Patent invention

Patent royalties – what does the inventor get?

John MacKenziePosted by

If you are employed to invent (and then patent) things should you get a bonus if it turns out that your invention is a stunning financial success? That was the question that was before the Supreme Court in Shanks v Unilever. In that case, Professor Shanks claimed compensation for a limited re-use or disposable sensor for monitoring glucose, insulin or immunoglobulin levels in diabetics. He was employed by a Unilever group company and initially received an annual salary of £18,000 and a Volvo car. He built the first prototype of his invention at home using Mylar film and slides from his daughter’s toy microscope kit, and bulldog clips to hold the assembly together.

Unilever did not develop the invention, but went on to licence it in exchange for many millions of pounds of licence fees. Professor Shanks sought a fair share of those licence fees. That claim was made under section 40 of the Patents Act 1977.

Section 40 of the Patents Act 1977

In the Supreme Court decision, Lord Kitchin explained:

“30. An employee who makes an invention which belongs to his employer from the outset and for which a patent has been granted is therefore entitled to compensation if he or she establishes: first, that the patent is, having regard among other things to the size and nature of the employer’s undertaking, of outstanding benefit to the employer; and secondly, that, by reason of these matters, it is just that he or she be awarded compensation.”

There were several issues before the court, but the main argument was around whether the benefit secured by Unilever was outstanding in the context of Unilever as a whole. The court observed that:

“‘Outstanding’ means ‘something special’ or ‘out of the ordinary’ and more than ‘substantial’, ‘significant’ or ‘good’. The benefit must be something more than one would normally expect to arise from the duties for which the employee is paid.”

How should outstanding benefit be judged?

So while Unilever secured royalties of over £20 million, this was minuscule in the context of Unilever as a whole. The question for the court was how should the question of outstanding benefit be judged? The answer is… it depends:

“51. In my judgement there is no single answer to this question. Many different aspects of the size and nature of the employer’s business may be relevant to the enquiry. For example, the benefit may be more than would normally have been expected to arise from the duties for which the employee was paid; it may have been arrived at without any risk to the business; it may represent an extraordinarily high rate of return; or it may have been the opportunity to develop a new line of business or to engage in unforeseen licensing opportunities. In the circumstances of this case and for the reasons I have given, a highly material consideration must be the extent of the benefit of the Shanks patents to the Unilever group and how that compares with the benefits the group derived from other patents resulting from the work carried out at [the group company that employed Professor Shanks].”

The court criticised the approach that the original Hearing Officer had taken. Lord Kirchin said:

“82…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.”

In the end, and after over a decade of litigation, Professor Shanks secured £2 million in compensation.

Litigation funding for patent claims

For obvious reasons these types of claim can be difficult. The challenge is that the claimant is the employee, and the defendant is usually a corporate entity that it is alleged has secured an outstanding benefit from the work of the employee. That usually means that the employee will not have the funds for a dispute, but the corporate will. One solution is to seek litigation funding. While funders will want a return for taking the risk associated with the claim, it does mean that the claim can be brought. You can read more about litigation funding here. We have created a simple calculator to help you understand how much funding might cost.

If you would like to discuss any aspect of compensation claims for employees’s inventions or litigation funding please get in touch.

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