Intellectual property (IP) created by employees in the course of their employment usually belongs to the employer. In limited circumstances however, employees can claim a share of the benefit an employer gets from an invention for which a patent has been granted. The claim has foundation when the invention has been of such outstanding benefit to the employer that it is fair that the employee should be awarded compensation. In Ian Alexander Shanks v Unilever plc and others the High Court considered when such additional compensation should be awarded.
Background Professor Shanks worked for a Unilever company for four years during which time he invented a device with potentially lucrative applications in the treatment of diabetes. As Unilever was not active in this field the device was eventually licensed to other organisations for over £20m. Professor Shanks claimed compensation to reflect the value to Unilever of his invention, in a claim which started in the UK Intellectual Property Office (IPO) and reached the High Court in May 2014.
Law As an exception to the usual rule that IP created by employees in the course of their employment belongs to the employer, the Patents Act (PA) 1977 stipulates that where an employee has made an invention belonging to the employer for which a patent is granted, and that patent is of outstanding benefit to the employer, the employee may be entitled to compensation. Since 1 January 2005 compensation will be payable where either the invention or the patent have been of outstanding benefit. Whether an invention is of outstanding benefit will take account of, among other things, the size and nature of the employer's undertaking. If appropriate, compensation will then be set at a level which gives the employee a fair share of the benefit the employer has or will derive from the patent, or now the invention.
Decision The High Court upheld the IPO's decision to reject Professor Shanks' application for additional compensation. It found that the patent had not been of outstanding benefit to Unilever despite the returns being high for relatively low outlay by Unilever, and the assessed benefit not being reduced by the research and development (R&D) costs. The High Court held that the assessed benefit should be reduced by tax paid, shrinking it to £17m. It was stressed that, notwithstanding this decision, there can be an outstanding benefit to a large employer even if the benefit is a small proportion of the employer's profits. What did concern the High Court was the fact that Unilever had run very little commercial risk and had achieved a high rate of return but overall this did not make the benefit outstanding. The judge went on to consider what would have been a fair share if there had been outstanding benefit and reduced it to 3% from the IPO's initial 5%.
Comment Kate Wyatt, a Partner at Lindsays commented: “The case emphasises how limited the circumstances are in which additional compensation will be awarded to employees involved in R&D or the creation of IP. It helpfully clarified that benefit will be assessed excluding tax and checked any impulse to increase a 'fair share' above the 3% awarded to the employees in the only successful action of this kind, Kelly v GE Healthcare Ltd (2009). “Employers in innovative or R&D sectors should review contracts and policies to check the extent of their discretion over exploitation of inventions, ensure that duties and responsibilities are drawn widely enough to include inventions or IP that may be created, and to limit the risk of additional compensation being awarded.”
