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The amount of compensation is to be determined in accordance with section 41. STA |
In its unamended form this reads, so far as relevant: 41(1) An award of compensation to an employee under section 40(1) or (2) above in relation to a patent for an 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,... |
(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 in... |
(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 employees duties, his r... |
Section 43(8) provides that section 533 of the Income and Corporation Taxes Act 1970 is to apply for determining for the purpose of section 41(2) whether one person is connected with another. STA |
Entitlement to compensation Ratio |
An employee who makes an invention which belongs to his employer from the outset and for which a patent has been granted is therefore entitled to compensation if he or she establishes: first, that the patent is, having regard among other things to the size and nature of the employers undertaking, of outstanding benefit... |
Who is the employer? Ratio |
The starting point for the assessment of whether an employee is entitled to compensation is therefore the identification of the employer. Ratio |
There can be no doubt that, at least in the ordinary case, Parliament intended the term employer to mean the inventors actual employer. Ratio |
Section 39 deals with the ownership of the invention as between the inventor and his or her employer and requires a consideration of the employees duties; section 40 provides for the compensation of employees for certain inventions which may belong initially either to the employer or to the employee and, in an appropri... |
In all three cases the employer is the inventors actual employer. Ratio |
What is the benefit? Ratio |
The next task is to identify the benefit in the hands of the employer. Ratio |
This is not explained in section 40(1) which deals with an invention which has always belonged to the employer; nor is it explained in section 40(2) which deals with an invention which initially belonged to the employee. Ratio |
But section 41(1) makes clear that in both cases it is the benefit which the inventors actual employer has derived or may reasonably be expected to derive from the patent, or from the assignment or grant to a person connected with him of any right in the invention or patent or patent application for the invention. Rati... |
Section 41(1) is complemented by section 41(2) which deals further with a disposal to a connected person. Ratio |
This was considered by the Court of Appeal at an earlier stage of these proceedings on an appeal from a decision of Mann J: [2009] EWHC 3164 (Ch); [2010] RPC 11. Ratio |
The Court of Appeal (Longmore LJ, Jacob LJ and Kitchin J) held ([2010] EWCA Civ 1283; [2011] RPC 12) that, in assessing the benefit derived or expected to be derived by an employer from an assignment of the patent to a person connected with him, the court must consider the position of the actual employer and the benefi... |
There is also one curious feature of section 41(2) which it is convenient to mention at this point. Ratio |
It says it has effect for the purposes of section 41(1) but makes no mention of section 40. Ratio |
Nevertheless, for the legislative scheme to operate effectively, section 41(2) must also have effect for the purposes of section 40 and, in my opinion, it is to be interpreted in that way. Ratio |
As for the assessment of the benefit of the patent, there is no dispute that it means the benefit in the hands of the employer after deduction of any costs to the employer of securing that benefit. Ratio |
Is the benefit outstanding? Ratio |
I now turn to the meaning of the word outstanding in the expression outstanding benefit. Ratio |
In GEC Avionics Ltds Patent [1992] RPC 107, 115, Mr Vivian, for the Comptroller, noted that the statute did not use words such as significant or substantial and said the benefit must be something out of the ordinary and not such as one would normally expect to arise from the results of the duties that the employee is p... |
The employee failed to establish the patent was of outstanding benefit because the employer had received substantial orders for equipment not employing the invention well after its merits were known. PRE |
In British Steel PLCs Patent [1992] RPC 117, 122, Dr Ferdinando, for the Comptroller, thought the word outstanding implied a superlative. PRE |
The patent related to an improved valve for controlling the flow of molten metal which was used by the employer at only one site and on one machine. PRE |
The claim for compensation was rejected because the employee failed to establish a number of the benefits for which he contended, and because the hearing officer felt constrained by the way the case was presented to assess the proven benefit against all of the profits and the whole turnover of the employer, of which it... |
In Memco-Med Ltds Patent [1992] RPC 403, 414, Aldous J indicated that he did not disagree with the approaches of these hearing officers and said that the word outstanding denoted something special and required the benefit to be more than substantial or good. PRE |
The case concerned a patent relating to an improved unit for preventing the doors from closing on a person getting into or out of a lift. PRE |
Sales of the improved unit were of great importance but were all made to one customer and the evidence suggested that the business relationship between the employer and that customer would have been the same whether or not a patent had been granted. PRE |
So, once again, the claim failed. PRE |
