The UK Supreme Court has been hearing some important cases recently. As well as the constitutional cases about Brexit, this week it has been hearing some joined appeals in relation to FRAND licensing, including the Huawei v Unwired Planet case. It has been interesting to watch the live streaming of the case, in which a commercial silk, Mark Howard QC, has been conducting advocacy on an IP and competition law case.
Perhaps slightly overlooked among these heavy cases, today saw the publication of the Supreme Court’s decision in a case about employee compensation for patents. In Shanks v Unilever Plc & Ors  UKSC 45, the newly-elevated Supreme Court justice (and former IP barrister) Lord Kitchin gave the judgment of the court.
Under UK patent law, an employee is entitled to compensation if they make an invention that is of “outstanding benefit” to their employer. See sections 39-43, Patents Act 1977 (the Act). For many years, this entitlement seemed more theoretical than real, with very few reported cases that actually awarded compensation. This all changed with the case of Kelly and Chiu v GE Healthcare Ltd in 2009. The two inventors in that case were awarded £1.5M between them. Overnight, employee compensation became an important aspect of UK patent law.
Then along came the Shanks case, which until the decision today had seemed to pour cold water on the idea of employees getting compensation, particularly if they worked for a large organisation. All the decisions of the lower courts in this case had rejected Professor Shanks’ claim for compensation. A main reason for the rejection was the wording of section 40 of the Act, which requires that the employee’s invention is:
(having regard among other things to the size and nature of the employer’s undertaking) of outstanding benefit to the employer…
The benefit in this case to the employer was determined to be around UK£24M, which is a substantial amount of money. But is it an “outstanding benefit”? Unilever group is a huge multinational company, and £24M is a drop in the ocean for a company of this size. The lower courts held that the benefit was not outstanding for a company of Unilever’s size.
Pausing for a moment, what did the legislature intend when they included the words quoted above in the Act? One may speculate that they were trying to ensure that a small financial benefit could be outstanding in the context of a small company. Whatever their intentions, multiple courts have held that a large amount of money could be considered not to be outstanding in the case of a very large company.
But today, the Supreme Court has overturned the lower courts and held that £24M could be considered an outstanding benefit, even to a company like Unilever.
There is much to be gleaned from today’s judgment about the thought process that should be applied when considering whether a benefit is outstanding. For practitioners engaged in arguing cases of this kind, the judgment provides useful material. But the high level point is that it is too simplistic just to compare the financial benefit from the invention (or, under the earlier law, from the patent) with the turnover of the employer group, when making that assessment, as the lower courts and hearing officer had appeared to do.
Other points of detail were considered in Lord Kitchin’s judgment. Can you take into account the time value of money (yes), should corporation tax be deducted when deciding what benefit the employer has had (no), and should the commercial strength of the employer in making favourable licensing deals result in a reduced percentage to the employee (not in this case).
The hearing officer came up with a figure of 5% of the benefit received by the employer, and Lord Kitchin followed his approach, rejecting Arnold J’s reduction to 3% (the percentage awarded in Kelly and Chiu v GE Healthcare). Allowing for the time value of money and inflation, Lord Kitchin awarded Professor Shanks compensation of £2M.
The invention in this case was concerned with test kits, such as those used by diabetics to measure blood glucose levels. Professor Shanks had built a prototype, if not quite in his garden shed, at least at home, using parts from his daughter’s toy microscope set. This happened in the early 1980s. It has taken over 35 years for him to be awarded compensation – a nice retirement bonus.
IP Draughts usually avoids the hard sell in his articles. But if you would like to instruct his firm in claiming or defending a case for employee compensation, he would be pleased to hear from you.