Unilever Plc & Others v Shanks: employee invention compensation to be measured by reference to actual benefits to employer rather than hypothetical benefits

31 January 2011

Gerry Kamstra

The Court of Appeal (Longmore and Jacob LJJ and Kitchin J) recently addressed ([2010] EWCA Civ 1283) the meaning of the words “that person” in section 41(2) Patents Act 1977 in the context of a long-running dispute over an inventor’s entitlement to compensation from his employer where the patent has been of outstanding benefit to the employer. In 1984 Professor Shanks, whilst working for Unilever UK Central Resources Ltd ("CRL"), invented a device which draws into itself by capillary action a precise volume of fluid to enable rapid chemical and biochemical measurements to be made in relation to that fluid.  The invention is widely used in blood glucose monitor sensor strips which are used by diabetics.  The rights to the invention and the resulting patents were assigned by CRL to Unilever plc for a nominal consideration and Unilever plc eventually exploited the patents by licensing, from which it received royalties of £23 million by the time of expiry of the patents.  Professor Shanks contended that had Unilever plc exploited the patents earlier and on a wider scale the royalty income would have been US $ 1 billion.

The relevant provisions of the Patents Act 1977 are as follows:

“41(1) An award of compensation to an employee under section 40(1) or (2) above in relation to a patent for an invention shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent.

41(2) For the purposes of subsection (1) above the amount of any benefit derived or expected to be derived by an employer from the assignment, assignation or grant of

(a) the property in, or any right in or under, a patent for the invention or an application for such a patent; or

(b) the property or any right in the invention

to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.”

As the Court of Appeal noted, the above statutory provisions are not entirely well drafted, but it concluded that it is clear that the whole statutory scheme is built round a paradigm case, where the inventor worked for the same company as received all the benefit of the invention.  On that basis the Court of Appeal concluded that the words "that person" in s.41(2) mean the actual assignee with its actual attributes, rather than some other hypothetical assignee.  Since the judgment (in passing) noted that Unilever had conceded that the “amount which could reasonably be expected to be [so] derived” by CRL from the assignment to the “actual assignee” Unilever plc was £23 million, the Court of Appeal expressed its hope that the parties would now agree on a “fair share” of that amount.