A Victory for Innovative Employees? – Shanks v Unilever Plc (Case Comment)
By Tina Ye, Queen’s University Belfast
The Supreme Court decision for Shanks v Unilever plc[1] galvanised a series of journal headlines such as “sweet smell of success”[2] and “opening [of] the floodgates”[3]. Indeed, the overturning of lower court decisions and granting Professor Ian Shanks £2 million in compensation for his contribution in the Shanks patents is of great significance for employees, it feels like the dawn of a new age for inventive employees to be able to legally claim compensation in reward for their contribution. However, while Lord Kitchin’s judgement does offer clarity on some issues, namely the interpretation of “employer’s undertaking”, there still remains ambiguity in the interpretation of Patents Act 1977 (PA 1977) due to its highly nuanced nature.
Facts of the Case
Professor Shanks was an employee of Unilever UK Central Resources Ltd (“CRL”) between 1982 to 1986. During his employment, he developed two biosensors which were used to detect glucose concentration in blood, serum, and urine. CRL had the rights to these inventions under section 39(1) of Patents Act 1977. The rights to these devices were held by his employer, CRL and then passed to parent company Unilever. Unilever then patented the devices in a number of countries, and generated £19.55 million in royalties from licensing deals. When Unilever finally sold the patents in 2001, it had generated £24 million from these patents.
In 2006, Professor Shanks filed a claim under section 40 of PA 1977 to the Intellectual Property Office, claiming he deserved fair compensation from Unilever for the contributions his patent made for the company. The hearing officer rejected his claim, stating that the patents did not have ‘outstanding benefits’ to Unilever. The hearing officer pointed out that the profit made by the Shanks Patents was minuscule compared to the overall profit yielded by Unilever. So the Shanks Patents did not qualify as “outstanding benefit” for Unilever’s business.
Professor Shanks then appealed to the High Court. The High Court Judge rejected Professor Shanks appeal — he agreed with the hearing officer’s finding that Shanks Patents were not of outstanding benefits. Professor Shanks appealed again to the Court of Appeal, and once again his appeal was dismissed. None of the judges thought the Shanks Patents were of outstanding benefit to Unilever, and so compensation for Professor Shanks was not granted.
Finally, Professor Shanks brought the case to the UK Supreme Court. The UKSC passed down an unanimous decision on 23 October, 2019 — thirteen years after the first claim was filed. Lord Kitchin disagreed with the judgements of the lower court, and ruled in favour of Professor Shanks. The UKSC judgement claimed that the Shanks Patents, by comparing the profit of this patents to other patents and the amount of resources Unilever allocated for Shanks Patents, indeed conveyed outstanding benefits for Unilever. The UKSC judgement calculated the compensation reward for Professor Shanks at 5%. Ultimately, Professor Shanks was compensated £2 million for his inventions.
Legal Issues:
Two issues were considered in this case:
- What are the principles governing the assessment of outstanding benefit to an employer?
- How should a fair share of outstanding benefits be assessed?
Supreme Court Reasoning
In assessing the first legal issue, Lord Kitchin reasoned through four factors to come to his decision. These factors were as follows:
1) Who was the employer?
2) What was the employer’s undertaking?
3) What was the benefit?
4) Does that benefit qualify as “outstanding”?
Section 39 of Patents Act 1977 examines the right to an invention made by an employee. There was no contention that CRL was the employer with rights to the Shanks patents, as Professor Shanks was a legal employee under CRL.[4]
Next, the employer’s undertaking must be defined. Lord Kitchin recalled Memco-Med[5] to define undertaking as either the whole or a subunit of the employer’s business. The lower courts asserted that Unilever as a whole should be considered as the appropriate undertaking, as CRL itself did not generate revenues and the employees under CRL produced work for the benefit of the entire Unilever group. Professor Shanks maintained that CRL was his employer and the whole Unilever group could not be the undertaking. Lord Kitchin declared both stances erroneous: CRL is indeed a part of the larger entity, but assessment of benefits must be considered in context of the size and nature of the undertaking. Lord Kitchin wrote that the hearing officer was “wrong in principle” and this faulty premise rendered the lower court’s assessment of outstanding benefit as incorrect.[6]
To offer a contextual consideration of the size and nature of this undertaking, Lord Kitchin regarded the material benefit Shanks patents conferred to the Unilever group and how this benefit compares with that of other patents arising from the research activity at CRL.[7] He remarked in obiter that the relevance of size and nature of employer’s undertaking is varied and circumstantial.[8] He referred to Kelly v GE Healthcare Ltd[9] that a smaller business may experience greater benefits from patents for its profitability and market competition. Therefore perhaps for smaller businesses, straightforward comparison in profitability is enough to determine “outstanding benefit”. In para 54, Lord Kitchin further cautions against looking at overall profitability of a company to determine if a patent has had outstanding benefits.
