Posted: June 6th, 2014
Ian Alexander Shanks v. Unilever, High Court of England and Wales, Patents Court (Arnold J), London, UK, 23 May 2014, Case No.  EWHC 1647 (Pat)
In its judgment of 23 May 2014 the High Court of England and Wales decided a case regarding an employee’s claim for compensation in respect of patents concerning devices for use in chemical test procedures (ultimately used in blood testing kits for diabetics).
The relevant patents were filed in the 1980s hence the case was decided on the basis of the Patents Act 1977 as enacted (relevant sections later amended in 2004). The case has a detailed history: interim issues decided by the UKIPO were appealed all the way to the Court of Appeal ( EWCA Civ 1283). This current decision results from an appeal against the UKIPO’s substantive decision that the invention was not of outstanding benefit to Unilever.
The facts of this case differed from previous employee compensation cases in that Unilever did not exploit the patents itself, but profited from patent licences and assignments, making it somewhat easier to quantify the benefit. However, Arnold J still had to consider certain quantification issues, including the time value of money and Unilever’s tax position. Following the Court of Appeal’s earlier decision in this case Arnold J agreed with Unilever and the UKIPO that the relevant benefit was that obtained by the Unilever group as a whole, rather than the specific legal entity that employed Shanks.
In relation to whether the benefit was outstanding, Arnold J held that the UKIPO had not made any error of principle in concluding in the negative and the appeal should therefore be dismissed. However, for completeness Arnold J proceeded to consider what a fair share would have been, reducing the UKIPO’s 5% to 3%.
As regards the patents’ benefit to Unilever, Unilever received over £20m between 1996 and 2004. Shanks commenced his claim in 2006 but the UKIPO’s substantive decision was not reached until 2013. Arnold J rejected Shanks’ argument that the benefit Unilever derived from the patents included the time value of money (i.e. Shanks was not entitled to interest). However, Arnold J generally accepted Unilever’s argument that its benefit should take its tax position into consideration. Accordingly Arnold J held that Unilever’s benefit was £17m, whereas the UKIPO had found it to be £24.3m.
As regards whether that benefit was outstanding, Shanks’ case was distinguishable from the earlier Kelly case ( EWHC 181 (Pat)) where the employer would have been in crisis but for the relevant patents. Unilever’s business was sufficiently large that £20m was not “crucial to [its] success”. In the Court of Appeal Jacob LJ had been concerned that employees should not get less compensation from large companies than they would have from small companies. However, Arnold J held that the UKIPO hearing officer had correctly found that Unilever was not so large as to be able to avoid ever having to pay any additional compensation, but that the amount in question in this case was not sufficiently important.
Of Shanks’ many arguments regarding why the benefit was outstanding, Arnold J was most troubled that the patents generated a very high rate of return for Unilever. However, Arnold J held that the hearing officer had not ignored this factor and the weight he chose to give to it “was a matter for him”. Arnold J concluded that the hearing officer made no error of principle in determining that the benefit was not outstanding. As regards what a fair share would be if the benefit were outstanding, Arnold J agreed with Unilever that the hearing officer should have considered that Unilever’s size and resources enabled it to achieve advantageous licensing deals (in circumstances where “the validity of the [patents] was open to question”). Shanks had not really been involved in the commercialisation of the patents. Accordingly Arnold J considered that a fair share would be 3% (equal to the total share awarded to the inventors in Kelly).
Read the decision (in English) here.
Head note: Scott Parker and William Corbett