Employee-Inventor Compensation: Aggregating Benefits and Accounting for Financial Means in Costs Budgets

1. Introduction

This unanimous judgment establishes two important principles governing employee-inventor compensation under the Patents Act 1977. First, an employee may rely on the combined benefit of multiple inventions or patents when seeking to establish “outstanding benefit” under section 40(1). Secondly, section 106(1), which requires consideration of the parties’ financial positions when determining costs, applies when the court approves costs budgets—not merely when it makes a subsequent costs award.

The decisions address connected practical problems: artificial fragmentation of the commercial value generated by inventions, and the risk that substantial litigation costs will undermine employees’ ability to obtain meaningful compensation. Nevertheless, neither ruling removes the statutory requirement of outstanding benefit or guarantees an employee protection against adverse costs.

Arnold LJ delivered the principal judgment. Baker LJ agreed, and Asplin LJ expressly endorsed both appeals’ outcomes and reasoning.

2. Background and Procedural Setting

The claimant, an analytical chemist employed by Convatec Limited from 1991 to 2023, alleged that inventions he made, alone or jointly, had generated outstanding benefits for the company. The claim concerned seven patent families with priority dates between November 2000 and May 2013. Inventorship remained disputed in some respects.

The claimant relied on estimated global sales of approximately $3.2 billion, up to 2021, of products embodying the inventions. At its highest, his compensation claim was valued at about £366 million. These were allegations and estimates, not findings that Convatec had received an equivalent qualifying benefit or that compensation was payable.

Proceedings began in September 2022, but a 37-day trial was listed for February 2028. The appeals concerned two interlocutory decisions:

• The section 40 appeal: Mellor J had declined to determine whether benefits could be aggregated and rejected an application to strike out Convatec’s defence that aggregation was legally impermissible.
• The section 106 appeal: Richards J had held that section 106 did not apply to costs budgeting and, alternatively, rejected the claimant’s proposed restrictions on Convatec’s budget.

The appeals therefore did not determine inventorship, outstanding benefit, entitlement to compensation, or the claimant’s fair share of any qualifying benefit.

3. Statutory Framework

Compensation and outstanding benefit

Section 40(1) permits compensation where an employee has made an employer-owned invention for which a patent has been granted; the invention, patent, or their combination has provided outstanding benefit, having regard among other things to the employer’s size and nature; and compensation is consequently just.

Before the amendment effective on 1 January 2005, the outstanding benefit had to arise from “the patent”. The amended provision also encompasses benefit from the invention. The inventions and patents in this litigation straddled that change, but neither party argued that the aggregation question should receive different answers under the two versions.

Section 41 governs the amount awarded. It requires a fair share of the relevant benefit, taking account of matters including the employee’s duties and remuneration, inventive effort, contributions by others, and the employer’s technical and commercial contribution. Permitting aggregation under section 40 does not displace these safeguards.

Financial circumstances and costs

Section 106(1) requires the court, when determining whether to award costs and what costs to award, to consider all relevant circumstances, including the parties’ financial positions. Section 106(2) additionally allows the Patents Court, when directing payment of costs, to fix a lump sum or direct assessment on a prescribed scale.

The central question was whether approving a costs budget forms part of determining “what costs … to award”. The Court of Appeal held that it does.

4. Summary of the Decision

5. Legal Reasoning: Aggregating Benefits Under Section 40

A. The pure legal question should have been decided before trial

The court acknowledged the restraint normally required when reviewing case-management decisions. However, Convatec’s defence expressly advanced a proposition of law: multiple inventions or patents could not collectively provide outstanding benefit if none did so individually.

That proposition raised a self-contained question of statutory interpretation, requiring no findings about the particular inventions. The parties had adequately argued it. The strike-out application therefore required the court to decide which interpretation was correct, rather than merely determine whether Convatec’s interpretation was arguable.

No cross-application by Convatec was necessary: either answer would bind the parties. Nor did the absence of a separately ordered preliminary issue justify postponement. Resolving the question could prevent substantial expenditure on evidence and arguments resting on an unavailable legal approach.

B. Singular language did not resolve the aggregation question

The claimant relied on section 6(c) of the Interpretation Act 1978, under which singular expressions ordinarily include the plural. The court accepted that “invention” and “patent” in section 40 could include multiple inventions and patents. Likewise, the reference to an employee could encompass joint inventors.