In Kelly and Chiu v GE Healthcare Ltd [2009] EWHC 181 (Pat); [2009] RPC 12 Floyd J reviewed all of these authorities and, at para 60(iv), summarised the position as he saw it in these terms: Outstanding means something special or out of the ordinary and more than substantial, significant or good. PRE |
The benefit must be something more than one would normally expect to arise from the duties for which the employee is paid. PRE |
The Kelly case is of particular interest because the patents in issue were found to be of outstanding benefit to the claimants employer, Amersham, which was subsequently taken over by GE Healthcare Ltd, the defendant. PRE |
The facts were striking in that, had the patents not existed, Amersham would have faced a financial crisis whereas, with the patents, its business was transformed. PRE |
The commercial embodiment of the invention of the patents was an imaging agent which cost a little under 2.5m to develop but, with the protection afforded by the patents, achieved sales between 1993 and 2007 having a total value in excess of 1.3 billion. PRE |
In my view these cases are all helpful to a point as illustrations of circumstances which were found to fall each side of the line. Ratio |
But at the end of the day they provide no substitute for the statutory test which requires the benefit to be outstanding. Ratio |
This is an ordinary English word meaning exceptional or such as to stand out and it refers here to the benefit (in terms of money or moneys worth) of the patent to the employer rather than the degree of inventiveness of the employee. Ratio |
It is, however, both a relative and qualitative term and so I must now consider the context in which the question is to be asked and answered. Ratio |
Put another way, in relation to what must the benefit from the patent be outstanding? Which factors may be taken into account in making that assessment? Ratio |
Here the 1977 Act provides some guidance. Ratio |
It says that the court must have regard among other things to the size and nature of the employers undertaking. Ratio |
But this gives rise to two further questions which were the subject of a good deal of argument before us. Ratio |
What is the employers undertaking for this purpose? And what is the relevance of that undertakings size and nature? Ratio |
The employers undertaking Ratio |
In this context I understand the word undertaking to mean simply a unit or entity which carries on a business activity, and here the undertaking of interest is that of the company or other entity which employs the inventor. Ratio |
In many cases the identification of that undertaking will be comparatively straightforward. Ratio |
It will be the whole or, if it is divided into economic units, the relevant unit of the employers business. Ratio |
So, as Aldous J observed in Memco-Med at p 414 and I agree, the undertaking may be the whole or a division of the employers business. Ratio |
We are concerned in this appeal with a different and more difficult case, however. Ratio |
It is one in which CRL is part of a larger group of companies and where the work carried out by CRLs researchers was exploited by that larger group as a whole. Ratio |
This gives rise to the question whether the relevant undertaking is CRL or the whole or a part of the larger group of which it forms a part, Unilever. Ratio |
The hearing officer rejected the submission made on behalf of Professor Shanks that the employers undertaking was CRL. Ratio |
He said at para 196: In the event, on the facts of this case I find that the reality of the situation is that described by the defendants: regardless of how the various companies in the Unilever group have been structured, researchers at Colworth (employed by CRL) were doing work which was going to be exploited by the ... |
Indeed, it is notable that the whole benefit from the Shanks patents was generated by licensing activity operated out of the central Unilever companies. Ratio |
Having regard to the size and nature of the employers undertaking therefore requires me to have regard to whether the benefit from the patents is outstanding in the context of the Unilever group as a whole. Ratio |
Arnold J and the Court of Appeal agreed with the hearing officer. Ratio |
Patten LJ explained at paras 33 and 34 that an assessment of what constituted the undertaking based upon the economic and business realities of the employers organisation was the correct approach. Ratio |
He continued that if one took what he described as a strictly legal approach to the interpretation of the statute it could be said that the employer was CRL but he rejected this as a possible conclusion for two reasons: first, that if what he called the strict legal approach were to govern section 40(1) then it must al... |
Secondly, the earlier decision of the Court of Appeal in this case was, in his opinion, only consistent with treating CRLs undertaking as including the other group companies that received these payments. Ratio |
He pointed out that the work carried out by the employees of CRL was intended to enure for the benefit of Unilever as a whole and that he could see no answer to the reasoning of the hearing officer and his conclusion that the relevant undertaking in this case was or included Unilever plc and Unilever NV. Ratio |
Upon this further appeal Mr Patrick Green QC, for Professor Shanks, submits that the hearing officer and the courts below lost sight of the fact that CRL was Professor Shanks employer and that the entire Unilever group could not sensibly be described as CRLs undertaking. ARG |
Mr Daniel Alexander QC, for Unilever, commends the hearing officers reasoning. ARG |
