Too big to pay? Employee-inventor compensation in the Court of Appeal
Can an employer be 'too big to pay' employee-inventor compensation under s40(1) of the Patents Act? The Court of Appeal has provided guidance on the relevance of this issue to the question of "outstanding benefit" in the long running dispute of Shanks v Unilever PLC and others [2017] EWCA Civ 2. The headline summary is that the employer group's turnover and profitability are highly relevant factors in assessing whether the benefit to an employer is 'outstanding' - and can, as in this case, prove decisive. The dispute was previously reported on the IPKat at High Court level here.
The law and the claim
S40(1) of the Patents Act (prior to its 2004 amendment which was the version in force for this claim) provides as follows:
To succeed in his claim Prof Shanks therefore needed to establish as a threshold issue that the patents had been of "outstanding benefit" to his employer, and also that it was just to award him compensation.
Factual Background
The factual background is set out in an appendix to the judgment. Some salient facts are as follows:
The law and the claim
S40(1) of the Patents Act (prior to its 2004 amendment which was the version in force for this claim) provides as follows:
"40. (1) Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that the employee has made an invention belonging to the employer for which a patent has been granted, 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 that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below." (emphasis added)"Benefit" is defined by s.43(7) as "benefit in money or money's worth". "Outstanding" is not defined in the legislation.
To succeed in his claim Prof Shanks therefore needed to establish as a threshold issue that the patents had been of "outstanding benefit" to his employer, and also that it was just to award him compensation.
Factual Background
The factual background is set out in an appendix to the judgment. Some salient facts are as follows:
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- Prof Shanks was employed by Unilever UK Central Resources Ltd from 5 May 1982 to 3 October 1986;
- It was common ground that Prof Shanks was employed to invent;
- He initially received £18,000 per year (plus a Volvo), rising to £29,000 (and a BMW);
- He built an electrochemical capillary fill device (ECFD) during the course of his employment (albeit at home), and he also developed a fluorescent capillary fill device (FCFD);
- The claim related to EP 0 170 375 and related patents (the Shanks Patents) which claimed priority from two documents on which Prof Shanks was the sole named inventor;
- Most companies in the field of blood glucose testing took non-exclusive licences for the Shanks Patents. The Shanks Patents were the subject of an intra-group assignment, and were subsequently sold to a 3rd party;
- The hearing officer concluded that the total gross benefit to Unilever from the Shanks Patents was £24.5M, but that this was not an 'outstanding benefit'.
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Issues on appeal
Unilever's central argument was that £24.5m, although not an inconsiderable sum, was dwarfed by the turnover and profits of the Unilever Group as a whole. Prof Shanks' legal team argued that this was essentially a 'too big to pay' submission.
The Court of Appeal observed that "outstanding" was a relative concept, which must be measured against the relevant factors in each case. What constitutes the undertaking for the purposes of the assessment under s40(1) must be based on the economic and business realities of the employer's organisation - rather than simply restricting it to the employing entity. On the facts, the hearing officer had been entitled to conclude that there was no outstanding benefit to the employer. Briggs LJ dismissed the appeal "with some reluctance" because Prof Shanks might well have succeeded had his employer been a much smaller undertaking than Unilever. The fact that it was the only matter which Parliament had made express reference meant that it could not be disregarded by the Court of Appeal.
Another ground of appeal raised by Prof Shanks was that 'the time value of money' should be included in the calculation of the benefit to the employer, and also in calculating his fair share. Unilever was in receipt of licence fees from 1996 until 2004 and the Shanks Patents were sold in 2001. Between those dates and the hearing at the UK IPO in 2012, Unilever had the use of the money which was in itself a financial benefit to the Unilever group. Patten LJ (who wrote the main judgment) agreed with the High Court that the time value of money should be excluded from the calculation - it is the opening balance that counts. Briggs and Sales LJ qualified this conclusion (obiter) in that the time value of money may need to be taken into consideration in assessing outstanding benefit and the employee's fair share in the event that the real value of money over time had changed (e.g. as a result of inflation or interest rates).
The Court of Appeal also noted that corporation tax (which on the facts was significant at 30%) should not be deducted from the calculation of "benefit" to the employer.
Unilever's central argument was that £24.5m, although not an inconsiderable sum, was dwarfed by the turnover and profits of the Unilever Group as a whole. Prof Shanks' legal team argued that this was essentially a 'too big to pay' submission.
The Court of Appeal observed that "outstanding" was a relative concept, which must be measured against the relevant factors in each case. What constitutes the undertaking for the purposes of the assessment under s40(1) must be based on the economic and business realities of the employer's organisation - rather than simply restricting it to the employing entity. On the facts, the hearing officer had been entitled to conclude that there was no outstanding benefit to the employer. Briggs LJ dismissed the appeal "with some reluctance" because Prof Shanks might well have succeeded had his employer been a much smaller undertaking than Unilever. The fact that it was the only matter which Parliament had made express reference meant that it could not be disregarded by the Court of Appeal.
Another ground of appeal raised by Prof Shanks was that 'the time value of money' should be included in the calculation of the benefit to the employer, and also in calculating his fair share. Unilever was in receipt of licence fees from 1996 until 2004 and the Shanks Patents were sold in 2001. Between those dates and the hearing at the UK IPO in 2012, Unilever had the use of the money which was in itself a financial benefit to the Unilever group. Patten LJ (who wrote the main judgment) agreed with the High Court that the time value of money should be excluded from the calculation - it is the opening balance that counts. Briggs and Sales LJ qualified this conclusion (obiter) in that the time value of money may need to be taken into consideration in assessing outstanding benefit and the employee's fair share in the event that the real value of money over time had changed (e.g. as a result of inflation or interest rates).
The Court of Appeal also noted that corporation tax (which on the facts was significant at 30%) should not be deducted from the calculation of "benefit" to the employer.
