Shanks v Unilever Plc and Others
| Jurisdiction | England & Wales |
| Judge | Lord Hodge,Lady Hale,Lord Kitchin,Lady Black,Lord Reed |
| Judgment Date | 23 October 2019 |
| Neutral Citation | [2019] UKSC 45 |
| Date | 23 October 2019 |
| Court | Supreme Court |
[2019] UKSC 45
Lady Hale, President
Lord Reed, Deputy President
Lord Hodge
Lady Black
Lord Kitchin
Appellant
Patrick Green QC
Chloe Campbell
(Instructed by Christopher J L Ryan)
Respondents
Daniel Alexander QC
Jonathan Hill
(Instructed by Herbert Smith Freehills LLP)
Heard on 6 and 7 February 2019
( with whom Lady Hale, Lord Reed, Lord Hodge and Lady Black agree)
This appeal concerns an application made by the appellant, Professor Shanks OBE FRS FREng, for compensation under section 40 of the Patents Act 1977 (“the 1977 Act”) on the basis that the patents for an invention which he made in 1982 have been of outstanding benefit to his employer, the third respondent, Unilever UK Central Resources Ltd (“CRL”), and that he is entitled to a fair share of that benefit. The appeal raises important issues concerning the circumstances in which such compensation may be awarded and how the amount of that compensation is to be determined.
Professor Shanks was employed by CRL from May 1982 to October 1986 and was assigned to its Colworth research laboratories in Bedfordshire. He initially received a salary of £18,000 per annum and a Volvo car. His brief was to develop biosensors for use in process control and process engineering.
In July 1982 Professor Shanks visited Professor Anthony Turner and Professor John Higgins at Cranfield University and there he learned of the work they were carrying out into the use of biosensors for monitoring diabetes. As a result of this visit Professor Shanks became interested in the possibility of using re-usable or disposable devices incorporating biosensors for diagnostic applications and in a report dated 1 August 1982 entitled “Report on new opportunities afforded by electronic sensors” he identified a number of “new product opportunities”, one of which was a limited re-use or disposable sensor for monitoring glucose, insulin or immunoglobulin levels in diabetics.
It was at about this time that Professor Shanks conceived his invention. He had often observed how a droplet of liquid placed on the edge of the glass plates of a liquid crystal display (“LCD”) was drawn by capillary action into the 10-micron gap between them, and he realised the same phenomenon would occur with other liquids such as blood or urine. He also appreciated how it could be used with etched or printed planar electrodes and enzyme electrochemical techniques he had seen at Cranfield, and in this way provide a system for measuring the glucose concentration in blood, serum or urine.
In October 1982 Professor Shanks built the first prototype of his invention at home using Mylar film and slides from his daughter's toy microscope kit, and bulldog clips to hold the assembly together. It has since become known as the Electrochemical Capillary Fill Device or ECFD. He also developed a similar system which uses fluorescence rather than conductivity and this has become known as the Fluorescent Capillary Fill Device or FCFD.
CRL at that time employed all of the Unilever group's UK-based research staff. It was not a trading company and was a wholly owned subsidiary of Unilever plc. Unilever plc and Unilever NV were parallel parent companies of the Unilever group and were listed on the London and Amsterdam stock exchanges respectively, but the business of the group was run as a single entity. Save where from the context otherwise appears, I will refer to the Unilever group as “Unilever”.
It is accepted by Professor Shanks that the rights to his inventions belonged to CRL from the outset pursuant to section 39(1) of the 1977 Act. CRL assigned all these rights to Unilever plc for £100. Unilever plc retained the rights for the UK, Australia and Canada but assigned the rights for elsewhere in Europe, Japan and the USA to Unilever NV, again for £100. Unilever NV later assigned the rights for the USA to a company which later became Unilever Patent Holdings BV.
On 13 June 1984 Unilever plc filed UK patent application 8415018 (“the priority application”). It was entitled “Devices for Use in Chemical Test Procedures” and was directed to both the ECFD and the FCFD technologies. Professor Shanks was named as inventor. On 12 June 1985 European patent application 0170375 was filed claiming priority from the priority application. It related only to the ECFD technology and was filed by Unilever plc for the UK and by Unilever NV for various other contracting states. Corresponding patent applications were filed in Australia, Canada, Japan and the USA. It was in relation to the patents which were granted on all of these applications (“the Shanks patents”) that Professor Shanks made the application for compensation which is the subject of these proceedings.
