Employee-inventor compensation

In October 2019, the Supreme Court handed down a landmark decision on Shanks v Unilever PLC, concluding a protracted legal battle between Professor Shanks and his former employer, Unilever. The Court ruled in Professor Shanks’ favour, awarding him £2 million in compensation for an invention he had made 40 years ago while employed by Unilever. This decision provides us with a greater understanding of the factors which must be taken into consideration when claiming employee compensation from an employer.

Employee inventions

UK patent law defines two situations in which an employer is entitled to an invention made by an employee. In particular, an employer automatically acquires the right to an invention if the invention was made:

• in the course of the employee’s normal duties (or in the course of duties specifically assigned to him), in the circumstances in which an invention might reasonably be expected to result from the carrying out of those duties; or
• in the course of the employee’s duties, where the employee has a special obligation to further the interests of his employer’s undertaking.

In general there is no requirement for the employer to provide any form of payment for the invention other than the employee’s normal salary.

Right to compensation

However, in some circumstances, an employee may become legally entitled to compensation for an invention which is particularly successful. Compensation can only be ordered by a court if a patent for the invention has been granted to the employer, the invention and/or the patent is of outstanding benefit to the employer, and the court considers it just to compensate the employee. The definition of outstanding benefit is key in such cases, and should be determined having regard to (among other things) the size and nature of the employer’s undertaking.

Compensation is not available if a relevant collective agreement relating to employee compensation has been negotiated, for example by a trade union, but it cannot be nullified by any other contractual arrangements. Under an older version of the law, only the benefit of the patent itself was taken into account, but now the law allows the judges to consider the benefit of both the invention and the patent.

Any award of compensation to employee-inventors is at the discretion of the Court and is therefore not guaranteed. Case law suggests that, where the nature of an invention is such that it was the expected and reasonable result of the inventor’s duties and responsibilities for which he was paid, the benefits conferred on the employer by the patent must in fact be exceptional in order for compensation of the employee to be considered ‘just’.

Level of compensation

If it is determined that the employee is entitled to compensation, the level of that compensation should be calculated taking into account a number of factors, including:

• the nature of the employee’s duties and their remuneration or other benefits derived from their employment;
• the effort and skill contributed by the employee in making the invention;
• the contributions of any other employees in making the invention; and
• the resources and contributions made by the employer in making, developing and working the invention

The law says that the employee should be awarded a fair share of the benefit to the employer. It therefore seems likely that the level of compensation available would depend on the scale of the financial benefit enjoyed by the employer.

Landmark decision (Kelly & Chiu v GE Healthcare)

Before Professor Shanks brought his claim against Unilever, only one case had been decided in favour of the employee, despite that employee-inventor compensation has been available in the UK for decades.

In the landmark decision of Kelly and Chiu v GE Healthcare, Dr Kelly was awarded £1 million and Dr Chiu was awarded £500,000 on the basis of £1.3 billion in revenue for GE Healthcare. Drs Kelly and Chiu had invented a radioactive heart imaging agent which was subsequently protected by two European patents owned by GE Healthcare. In this case the claimants were successful because of the exceptional scale of the profits made by GE Healthcare while it was able to exclude competitors by virtue of the two patents.

Shanks v Unilever

The central issue in Professor Shanks’ case revolved around determining whether or not the benefit to the employer (Unilever) was ‘outstanding’. This case was decided under the old law in which the benefit of only the patent, and not the invention in general, was taken into consideration.

Professor Shanks’ invention related to capillary fill devices used in glucose testing. The invention was made while Professor Shanks was an employee of Unilever UK Central Resources Ltd (CRL), a research subsidiary of Unilever. Unilever patented the invention and granted several licences prior to selling the patents to a third party. During the hearing, it was agreed that Unilever’s net benefit derived from the patents was approximately £24 million.

Professor Shanks initiated his claim for a ‘fair share’ of the profits at the UK Intellectual Property Office (IPO). However, a hearing officer at the IPO concluded that £24 million was not deemed to be ‘of outstanding benefit’ in comparison to Unilever’s overall profits which were orders of magnitude higher. Both the High Court and the Court of Appeal upheld this decision. This indicated the threshold for establishing ‘outstanding benefit’ in comparison to the profits generated by a corporate giant like Unilever would be exceedingly high, if not practically unattainable. This apparent benefit conferred on larger entities was described as being ‘too big to pay’ by Professor Shanks’ legal team.

Despite three setbacks, Professor Shanks pursued his case to the Supreme Court. His perseverance paid off: the UK’s highest court upheld Professor Shanks’ appeal. The Court decided that the benefit of his patents was ‘outstanding’ and awarded him £2 million as his fair share of the benefit derived from the patents.

To arrive at the decision in favour of Professor Shanks, the Supreme Court notably ‘divorced’ Professor Shanks’ employer ‘CRL’, a subsidiary business, from the business of Unilever as a whole; the Court therefore determined that it was erroneous for the lower courts to compare £24 million to the overall turnover and profits of Unilever. The Court’s approach effectively excluded Unilever’s other businesses (e.g. Unilever food and beverage, Unilever household care and personal care) from the assessment. The comparison was thus narrowed to the research work carried out by CRL for Unilever. The court found that the benefit derived from the patents was indeed ‘outstanding’ in comparison with the benefit generated by other patents associated with CRL’s research for Unilever. In reaching this conclusion, other factors such as Unilever’s manufacturing capacity, sales and distribution networks, marketing prowess, and branding authority, were also considered; and the finding was that these had played no part in accruing the £24 million benefit. This leaves an open question: Would the decision have been different if Professor Shanks’ invention had related to well-known Unilever products, such as Magnum ice creams, Domestos bleaches, and Dove shower gels?

Regarding a ‘fair share’ of the outstanding benefit, the Court rejected Professor Shanks’ claim that 10-20% would represent a fair share. It was considered that Professor Shanks was employed to invent and did so as part of his employment contract. Further, he played no role in negotiating licences or business acquisitions which contributed to the fruition of the benefit. It was therefore decided that 5% would be a fair share; the Court awarded Professor Shanks £2 million factoring in an average inflation rate of 2.8% on the benefit of £24 million.

The final judgement provides some clarification regarding how to evaluate an employer’s undertaking when determining whether or not the benefit derived from a patent is ‘outstanding’. Specifically, when the inventor is an employee of a corporate giant, the court would not simply consider the total income of the corporation and dismiss the claim because the employer is ‘too big to pay’.

In Shanks v Unilever, it was ultimately decided in Professor Shanks’ favour that £24 million qualified as an outstanding benefit. However, the contextual details of this case are important. It is noted that Professor Shanks was employed by a subsidiary of a large corporation, and further, the technology in his invention appeared to be distinct from Unilever’s mainstream business operations.

It should not be forgotten that it took Professor Shanks 13 years to receive his compensation and the award had to be decided by the highest court in the land. These facts underscore the arduous nature of claiming compensation: such cases may not be for the faint-hearted. In 2024, five years after the judgement on Professor Shanks’ case, Shanks and Kelly remain the two exemplar cases in which the employee was successful. Professor Shanks’ success has not opened a floodgate of employee compensations. The threshold for establishing an ‘outstanding benefit’ remains high, and each compensation claim is subject to careful examination by the court. Claimants should therefore carefully consider whether the benefit to his employer truly qualifies as outstanding before pursuing legal actions for compensation.

For further information regarding employee inventions, compensations, and the ownership of intellectual property in general, please contact us.