The ownership of a company’s intellectual property is a sensitive subject for many companies. A recent case considered the compensation an employee may be entitled to under the Patents Act 1977 where the patents are held to be of outstanding benefit to the employer.
As it is often a company’s employees who create intellectual property, it is vital that the company’s interests are safeguarded in this respect. The general position in the UK is that intellectual property created by employees in the course of their normal duties of employment is automatically owned by their employer, and that this applies also to inventions and patents.
In any event, we would always advise that companies include in their standard terms of employment an intellectual property clause expressly dealing with the ownership of intellectual property created by the relevant employee, bearing in mind that laws and stipulations can differ from country to country. In the case of self-employed consultants, we would advise that an assignment of intellectual property be obtained. Of course, relevant measures also need to be taken by a company to file for relevant intellectual property protections.
Notwithstanding the above, employers should also be aware that under section 40 of the Patents Act 1977 such an employee can apply to the court for a level of compensation in respect of an invention they have made in the following circumstances:
1) the invention has resulted in a patent; and
2) the patent is of “outstanding benefit” to their employer, having regard to the size and nature of the employer’s undertaking.
3) That compensation must be such as to award the employee a “fair share” of the benefit which the employer has enjoyed.
Employers cannot make employees contract out of the above right.
The above provision was relied upon recently by an employee of Unilever in a case that went to the Supreme Court. After a prolonged legal battle, the employee was awarded £2m by way of compensation, a fair share, being adjudicated at 5% of the benefit that Unilever derived (valued at £24m) from the pioneering system the employee invented for measuring the concentration of glucose in blood and other liquids, plus an uplift to reflect the impact of time on the value of money.
The Supreme Court clarified a number of significant points which form the building blocks for any party seeking to mount or defend a claim under this provision which are summarised below.
Benefit is the benefit in the hands of the employer after the deduction of any costs to the employer of securing that benefit. It was illegitimate to reduce the benefit by accounting for tax paid.
- “Outstanding ”
The Court said that the term is to be given its normal meaning i.e. exceptional or to stand out.
- Relevance of the undertaking’s size and nature
The Patent Act stipulates that regard must be had to the size and nature of the employer when evaluating whether the benefit derived from the patent should be assessed as being outstanding. The Courts below had held that the benefit was not outstanding when considering revenues of some of Unilever’s product lines in the order of billions, leading to criticisms that the if that were right, then Unilever were simply too big to pay. The Supreme Court found that a comparison with an employer’s overall profitability may be too simplistic, one had to compare the benefit generated by the patent with other patents resulting from the work carried out by the individual’s employer (being the UK-based research entity, owned by Unilever) and carry out a multi-factorial analysis, such as the employee’s pay, risk taken by the business, rate of return, investment and efforts put in by the employer.
On the employee’s evidence all of these factors pointed to his favour and the patent was held to have given rise to outstanding benefit.
- “Fair Share ”
In this case, “fair share” amounted to 5% of profits secured by Unilever on the basis that the employee was employed as a inventor and so, in inventing the system, he was merely doing what he was employed to do. Further, the bulk of the profits came from licences secured by Unilever, which the employee played no part in. The actual compensation was also increased to take account of time value of money (the benefit received by Unilever for having the money that should have been credited to the employee over the years).
Previously the Courts have said that it was not necessary to define outstanding benefit because it will recognise it when it occurs. With all the lower Courts’ and tribunal’s finding that the benefit of the employee’s patent was not outstanding, there appears to have been a tangible lowering of the bar to reach the outstanding benefit criteria. Certainly, the Supreme Court made clear that the patent need not have been critical to the company’s success to prove outstanding benefit, as was the case in Kelly and another v GE Healthcare Ltd.
This high profile decision serves as a useful reminder for employers, particularly those investing heavily in research and development, that inventor compensation claims may be made. Employers may want to consider incentive schemes and bonuses which recognises achievements for employees that come up with profitable inventions as it would be considered in the multi-factorial analysis when assessing whether the benefit was outstanding, possibly minimising risks of claims being made.
See Shanks v. Unilever.