Patents diary: November 2019

November 2019

Supreme Court awards compensation to inventor in Shanks v Unilever

Following 13 years of litigation, the Supreme Court has recently revisited the meaning of 'outstanding benefit' in regards to employee inventions, and has awarded an employee £2 million compensation from his employer in relation to his patented invention of pioneering technology to test blood sugar levels, created nearly 40 years ago.


UK law position

Under UK law, an employee may be awarded compensation for an invention patented by their employer in which they are a named inventor, if the patent or invention has provided an "outstanding benefit" to the employer1. The facts of the Shanks case date to an earlier version of this, which required that the patent for the invention must have the outstanding benefit for the employer. This "outstanding benefit" must be determined in the context of the employer's normal business activities, and taking into account the size and nature of the employer's undertaking2.

Professor Shanks and Unilever

Professor Shanks was employed by a wholly owned subsidiary of Unilever plc, UK Central Resources Ltd (CRL) in the 1980s to invent biosensors. During this period, Professor Shanks built, at home, the first prototype of an electrochemical capillary fill device (ECFD), which measures the concentration of glucose in blood and other liquids.

Unilever subsequently filed patents for the ECFD in their name (the Shanks Patents). As the glucose testing market expanded in the 1990s, Unilever began licensing-out the ECFD technology in the Shanks Patents. Importantly, patent licensing was not a normal business activity of Unilever, who predominantly use patents to protect their own business activities. Many of the licensees approached Unilever themselves, although Unilever employees were involved in negotiation of licences. Unilever later sold the Shanks Patents as part of the sale of its diagnostics business Unipath.

Earlier proceedings

Professor Shanks brought a claim for compensation on the basis the patents for his invention provided an outstanding benefit to his employer. Until relatively recently, in the English courts, no employee had successfully claimed the right to compensation for the benefit their work had brought to their employer3.

At the UKIPO4, the Hearing Officer calculated the total gross profit obtained by Unilever from the Shanks Patents as £24.5 million. However, in view of Unilever's normal activities and profits, this amount was determined not to be an "outstanding benefit". Had the patents been of outstanding benefit though, compensation amounting to about £1.2m would have been appropriate (representing 5%)5.

The decision of the UKIPO Hearing Officer was upheld on appeal in the Patents Court6, where Arnold J added that hypothetically he would only have awarded a sum representing 3%, with deductions for corporation tax.

The Hearing Officer's decision was again upheld in the Court of Appeal7. Patten LJ found the Hearing Officer had properly considered the issues, and had correctly found a lack of outstanding benefit because the income benefits of the Shanks Patents "came in over an extended period of time and produced no obvious benefit to the business as a whole other than cash". As Unilever had not been outwardly affected by the Shanks Patents, no outstanding benefit could be attributed to them.

Supreme Court

On appeal to the Supreme Court, a key issue was whether the Hearing Officer and lower courts had erred when applying the test for outstanding benefit and misapplied the law by only comparing the monetary benefit from the Shanks Patents and Unilever's total profits. This analysis, Professor Shanks argued, would enable Unilever to be in a position where it would always be "too big to pay".

The appeal raised questions of the circumstances in which compensation may be awarded, and how the amount/fair share of compensation should be determined. Having considered these questions, the Supreme Court overturned the decision of the Hearing Officer and lower court, finding that the benefit provided by the Shanks Patents was outstanding. Professor Shanks was awarded a fair share of the benefit, held to be £2 million.

Benefit outstanding?

The Court first considered the meaning of the word outstanding, holding it to be an ordinary English word meaning "exceptional" or "such as to stand out", which refers to the benefit (in money or money's worth) of the patent to the employer rather than the degree of inventiveness of the employee. The Court considered it important to look at the context and ask "in relation to what must the benefit from the patent be outstanding?" Additionally, account must be taken of other factors, and the meaning of "size and nature of the employer's undertaking" considered? The Court determined that this involved establishing what the employer's undertaking is, and the relevance of that undertaking's size and importance.

With regard to the undertaking, the Court said the commercial reality of the situation must be considered from the perspective of the inventor's employer. This required a comparison between the benefit of the Shanks Patents to the Unilever group with the benefit of other patents arising from CRL's work for Unilever. Regarding the relevance of the size and nature of the employer's undertaking, the Court considered whether Unilever were "too big to pay" – did it matter that the £24m benefit derived from the work put into the Shanks Patents was dwarfed by the turnover and profits of Unilever as a whole?

The Court decided that a number of aspects of business' size and nature may be relevant in certain circumstances and can be taken into account when considering whether a benefit is outstanding. For example, a large undertaking with greater leverage when negotiating licence fees might be able to harness its goodwill and sales force in a way that a smaller undertaking cannot. Therefore, a particular sum representing an excellent return for a small undertaking may not be so regarded by a large undertaking.

