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

25 October 2019

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. 


Latest blogs and news

Lifecycle of a tech startup series: Directors' Duties

KNow Wear Limited has used the investment received to date to further develop the wearable tech product to the extent that it now has a minimum viable product with basic features to introduce to the market. The company has identified a test group of 100 consumers who will test this version of the product and provide feedback. Following the test phase the company will collate the feedback and further develop the product before releasing a final version of the product to the market.

Economic Crime (Transparency and Enforcement) Act 2022 – The Long-Awaited Introduction of the Register of Overseas Entities

The Government has for some time promised to introduce a register requiring overseas entities holding UK property to identify its beneficial owners, in its effort to increase transparency in UK property ownership and reduce the attraction of the UK’s property market to money launderers. Indeed, we last blogged about the potential overseas entities register in May 2019. With UK-based entities subject to strict information-sharing requirements since 2016 (in the form of the register of People with Significant Control or “PSC Register”), many have been calling for an equivalent overseas entities register to be implemented to provide a way of tracking overseas owners who ultimately own and control UK land.

Employment related securities – returns and reasonable excuses

In an Employment Related Securities (ERS) Bulletin for March 2022 (bulletin 40), HMRC has linked to helpful guidance on what it considers to be a reasonable excuse for failing to meet submission deadlines for annual ERS returns (due on 6th July following the end of the tax year to which they relate) and notification of EMI options (due within 92 days after grant).

Software support helpdesk services – key contracting principles

In our recent blog, we explored why a Framework Agreement structure is typically the most appropriate customer contracting model for IT managed services providers (“MSPs”) and IT consultancies which offer a diverse product and service offering. Whilst our initial blog focussed on the purpose and terms of the Framework Agreement itself, that document is merely the starting point, given that a Work Order is also needed to document specific terms relating to each product or service offered by an MSP or IT consultancy. A typical service offering is a dedicated software support helpdesk, usually provided to support each of the software products offered by the MSP or IT consultancy to its customers. This blog considers a handful of the key issues to bear in mind when documenting the terms of a Work Order relating to the supply of a software support helpdesk service.

Does a sole director have authority to act?

Articles are a set of rules which determine how a private company is run and they represent a contract not only between the company and its shareholders but also between the shareholders themselves. Examples of what is covered in a company’s Articles include the liability of shareholders, how shareholders make decisions and how directors operate. The Model Articles are a set of default standard articles which, unless modified or excluded, apply automatically to a private company incorporated on or after 1 October 2009.

Do you want to phone a friend?

Picture Rishi Sunak as a game show host. The spotlight is on the contestant, an employee, and Rishi asks them if they would like to: a) Keep their pay rise; b) give it all to the government; or c) give it all to charity. I expect many of us would say “Keep it please!” but, in certain situations, without some action on the employee’s part the default answer is that none of it is kept and the government enjoys it all. This post briefly discusses one such issue, and offers other suggestions for the tax year end (which are, unfortunately, unlikely to make you a millionaire).

Spring Statement 2022 Update - Did you see that coming?

Despite the rumours of a reduction in income tax, you may have expected that the Chancellor would keep this in his back pocket for now...

Lifecycle of a tech startup series: Obtaining a Sponsor License

KNow Wear Limited have identified some overseas talent that they would like to hire to help to expand the business. This candidate does not currently have permission to work in the UK and therefore KNow Wear Limited is considering whether it can apply for a sponsor licence from UK Visas & Immigration (“UKVI”). Obtaining a sponsor licence, will then enable the company to go on and sponsor individuals to apply for immigration permission to work in the UK.

FCA’s Updates to the Financial Promotion Rules

The FCA has published its proposals to strengthen the financial promotion rules for high-risk investments and for authorised firms which communicate and approve financial promotions in its recent Consultation Paper.

