The UK Supreme Court[i] yesterday handed down its decision to award £2M to the inventor of a glucose testing kit, finding that the patent covering the technology was of “outstanding benefit” to his employer. The decision will cause concern to organisations investing in research, as they find themselves potentially liable to make payments to inventors of technologies which proved successful in the market. Employers should review their employee compensation schemes (if they have them) to minimise this risk.
UK law provides that inventors may be entitled to compensation if the invention proves to be of “outstanding benefit” to their employers.[ii] This provision was famous as never having been the subject of a successful claim by an employee, until a landmark decision in 2009.[iii]
In the case in question, the claimant, Professor Shanks, was an employee of Unilever (the defendant). During the course of his work, he developed a technology that was patented. This technology was subsequently widely adopted in medical diagnostic kits, including those used for glucose monitoring. Whilst Unilever did not commercialise such kits themselves, they licensed the patents to a number of other companies, attracting royalties of around £24M (US$31M).
Prof. Shanks sought compensation under Section 40 of the UK Patents Act.[iv] Two lower courts, and the UK Intellectual Property Office (IPO), had previously held that the value derived from the patents were relatively small in the context of Unilever’s wider business.
The Supreme Court disagreed with the reasoning of the previous instances. The court found that because Prof. Shanks was associated with a subsidiary of Unilever, that the subsidiary was the relevant entity for determination of whether the benefit was outstanding, rather than the group as a whole. This turned out to be significant, as group as a whole had revenues running into billions of pounds.
A further point persuading the Supreme Court that the benefit to the subsidiary was “outstanding” was that in the context of Unilever’s main business (consumer products), the patents and associated licenses, in a different field (medical diagnostics) were unusually lucrative.
The decision will be of less concern to companies exclusively active in one field, such as pharmaceuticals, biotechnology or electronics. For these organisations, there is less likelihood that any particular invention (or patent) will provide an “outstanding” benefit, as the benchmark will be more uniform.
Diversified concerns operating across a range of markets appear more likely to be challenged if a patent is the subject of a lucrative licensing deal.
The decision appears more relevant to situations in which patents are licensed, as opposed to commercialised by the patent owner. In the latter case, it will be harder to disentangle the contribution made by the patent or invention from the other factors contributing to commercial success, such as marketing and access to distribution channels.
Actions for Patent Owners
One way to limit a patent owner’s exposure to claims for compensation for inventions which prove very successful is to proactively implement an employee compensation scheme. It is then clear from the outset where the inventors stand.
Businesses need to be aware that if they structure their activities with subsidiaries which hold intellectual property, the subsidiary may be scrutinised when assessing “outstanding benefit”.
Cleveland Scott York attorneys can advise on the drafting and implementation of suitable employee compensation schemes, and defending against claims for employee compensation.
[ii] UK Patents Act 1977, (Section 40) as amended.
[iii] James Duncan Kelly and Kwok Wai Chiu v GE Healthcare Limited  EWHC 181 (Pat)
[iv] This was under a previous version of the Act, specifying the patent, rather than the invention, must be of outstanding benefit.