That conclusion was necessary but insufficient. Permission to bring claims concerning several patents does not itself establish permission to combine their benefits. The answer required examination of the statutory scheme and the practical consequences of the competing interpretations.

C. There is no necessary one-to-one relationship between inventions and patents

Convatec’s central argument was that sections 40–43 assumed a separate invention corresponding to a separate patent. The wider Act contradicted that premise:

• One patent may protect several inventions. Sections 14, 26 and 125 recognise this possibility, including multiple inventions within a single claim. Artificially separating their benefits would be irrational and potentially unworkable.
• One invention may have protection in several countries. Section 43(4) recognises foreign and international patent protection. There was no persuasive reason to confine the outstanding-benefit assessment to each territorial patent individually.
• Different patents may protect commercially interdependent subject matter. Their combined commercial effect may resist meaningful division.

The court illustrated the last point through patents protecting a pharmaceutical compound, its formulation and its dosage; a breakthrough invention followed by an improvement overcoming commercial resistance; and overlapping patents that exclude different competitors. In each example, a demand for separate attribution could obscure how the employer actually obtained its benefit.

Even technically independent inventions may work together commercially. An employer might exploit one patented solution while another patent blocks competitors from using the alternative. The commercial advantage may arise from the portfolio collectively, not from an intelligible division between individual rights.

D. Practical consequences favoured a permissive interpretation

The court rejected speculative arguments that aggregation would discourage employee retention or investment in UK research. Outstanding benefit, rather than length of service, remains the statutory criterion. An employee might make several relevant inventions in quick succession; long service does not itself justify an award.

Conversely, a categorical prohibition could encourage employers to divide inventions and patent protection into smaller units so that none individually crossed the outstanding-benefit threshold. The court accepted that avoidance risk.

The exceptional nature of the statutory remedy did not answer the interpretive question. The threshold remains “outstanding” whether the relevant benefit comes from one invention or an appropriately assessed combination.

E. Aggregation remains evaluative, not automatic

The holding establishes legal permission to aggregate, not an unrestricted right to pool every invention produced during an employee’s career. The trial judge must assess whether aggregation is appropriate on the facts and, if so, to what extent.

The court expressly observed that greater separation in time may make aggregation less justifiable. Different filing and expiry dates also remain relevant. The patent-specific application period under CPR 63.12(2), and applicable restrictions on post-expiry invention benefits under section 43(5A), are not displaced.

For effective case management, the claimant must identify the particular combinations relied upon and explain why, well before trial. Convatec must identify its responses. The court discouraged reliance on every conceivable permutation.

6. Legal Reasoning: Financial Means and Costs Budgeting

A. Section 106 addresses a practical inequality of arms

The parties accepted that employee-compensation proceedings commonly involve unequal financial resources. Section 106 reduces the risk that exposure to an eventual costs award will deter an employee from bringing a claim.

That purpose would be weakened if financial circumstances could be considered only after the litigation had concluded. An employee may need insurance or funding long before then, and the price of obtaining it depends substantially on anticipated adverse-costs exposure.

B. Determining recoverable costs is a process

The court distinguished the incidence of costs—who pays and on what basis—from their quantum, meaning the amount payable. Although those questions are conventionally addressed in separate stages, “determining … what costs … to award” naturally includes determining the amount.

Section 106(2), with its references to lump sums and scales, reinforced that interpretation. It was also logically possible to identify recoverable amounts before determining who would pay them, as fixed and scale-costs regimes demonstrate.

The court consequently held that section 106 encompasses each step on the critical path to a decision as to what costs to award. Budget approval is such a step because it establishes what each party will ordinarily recover for budgeted work if wholly successful.

C. The ordinary budgeting rules do not exclude the statutory duty

Convatec argued that budgeting concerns only expenditure reasonable and proportionate for the receiving party, regardless of the potential paying party’s resources. The court rejected that argument where section 106 applies. Primary legislation requires consideration of financial position and takes precedence over any narrower approach suggested by the Civil Procedure Rules.

The court did not finally settle the broader relationship between financial means and ordinary costs budgeting outside section 106. Its decision concerns the express statutory duty applicable here.

