The treatment of employee inventors varies widely around the world, with the US, for example, relying heavily on terms in employment contracts, and German law setting out a detailed statutory code on ownership and inventions. In the UK, the Patents Act 1977 hands ownership of most employee inventions to the employer, with a slim possibility of compensation to an employee who has come up with an invention conferring outstanding benefit on their employer. A recent appeal decision shows just how tough it can be for an employee to win a piece of the action.
A rare win for the employees...
The compensation rule has rarely been successfully used in court. A 2009 decision awarding £1m and £500,000 to two inventors of a radioactive imaging agent was an unusual success for the employees.
...followed by another loss
Now the Court of Appeal has confirmed a decision against an inventor of technology for use in disposable biosensors - an electrochemical capillary fill device and a fluorescent capillary fill device.
At the time, the inventor, Professor Shanks, was employed by a Unilever group company. Although the invention was not directly used in the Unilever group's businesses, the patents protecting Professor Shanks’s work were licensed to companies in the blood glucose testing field and later sold, generating revenues of over £24m.
It's all relative
To many, that would look like an outstanding benefit. But section 40 of the Patents Act says that the benefit should be judged:
“having regard among other things to the size and nature of the employer's undertaking”.
The problem for Professor Shanks was the sheer size of the Unilever group. The £24m was “simply dwarfed by the turnover and profits of the Group as a whole”.
Points to note:
- The “undertaking” included other Unilever group companies that had received licence fees and not just Professor Shanks’s direct employer. The patent had been assigned to Unilever's parallel parent companies plc and NV.
- A court may be willing to increase the amount of the benefit to take account of the time value of money, for example where licence fees have been received over a number of years.
- The amount of the benefit should not have corporation tax deducted.
The CA did not comment on what the level of compensation should have been if it had been payable.
Too big to pay
As one judge pointed out:
“It may be going too far to say that Unilever was simply 'too big to pay', but there is no escaping the fact that Professor Shanks might well have succeeded had his employer had a much smaller undertaking than did Unilever.”
There have been some tweaks to the wording of section 40, making it slightly easier for employees to make a claim. Now, an employee can be compensated if the invention or the patent confers the outstanding benefit, and the court has to assess whether it is just to make the award. But it is hard to see how these changes might have improved matters for Professor Shanks.
While the ruling will give comfort to larger businesses, it seems that start-ups and scale-ups will be more exposed to having an award made against them.