of Outstanding Benefit to the Employer
Since most inventions do not go very, far the above settlement is in most cases is a fair balance between the rights of the inventor and the rights of his employee. But what happens if the invention is a blockbuster that generates a crock of gold for the employer. Is it right for the employer to hog the whole windfall for itself paying the inventor just his normal salary? The public through the legislature have said that it is not which is where s.40 (1) of the Patents Act 1977 comes in. This section provides that:
“Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that the employee has made an invention belonging to the employer for which a patent has been granted, that the patent is (having regard among other things to the size and nature of the employer's undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below.”
S.41 further provides:
“An award of compensation to an employee under section 40(1) and (2) above in relation to a patent for an invention shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent.”
There is, as Lord Justice Jacob said at paragraph [7] of Unilever Plc and others v Shanks [2010] EWCA Civ 1283 a double hurdle for the employee:
“Under s.40 (1) the employee has two hurdles to get over: he must show that the patent is "of outstanding benefit to the employer" and if so that it "is just" that he should be awarded compensation.”
For the sake of completeness, I should add that the above provisions do not apply where there is a collective agreement that provides for the payment of compensation in respect of inventions of the same description as that invention to employees of the same description as the inventor (see s.40 (3)).
The Dispute
In this case, the respondent, Professor Ian Shanks, had invented a device which draws into itself by capillary action a precise volume of fluid to enable rapid chemical and biochemical measurements to be made in relation to that fluid which has found large scale use in home diagnostic kits for diabetes. He made the invention while working for Unilever UK Central Resources Ltd. which assigned it to its holding company, Unilever Plc for a nominal sum. Unilever Plc was slow to make use of the invention and did so only by licensing to third parties for which it received £23 million. Professor Shanks contended that had the invention been properly exploited the patentee would have received revenues of US$1 billion or above.
Professor Shanks’ Argument
Professor Shanks based his case on s.41 (2) of the Patents Act 1977 which provides:
“For the purposes of subsection (1) above the amount of any benefit derived or expected to be derived by an employer from the assignment, assignation or grant of—
(a) the property in, or any right in or under, a patent for the invention or an application for such a patent; or
(b) the property or any right in the invention
to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.”
He argued that the section referred not to the actual benefit – namely the licence fees of £23 million - resulting from the actual assignment of the invention from Unilever UK Central Resources Ltd. to Unilever Plc but to a notional assignment of the invention to an assignee that would have exploited the invention for all it was.
Professor Shanks had tried to amend his statement of case to make that allegation before the hearing officer, Mr. Elbro, in Shanks v Unilever Plc and others BLO/138/09 on 19 May 2009 but he was refused permission to do so on the ground that the employer could end up paying considerably more than it had actually received. Professor Shanks appealed to Mr. Justice Mann on the ground that the words “a person connected with him” could refer to a notional rather than an actual assignee. In his judgment in Shanks v Unilever Plc and Others [2010] RPC 11, [2009] EWHC 3164 (Ch), (2010) 33(2) IPD 33012, [2010] Bus LR 761 the judge allowed the amendment concluding that the hearing officer's final formulation of the meaning of "that person" in section 41(2) was wrong.
“Warts and All”
The Court of Appeal restored the hearing officer’s decision. In his judgement Mr. Justice Mann had said at paragraph [42]:
“I therefore conclude that the hearing officer's final formulation of the meaning of "that person" in section 41(2) is wrong. One does not treat that person as being the precise real person with all the same characteristics (commercial warts and all) as that person has but simply without the connection. I consider that in using the formulation that it did, Parliament was, perhaps a little clumsily, intending to refer to a notional non-connected counterparty operating in the appropriate market at the appropriate time. This is not inconsistent with its assumption (in the case of other actual transactions leading to benefits) that an employer is likely to want to exploit the patent properly and not give away its benefits, albeit (as I have observed) that it did not impose a positive obligation on the employer to do that.”