In defining “benefit”, PA 1977 section 43(7) states that “benefit” means “benefit in money”. In this case the benefit for Unilever from Shanks patents was £24m. Lord Kitchin disagreed with Unilever’s claim that revenue from patents was less due to corporation tax. He penned that benefits should be assessed before tax calculations.[10]
Lastly, the question “was the benefit outstanding” remains to be assessed. In qualifying the definition of “outstanding”, Lord Kitchin referred to the following cases: GEC Avionics Ltd’s Patent<[11], where “outstanding” meant out of the ordinary and out of expectation for what the employee was paid to do. In British Steel plc’s Patent[12], outstanding was a superlative. In Memco-Med Ltd’s Patent, outstanding was understood to be more than substantial or good. In Kelly, Floyd J summarised the definition of “outstanding” as benefit which is more than what the employer expects to result from the tasks which the employee is paid to do. Lord Kitchin concluded that although these cases supplied well-rounded considerations for its definition, they do not stand in as a statutory test to qualify a benefit as being outstanding. Taking in the ordinary meaning, outstanding means something that stands out.[13]
Applying this definition to Shanks, Lord Kitchin noted that the hearing officer in his analysis noted a series of “striking” findings. These findings are: while Unilever made little effort to commercialise Professor Shanks’s invention, and while the licensing efforts were unexceptional, Shanks patents were unrivalled in generated revenue for Unilever compared with any other patents under CRL. Furthermore, Unilever experienced no significant risk in obtaining these revenues from Shanks patents.[14] In the light of these findings, and acknowledging the wrong approach the hearing officer took in assessing the employer’s undertaking, Lord Kitchin concluded that Shanks patents were of outstanding benefits to the employer’s undertaking.
To solve the second issue: “How should a fair share of outstanding benefit be assessed?”. Lord Kitchin considered the hearing officer’s decision of a 5% fair share. Pursuant to Patents Act 1977 section 41(4), factors considered for a fair share amount include 1) the employee’s remuneration and advantages from employment; 2) the effort of employee in developing the invention; 3) the effort of any other person in contribution to this invention; and 4) the resources spent by the employer in developing the invention. Professor Shanks was remunerated properly in his employment; Unilever did not expand exceptional effort in developing the inventions; and Unilever did not spend gross resources on Shanks patents. Hence, the fair share value of 5% was conclusive. Lord Kitchin rejected Arnold J’s calculation of 3% fair share on the grounds that the licensing were between willing licensors and licensees, and thus no extra consideration needs to be made for its expenditure on infringement proceedings.
Critical Comments
The interpretation of “employer’s undertaking” was seminally clarified by Lord Kitchin’s approach. When considering the proper definition for undertaking, Lord Kitchin rejected both the lower court’s reasoning and Professor Shanks’ reasoning.[15] Instead, he recognized the need to evaluate the term “undertaking” with consideration to both the immediate employer, and the bigger commercial group that the employer might belong to. In doing so, Lord Kitchin penned:
“This gives practical and commercial effect to the language of section 41 and involves a comparison of like with like.”[16] (emphasis added)
This clarification could be of momentous guidance for future judgements. Moreover, Lord Kitchin’s caution on the outright comparison of business profitability in assessment of section 40, should be highly persuasive for cases to come.
However, even with the clarification of “undertaking”, section 40 cannot be invoked unless another condition is satisfied. That condition is “outstanding benefit”. This is another concept contentious due to its ambiguity: when the bill went through the House of Lords in 1977, Lord Nelson of Stafford was recorded saying:
“I have never seen such a collection of vague terms in my life.[…] What is the outstanding benefit, what value is to be put on this and what on that?”[17]
Ambiguity in this provision was engineered specifically to sooth employer worries — the fear of an influx of claims from employees for “undeserving” compensations. However, that scenario never materialised: Kelly was the first case in 31 years after the legislation came to effect that successfully invoked this provision. Shanks, 42 years after.
Therefore, the lack of clear distinction for “outstanding benefit” in the Supreme Court’s judgement should be of more alarm than cheers for inventive employees. In principle, laws are made with all parties’ interests in mind. But with the already unequal bargaining power between employee and employer, this particular legislation seems to favour one side more than the other. Furthermore, the term “outstanding” — being the most contended clause in this provision — received no concrete answer from Lord Kitchin’s reasoning. Instead, the relegation to contextual interpretation narrows the binding effect of this judgement for future cases.
Stepping back to look at the broader context at intellectual property and its socio-economic effects, Howell wrote that “The question of… remuneration for employees’ invention has become an issue in the United Kingdom which can no longer just be regarded as inequitable but must now be acknowledged as highly inefficient, de-motivating and in compelling need of adjustment.”[18] With this proclamation, one is spurred into looking critically at UK intellectual property law compared with other jurisdictions. In Germany, under the German Employees’ Invention Act 1957,[19] employees must receive a reasonable share of the value that the employer gains from the invention. In Sweden, under the Act on the Right to Employee, employers must remunerate employees for their inventions.[20] The National Patent Law 2009 in China stipulates that inventors should get both the reward from the patent and remuneration from the employer when the patent is exploited.[21] These are a few examples of international jurisdiction law which impose mandatory compensation for inventive employees. In a 2019 survey of countries with the most international patents filed, China ranked first, Germany fourth, UK seventh, and Sweden a close eighth.[22] With consideration to population density and industry size, a possible reason for UK’s low ranking could be due to inequitable law in rewarding inventors for their creations — as apparent by the measures one must take to be granted compensation by the court.[23]
Inventive employees who see Shanks as a beacon of light may wish to consider the fact-specific reasoning of Lord Kitchin’s judgement — what remains at the end of the day is still a set of ambiguous provisions and difficult requirements to satisfy such provisions.[24] The Supreme Court decision of Shanks does to some extent lower the bar for future employee claims,[25] but few can expect to share in the fruits of victory.
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