Ian Alexander Shanks (Claimant/Appellant) v Unilever Plc and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Briggs,Lord Justice Sales |
| Judgment Date | 18 January 2017 |
| Neutral Citation | [2017] EWCA Civ 2 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2014/2556 |
| Date | 18 January 2017 |
[2017] EWCA Civ 2
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
PATENTS COURT
Arnold J.
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Patten
Lord Justice Briggs
and
Lord Justice Sales
Case No: A3/2014/2556
Mr Patrick Green QC and Ms Chloe Campbell (instructed by Beresford & Co) for the Appellant
Mr Daniel Alexander QC and Mr Jonathan Hill (instructed by Herbert Smith Freehills LLP) for the Respondents
Hearing dates: 15 and 16 November 2016
Introduction
This is an appeal by Professor Ian Shanks against the dismissal by Arnold J. ( [2014] EWHC 1647 (Pat)) of his appeal against a decision of the Comptroller-General of Patents (acting by Mr Julyan Elbro, Divisional Director) who dismissed his claim for employee compensation pursuant to s.40(1) of the Patents Act 1977 ("the 1977 Act"). The claim was made against Unilever plc, Unilever NV and one of their subsidiaries, Unilever UK Central Resources Limited ("CRL") which I shall refer to collectively as "Unilever" except where otherwise indicated. It relates to European Patent (UK) 0 170 375 ("EP 375") and related patents which resulted from an invention made by Professor Shanks during his employment at CRL.
To succeed in his claim Professor Shanks needed to establish that the patents had been of "outstanding benefit" to his employer and that it was just to award him compensation. At the end of a 9-day hearing, the Hearing Officer concluded that the financial benefit to Unilever from the patents was £24.5m but that this was not, in the circumstances, outstanding. Had he been of a different view, he said that he would have awarded Professor Shanks 5% as his fair share of the benefit to the employer.
On the first appeal, Arnold J. (like the Hearing Officer) rejected an argument on behalf of Professor Shanks that the benefit from the patents to Unilever should be calculated in an amount which included not only the income received from the exploitation of the patents but also a sum which reflected the time value of money. But he accepted Unilever's argument (which the Hearing Officer had also rejected) that the £24.5m in receipts should be discounted by 30 per cent to reflect the amount of corporation tax which Unilever paid during the relevant period. This reduced the benefit to Unilever to £17m. The judge also indicated that had it been necessary for him to calculate what would have been a fair share of the benefit to award Professor Shanks, he would not have given him more than 3 per cent which was the level of the award in Kelly v GE Healthcare Ltd [2009] EWHC 181 (Pat), [2009] RPC which is the most recent reported case in which the issues of outstanding benefit and fair share have been considered.
Permission was granted by Floyd LJ for this second appeal on the basis that it raises important issues of principle in relation to what constitutes outstanding benefit and how it should be calculated. Professor Shanks challenges the decision of the Hearing Officer as affirmed by Arnold J. that the patents did not confer an outstanding benefit on Unilever and repeats the submission that the calculation of benefit should include an allowance for the time value of money. He also contends that a fair share of the benefit to Unilever would be at least 33 per cent rather than the 5 per cent which the Hearing Officer would have awarded. He also invites us to overturn the judge's conclusion that the financial benefit should be calculated net of tax.
Unilever has served a respondent's notice setting out further grounds relied upon for upholding the decision of Arnold J. One of these is that the Hearing Officer should have deducted development costs when assessing the benefit of the patents to Unilever which would have reduced the £17m figure by a further £1.75m. It is also said that the Hearing Officer was too generous to Professor Shanks in treating him as the principal inventor and in failing to give adequate weight to the provision of advice, facilities and other resources by Unilever. A proper consideration of these matters would, it is said, have reduced the calculation of a fair share still further.
The legislation
We are concerned on this appeal with the relevant legislation prior to its amendment by the Patents Act 2004. Part I of the 1977 Act begins with s.39 which specifies the circumstances in which an invention made by an employee will belong to his employer:
"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."
Section 39(2) is re-inforced by s.42(2) which renders unenforceable a term in a contract with the employer which has the effect of diminishing the employee's rights to the invention or any resulting patents. As Jacob LJ explained in LIFFE Administration and Management v Pavel Pinkava [2007] 4 All ER 981; [2007] RPC 30 at [ 95], s.42(2) seems to have been intended to limit the ability of an employer to by-pass the conditions for ownership prescribed by s.39(1) by introducing some kind of catch-all provision in the contract of employment in respect of all employee inventions made during the period of employment. This can obviously lead to disputes as to which provisions of any particular contract diminish the employee's right in the invention as opposed to defining the scope of his duties but those issues do not arise on this appeal. It is, however, clear that s.42(2) would also apply to any contractual limitation on the employee's right to compensation but again that is not a difficulty in this case.
Section 40 in its unamended form provides:
"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."
"Benefit" is defined by s.43(7) as "benefit in money or money's worth".
The amount of compensation is to be determined in accordance with s.41:
"(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...
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