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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Shanks v Unilever Plc & Ors  EWCA Civ 2 (18 January 2017)
Cite as:  RPC 15,  WLR(D) 32,  EWCA Civ 2,  Bus LR 883
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ON APPEAL FROM THE HIGH COURT
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE BRIGGS
LORD JUSTICE SALES
| IAN ALEXANDER SHANKS
|- and -
|(1) UNILEVER PLC
(2) UNILEVER NV
(3) UNILEVER UK CENTRAL RESOURCES LIMITED
Mr Daniel Alexander QC and Mr Jonathan Hill (instructed by Herbert Smith Freehills LLP) for the Respondents
Hearing dates : 15 and 16 November 2016
Crown Copyright ©
Lord Justice Patten :
"39. (1) Notwithstanding anything in any rule of law, an invention made by an employee shall, as between him and his employer, be taken to belong to his employer for the purposes of this Act and all other purposes if—
(a) it was made in the course of the normal duties of the employee or in the course of duties falling outside his normal duties, but specifically assigned to him, and the circumstances in either case were such that an invention might reasonably be expected to result from the carrying out of his duties; or
(b) the invention was made in the course of the duties of the employee and, at the time of making the invention, because of the nature of his duties and the particular responsibilities arising from the nature of his duties he had a special obligation to further the interests of the employer's undertaking.
(2) Any other invention made by an employee shall, as between him and his employer, be taken for those purposes to belong to the employee."
"40. (1) Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that the employee has made an invention belonging to the employer for which a patent has been granted, that the patent is (having regard among other things to the size and nature of the employer's undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below.
(2) Where it appears to the court or the comptroller on an application made by an employee within the prescribed period that—
(a) a patent has been granted for an invention made by and belonging to the employee;
(b) his rights in the invention, or in any patent or application for a patent for the invention, have since the appointed day been assigned to the employer or an exclusive licence under the patent or application has since the appointed day been granted to the employer;
(c) the benefit derived by the employee from the contract of assignment, assignation or grant or any ancillary contract ("the relevant contract") is inadequate in relation to the benefit derived by the employer from the patent; and
(d) by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer in addition to the benefit derived from the relevant contract;
the court or the comptroller may award him such compensation of an amount determined under section 41 below."
"(1) An award of compensation to an employee under section 40(1) or (2) above in relation to a patent for the invention shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the benefit which the employer has derived, or may reasonably be expected to derive, from the patent for the invention or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent.
(2) For the purposes of subsection (1) above the amount of any benefit derived or expected to be derived by an employer from the assignment, assignation or grant of—
(a) the property in, or any right in or under, a patent for the invention or an application for such a patent; or
(b) the property or any right in the invention
to a person connected with him shall be taken to be the amount which could reasonably be expected to be so derived by the employer if that person had not been connected with him.
(4) In determining the fair share of the benefit to be secured for an employee in respect of a patent for an invention which has always belonged to an employer, the court or the comptroller shall, among other things, take the following matters into account, that is to say –
(a) the nature of the employee's duties, his remuneration and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act;
(b) the effort and skill which the employee has devoted to making the invention;
(c) the effort and skill which any other person has devoted to making the invention jointly with the employee concerned, and the advice and other assistance contributed by any other employee who is not a joint inventor of the invention; and
(d) the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance, by the provision of opportunities and by his managerial and commercial skill and activities."
"26. What the statute then calls for is an assessment of what the assignor "could reasonably be expected to be so derived" if the assignee had not been connected with him. "So derived" takes one back to the opening words of the subsection: "any benefit derived or expected to be derived." That is the same phrase as is used in s.41(1) . In that context, the paradigm case, the assessment involves working out what benefit the employer has actually got in the past and any future benefit (if any) which that particular employer would get.
27. It seems to me that that is the same where there has been an assignment to a connected company. A temporal element comes in. The "benefit derived or expected to be derived" from the assignment is deemed to be the amount the employer could reasonably be expected to have derived if the assignee had not been connected, knowing what benefit was in fact obtained by the assignee. This is the benefit that must be considered for the purposes of s.40(1) and s.41(1) . In this sense s.41 reaches through to s.40."
"17. In oral argument Mr Green somewhat modified his submission: he suggested that the "putative benefit" applied essentially only at the threshold stage. Unilever were (and according to Mr Alexander still are) contending that although £23m royalties might be a lot for some companies, by Unilever standards it is not a lot and so the patent was not of outstanding benefit to Unilever. He pointed to the words in s.40(1) "having regard to the size and nature of the employer's undertaking", suggesting they meant that inventor/employees of big companies had to show a larger benefit to their employer than inventor/employees of smaller companies. I am far from convinced that Parliament meant that inventor/employees of large companies should get less or no compensation for a particular invention compared with what they would get if they had been employed by a small company. It may indeed be the other way round in that a large payment may be too much for a small company to able to afford and that was what Parliament had in mind. The point does not immediately arise—the Comptroller will have to consider it in due course if it is persisted in."
