Shanks v Unilever (No 2)
Citations:  UKSC 45;  1 WLR 5997;  Bus LR 2730.
The claimant worked for a subsidiary company in the 1980s. His job was to invent biosensors (mostly fertility and pregnancy). In 1982, he invented a biosensor for measuring blood glucose levels, which was useful for diabetics. His employer applied for and received patents in relation to this invention. It then transferred the patents to other companies in the Unilever corporate group. The group made around £24 million licensing the patents and ultimately selling them to a third-party. This did not involve any major cost or risk to the group. It was their most profitable patent licensing endeavour by a high margin.
In 2006, the claimant sued the defendant, who was the parent company of the group, for employee-inventor compensation under section 40(1) of the Patents Act 1977.
- Was the benefit of the patent to the employer ‘outstanding’?
- What factors should the court consider when calculating a ‘fair share’ of the benefit?
The Supreme Court held in favour of the claimant. The benefit to the employer was outstanding given the unusually high returns and lack of risk. The court calculated the fair share as 5% of that benefit (ignoring corporation tax) plus an uplift to reflect inflation since the 1980s.
This Case is Authority For…
‘Outstanding’ is a normal English word which means ‘exceptional’ or ‘stand-out’. Factors relevant to whether a benefit is outstanding include:
- The kind of benefit normally expected from that kind of employee-inventor;
- The risk and cost involved to the business in developing or exploiting the invention or patent;
- Whether the rate of return was unusually high;
- Whether the invention or patent allows the employer to enter a new kind of business or creates new opportunities.
The meaning of ’employer’s undertaking’ under the s.40 provision refers to employer’s ‘undertaking of interest’. This might be the business as a whole, or it might be some subdivision of that business. Where the employer is part of a corporate group which exploits the employer’s work, ‘undertaking’ refers to the activities and profits of the group which relate to the employer’s contribution to that group. It does not refer to activities which are not connected to the employer’s involvement in the group.
For example, in this case, the employer researched and developed medical inventions and patents. The court could therefore consider the typical profits the group made in relation to that kind of invention or patent. It could not, by contrast, look at the profits the group made on other products, such as ice cream or shampoo, since the employer had no involvement in those lines of business.
When calculating a fair share of the benefit, the relevant benefit is not reduced to reflect corporation tax. Where significant time has passed, it may also include an uplift to take into account the effect of inflation.
The fact that an ’employer’s undertaking’ is not necessarily every activity which a corporate group undertakes makes it less likely that an employer will be ‘too big to pay’. The fact that the patent or invention’s profits were only a tiny fraction of the employer or group’s overall profits is far from decisive. However, the size of the employer or group can be relevant in other ways, such as where it gives the employer enhanced negotiating power (allowing it to set higher prices).
Shanks v Unilever was decided in relation to the unamended versions of sections 40 and 41 of the Patent Act 1977. The old version of these provisions only refers to the benefit of the ‘patent’, while the new version refers to the benefit of the patent, invention, or both. The principles decided in Shanks should be equally applicable to the amended provisions, however.