The Court of Appeal has delivered a decision in a case between Unilever and one of its employees - Professor Shanks.

Professor Shanks invented a measuring device for use in diabetic blood testing kits while working for Unilever. This invention was owned by Unilever, as it had been invented during the ordinary course of employment and so Unilever filed for and obtained a patent.

However, under the Patents Act 1977 where an invention is of outstanding benefit to the employer, taking the size and nature of the employer's undertaking into account, compensation may be awarded to the relevant employee. The amount is to be a fair share of the benefit the employer has derived, or may reasonably be expected to derive, from the patent.

Unilever assigned the patent to another group company for a nominal sum and approximately ten years later licensed the invention to third party companies, earning £23 million in royalties before the patent expired.

Professor Shanks brought a claim for compensation, relying on the phrase "may reasonably be expected to derive", arguing that, in the context of an intergroup assignment, the value of the invention should be that which a notional assignee would have generated had they fully exploited the invention. Had Unilever done so, for example by commercialising it sooner, it could have earned £1 billion in royalties, far in excess of the £23 million actually generated.

The Court of Appeal, however, held that compensation must be calculated by reference to the actual and not a notional employer, and by the real, actual benefit received. Even if an invention had been immensely valuable and a patent for it could have been, or could be if still in force, exploited for a vast sum, this is irrelevant. The inventor's scope for compensation is restricted by the actual exploitation by their actual employer and the provisions are not some kind of "best endeavours to exploit" requirement.

Indeed a calculation of compensation based on the £1 billion royalties could result in Professor Shanks potentially receiving more by way of compensation than Unilever actually received in royalties. As the actual sum received by Unilever was £23 million, the court held that this was the sum to be used in calculating Professor Shanks' fair share.

This decision provides some welcome clarity around the application of the 1977 Act, and the commonsense approach of the Court of Appeal should hopefully assist in preventing unreasonable expectations and claims from employees.

Contact Us

For further information, please contact:

Alison Bryce
Partner
0131 228 7102
alison.bryce@mms.co.uk

Ross Nicol
Associate
0141 303 2459
ross.nicol@mms.co.uk

MMS Knowledge®

Given your interest in IP & Technology law, you may find some of our other updates particularly useful. Corporate, for example, has been selected by many of our clients who have signed up to IP & Technology. To register for additional bulletins, guides and seminars, visit sign up.

Please feel free to forward on this bulletin to friends and colleagues who may find it of interest and wish to subscribe themselves.

This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.