Data protection for your business after a no-deal Brexit
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?
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.
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.
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.
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.
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.
Partner and Head of Department
If you are involved in investing, either as a startup or an investor, you are likely to come across an advanced subscription agreement. So what is an advanced subscription agreement and what do you need to consider when entering into one?
You are aware that the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two tax incentive schemes for individuals who invest in early-stage companies. What are the key considerations when determining whether a particular investment is eligible for SEIS/EIS relief?
In September 2020 the FCA published a statement regarding the listing of cannabis-related businesses (CRBs) in the UK. Since then several CRBs have been admitted to the London Stock Exchange (LSE) and appetite for investments in the medicinal cannabis industry continues to grow.
The FCA has launched a consultation on a technical note setting out guidance for companies applying for listing which have cannabis-related businesses. As with all companies applying for listing, those with cannabis related businesses must be assessed for eligibility for listing under the Listing Rules. Because of the legal complexities around cannabis businesses the FCA applies additional due diligence requirements to them.
The pandemic has changed the world – there is no doubt we are all “online” far more now than before. Social media now extends into every aspect of our lives, from those notorious repetitive baby pictures to those ‘should never have been posted university photos‘. We collect and share moments of our lives in the digital world.
Following the release of the Hill Report, the FCA has moved quickly to consult on proposals intended to provide an alternative route to market for larger Special Purpose Acquisition Companies (“SPACs”). The broad proposal is that if a SPAC can meet additional investor protection requirements the FCA will not generally require that the listing of its shares be suspended once an acquisition is announced.
Global financial markets are preparing to transition away from the use of the London Interbank Offered Rate (“LIBOR”) and adopt an appropriate alternative risk free rate (“RFR”) by the end of 2021. What are the reasons for the move away from LIBOR, the progress to date in terms of identifying the Sterling Overnight Index Average (“SONIA”) as the most appropriate alternative rate in the Sterling markets, and the steps still required to be taken to ensure such markets are ready for the phasing out of LIBOR by the end of the year
Following the release of the Hill Report at the start of last month, the FCA has announced that it is going to open a consultation into changing the Listing Rules and connected guidance with a view to encouraging the listing of Special Purpose Acquisition Vehicles (SPACs).
Lord Hill’s keenly awaited report on the UK’s listing regime was released on 3 March 2021. Many of his recommendations focus on the premium listed segment, and much of the commentary to date has focussed on recommendations such as permitting dual class share structures. However, the report includes a number of proposals which if implemented may make the Official List more appealing to smaller companies, which we have highlighted in this blog.
On 30 March 2021 the provisions of the Corporate Insolvency and Governance Act 2020 (“CIGA”) which allowed purely virtual general meetings will lapse, and the normal rules will apply. ICSA have produced some useful guidance to assist companies in dealing with their general meetings in the light of this change.
Following a request by the Department of Business, Energy and Industrial Strategy (“BEIS”) ICSA has prepared a report assessing the effectiveness of the independent board evaluation process introduced in the 2018 update of the UK Corporate Governance Code (the “UK Code”).
What happens when a director commits fraud by misappropriating company assets? Or what of the director who continues trading knowing that the company has no realistic prospect of paying its debts as and when they fall due? To whom does a director owe duties at that point and what recourse is there against that director? This article explores these questions.
We have previously examined how the Government’s Coronavirus Business Interruption Loan Schemes (the Bounce Back Loan Scheme (BBLS), Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS)(together the “Schemes”) work. A report issued by the Public Accounts Committee on 10 December 2020 highlights the darker side of the Schemes and what it is costing the UK taxpayer.
In the last instalment we talked about the ways in which the founders of KNow Wear Limited could protect the intellectual property in their business. Since then, the business has been progressing well and our founders have been working on developing a prototype.
Back in July Rishi Sunak requested a review of the current capital gains tax (CGT) system. The Office of Tax Simplification (OTS) was asked by Sunak to produce a report on whether certain features of CGT distort the behaviour of individuals.
In our last instalment our founders, Sarah and Chris, considered the basics in establishing their tech startup and they incorporated a company under the registered name ‘KNow Wear Limited’.
Welcome back to the blog series covering the lifecycle of a tech startup, from a legal perspective.
Alex (tech), Andy (tech), Emer (investments) and I (investments) work alongside startups and founders day to day and thought it might to helpful to some of you out there to bring together our expertise on the legal issues that tend to arise and how we deal with them.
As the June quarter date fast approaches and the economic impact of COVID-19 begins to be felt across all sectors, what steps should landlords be taking to vary their lease arrangements with tenants who are unable to meet their rental obligations, and could a reduction in rental income due to COVID-19 put landlords in breach of their own obligations under their loan facilities?
On sitting down to write this blog, I was a little embarrassed. When you actually take the time to think about drafting legal documents in a way that is gender neutral, it seems to me that the question isn’t why do this, but why not?
Skip to content Home About Us Insights Services Contact Accessibility