Unilever case clarifies law over patents and employees

Employee loses bid for slice of employer’s profits but patent case clarifies employment case hurdles

An employee inventor, Professor Shanks, has lost his claim against his employer, a subsidiary of Unilever, for a “fair share” of the royalties received by his employer from his invention.

UK patent law provides that if an employee’s patented invention has made an “outstanding benefit” to the employer he is entitled to a “fair share” of it. The Intellectual Property Office (IPO) held that Shanks’ patents had spawned a benefit in excess of £20m for the Unilever group, but this amount fell short of “outstanding”.

Although the trial commenced in March 2012, the IPO’s decision was rendered in June 2013 and it took until 31 January of this year for it to be published. An appeal from the decision is due in May, but for the time being the “outstanding” hurdle remains high, and rightly so.

The patents which were based on Prof Shanks’ invention covered a device for monitoring blood sugar levels, used primarily for diabetic patients. These patents were assigned from the subsidiary to the parent company for a nominal sum, as was Unilever’s usual corporate practice.

However, as diabetes management was not relevant to Unilever’s business, it licensed the patents out to other companies who were active in this field. Later, the patents were sold on to a third party as part of a business acquisition. The IPO found that overall, Shanks’ invention delivered more than £20m in profits to Unilever. However, this amount was not outstanding, with the IPO noting that some of Unilever’s successful products made profits which were an order of magnitude greater.

In view of a possible appeal, the hearing officer proceeded to decide what Shanks’s share would have been had the benefit been outstanding. For this, he reviewed the High Court case of Kelly v GE Healthcare for guidance.  The fact in the Kelly case was truly extraordinary. There, all parties made huge efforts to develop the product which became a big blockbuster, leading the judge to find that without it the employer would have faced a crisis.  The present case was nowhere near as remarkable in all respects – yet the IPO decided that Shanks’ fair share would have been 5 per cent, much higher than the 2 per cent share awarded to Dr Kelly.

The case drives home the message that for an employee to succeed in any claim the patented invention needs to be really special, such that the business could be shown to have been transformed or tangibly changed in some way.

This seems correct, as otherwise “outstanding” would mean something different leading to uncertainties for employers with significant research based in the UK.

The benefit derived from the patented invention in Kelly v GE Healthcare is widely regarded as the high-water mark in compensation cases. On this basis, it is surprising that the hearing officer’s theoretical level of “fair share” was significantly higher, a finding which may be reconsidered on appeal.

Huw Evans, partner and Seiko Hidaka, IP disputes practice adviser, Norton Rose Fulbright