The Supreme Court held that patents for a glucose-testing device invented by Professor Shanks were of outstanding benefit to his Unilever employer under section 40 of the Patents Act 1977. A net benefit of about £24 million stood out against other patents from the same research company and was not to be treated as insignificant merely because it was small beside the group’s profits from unrelated products. He was awarded a fair share of £2 million.
Professor Shanks was employed by Unilever UK Central Resources Ltd (CRL) from May 1982 to October 1986 at its Colworth laboratories. His brief was to develop biosensors for process control and process engineering. After a visit to Cranfield University he conceived a system, later known as the Electrochemical Capillary Fill Device, which used capillary action between closely spaced plates, together with electrodes and enzyme techniques, to measure glucose in blood, serum or urine. In October 1982 he built the first prototype at home. A related fluorescent device was also developed.
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CRL employed the Unilever group’s UK-based research staff. It was accepted that the inventions belonged to CRL under section 39 of the Patents Act 1977. CRL assigned the rights to Unilever plc for £100. Rights outside the UK, Australia and Canada were assigned on, again for £100. Patents were granted on applications filed from 1984, with Professor Shanks named as inventor. Unilever did not wish to compete in glucose testing, regarded the technology as far from central, and did relatively little to develop it after 1984. It nevertheless maintained the patents. Seven licences produced about £20.3 million, of which the hearing officer attributed about £19.55 million to the Shanks patents after allowing for related Birch patents. A later sale of Unipath produced a further £5 million attributable to those patents. After costs of about £250,000, the hearing officer assessed the net benefit at about £24 million.
The decisions below
Professor Shanks applied for compensation in 2006. The hearing officer, acting for the Comptroller, held that the benefit was not outstanding once the size and nature of Unilever’s business were taken into account. Had it been outstanding, he would have awarded 5 per cent, about £1.2 million, without an increase for the time value of money. Arnold J dismissed the appeal. He would have assessed a fair share at only 3 per cent, would have discounted the benefit for corporation tax, and rejected any allowance for the time value of money. The Court of Appeal agreed that there was no error on outstanding benefit, but held that corporation tax should not be deducted. A majority held that the change in the value of money could be relevant both to whether a benefit was outstanding and to a fair share.
When a benefit is outstanding
Lord Kitchin, with whom the other Justices agreed, explained that compensation under the unamended section 40(1) required a patent of outstanding benefit to the employer and that it be just to award compensation. “Outstanding” is an ordinary word meaning exceptional or standing out. It describes the benefit in money or money’s worth, not the degree of inventiveness, and it is both relative and qualitative. The statute requires regard, among other things, to the size and nature of the employer’s undertaking.
The employer is the inventor’s actual employer. Where, as here, a group company runs research for the group and assigns resulting patents to other group companies, the commercial reality must still be viewed from that employer’s perspective. The inquiry is the benefit of the patent to the group and how that compares with benefits from other patents for inventions arising from the same company’s research. Simply treating the whole group as the undertaking, or measuring the receipts against group-wide turnover and profits from unrelated products, does not compare like with like.
Size and nature may matter in various ways. A benefit may exceed what the employee’s duties would normally be expected to produce, involve little risk, show an extraordinarily high rate of return, or open a new line of business or unforeseen licensing. A large business may also obtain better terms through leverage. But a tribunal should be cautious before concluding that a benefit is not outstanding merely because it has not materially affected overall profitability or sales, particularly where those figures come from products unrelated to the patented technology.
The patents produced a substantial licensing return at very little financial risk or cost. That return stood out when compared with the results from other patents arising from the group’s research. The profits of Unilever’s complete product range did not provide a sufficient reason to dismiss the benefit as ordinary.
Tax and the time value of money
Corporation tax was not to be deducted in calculating the benefit. The assessment under section 40 is different from an account of profits in an infringement claim. The benefit should first be quantified and a fair share then awarded. The employee accounts for tax on that share and the employer for tax on the balance. Treating tax as a reduction in the benefit would unfairly favour the employer and would require an investigation of its wider tax position. Tax is a consequence of the benefit, not part of it.
The mere passage of time cannot turn a benefit that was not outstanding into one that was. Where compensation is otherwise due, however, the time value of money, or the effect of inflation on its real value, can be taken into account in assessing the benefit or a fair share of it. Unilever had enjoyed the receipts since they were paid, and fairness required the award to reflect the long delay before payment. The Comptroller’s inability to award interest did not prevent regard being had to inflation. There was no finding that Professor Shanks had delayed unreasonably.
The fair share
Section 41 requires a fair share of the benefit having regard to all the circumstances, including the employee’s duties, remuneration and other advantages, his effort and skill, contributions by others, and the employer’s advice, facilities, opportunities and commercial skill. The hearing officer considered those matters, including that Professor Shanks was employed to invent and paid commensurately, together with evidence about rates in employee compensation schemes. His conclusion of 5 per cent disclosed no error.
Arnold J was wrong to reduce that figure to 3 per cent. There was no finding that Unilever obtained its rates because it could afford infringement litigation. It had no manufacturing business to protect, and, with one exception, the prospective licensees initiated the discussions. Professor Shanks’ argument for 10 to 20 per cent was also rejected. Although glucose testing was not the main focus of his work, the invention was made in the course of his contractual duties and he was employed to invent. The income stream depended on Unilever’s licensing negotiations, in which he played no part. The limited commercialisation and absence of real risk had already been taken into account.
Five per cent of £24 million, increased to reflect inflation by taking 1999 as the median year of receipt and using the Bank of England calculator, produced about £2 million at an average rate of 2.8 per cent.
Verdict: The Supreme Court unanimously allowed Professor Shanks’ appeal. The patents were of outstanding benefit to the employer. His fair share, after allowing for the change in the value of money, was £2 million.
