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Employee Compensation for Patent of Outstanding Benefit to Employer

Case: Shanks v Unilever (UK Supreme Court)

The UK Supreme Court has overturned earlier decisions by the Patent Office, the High Court and the Court of Appeal, ruling that an inventor-employee was entitled to the £2m of the benefits which his employer, Unilever, had obtained from a patent on his invention.

The law requires that, where an employee’s invention leads to an outstanding benefit, having regarding inter alia to size and nature of the employer’s undertaking, then the court may award the employee a compensation reflecting a fair share of that benefit. In an appeal by Prof Shanks against his employer, Unilever UK Central Resources Ltd, the Supreme Court overturned previous decisions by the Patent Office, the High Court and the Court of Appeal and made Prof Shanks an award of compensation.

The decision is important because it clarifies the meaning of “outstanding benefit” and the circumstances when such an employee award is due, and how the compensation may be determined, as well as the meaning of “employer’s undertaking”.

Lord Kitchin, for the Supreme Court, found that the benefit of the Shanks patent should be assessed in relation to other Unilever patents, rather than in relation to Unliver’s overall turnover, as this would include income unrelated to patents, and found the Shanks’ patent “stood out” from the other patents, provided an outstanding benefit to Unilever. The Supreme Court rejected Unilever’s claims that such an approach would lead to a “too big to pay” scenario. On "employer's undertaking", it said the benefit was that derived to the whole Unilever group and not just Prof Shanks’ immediate employer. On these bases Lord Kitchen adopted the £24m figure originally used by the patent office as a measure of the Unilever group’s total earnings from the Shanks patent.

The fair share due to Prof Shanks should be 5%, as originally suggested by the Patent Office, but reduced, without proper basis, by the High Court to 3%. Lord Kitchin said the time value of money should be taken into account. Applying an annual inflation rate of 2.8%, he assessed the Prof Shanks’ fair share to be £2m.

While the 5% level for the fair share may cause some concern to employers, the Supreme Court decision does confirm that, in order for a fair share award to be contemplated, any employer benefit needs to be outstanding.

Full judgment may be found here: Shanks v Unilever Plc & Ors [2019] UKSC 45 (23 October 2019)