Nor was it necessary to know every circumstance that might exist at trial. The court should consider circumstances known at the budgeting stage; later developments can be addressed through the available mechanisms for varying or departing from budgets.

Applying section 106 at several stages does not improperly duplicate costs awards. The court must, however, avoid making the same financial adjustment twice.

D. The earlier single-judge order did not bind the court

In an unreported order dated 20 July 2015 in Shanks v Unilever plc, Floyd LJ had limited recoverable appeal costs to £50,000 but stated that section 106 did not apply at that stage, as opposed to when costs were awarded.

The Court of Appeal accepted that the statement addressed the interpretive question now before it. Its relevance could not be dismissed simply because the earlier application concerned costs protection rather than budgeting. Nevertheless, the order was not binding precedent.

The decisive consideration was the nature of the judicial exercise. It was a single-judge decision incidental to an appeal, capable of reconsideration under the procedural rules but not appeal to the Supreme Court. Its reasoning was brief, and the extent of argument on section 106 was unknown.

This was not a general holding that every single-judge Court of Appeal decision lacks binding authority. Nor did the court decide that determination on paper necessarily diminishes a multi-judge decision’s authority. The ruling turned on the particular procedural category involved.

E. The first-instance discretionary assessment was also flawed

Although Richards J had alternatively considered the claimant’s proposals on the assumption that section 106 applied, that assessment remained affected by his erroneous view that financial protection could appropriately wait until later.

The claimant did not argue that an unrestricted budget would make continuation impossible. Rather, the costs of additional after-the-event insurance or litigation funding could substantially diminish, or potentially exhaust, a successful compensation recovery. The court held that the judge had not adequately accounted for the claimant’s present need for reasonable certainty about exposure.

The claimant’s means were modest and substantially below Convatec’s. His solicitors acted under a conditional fee agreement, and existing insurance cover was also being used for disbursements. These arrangements did not eliminate the practical funding problem.

F. Why the court selected £4 million

The Court of Appeal agreed that none of the claimant’s three original proposals was acceptable. These involved IPEC scale costs, a restriction to the remaining insurance cover, or a limit of one-third of the claimant’s own budget. They insufficiently reflected the scale and complexity of the claim and Convatec’s legitimate defence requirements.

Nevertheless, rejecting those proposals did not remove the obligation to devise a fair order. The court accepted a further proposal limiting Convatec’s approved future costs to £4 million.

That figure represented a materially less severe reduction from the approximately £6.5 million otherwise approved. It was closer to the claimant’s approved future costs of approximately £4.7 million and better reflected the differing tax burdens: the claimant bore irrecoverable VAT, whereas Convatec could recover input VAT and obtain a corporation-tax deduction.

The court also considered the insurance consequences. On the illustrative assumption of a premium around 50% of £4 million cover, a £2 million award—the amount awarded in the successful Supreme Court compensation case discussed below—could be consumed by that premium alone. This was an explanation of the funding risk, not a valuation of this claim or a prescribed insurance rate.

The £4 million figure concerns approved budgeted future costs. It is not a determination of all recoverable costs, does not include all previously incurred expenditure, and should not be understood as an absolute prohibition on Convatec spending more. The ordinary qualifications associated with budgeting remain relevant.

7. Precedents Cited and Their Influence

A. Statutory interpretation

R (PACCAR Inc) v Competition Appeal Tribunal [2023] UKSC 28, [2023] 1 WLR 2594

This supplied the principal interpretive framework: statutory language must be understood through purpose, context and scheme, with appropriate caution against absurd consequences. It supported examination of the practical operation of patent portfolios rather than reliance on singular wording alone.

Spath Holme [2001] 2 AC 349; Rossendale Borough Council v Hurstwood Properties (A) Ltd [2022] AC 690; and R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687

These authorities appeared within the passage adopted from the principal interpretive authority. They emphasise contextual meaning and Parliament’s purpose, including the historical problem legislation addresses. They were methodological foundations rather than decisions about employee compensation.

Bloomsbury International Ltd v Department for Environment, Food and Rural Affairs [2011] 1 WLR 1546; and Charter Reinsurance Co Ltd v Fagan [1997] AC 313

These caution against treating an assumed “natural meaning” as the starting point before identifying legislative purpose and scheme. Their influence is evident in the court’s refusal to make singular references to inventions and patents decisive.