He submits that it is unreal to treat CRL as the relevant undertaking because it never generated any material revenues, was not the beneficiary of the royalties in question and is and was simply a service company for the Unilever group. ARG |
Neither of these interpretations is without difficulty. Ratio |
The submission for Professor Shanks faces the problem that CRL has in reality received no more than a nominal benefit from the patents and certainly nothing that could be described as outstanding. Ratio |
As Mr Alexander fairly says, the real benefits have been received by other Unilever companies. Ratio |
A partial answer to this is provided by section 41(2) which deems the benefit derived from the assignment of a patent to a connected person to be the benefit which could reasonably be expected to be derived if that person had not been connected. Ratio |
True it is that section 41(2) does not in terms apply to section 40(1) but, as I have said, I think it must be interpreted in that way. Ratio |
This is still not a complete answer, however, for the deeming provision does not, on the face of it, apply to the benefit from other patents arising from the work at CRL against which the benefits from the patents in issue may be judged. Ratio |
Mr Green embraces this result, arguing that CRLs actual profits were at most about 2m per year and that judged against this figure, the 24.3m earned from the Shanks patents is plainly outstanding. Ratio |
But that, so it seems to me, is not comparing like with like. Ratio |
It would artificially and unfairly elevate the benefit to CRL from the Shanks patents in relation to any benefit it derived in other ways. Ratio |
The interpretation for which Unilever contends and which was accepted by the hearing officer and on appeal focuses on the phrase the employers undertaking in section 40(1). Ratio |
This, so it is said, is perfectly apt to describe the larger entity of which CRL is a part, that is to say, the whole Unilever group. Ratio |
But the problem with this interpretation is that it strips the phrase from its context. Ratio |
The subsection as a whole is concerned with the benefit of the patent to the employer and the assessment of whether that benefit is, in the hands of the employer, outstanding. Ratio |
Consideration of the size and nature of the employers undertaking is therefore tethered to this assessment. Ratio |
It is not, on the face of it, an inquiry into the value of the benefit to the group of which the employer is a part relative to other unrelated aspects of the groups business. Ratio |
In my judgement the correct approach to the application of section 40 and the one that does least violence to its language lies between these extremes. Ratio |
It is to look at the commercial reality of the situation but to do so, in a case such as the present, from the perspective of the inventors employer. Ratio |
Where, as here, a group company operates a research facility for the benefit of the whole group and the work results in patents which are assigned to other group members for their benefit, the focus of the inquiry into whether any one of those patents is of outstanding benefit to the company must be the extent of the b... |
This gives practical and commercial effect to the language of section 41 and involves a comparison of like with like. Ratio |
Furthermore, it is, in my opinion, the approach which sits most comfortably with the next aspect of the analysis, namely the relevance of the size and nature of the employers undertaking. Ratio |
The relevance of size and nature of the employers undertaking Ratio |
Before the Court of Appeal, Unilevers central argument on the issue of outstanding benefit was that 24.3m, though not inconsiderable, was dwarfed by the turnover and profits of Unilever as a whole. Ratio |
As Patten LJ recorded at para 26 of his judgment, Unilever makes a wide range of products from Viennetta ice-cream to deodorants which generate billions of pounds in sales and hundreds of millions of pounds in profits over the life of the patents which relate to them. Ratio |
It was accepted that the rate of return on many if not most of these patents was much lower than on the Shanks patents but that was said not to be enough to make the benefit of the Shanks patents outstanding when regard was had to the size and nature of Unilevers business. Ratio |
This submission found an echo in Mr Alexanders submissions to this court for he took us to a graph of Unilevers profits between 1984 and 2004 against which a plot of the royalty income from the Shanks and Birch patents, displayed on the same scale, was so close to the base line as to be indistinguishable from it. Ratio |
Mr Green characterised this submission before the courts below and in this court as too big to pay. ARG |
He argued that, were it to be accepted, it would be all but impossible for an employee to establish that the benefit from a patent to a business such as that of Unilever was outstanding and this would be manifestly unjust to employee inventors. ARG |
This found favour with the Court of Appeal to a point. Ratio |
As Patten LJ explained at para 28, outstanding benefit cannot be determined simply by comparing the income derived from a patent with the overall turnover and profitability of the employers undertaking. Ratio |
But it raises the more fundamental question as to the relevance of the size and nature of an undertaking to the assessment of whether the benefit to it from a patent is outstanding and how these factors should be taken into account. Ratio |
In my judgement there is no single answer to this question. Ratio |
Many different aspects of the size and nature of the employers business may be relevant to the enquiry. Ratio |
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