Framework Agreements: the customer contract model for technology service providers

Many businesses lack comprehensive in-house IT expertise and resources to fully implement and manage all of their IT infrastructure requirements. IT managed services providers (“MSPs”) and IT consultancies plug the gaps by typically offering a diverse range of IT services and products to lighten the burden on their customers’ in-house IT teams (or to even remove the need to have an in-house IT team). 

Lifecycle of a tech startup series: R&D tax relief

Having raised £500,000 and, in episode 8, hired a software developer, KNow Wear Limited is starting to flourish. As Ben Franklin wrote when the USA was in its infancy, nothing is certain except death and taxes. Knowledge of the UK tax system is valuable for any UK business owner, start-ups can dramatically improve their chances of success by ensuring they claim the various tax reliefs and incentives available. Episode 4 looked at the valuable tax reliefs a company can offer its investors, your focus today is on the tax relief (or repayment) available to companies carrying out research and development activities.

The journey from social media influencer to tech entrepreneur

Social media has revolutionised the way in which we interact with businesses and each other and has shown that it can be a generous friend to business owners and entrepreneurs, helping them to harness a following, build their brand and grow a worldwide customer base. 

Lifecycle of a tech startup series: Employees and Consultants

In our previous blog in our Lifecycle of a tech startup series, KNow Wear Limited secured investment of £500,000. Having completed the raise, you, Sarah and Chris have decided that you need more help in developing and marketing the product. You are looking to create two new roles in the business - the first is a Software Developer to support Sarah’s work and the second is a Head of Marketing.

BEIS White Paper on Audit Reform: will directors take on more personal liability?

In Part 1 of our two-part series on the Department for Business, Energy and Industrial Strategy's (BEIS) White Paper on audit and corporate governance reform (Restoring Trust in Audit and Corporate Governance), we focussed on whether the proposals regarding corporate governance are likely to make the UK a more or less attractive destination for investors.

The end of Standard Listings?

Yesterday the FCA  announced new rules, the majority of which come into force today (3 December 2021), which are intended to prevent smaller companies obtaining admissions to the Standard Segment of the Official List.  

FCA Crackdown on Fundraising Exemptions

In its Perimeter Report for 2020/21 the FCA has raised concerns that unauthorised persons are increasingly using, or purporting to use, exemptions from the Financial Promotions Order (FPO) to sell high risk investments and potential scams to ordinary consumers without their rules applying.

The new cookie conundrum

Potential reforms to UK data privacy laws will change the way that cookies work on websites - businesses need to prepare now.


AQSE To Change SPAC Rules

AQSE is consulting the market about some changes to its rules relating to SPAC admissions.  

Currently  SPACs are eligible for admission to the Access segment of the AQSE growth market, as long as they have a minimum capitalisation of £700,000 and a free float of 10%.  AQSE is concerned that this can result in a disorderly market and excessive volatility because a lack of liquidity arising from low market capitalisation and limited shareholder numbers.


Lifecycle of a tech startup series: Seed raise

Having decided in episode 4  of our lifecycle of a tech startup series on targeting angel investors to raise £500,000 investment in the business, the founders of KNow Wear Limited researched various angel investor networks which aimed to connect start-ups like yours with angel investors. You applied to pitch at a couple of events and were invited by one network to interview with them in person. The network was very impressed with the business and invited you to pitch at their next event.  

BEIS White Paper on Audit Reform: Will Kwarteng's reforms really unchain entrepreneurs?

In 2012, as a recently elected MP, Kwasi Kwarteng co-authored “Britannia Unchained: Global Lessons for Growth and Properity”, a political pamphlet which championed risk-taking and innovation in the UK economy, and which ever since has led some to label him a fervent Brexiteer. Appointed as the Business Secretary in January 2021, only a few months later his department (BEIS) published one of the longest and most ambitious government White Papers in recent years.

Share insightLinkedIn Twitter Facebook Email to a friend Print

Email this page to a friend

We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

Leave a comment

You may also be interested in:

Skip to content Home About Us Insights Services Contact Accessibility