R (Project for the Registration of Children as British Citizens) v Secretary of State for the Home Department [2023] AC 255

This explains the secondary role of explanatory materials. The enacted language and statutory context remain primary. The court did not need to determine the admissibility of materials advanced to show that compensation was intended to be exceptional: “outstanding” already established that requirement.

R v McCool [2018] 1 WLR 2431

Through the adopted interpretive passage, this supported avoidance of absurd results, understood to include impracticable, artificial or illogical consequences. That principle informed the rejection of mandatory separation where several patents jointly create commercial value, without authorising judicial replacement of Parliament’s policy.

B. Early determination and appellate restraint

Broughton v Kop Football (Cayman) Limited [2012] EWCA Civ 1743; Global Torch Ltd v Apex Global Management Ltd (No 2) [2014] UKSC 64, [2014] 1 WLR 4495; and Ward v Rai [2026] EWCA Civ 816, [2026] 4 WLR 70

These establish the limited grounds for appellate interference with case-management discretion. The court respected that framework but identified errors justifying intervention: failure to decide a fully argued pure legal question in the first appeal, and legally distorted discretion and omitted considerations in the second.

Frank v Attorney General of Antigua and Barbuda [2022] UKPC 25; and Easyair Ltd (trading as Openair) v Opal Telecom Ltd [2009] EWHC 339 (Ch)

These supplied the “grasp the nettle” approach. Where a dispositive legal question is adequately argued and requires no further evidence, the court should decide it rather than leave an arguably defective case unresolved until trial. That reasoning applied equally to the challenged legal defence.

C. Employee-compensation authorities

Kelly v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] RPC 12

This illustrated compensation involving joint inventors and the operation of plural concepts within section 40. It also formed part of the earlier practice in which cumulative benefits from several patents or patent families appeared to have been accepted or assumed. Crucially, the aggregation issue had not been debated there, so the present judgment resolved an open point rather than simply applying an existing holding.

Shanks v Unilever plc, order of 20 July 2015; and Shanks v Unilever [2019] UKSC 45, [2019] 1 WLR 5997

The 2015 order generated the separate precedent-status issue and illustrated a court devising costs protection beyond the applicant’s precise alternatives. The 2019 Supreme Court decision supplied the £2 million compensation comparator used to explain how insurance costs could absorb a substantial successful recovery. It did not establish a ceiling or expected award in this litigation.

D. Costs budgeting and assessment

Various Shared Appreciation Mortgage Borrowers v BOS (Shared Appreciation Mortgages) No 1 plc [2022] EWHC 2594 (Ch), [2022] Costs LR 1715

The court adopted its structured summary of budgeting principles: phase-by-phase approval of reasonable and proportionate future expenditure, without conducting a detailed assessment in advance. This ordinary framework remained the starting point, supplemented here by section 106.

Various Claimants v Scott Fowler Solicitors [2018] EWHC 1891 (Ch); Yeo v Times Newspapers Ltd [2015] EWHC 209 (QB); and Discovery Land Company v Axis Specialty Europe [2021] EWHC 2146 (Comm)

These authorities, discussed within the adopted summary, explain that budgets involve reasonable ranges rather than exact arithmetic or the lowest conceivable expenditure. Comparing opposing budgets can assist but is not determinative, and unrealistically low budgets may unfairly hamper litigation. Those principles helped explain rejection of the claimant’s more drastic restrictions.

Harrison v University Hospitals NHS Trust [2017] EWCA Civ 792, [2017] 1 WLR 4456

This was central to the connection between budgeting and ultimate recovery. Departure from an approved budget on standard-basis assessment requires good reason, and that requirement should not be applied indulgently. Budgets therefore provide meaningful advance certainty, although they do not determine every eventual costs question.

Lahey v Pirelli Tyres Ltd [2007] EWCA Civ 91, [2007] 1 WLR 998; and O'Beirne v Hudson [2010] EWCA Civ 52, [2010] 1 WLR 1717

These establish that a costs judge conducting detailed assessment is bound by the earlier order concerning incidence and assessment basis. The court accepted that procedural distinction but rejected the suggestion that quantification consequently falls outside section 106.