Error of principle by Hearing Officer?

In making their decision that Professor Shank's patent did provided an outstanding benefit, the court held that the Hearing Officer had incorrectly applied the test for outstanding benefit, in particular:

  • The Hearing Officer started his analysis from Unilever as a whole, as opposed to the research arm of Unilever (CRL) at which Professor Shanks was employed.
  • The Hearing Officer's analysis of the overall turnover and profits generated by Unilever (eg from making and selling ice cream, spreads and deodorants) was misdirected. The success of these products was due to many factors, and patent protection would only have contributed to a proportion of their sale price. The Shanks Patents actually stood out in terms of the benefit from patents.
  • The Hearing Officer did not properly take into account the fact that the size and success of Unilever's business as a whole did not play any material part in securing the benefit it has enjoyed from the Shanks Patents. The benefit came from the licensing of the Shanks Patents, not the manufacturing capacity of Unilever.
  • The Hearing Officer, having seemingly warned against applying an analysis that could render employers "too big to pay", had proceeded to apply such an analysis and simply compared the sums Unilever generated from the Shanks Patents against its turnover and profitability.

In considering the above, the court ultimately came to the conclusion that the Shanks Patents were of outstanding benefit to Professor Shank's employer. They identified in particular the following factors as relevant considerations:

  • Shanks had made the invention using his own initiative
  • the extreme disparity in numerical terms between the benefit Unilever received and the regular salary and £100 assignment fee that Professor Shanks was paid
  • the scant evidence of Unilever's other licensing activities, and that there was no example of another licensing deal which had provided Unilever with an income at or above the level of the Shanks patents
  • that the Shanks patents had produced a very high rate of return
  • that Unilever had made a very small effort to commercialise Professor Shanks' invention
  • the benefit could not be attributed to Unilever's wider business assets or infrastructure and were not due to any leverage Unilever was able to exert due to its size
  • that Unilever's licensing efforts were serious but not exceptional
  • that Unilever had generated the benefit it derived from the Shanks patents at no significant risk.
Fair share

Having come to the conclusion that the Shanks patents were of outstanding benefit, the Supreme Court held that the Hearing Officer was correct to decide that 5% of the £24m was a fair share of the benefit of the patent. With an uplift to reflect the impact of time on the value of money and inflation, this produced a figure of about £2m.

Impact and considerations

As a decision of the Supreme Court, Unilever v Shanks is of the highest authority, and a success for the employee inventor Professor Shanks after a dozen years of litigation.

This seems to be the 'right' and 'fair' decision – had the Supreme Court dismissed the appeal, this may have resulted in large companies being, in practice, immune from the employee compensation provisions found in English law by virtue of their size and/or patent exploitation capabilities. This would be manifestly unjust to employee inventors in these companies, and could lead to stifling of employee inventiveness and stalling of innovation from large companies.

Can it therefore be expected to open the way to further successful claims by employee inventors? The outstanding benefit gained must be regarded with respect to the size and nature of the employer's undertaking, and this is where the reasoning of the decision is key to future cases.

The difference between the business activities of Unilever as a whole and the research arm in which Professor Shanks was involved was emphasised as a determining factor throughout the decision of the Supreme Court. "Outstanding" was assessed by comparing the benefit of the Shanks Patents to the Unilever group as a whole with the benefit of other patents arising from CRL's work. This like with like assessment is at the heart of the Court's reasoning.

The scale of the benefit in each case must be assessed according to numerous and nuanced factors, to determine whether it is truly connected to the patents and/or the invention or other business activity. The facts of every case will therefore be very important. But, it appears to indicate that where an inventor is working for a research unit within a company/ group that regularly makes large profits from patent dealings in the innovations that inventor has contributed, then the less likely it may be that their contribution will be of outstanding benefit.

The decision

Date of decision: 23 October 2019

Court: UK Supreme Court

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

1 s40 Patents Act 1977

2 s1(1)(b) Patents Act 1977; Kelly v GE Healthcare [2009]; Memco-Med [1992] RPC 403

3 See James Duncan Kelly and Kwok Wai Chiu v GE Healthcare Limited [2009] EWHC 181 (Pat) (11 February 2009).

4 BLO/259/13

5 Having regard to the various matters set out in section 41 of the 1977 Act.

6 [2014] EWHC 1647 (Pat)

7 [2017] EWCA Civ 2


Josie Miller

Josie is an associate in the London office, who advises on contentious and non-contentious patent issues.

"Unilever v Shanks is of the highest authority, and a success for the employee inventor Professor Shanks after a dozen years of litigation."