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Employee compensation provisions clarified: Shanks v Unilever Plc & Others (2009)

Written by Corinne Day on 07 May 2010

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The High Court in the case of Shanks v Unilever Plc & Others (2009) provided clarification of the employee compensation calculation under the Patents Act 1977 in cases where an assignment or licence of the patent has been made to a connected person, such as a subsidiary of the employer.

Specifically, the High Court provided guidance on the attributes of the hypothetical assignee or licensee that should be envisaged when deciding on the compensation level for the employee inventor.

In this case, Professor Shanks, who was employed by Unilever UK Central Resources Ltd invented (during the 'course of his employment') a measuring device used in blood testing kits for diabetics. A patent was successfully secured over the invention, in the name of Unilever UK Central Resources Ltd (as employer). Unilever UK Central Resources Ltd subsequently assigned the benefit of the patent to another company within its group, (Unilever Plc) for the sum of 200.00 GBP.

Unilever Plc did not exploit the patent for a number of years, following which time it licensed its use to various third parties and received a royalty income of approximately 23 million GBP. It was agreed that if the patent had been vigorously exploited amongst medical companies, royalties could have been in the billions.

Professor Shanks sought to seek compensation under sections 40 and 41 of the Patents Act 1977 which provided for compensation to be paid to employees whose patent is of outstanding benefit to the employer (the provision now relates to whether the invention is of outstanding benefit to the employer).

At issue in this case was the interpretation of section 41(2) which provides that where there has been an assignment or similar transaction by the employer in favour of a connected person, the benefit is to be assessed as if that person were not connected.

Unilever argued that the notional purchaser should be considered to be identical in every respect to the actual purchaser, save that it is not connected to the vendor. Thus in this case it too would not have exploited the patent for a number of years.

Professor Shanks claimed that the notional purchaser should be considered to be a purchaser who is acquiring the right in order to exploit it.

The Intellectual Property Hearing Officer decided that the benefit under section 41(2) was the amount which could reasonably be expected to be derived by the employer if the person to which the employer passed the rights had not been connected with the employer, but in all other respects was the same as the person to whom the rights were actually passed.

Professor Shanks appealed this decision to the High Court.

The Court reviewed the wording of section 41(2) and decided that its literal meaning was that the transaction should be treated as having been made with the real person with all the same characteristics as the actual assignee or licensee, but without the connection.

However, it was noted that this interpretation was capable of giving rise to a very commercially unfair result, which could leave in place the price-depressing factor which the subsection seemed to be intended to remove. The subsection recognised that a disposal to a connected person may be different from that which would have taken place if there had been a sale to a non-connected person.

The Judge decided that what was intended was a hypothetical transaction which is constructed because the actual transaction is affected by a commercial factor which depresses (or which might depress) the price below that which would normally be expected. Therefore, the Court construed the section as meaning that Parliament had intended to refer to a notional non-connected, arms-length party operating in the appropriate market at the appropriate time.

The case now will return to the Patent Office for a ruling on the merits of Professor Shanks' claim.

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