"(2) Is the benefit outstanding? The superintending examiner in this case quoted from the decision in GEC Avionics Ltd.'s Patent,  RPC. 107 to the effect that the rationale being the requirement for outstanding benefit was that the employee had already received compensation for the invention through remuneration for his employment.
As was said in GEC Avionics:
"It is for this reason that the section (section 40 that is) uses the word 'out-standing' to qualify the benefit which would make it just that the employee should receive compensation. Moreover, it is noted that the word 'outstanding' is used rather than 'significant' or 'substantial' or other such term. It must be something out of the ordinary and not such as one would normally expect to arise from the results of the duties that the employee is paid for. It is, I think, for this reason that reference is made to the size and nature of the employer's undertaking, and that the benefit (to the employer) must be looked at in the total context of the activities of the employer concerned to see whether it is outstanding".
Dr. Ferdinando in British Steel PLC's Patent,  RPC 117 said, at page 5 of the transcript:
"Thirdly, subsection (1) makes clear that the patent must be of 'outstanding' benefit if the application is to succeed. Mr. Tritton submitted that, taken at face value, this indicated that the patent must stand out from the rest. In Ellis, the hearing officer noted that the statute did not use the words such as 'significant' or 'substantial', and opined that 'something of the ordinary was required'. While Mr. Tritton was plainly correct in describing 'outstanding' as a comparative term, I would regard it as going further than that, implying a superlative. The test I must apply in reaching my decision as to whether an award is warranted must be correspondingly stiff."
I do not disagree with the approaches of those superintending examiners. The word "outstanding" denotes something special and requires the benefit to be more than substantial or good. I believe that it is unwise to try to redefine the word "outstanding". Courts will recognise an outstanding benefit when it occurs."
"In the event, on the facts of this case I find that the reality of the situation is that described by the defendants: regardless of how the various companies in the Unilever group have been structured, researchers at Colworth (employed by CRL) were doing work which was going to be exploited by the group as a whole. Indeed, it is notable that the whole benefit from the Shanks patents was generated by licensing activity operated out of the central Unilever companies. Having regard to the size and nature of the employer's undertaking therefore requires me to have regard to whether the benefit from the patents is outstanding in the context of the Unilever group as a whole."
The time value of money
The Hearing Officer's decision
(1) the adoption by the Hearing Officer of the "Too big to pay" approach referred to earlier;
(2) his failure to attach sufficient weight to the scope of Professor Shanks' contractual duties and his insight, initiative and inventiveness; and
(3) his failure to give any or sufficient weight to the use of the licence fee income to boost the profit and loss accounts of Unipath Limited so as to enable it to be sold.
Too big to pay
(i) Looked at properly in terms of cash, the revenue from the Shanks patents was small when compared with Unilever's overall profits in the same period. The patents did not produce income in every year and the sum of £23m did not require a re-statement of the Group accounts. "But that does not mean that Mr Alexander's argument immediately carries the day": see . The Hearing Officer therefore rejected in terms at the outset that an income/group profit comparison was conclusive of the issue.
(ii) In - the Hearing Officer recited Mr Green's argument that if one applies Unilever's approach it would be impossible for any employee of a company of the size of Unilever to produce a patented invention which conferred an "outstanding" benefit. He then referred to what Jacob LJ said in his judgment at the earlier hearing (see  above). At - the Hearing Officer said:"207. I agree with Mr Green to the extent that I think it is too simplistic to simply look at overall turnover, or profits, of an employer's undertaking and then simply state that a given benefit is a small percentage of that. At the same time, it is necessary, as the statute says, to take account of the size and nature of the employer's undertaking. Different undertakings will have different leverage to be able to make more or less benefit out of their activities. I see this as being illustrated by Mr Emanuel's comment in evidence that £50,000 would be an excellent return for a small company to get from licensing its patents. Clearly, that would not be an excellent return for Unilever, which by its nature, for example by being able to contemplate greater expenditure on litigation, is able to get higher returns in negotiations than a smaller entity would, as Mr Emanuel conceded. So it seems totally logical to me that a given monetary benefit might be outstanding for a small entity, but not for a larger one.208. Ultimately, I do not think this reduces to a simpler test than that laid down in the statute – it is a matter of looking at the benefit in the overall context and determining whether in view of all the facts the benefit to the employer was outstanding. Sometimes that might be because of the benefit being in fact a large portion of the employer's profits or turnover. Other times it may be possible to see the outstanding nature from the effect it had – for example in Kelly, where Floyd J is able to determine the benefit is outstanding before determining its precise value in money terms."