Coventry v Lawrence [2015] UKSC 50, [2015] 1 WLR 3485

This supported the proposition that the ordinary CPR factors for assessing reasonable and proportionate costs do not include the parties’ financial circumstances. It provided the contrast against which section 106’s express statutory requirement became decisive.

Salts Healthcare Ltd v Pelican Healthcare Ltd [2026] EWCA Civ 93, [2026] Bus LR 1033

This explained how predictable exposure under IPEC’s costs regime promotes access to justice. The court applied that underlying rationale to employee-compensation litigation without importing IPEC’s actual costs limits into this much larger claim.

E. Binding authority within the Court of Appeal

Young v Bristol Aeroplane Co Ltd [1944] KB 718

This supplied the ordinary rule that the Court of Appeal follows its previous decisions, subject to recognised exceptions. The question here was logically prior: whether the particular single-judge incidental order had binding precedential authority at all.

Cave v Robinson Jarvis & Rolf [2001] EWCA Civ 245, [2002] 1 WLR 581

This establishes that two-judge decisions generally carry the same authority as three-judge decisions, while permission-to-appeal decisions differ because of their procedural nature. The court drew on that distinction to emphasise the judicial exercise undertaken, rather than judge numbers alone, when assessing the earlier incidental order.

8. Impact and Remaining Questions

A more commercially realistic compensation assessment

The aggregation ruling is particularly significant where products depend on layered or complementary patent protection. Employers cannot defeat aggregation simply by pointing to separate patents, families, territorial rights or inventive steps. Employees must nevertheless explain why their proposed combinations provide a coherent basis for assessing outstanding benefit.

The judgment does not prescribe an exhaustive aggregation test. Future cases will need to develop the relevance of commercial interaction, temporal connection, different inventors and other factual distinctions. Large sales figures will still require analysis: sales are not automatically the statutory benefit attributable to inventions or patents.

Earlier, evidence-based financial protection

Where costs budgets are approved in section 40 proceedings, financial position is a mandatory consideration rather than a matter reserved for the end. Parties should present evidence addressing means, insurance, funding consequences and the practical effect of competing budgets.

No standard percentage reduction or universal £4 million limit follows. The size and complexity of the claim, the employer’s legitimate defence requirements and both parties’ circumstances remain relevant. Nor does the decision require costs management in every employee-compensation case: here, it was adopted by agreement despite the claim’s value ordinarily placing it outside automatic costs management.

The court expressly left open whether section 106 itself applies in the Court of Appeal. Its substantive budgeting ruling concerned the underlying proceedings.

Legislative criticism, not legislative replacement

Arnold LJ’s postscript was unusually direct. He described the legislation, even as amended, as “not fit for purpose”, observing that only two employee claims had succeeded in almost 50 years. He criticised the delay and proposed trial length, recognised both parties’ contributions to complexity, and raised possible deficiencies in case management.

Those observations strengthen the case for reform but do not alter the statutory scheme. The court’s suggestion that alternative compensation models deserve consideration is policy commentary, not a new entitlement to broader employee remuneration.

9. Complex Concepts Simplified

Outstanding benefit

A benefit sufficiently exceptional in the context of the employer’s undertaking to satisfy the statutory threshold—not merely a commercially successful product.

Aggregation

Considering benefits from several inventions or patents together. It permits a combined assessment but does not justify counting the same benefit repeatedly.

Patent family

Related patent applications and granted patents linked by a shared priority claim, commonly including protection sought in different countries.

Costs budget

A court-approved estimate of recoverable future litigation costs. It strongly influences later standard-basis assessment but is not an unconditional promise of recovery.

ATE insurance

After-the-event insurance obtained once a dispute exists, commonly protecting against liability for an opponent’s costs. Its premium may substantially reduce the practical value of winning.

Binding precedent and reconsideration

A decision may resolve an application between parties yet lack binding authority for future courts. Here, the earlier incidental order’s availability for reconsideration, and exclusion from Supreme Court appeal, helped explain that distinction.

10. Conclusion

The judgment makes employee-inventor compensation more commercially realistic and its litigation more attentive to financial inequality. Related benefits may be assessed collectively, and financial circumstances must be considered when approving costs budgets.

Both principles remain controlled by evaluation: aggregation must be justified, and costs protection must remain fair to both sides. The claimant won these preliminary appeals, not a compensation award.