http://ipkitten.blogspot.com/2019/10/breaking-uksc-finds-unilever-is-not-too.html
This morning the UK Supreme Court handed down its decision in Shanks v Unilever ([2019] UKSC 45) concerning Professor Shanks’ long battle to receive compensation for his invention from his former employer, Unilever. Professor Shanks failed in his previous attempts to receive compensation at a UK IPO Hearing, in the Patent Court and in the Court of Appeal. Today’s UKSC decision, led by Lord Kitchin, dramatically upheld his appeal. In an unanimous decision, the UKSC awarded Professor Shanks £2 million compensation from Unilever.
According to Section 40 of the UK Patents Act (UKPA) an employee may be awarded compensation for their patented invention if the patent or invention has provided an “outstanding benefit” to the employer. One of the difficulties is that outstanding benefit must be determined in the context of the employer’s normal business activities; an outstanding benefit to a small start-up may be run-of-the-mill for a global multinational.
In the case in question, the invention related to technology used in glucose testing for diabetics invented by Professor Shanks whilst he was employed at Unilever. Unilever did not commercialise the technology itself, but unusually for the company, licensed the technology out. Unilever eventually sold the patents for the technology as part of the sale of it diagnostics business Unipath. Whilst the exploitation of the patents earned Unilever millions in profits, these profits were small compared to Unilever’s overall profits. A key issue in the case was whether the lower courts and the UKIPO hearing office had erred when applying the test for outstanding benefit. In particular, did the Hearing Officer misapply the law by only determining the benefit to Unilever in terms of the comparison, in cash terms, between the benefit from the patents and Unilever’s total profits? Under such an analysis, the claimant argued, Unilever would always be “too big to pay”.
What is “outstanding benefit”?
As established by the first case in which an employee was awarded compensation (Kelly & Anor v GE Healthcare [2009] EWHC 181 (Pat)), “outstanding benefit” cannot be defined. In determining whether an invention has provided “outstanding benefit” to an employer, the court must take into account the “size and nature of the employer’s undertaking” (Section 1(1)(b) UKPA). Therefore, for a benefit to be outstanding, it must appear so in the context of an employer’s normal business activities (Memco-Med [1992] RPC 403). Furthermore, the disparity between the employer’s benefit and employee’s remuneration (or other benefits) should be extreme.
However, an important principle of employee compensation is that an employer should not be “too big to pay”. Particularly, the outstanding benefit test should not be a simple comparison between the income from a patent and the overall profits of the employer, to the exclusion of all other relevant factors. Other factors contributing to a more nuanced assessment of outstanding benefit may take account of, for example, turnover and profitability.
Professor Shanks and Unilever
Professor Shanks was employed by UK Central Resources Ltd (CRL), a subsidiary of Unilever, for 4 years in the 80’s. Professor Shanks was employed to invent biosensors. During the period of his employment, Professor Shanks used, at home, slides from his daughter’s microscope kit and some bull-dog clips to build the first prototype of an electrochemical capillary fill device (ECFD). These activities were considered to fall under the scope of Professor Shanks’ duties as an employee. Unilever filed patents for the EDFD.
Following expansion of the glucose testing market in the 1990s, ECFD technology began appearing in most personal glucose testing products, with the majority of companies in the field licensing the technology from Unilever. An important aspect of the case was that patent licensing is not a normal business activity of Unilever, who predominantly have patents to protect their own business activities. The licence income from the Shanks patents was therefore unusual.
Professor Shanks first brought his case for compensation at the UKIPO (BLO/259/13). The Hearing Officer calculated the total gross profit obtained by Unilever from the Shanks Patents as £24.5 million (£24.3 million net benefit after costs). The Hearing Officer determined that this amount was not “outstanding” in view of Unilever’s normal activities. This decision was upheld on appeal first in the Patents court ([2014] EWHC 1647 (Pat), IPKat post here) and then in the Court of Appeal ([2017] EWCA Civ 2., IPKat post here).
The Court of Appeal decision – Was Unilever “too big to pay”?
In the Court of Appeal, Patten LJ considered whether the Hearing Officer had erred by only considering “outstanding benefit” in terms of a simple comparison between the benefits from the Shanks patents and Unilever’s overall profits. In cash terms, the revenue from the Shanks Patents was small compared to Unilever’s overall profits. However, Professor Shanks argued that other factors should have been properly considered, for example the unusually high rate of return from licence fee income provided by the patents.
Patten LJ dismissed the appeal, finding that the Hearing Office had properly considered the issues, including the licence fee benefits. Patten LJ particularly found that the Hearing Officer had correctly found a lack of outstanding benefit on the basis that “the benefits in terms of income the patents produced came in over an extended period of time and produced no obvious benefit to the business as a whole other than in terms of cash” (para. 62). As found by the Hearing Officer in first instance, Pattern LJ agreed that Unilever had been outwardly unaffected by the Shanks patents, so no outstanding benefit could be attributed.
The Supreme Court decision
IPKat is still digesting the UKSC decision and will provide a more detailed analysis in coming days. In summary, the UKSC, led by Lord Kitchin found that the Hearing Officer had incorrectly applied the test for outstanding benefit. Particularly, the UKSC found 4 things wrong with the Hearing Officer’s approach:
1. The Hearing office started his analysis from Unilever as a whole, as opposed to the research arm of Unilever (CRL) at which Professor Shanks was employed.
2. Irrespective of the starting point, the analysis should have focused on the extent of the undertakings of CRL, and should not have focused “upon the overall turnover and profits generated by Unilever, as illustrated by the size of its business in making and selling ice cream, spreads and deodorants”
3. The Hearing Officer did not properly take into account the fact that the size and success of Unilever’s business as a whole did not play any material part in securing the benefit it has enjoyed from the Shanks patents.
4. The Hearing Officer, having warned against applying an analysis that would render certain employers “too big to pay”, had proceeded to apply such an analysis:
the hearing officer appeared rightly to disavow an approach which involved assessing the extent and nature of the benefit derived from a patent simply by comparing it to the patent owner’s overall turnover or profits. But he also indicated these matters might be relevant if, for example, an undertaking’s size enabled it to exert greater leverage. Yet, having apparently rejected such an approach, he then adopted it. There was no justification here for simply weighing the sums Unilever generated from the Shanks patents against the size of its turnover and overall profitability in products such as Viennetta ice cream, spreads and deodorants and yet this formed an important part of his assessment
The UKSC has therefore reaffirmed that the assessment of “outstanding benefit” should not render an employer too big to pay. Has Lord Kitchin ruled out any comparison between the total profits of an employer and the benefit of the patent? It seems perhaps not. The difference between the business activities of Unilever as a whole and the research arm in which Professor Shanks was involved was emphasised as a determining factor throughout the decision of the UKSC to award compensation. Furthermore, throughout its entire passage up through the courts from the Hearing Officer’s decision, there was agreement that an employer shouldn’t be “too big to pay”.
The different approach by the UKSC appears, at least to this Kat, was merely to divorce the activities and purpose of the diagnostics research arm of Unilever from Unilever as a whole. The UKSC decision therefore reaffirms the importance of the appropriate context for determining the meaning of “outstanding benefit”. Context is the crucial element in avoiding an analysis in which an employer will always be too big to pay.
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