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Inventor only entitled to share of employer's actual patent earnings

Court of Appeal rules on 1984 gadget case

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The inventor of a medical device is entitled to a 'fair share' of the actual benefit earned from that device by his employer, the Court of Appeal has ruled. An inventor cannot complain if his employer did not exploit the invention well or at all, it said.

Professor Ian Shanks invented a device which drew precise amounts of liquid into it by capillary action in 1984 while he was working for a research company owned by Unilever.

Because he worked for Unilever, that company was entitled to the worldwide patents on the device.

Unilever did not market the invention but did license it to others who made use of it in home kits for diagnosing diabetes.

Intellectual property developed by a person in the course of his or her employment generally belongs to the employer, not the employee. But the Patents Act contains provision for 'inventor's compensation' to be paid when an invention provides 'outstanding benefit' to the company which owns the patent.

"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 ... compensation," the law said in section 40.

Unilever said that it earned £23m in licensing fees from the invention, and that the "fair share" that Shanks is entitled to should be a proportion of that.

But Shanks said that the company could, and should, have earned far more.

"It may well be that in other hands the invention could have been exploited sooner and on a much larger scale so as to produce a much larger benefit. Professor Shanks so contends, saying that the invention could have produced a royalty income of as much as US$1 billion," said the ruling, explaining his position. "[…] Thus it was contended on behalf of Professor Shanks that his compensation should be based on a higher benefit than the actual benefit of £23m royalties."

"It was said that ... the threshold requirement of 'outstanding benefit' was to be judged not by the actual benefit to the Unilever Group of companies but by the benefit which could have been obtained on the open market if the invention had been fully exploited by licensing earlier."

"This was called the 'putative benefit'," said the ruling. "This putative benefit was also the benefit of which Professor Shanks would be entitled to a 'fair share'."

"[This] effect could lead to a bizarre result," said Lord Justice Jacob in his ruling. "Unilever (the Group) only in fact made £23m. But if the 'benefit' was to be taken as US$1bn the 'fair share' of that could be a large sum – even overtopping the actual benefit."

Lord Justice Jacob said that the law did not intend this, and that the law meant that benefit should be calculated on the basis of the actual events.

"It is the real actual benefit to the actual employer which is all that matters," he said. "If an invention had been immensely valuable and a patent for it could have been or could be (if still in force) exploited for a vast sum or have fetched vast royalties or a great sum on the open market, that is irrelevant. The inventor's particular employer may not have exploited the invention well or at all. If so, the inventor cannot complain. The employer must be taken as it was, warts and all. The provision is not some kind of 'best endeavours to exploit' requirement."

The High Court had said that this person was "a notional non-connected counterparty operating in the appropriate market at the appropriate time", but Lord Justice Jacob rejected the idea that the law was meant to trigger the imagining of what a contemporary auction for the rights to the patent would have generated at the time of its invention.

He also said that some language which might seem to back the view that a hypothetical situation should form part of the assessment was there to assist in situations where patents had not yet expired.

"It is true that the subsection speaks also of the benefit which 'may reasonably be expected to derive from the patent'. That is obviously there to cater for the case where the patents have yet to expire and further benefit may be expected to accrue," he said. "It is the future benefit which may accrue to the particular employer which is to be considered. Not some notional general benefit in the market."

See: The ruling

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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