Latching on to the “warts and all” phrase used by Mr. Justice Mann, Lord Justice Jacob replied at paragraph [8] of his judgment:
“Clearly this, key, subsection contemplates the inventor's particular employer, not some notional employer. The fact that it refers to "the size and nature of the employer's undertaking" makes this clear beyond any argument. It is the real actual benefit to the actual employer which is all that matters. If an invention had been immensely valuable and a patent for it could have been or could be (if still in force) exploited for a vast sum or have fetched vast royalties or a great sum on the open market, that is irrelevant. The inventor's particular employer may not have exploited the invention well or at all. If so, the inventor cannot complain. The employer must be taken as it was, warts and all. The provision is not some kind of "best endeavours to exploit" requirement.”
After considering the consequences of the professor’s argument the judge concluded that the words “a person connected with him” meant a real person – in this case, Unilever Plc – and “the amount of any benefit derived or expected to be derived by an employer from the assignment” referred to the actual benefit received which in the case was known to be £23 million. It had been argued faintly by Unilever that they would never have paid more than a few thousand pounds for Professor Shanks’s invention had it been offered to them on the open market and that £23 million was small change to them but that was abandoned by their counsel “recognising that this position was deeply unattractive.”
The net effect of the appeal is that Professor Shanks is now no better off than he had been in the Intellectual Property Office when Mr Elbro dismissed his application in May 2009. Lord Justice Jacob hoped that the parties can also now agree on what amounts to a "fair share" for Professor Shanks but as the case has already been mediated once and fought all the way up to the Court of Appeal the prospects are not bright.
Inventions of Outstanding Benefit to the Employer
Since most inventions do not go very, far the above settlement is in most cases is a fair balance between the rights of the inventor and the rights of his employee. But what happens if the invention is a blockbuster that generates a crock of gold for the employer. Is it right for the employer to hog the whole windfall for itself paying the inventor just his normal salary? The public through the legislature have said that it is not which is where s.40 (1) of the Patents Act 1977 comes in. This section provides that:
“Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that the employee has made an invention belonging to the employer for which a patent has been granted, that the patent is (having regard among other things to the size and nature of the employer's undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below.”
S.41 further provides:
“An award of compensation to an employee under section 40(1) and (2) above in relation to a patent for an invention shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent.”
There is, as Lord Justice Jacob said at paragraph [7] of Unilever Plc and others v Shanks [2010] EWCA Civ 1283 a double hurdle for the employee:
“Under s.40 (1) the employee has two hurdles to get over: he must show that the patent is "of outstanding benefit to the employer" and if so that it "is just" that he should be awarded compensation.”
For the sake of completeness, I should add that the above provisions do not apply where there is a collective agreement that provides for the payment of compensation in respect of inventions of the same description as that invention to employees of the same description as the inventor (see s.40 (3)).
The Dispute
In this case, the respondent, Professor Ian Shanks, had invented a device which draws into itself by capillary action a precise volume of fluid to enable rapid chemical and biochemical measurements to be made in relation to that fluid which has found large scale use in home diagnostic kits for diabetes. He made the invention while working for Unilever UK Central Resources Ltd. which assigned it to its holding company, Unilever Plc for a nominal sum. Unilever Plc was slow to make use of the invention and did so only by licensing to third parties for which it received £23 million. Professor Shanks contended that had the invention been properly exploited the patentee would have received revenues of US$1 billion or above.
Professor Shanks’ Argument
Professor Shanks based his case on s.41 (2) of the Patents Act 1977 which provides:
“For the purposes of subsection (1) above the amount of any benefit derived or expected to be derived by an employer from the assignment, assignation or grant of—
(a) the property in, or any right in or under, a patent for the invention or an application for such a patent; or
(b) the property or any right in the invention
to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.”
He argued that the section referred not to the actual benefit – namely the licence fees of £23 million - resulting from the actual assignment of the invention from Unilever UK Central Resources Ltd. to Unilever Plc but to a notional assignment of the invention to an assignee that would have exploited the invention for all it was.
