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Shanks v Unilever Plc & Ors
Factual and Procedural Background
The Appellant, an employee of Company A Research Ltd from 1982 to 1986, invented an electro-chemical capillary fill device for glucose testing. Patent rights were automatically owned by his employer and shortly thereafter assigned within the Company A corporate group (“Company A”). Between 1996 and 2004 Company A concluded seven licence agreements and, in 2001, sold subsidiary assets, generating roughly £24 million net from the patent family.
On 9 June 2006 the Appellant applied to the Comptroller for employee-inventor compensation under section 40(1) of the Patents Act 1977. A Hearing Officer dismissed the claim in 2013, holding the patents were not of “outstanding benefit” to Company A. Successive appeals to the High Court (2014) and Court of Appeal (2017) were also dismissed on that point, although the Court of Appeal overturned findings on corporation tax and recognised the potential relevance of the time value of money. The present judgment is the Supreme Court’s determination of the Appellant’s further appeal.
Legal Issues Presented
- Whether the Hearing Officer applied the correct principles when assessing if the patents conferred an “outstanding benefit” on the employer under section 40(1) of the Patents Act 1977.
- How a “fair share” of that benefit should be quantified under section 41, including (a) the proper percentage, (b) whether corporation tax should be deducted, and (c) whether the time value of money should be recognised.
Arguments of the Parties
Appellant's Arguments
- The relevant “undertaking” for measuring benefit is Company A Research Ltd’s research business, not Company A’s global consumer-goods enterprise.
- The £24 million return, achieved with little risk or investment by Company A, is exceptional and therefore “outstanding.”
- Deducting corporation tax artificially depresses the benefit; section 40 focuses on gross benefit.
- A fair share should include an uplift reflecting inflation because the employer has enjoyed the money for years before any compensation is paid.
- Between 10 % and 20 % of the quantified benefit would constitute a fair share.
Respondents' Arguments
- The undertaking is the entire Company A group; against its multi-billion-pound turnover £24 million is not “outstanding.”
- Corporation tax must be deducted because it represents money the employer cannot enjoy.
- Time value of money is not part of the benefit envisaged by section 41.
- A percentage higher than 3 % would over-reward the Appellant because Company A’s bargaining strength and patent-enforcement capacity were instrumental in achieving the licence income.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| GEC Avionics Ltd’s Patent [1992] RPC 107 | Meaning of “outstanding” – must be “out of the ordinary.” | Cited to illustrate that “outstanding” is a qualitative, not merely quantitative, standard. |
| British Steel PLC’s Patent [1992] RPC 117 | “Outstanding” implies a superlative benefit. | Reinforced need for the benefit to stand out from normal expectations. |
| Memco-Med Ltd’s Patent [1992] RPC 403 | Outstanding benefit must be more than merely substantial or good. | Used as comparative authority when analysing the employee’s claim. |
| Kelly & Chiu v GE Healthcare Ltd [2009] EWHC 181 (Pat) | Example where patents transformed the employer’s business, thus constituting outstanding benefit; also awarded 3 % fair share. | Benchmarked the percentage award and illustrated when benefit is unmistakably outstanding. |
| Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 | Whether profits should be calculated net of tax (in account-of-profits context). | Distinguished; court held tax is not deducted when assessing benefit under s.40. |
| Biogen Inc v Medeva plc [1997] RPC 1 | Appellate interference with evaluative findings—need for error of principle. | Provided the standard for when the Supreme Court could overturn the Hearing Officer’s evaluation. |
| Actavis Group PTC EHF v ICOS Corp [2019] UKSC 15 | Definition of “error of principle” in evaluative assessments. | Relied on to justify setting aside the Hearing Officer’s decision. |
Court's Reasoning and Analysis
1. Identification of the Employer’s Undertaking. The Court held that the correct lens is the commercial reality for the actual employer—Company A Research Ltd—whose business was to generate inventions for the wider group. It was wrong in principle to gauge “outstanding benefit” by comparing patent income to the global profits of Company A’s consumer-goods operations.
2. Quantifying Benefit. The net monetary advantage to Company A from the patent family was £24 million after costs. Corporation tax is not deducted at this stage because tax is a consequence of the benefit, not part of it.
3. Assessing “Outstanding.” Key factors included (a) a very high rate of return achieved with minimal risk and limited internal effort, (b) no other Company A patents produced comparable licensing income, and (c) the reward could not be attributed to Company A’s manufacturing scale or brand leverage. These elements compelled the conclusion that the benefit was indeed “outstanding.”
4. Fair Share Percentage. The Hearing Officer’s 5 % was upheld. The Supreme Court rejected the High Court’s reduction to 3 %, noting no factual finding that Company A’s litigation resources inflated royalty rates.
5. Time Value of Money. A majority accepted that inflationary erosion between receipt of licence fees and payment of compensation must be recognised. Using 1999 as the median receipt year and Bank of England inflation data (≈2.8 % average), an uplift was appropriate.
Holding and Implications
APPEAL ALLOWED. The patents were of outstanding benefit; the Appellant is awarded compensation of £2 million (5 % of £24 million, uprated for inflation).
Implications: The judgment clarifies (i) how to identify the relevant “undertaking” when an inventor is employed within a corporate group, (ii) that corporation tax is irrelevant to the gross benefit calculation, and (iii) that tribunals may, and sometimes must, adjust awards for the time value of money. These principles will guide future employee-inventor compensation cases under the Patents Act 1977 without establishing entirely new precedent.
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