We have been reporting on the Shanks v Unilever case for six years now. Amazingly the case still rumbles on. We last reported on the judgment in May 2104 from the High Court on appeal from the UK Intellectual Property Office (UKIPO). We can now report on the latest appeal to the Court of Appeal.
Recap of the case so far
The case relates to Professor Shanks' (a former employee of Unilever) claim for compensation as an inventor of patents of outstanding benefit. (The patents related to a capillary action measuring device which has now found large scale use in home diagnostic kits for diabetes.) Section 41 of the UK Patents Act 1977 provides that an employee inventor may be entitled to compensation if two conditions are satisfied:
- the patent is of "outstanding benefit to the employer"; and if so
- it "is just" that he should be awarded compensation.
Once these requirements are fulfilled the employee should receive such a fair share of the benefit the employer has derived, or may be expected to derive from the patent or the invention.
Professor Shanks commenced his case in the UKIPO which, together with the courts, has jurisdiction to hear cases relating to employee compensation. After a marathon nine day hearing at the UKIPO, including three expert witnesses, the Hearing Officer decided that:-
- the benefit of the patents to Unilever was £24.5m;
- the benefit was not outstanding;
- but had the benefit been outstanding, Professor Shanks' fair share would have been 5%.
Professor Shanks appealed the second and third point to the High Court (the first court of appeal from the UKIPO); Unilever appealed against the first and third point.
The High Court (Arnold J) rejected Professor Shanks' appeal, but accepted Unilever's argument that "benefit" should be measured after tax and not before, which reduced the assessed measure of the benefit, and further held that 3% would have been the appropriate fair share had the benefit been outstanding.
Professor Shanks sought, and was given, permission from the Court of Appeal to appeal to the Court of Appeal. This article considers some of the points arising from the Court of Appeal's judgment: [2017] EWCA Civ 2.
The Benefit
Shanks ran two main points:-
1. The Time Value of Money
Professor Shanks re-ran his previous argument that by having use of the money derived from the patents, Unilever had use of that money over time from which it would have been able to generate yet further profits. which could therefore be said to have been derived from the patents. Patten LJ (who gave the leading judgment) agreed with Arnold J that benefit is limited to direct receipts from the patent.
Briggs LJ and Sales LJ expressed some minor dissent on this point. They concluded that
"the enquiry ought usually to be directed to the amounts actually received, at the time when they were received, and that the use to which the employer subsequently put those receipts should not be taken into account."
Briggs LJ went on to explain that there may, however, be occasions when the real value of money changes over time (for example, when there is a revenue stream over a number of years in periods of high inflation) that should be taken into account:
"simply to ensure that like is compared with like".
He further stated that the time value of money more likely would be relevant to the measure of fair share, for example to compensate for a loss in the real value of money if the employee is kept out of it at times of high inflation.
2. The Impact of Tax
On this point Professor Shanks' appeal was successful, and the UKIPO's decision upheld. As said by Patten LJ:-
"An adjustment of the gross sum to take account of corporation tax would require an investigation into the employer's tax position taking into account years of loss as well as profit; the possibility of carrying losses forward and an assessment of whether and to what extent any payment to the employee would be deductible. I do not consider that this was what Parliament can have intended when it referred to the benefit derived from the patent. The incidence of tax is unconnected to the financial benefit which the patent produced for the employer. Its deduction is no more part of the calculation of what constitutes the benefit than the time value of the money received. Both are consequences of the benefit rather than part of it. The £24.5m should not therefore be reduced to take account of corporation tax."
Was the benefit outstanding? - Too big to pay
The Patents Act (s40(1)) requires that outstanding benefit must be assessed "having regard among other things to the size and nature of the employer's undertaking". Professor Shanks argued that the UKIPO and Arnold J had compared the assessed benefit against the profits of the Unilever group, and when measured against such a substantial international business had concluded that the benefit was not outstanding. It was termed the "Too big to pay" argument; i.e. such a comparison would invariably mean that employees of substantial companies would almost always be deprived of an award by virtue only of the size of their employer's business. This, they said, was neither fair nor cannot have been what Parliament intended.
The Court of Appeal agreed that:
"a simple comparison between the income from the patents and the profits of the Unilever Group to the exclusion of all other relevant factors would amount to an error of law",
but, as succinctly expressed by Briggs LJ:-
"I agree that this appeal should be dismissed, for the reasons given by Patten LJ. I do so with some reluctance because this does appear to be a case in which the sheer size of the employer's undertaking was, at the end of a careful and balanced analysis by the Hearing Officer, the key factor in his conclusion that the benefit which Unilever derived from Professor Shanks' invention was not 'outstanding' within the meaning of that word in s.40(1) of the 1977 Act. 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.
But that seems to me to have been a legitimate consequence of the express statutory requirement that the Hearing Officer should have regard (amongst other things) to the size and nature of the employer's undertaking in deciding whether the benefit to the employer was outstanding. While s.40 does not, and the Hearing Officer did not, disregard any other relevant matter, the fact that it is the only matter to which Parliament makes express reference in this respect means that it plainly cannot be disregarded and that, in some circumstances, such as this case, it will prove to be decisive.
The fact that this factor did, I consider, prove decisive in the Hearing Officer's analysis by no means leads to the conclusion that he made an error of law. As my Lord has demonstrated, the Hearing Officer carefully took into account a range of competing factors for and against a conclusion that Professor Shanks' invention was of outstanding benefit to Unilever, recognising that no relevant factor could be treated on its own as compelling a particular outcome, without a balancing of all relevant factors. It is frequently the case that the outcome of a multi-factorial balancing exercise of this kind is ultimately determined by a particular factor. Providing that the decision maker remains within the bounds of rationality, the weight to be given to each factor is a matter for him."
Fair Share
Having decided against Professor Shanks' on the question of "outstanding benefit to the employer" the Court of Appeal did not need to, and did not, go on to address Professor Shanks' appeal that a fair share should have been at least 33%.
Conclusion
The effect of the appeal was that the assessed benefit from the patents was tweaked in Professor Shanks' favour, but he still did not get over the hurdle of establishing an outstanding benefit – therefore, the appeal failed.
Reading, in particular the judgment of Briggs LJ (recited above), one gets a flavour that were the Court of Appeal considering the matter de novo perhaps Professor Shanks might have prevailed. As it was, the Court of Appeal could not overturn the UKIPO unless satisfied that the UKIPO had made an error of law, or had come to a conclusion that no reasonable person could have done - Professor Shanks was unable to establish either.
The UKIPO is a somewhat more user friendly and relaxed environment than court proceedings, and this can perhaps subconsciously spill over into a party's presentation of a case. Further, because there is an automatic right of appeal, and only an insubstantial recovery of costs, together this may tempt parties to cut-corners. We do not for one moment suggest that this happened in Professor Shanks' case, but the case does highlight the need not to cut corners at the UKIPO despite its less formal environment, particularly when the stakes are high, as it can be very difficult to reverse reasonable first instance decisions.