Professor Shanks had tried to amend his statement of case to make that allegation before the hearing officer, Mr. Elbro, in Shanks v Unilever Plc and others BLO/138/09 on 19 May 2009 but he was refused permission to do so on the ground that the employer could end up paying considerably more than it had actually received. Professor Shanks appealed to Mr. Justice Mann on the ground that the words “a person connected with him” could refer to a notional rather than an actual assignee. In his judgment in Shanks v Unilever Plc and Others [2010] RPC 11, [2009] EWHC 3164 (Ch), (2010) 33(2) IPD 33012, [2010] Bus LR 761 the judge allowed the amendment concluding that the hearing officer's final formulation of the meaning of "that person" in section 41(2) was wrong.
“Warts and All”
The Court of Appeal restored the hearing officer’s decision. In his judgement Mr. Justice Mann had said at paragraph [42]:
“I therefore conclude that the hearing officer's final formulation of the meaning of "that person" in section 41(2) is wrong. One does not treat that person as being the precise real person with all the same characteristics (commercial warts and all) as that person has but simply without the connection. I consider that in using the formulation that it did, Parliament was, perhaps a little clumsily, intending to refer to a notional non-connected counterparty operating in the appropriate market at the appropriate time. This is not inconsistent with its assumption (in the case of other actual transactions leading to benefits) that an employer is likely to want to exploit the patent properly and not give away its benefits, albeit (as I have observed) that it did not impose a positive obligation on the employer to do that.”
Latching on to the “warts and all” phrase used by Mr. Justice Mann, Lord Justice Jacob replied at paragraph [8] of his judgment:
“Clearly this, key, subsection contemplates the inventor's particular employer, not some notional employer. The fact that it refers to "the size and nature of the employer's undertaking" makes this clear beyond any argument. It is the real actual benefit to the actual employer which is all that matters. If an invention had been immensely valuable and a patent for it could have been or could be (if still in force) exploited for a vast sum or have fetched vast royalties or a great sum on the open market, that is irrelevant. The inventor's particular employer may not have exploited the invention well or at all. If so, the inventor cannot complain. The employer must be taken as it was, warts and all. The provision is not some kind of "best endeavours to exploit" requirement.”
After considering the consequences of the professor’s argument the judge concluded that the words “a person connected with him” meant a real person – in this case, Unilever Plc – and “the amount of any benefit derived or expected to be derived by an employer from the assignment” referred to the actual benefit received which in the case was known to be £23 million. It had been argued faintly by Unilever that they would never have paid more than a few thousand pounds for Professor Shanks’s invention had it been offered to them on the open market and that £23 million was small change to them but that was abandoned by their counsel “recognising that this position was deeply unattractive.”
The net effect of the appeal is that Professor Shanks is now no better off than he had been in the Intellectual Property Office when Mr Elbro dismissed his application in May 2009. Lord Justice Jacob hoped that the parties can also now agree on what amounts to a "fair share" for Professor Shanks but as the case has already been mediated once and fought all the way up to the Court of Appeal the prospects are not bright.
Conclusion - Sewing the Fly Buttons onto the Statute
Mr. Justice Mann had complained that the provisions relating to inventors’ compensation were “not particularly well drafted.” More colourfully, Lord Justice Jacob said that the approach to construction of an ill-drafted provision was "sewing the fly buttons on the statute." The complexity and uncertainty of these provisions plus the cost of fighting them in the Patents Court and in this case Court of Appeal no doubt explains why so few employee invention claims ever come to court. That is a tragedy because situations like the professor’s cannot be all that uncommon.
Mr. Justice Mann had complained that the provisions relating to inventors’ compensation were “not particularly well drafted.” More colourfully, Lord Justice Jacob said that the approach to construction of an ill-drafted provision was "sewing the fly buttons on the statute." The complexity and uncertainty of these provisions plus the cost of fighting them in the Patents Court and in this case Court of Appeal no doubt explains why so few employee invention claims ever come to court. That is a tragedy because situations like the professor’s cannot be all that uncommon.
Should an inventor or his patent agent or for that matter his employer find themselves in this position they are very welcome to discuss it with me on 020 7404 5252 or by clicking this form. Those who are in this position could clearly benefit from mediation by mediators specializing in patent disputes such as me. I also provide a cost-effective specialist intellectual property arbitration service.
Comments