Unilever was not itself interested in developing a business in the field of glucose testing for this would have required it to compete with companies which were established in this therapeutic sector. Consequently, relatively little was done to develop the ECFD technology after the end of 1984. Indeed, it was regarded by Unilever as far from a key technology. Instead, until 1986, Unilever and Professor Shanks focused on the FCFD technology which had potential application in areas of relevance to Unilever's existing businesses.
Professor Shanks left Unilever in October 1986 and in October 1987 Unilever sold the FCFD technology, and the patents it held relating to it, to Ares-Serono Inc. Ares-Serono also took an option on the ECFD technology but did not exercise it.
In the years that followed Unilever carried out a good deal of work in the field of pregnancy and fertility testing where it developed commercially successful products. Nevertheless, some research into glucose testing was carried out from 1987 to 1994 and, based primarily upon the work of Professor Brian Birch, Unilever applied for and was granted further patents (“the Birch patents”). It also maintained the Shanks patents.
The glucose testing market expanded considerably in the late 1990s and 2000s, however; and biosensors incorporating the ECFD technology played an important role in this. Indeed, the ECFD technology eventually appeared in most glucose testing products. It also became apparent that, although not vital, it was a technology that most of the significant companies in the field were willing to pay millions of pounds to use.
Unilever never considered licensing of patent rights to be a key part of its business. Its main purpose in having patents was to use them to protect its existing commercial activities. Cross-licensing of unexploited patents was of secondary importance and out-licensing was of even less interest. Consequently, the resources it devoted to the activity of out-licensing were relatively limited and, in most cases, the prospective licensees of the Shanks patents contacted Unilever and initiated licensing discussions themselves. However, as I have mentioned, Unilever did keep the Shanks patents in force and it needed significant effort and skill to conduct the licensing negotiations, albeit not to the extent a dedicated licensing team would have provided.
In the end seven licences (or sets of licences) of the Shanks patents were granted by Unilever for a total consideration of about £20.3m. The hearing officer thought this figure should be discounted to reflect the inclusion of the Birch patents in all but one of the licences, producing a net figure attributable to the Shanks patents of about £19.55m.
In 1994 management responsibility for the Shanks and Birch patents (and various other patents) was transferred to Unipath, another Unilever company. In addition, Unipath took on the bulk of Unilever's medical diagnostics business, including its commercially successful products in the fields of pregnancy and fertility testing.
In 2001 Unipath and the Shanks and the Birch patents (and the benefit of the licences under these patents) were sold to Inverness Medical Innovations, Inc (“IMI”). The hearing officer found that, of the price paid by IMI, about £5m was attributable to the Shanks patents.
Unilever's total earnings from the Shanks patents therefore amounted to around £24.55m. The hearing officer estimated that Unilever had incurred costs in prosecuting, maintaining and licensing the patents of about £250,000. It followed that Unilever's net benefit from the patents was about £24.3m which the hearing officer rounded down to £24m.
Professor Shanks made his application for compensation on 9 June 2006. It came on for hearing before Mr Julyan Elbro, the hearing officer acting for the Comptroller General of Patents (“the Comptroller”), in March 2012. The hearing lasted for nine days between March and May of that year. On 21 June 2013 the hearing officer issued his decision: BL O/259/13. He found that, having regard to the size and nature of Unilever's business, the benefit provided by the Shanks patents fell short of being outstanding.
The hearing officer went on to consider what a fair share of the benefit would have been had he considered it to be outstanding. He had regard to the various matters set out in section 41 of the 1977 Act and concluded that 5% would have been appropriate, amounting to about £1.2m. He declined to increase this figure to take into account the time value of money.
Professor Shanks appealed to the High Court against the hearing officer's decision. The appeal was heard by Arnold J and he gave judgment on 23 May 2014: [2014] EWHC 1647 (Pat); [2014] RPC 29. He dismissed the appeal, holding that the hearing officer had made no error of principle in finding that the Shanks patents were not of outstanding benefit to Unilever. However, he continued,...
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