Shanks v Unilever: What does this mean for employers’ intellectual property rights?

After a 13 year legal battle, the Supreme Court has awarded £2m in compensation to a professor for an invention he created during his employment, nearly forty years ago. This ruling poses the question; will Shanks v Unilever open the floodgates to future compensation claims from disgruntled employees?

Background of the case

During his employment with Unilever UK Central Resources Ltd (“CRL”), Professor Shanks developed and created the technology now found in most glucose testing products. In 1982, with the use of his daughter’s toy microscope kit, Professor Shanks created his first prototype of the electrochemical capillary device (“ECFD”), which has gone on to be used by many diabetics as a means for monitoring their condition. As was accepted by Professor Shanks, the intellectual property (“IP”) rights to his invention belonged to CRL under the Patent Act 1977 (“Act”), as it had been created during the course of his normal employee duties.

The IP rights in the ECFD were later assigned to the wider company group, Unilever plc (“Unilever”), who filed successful patent applications across the globe. Through the mass-licensing of its IP rights over the invention, Unilever went on to generate £24.55m in total earnings.

After witnessing the success that his invention brought to Unilever, Professor Shanks decided to bring a claim for compensation under the Act on the basis that the patent protecting his invention had been of ‘outstanding benefit’ to his employer, and of him being entitled to a fair share of the profits. After a sea of unsuccessful appeals, the Supreme Court has now ruled in favour of Professor Shanks, and has granted him £2m in compensation.

Outstanding Benefit

The court in this instance found that ‘outstanding benefit’ means ‘exceptional or such as to stand out’ in relation to the benefit received by an employer from a patent. In measuring whether Professor Spark’s patented ECFD invention reached this threshold, the Supreme Court looked at two key issues; what amounts to an ‘outstanding benefit’ and how to assess the fair share owed to Professor Shanks.

Part of Unilever’s argument rested on the fact that the financial contributions the patent made to the Unilever group were insignificant compared to the group’s overall profitability. The £24.55m in profits earned from the patent was not a crucial stream of income for the group. Interestingly however, whilst acknowledging that regard should be had to the size and nature of a business, the court firmly held that comparing the revenue generated from the patent to the overall profit of the group should be disregarded. It was instead concluded that in contrast to other inventions protected by patents of the group, the ECFD had made a significant contribution to the group’s profits. In addition, the court noted that the benefit received from the patent derived from the licensing of the invention itself and not, for example, as a result of Unilever’s market presence skill in securing favourable licence fees.

Secondly, in assessing the fair share owed to Professor Shanks, the court looked at various factors, which resulted in £2m in compensation being granted, 5% of the profits earned by Unilever.

Implications for Employers

The first successful claim since the Act’s introduction was the case of Kelly v Healthcare Limited. In contrast to Shanks v Unilever, the court found that the ‘outstanding benefit’ gained by the employer from the patent was one that was crucial to the company’s success. The patent accounted for a large amount of the company’s profits and played crucial roles in protecting the company’s competitive market edge. Unlike the ruling in Shanks v Unilever, the profitability of the patent in relation to the company’s wider income was considered in the court’s findings.

Therefore, the wide scope adopted in Shanks v Unilever certainly creates uncertainty for employers as to what constitutes an ‘outstanding benefit.’  Whilst the court took the time to note that for smaller businesses a simple comparison of profitability may be enough, it also warned against a simplistic approach. As such the wide interpretation of ‘outstanding benefit’ may encourage future inventors and developers to reassess their position and bring compensation claims under the Act, while employers may feel more uncertain about the extent of their IP rights over any patented inventions.

Mitigating your risk

It should be noted that under the Act employers are not able to limit or exclude an employee’s right to bring a compensation claim in a contract of employment. As an alternative, employers may consider organising the research and development of inventions so that employees have to work within teams. This may make it more difficult to clearly identify the individual contributions to the creation of a patented invention, but it may also act as a deterrent for employees, as their fair share to any ‘outstanding benefit’ gained will be diluted. As a result, they may not feel it is worth bringing proceedings. On the other hand, employers should also be wary of any measures which may impact on the effectiveness of research work.

Incentive schemes for employees have become ever more common place, particularly for those carrying out development roles in technology businesses. Whilst employers are accustomed to paying consultants and other third parties to secure the assignment of their IP rights into the relevant company, and while it is also common to incentivise employees by reference to certain milestones and targets, this case is likely to pressurise employers into widening the scope of such schemes, so that some form of compensation is paid to those who are responsible for particular inventions (and patent protection is more likely to be applicable to software development in the UK than in previous years). Whilst this may appease inventors, such an approach may also result in employers paying out additional sums without any guarantee that such amounts will be regarded as sufficient compensation for the ‘outstanding benefit’ gained.

Lastly, this case has shown that attempts by employers to assign IP rights to the wider company group may not stop cases succeeding. The benefit received was enjoyed by the whole group, and so it was immaterial in this case that the employee’s immediate employer had not received the total value gained from the patented invention.

It is clear, therefore, that Shanks v Unilever has highlighted that there is no means for employers to fully mitigate their risk against potential compensation claims. However, demonstrating that an ‘outstanding benefit’ has been enjoyed by an employer is still a high threshold to prove and compensation will still only be granted in exceptional cases.

If you would like formal legal advice on intellectual property agreements any other corporate or commercial matter, please contact a member of our corporate and commercial team.

We also act in the most complex and challenging employment disputes. If you would like legal advice in relation to an employment dispute, please contact a member of our employment team.

ABout the authors

James Fulforth is a Partner and Head of the Corporate and Commercial department. James advises on corporate transactions, including angel, VC and PE investments, mergers and acquisitions, joint ventures, and re-organisations. He is an advisory board member of Angel Academe, the angel investor group, and regularly acts for founders of and those investing in early-stage and startup ventures.

Jessica Rice joined Kingsley Napley in September 2019 as a paralegal in the corporate and commercial team.