The Patent Review 2013 - 2014: Employees' Compensation

By Neil Jenkins, Audrey Horton


The bar to employee's obtaining compensation under section 40 of the Patents Act 1977 is a high one. Few such employee compensation claims have succeeded. This is a further example.

Ian Alexander Shanks v Unilever plc and others [2014] EWHC 1647 (Pat), Arnold J.

Professor Shanks was employed by a company within the Unilever group. He was responsible for an invention used in blood glucose testing kits which was the subject of a series of related patents. The patents were transferred to an associated company for a nominal consideration. For a period of time the patents were licensed to third parties operating in the field and finally the company that owned the patent was sold to a third party for £103 million.

In 2006, Professor Shanks commenced proceedings in the UK Intellectual Property Office (IPO) claiming compensation under sections 40 and 41. Following a number of interim proceedings including an appeal to the Court of Appeal, the IPO concluded that although the benefit to Unilever from the patents was £24.5 million, it was not outstanding. It decided that if, contrary to its conclusion, the patents were of outstanding benefit, a fair share of the benefit for the Professor Shanks would be 5%.  Both parties appealed to the High Court.

The Judge dismissed Professor Shanks's appeal upholding the IPO’s decision that the patents were not of outstanding benefit to Unilever and therefore Professor Shanks was not entitled to compensation under section 40(1).

The Judge rejected Professor Shanks' argument that the IPO had decided that the benefit that Unilever obtained from the patents was not outstanding because of the large profits that Unilever ordinarily made in the course of its business. Overall, the Judge considered that the IPO had undertaken a multi-factorial assessment, which included a consideration of the benefit received by Unilever and the disparity between that benefit and the benefit that the Professor had received in the context of the size and nature of Unilever as an undertaking.

The Judge also held that the mere fact that Unilever had received a benefit from the patents in a manner and amount that was unusual for it (by licensing and selling the patents rather than by manufacturing) was not, in itself, an indication that the benefit was outstanding.

The Judge also held that Professor Shanks had not created a new product for his employer as Unilever never produced a blood glucose test. Nor did Professor Shanks produce a new income stream without any substantial input from his employer. Although Professor Shanks had made an invention, the income stream for the product incorporating the invention was largely generated by Unilever’s licensing department with little input from the Professor.

As Professor Shanks' appeal was dismissed, the Judge did not have to make a decision on fair share. However, the Judge commented that, in the circumstances of this case, the benefit derived by Unilever from the patents would be the benefit net of tax.

NB. Section 40(1) was amended by the Patents Act 2004 to make compensation payable when the invention, and not just the patent, has been of outstanding benefit. However, the amendments only affect patents applied for after 1 January 2005 and were not relevant in this case.