(iii) At - he considered the evidence which compared the valuation of the Shanks patents with average patent values more generally. He concluded that these comparisons were not of much assistance:"The question of outstanding benefit must be considered in the context of an employer's undertaking. A patent might very well provide outstanding benefit in that context even if it did not stand out among patents generally. Conversely, I find it hard to see how a benefit of £50,000 could be considered an outstanding benefit in the context of Unilever's overall budget, even if generally patents are licensed for much less".
(iv) The next issue to be considered at - was the benefit in the context of Unilever's licensing activities which, as I have mentioned, were not a usual part of its business. There was little or no evidence about any other licensing deals which could be used by way of comparison with the Shanks patents and one of the witnesses called by Unilever not surprisingly accepted that any significant level of licence fees was therefore likely to stand out by comparison to this part of the Group's activities. On this, the Hearing Officer said:"215. It does not however follow that the benefit, in money or money's worth, is outstanding. On this I agree with the point Mr Alexander put forward, which was that how the benefit was made is not relevant to whether it is outstanding – what matters is whether the benefit in money or money's worth is outstanding in the context of the undertaking as a whole. Just because a company does not usually make money in a certain way does not mean that any sum, no matter how small relative to the size of the company's usual business, is of outstanding benefit for it".
(v) At - the Hearing Officer considered the evidence which sought to compare the benefit from the Shanks patents with that from other patents owned by Unilever. Much of this evidence was of very little assistance because it was not exclusively related to the value of the patents in money terms. There was also the difficulty that because as a general rule the patents which the Group research led to were used to protect the products derived from them, any calculation of benefit was dependent on disaggregating the value derived from the patents from the overall value of the product in terms of sales. The Hearing Officer was not able to get much assistance from this evidence one way or another.
(vi) He then turned to consider the benefit by comparison with Unilever's activities in general. This brought in the very wide product range I referred to earlier which generates many billions of pounds each year for the Group. But the Hearing Officer noted that to achieve the profits from its products Unilever needed to incur expenditure running into many hundreds of millions of pounds whereas in relation to the Shanks patents the expenditure did not exceed about £2m. At  he said:"220. There is one noticeable difference between the benefit in cases such as Vienetta and the present case: the amount spent by Unilever to get the benefit. Profits of 'hundreds of millions' on revenues of 'billions' necessarily implies expenditure in the hundreds of millions. In this case, even on the defendants' case, the expenditure was no more than around £2 million. Under my own approach, which is to look at the benefit of the patent, even most of those costs can be ignored, giving a very high rate of return."
(vii) Having considered the various factors urged on him by Mr Green as relevant to the issue of outstanding benefit, the Hearing Officer set out his conclusions in -:"222. Considering the totality of the evidence, I was left with a clear impression. The benefit provided by the Shanks patents was a substantial and significant one in money terms – the sort of sum Unilever would, on the evidence, worry about (cf. Project Hyacinth). Furthermore, in comparison to the benefit from other patents to Unilever, from the evidence before me it does, in Mr Emanuel's words 'stand out'. But Unilever makes profits at an order of magnitude greater on other inventions – albeit primarily by manufacture and at a much lower rate of return than was provided by the Shanks patents. Further, this is not such a case as Kelly, where Floyd J held that without the patents in that case, Amersham would have faced a crisis. There was no suggestion from either party that the Shanks patents were crucial to Unilever's success.223. In my view, taking account of the size and nature of Unilever's business, the benefit provided by the Shanks patents falls short of being outstanding.224. I note that this conclusion is not driven by the specific figure I arrived at for the benefit above. Putting aside the time value of money argument (which as I explained does not assist in making the necessary comparisons), the claimant's arguments for the total benefit, ignoring all costs and allowing approximately £8 million for the Unipath sale, gave a total of about £32 million, which would in my view not make a significant difference to the outcome of the comparisons.225. This is sufficient to decide the case. However, in view of the extensive evidence I heard relating to fair share, I think it worthwhile to express my views on what a fair share of the benefit would have been had I held the benefit to have been outstanding to the employer, particularly in terms of the relevance of the evidence in anticipation of the possibility of appeal."
The other grounds of appeal
Lord Justice Briggs :
Lord Justice Sales :
"A specifically-reactive electrochemical test device, comprising electrodes, and a cavity (1-3, 51-2) having a dimension small enough to enable sample liquid to be drawn into the cavity by capillary action, the electrodes being arranged to contact the liquid, characterised in that the electrode structure (10-11, 61-2) for making one or more measurements of one or more electrically measurable characteristics of the sample is included within said cavity (1-3, 51-2), and in that optionally a surface or wall (51) of the cavity carries a coating (63,83) of a material appropriate to the test to be carried out in the device. "