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For example, the benefit may be more than would normally have been expected to arise from the duties for which the employee was paid; it may have been arrived at without any risk to the business; it may represent an extraordinarily high rate of return; or it may have been the opportunity to develop a new line of busine... |
In the circumstances of this case and for the reasons I have given, a highly material consideration must be the extent of the benefit of the Shanks patents to the Unilever group and how that compares with the benefits the group derived from other patents resulting from the work carried out at CRL. Ratio |
In some cases it may be possible to see that a patent has been of outstanding benefit to an employer by looking at the size and profitability of the whole business. Ratio |
In the Kelly case (see paras 37-38 above), for example, the benefits of patent protection went far beyond anything which one would normally expect to arise from the sort of work the employees were doing. Ratio |
The patents protected Amershams business from generic competition and allowed it to make major deals; and sales of the patented product accounted for a large proportion of its profits. Ratio |
In short, the patents transformed its business. Ratio |
Similarly, as Patten LJ explained at para 28, a straightforward comparison of profitability may be sufficient, in the case of a smaller company, to show an outstanding benefit without recourse to wider considerations of the scope of an employees duties or the expectations the employer may have had about the anticipated... |
I also recognise that a large undertaking may be able to exert greater leverage than a smaller undertaking when negotiating licence fees. Ratio |
This was a matter to which the hearing officer referred in para 207 of his judgment. Ratio |
There he explained and I agree that a particular sum might represent an excellent return for a small undertaking but might not be so regarded by a large undertaking which was in a position to spend substantial sums on litigation to enforce its rights. Ratio |
Much the same might apply to sales of a patented product. Ratio |
A large undertaking might be able to harness its goodwill and sales force in a way that a smaller undertaking could not do. Ratio |
These would be appropriate matters to take into account. Ratio |
On the other hand, I think a tribunal should be very cautious before accepting a submission that a patent has not been of outstanding benefit to an employer simply because it has had no significant impact on its overall profitability or the value of all of its sales. Ratio |
Those profits and sales may have been generated by a range of different products which have nothing to do with the technology the subject of the patent; the parts of the business responsible for them may not have contributed to any commercial success of the patented invention; and they may be a very poor guide to wheth... |
Indeed, I find it very hard to see how a failure materially to affect the aggregated sales value or overall profitability of the business could, in and of itself, justify a finding that the benefit of a patent has not been outstanding. Ratio |
Tax and the assessment of benefit Ratio |
Arnold J accepted a submission by Unilever that in assessing the benefit it received from the Shanks patents, it was necessary to take into account the amount of tax which it had to pay, and in doing so he placed some reliance on the decision in Celanese International Corpn v BP Chemicals Ltd [1999] RPC 203. Ratio |
There Laddie J held that, in the context of an account of profits derived by a defendant from infringement of a patent, the defendant could only be required to pay over its net profits after payment of corporation tax. Ratio |
The Court of Appeal disagreed with Arnold Js approach and so do I. Section 40(1) is concerned with the assessment of the benefit of the patent to the employer and whether that benefit is outstanding. Ratio |
This exercise is quite different from an assessment of the profits which a defendant has made from its infringing activities and which it has been ordered to disgorge. Ratio |
In this case Dr Osborn, Unilevers expert on this issue, quantified the appropriate reduction to be applied to the benefit Unilever had derived from the patents at 30% on the basis that this was the average rate of corporation tax which it had to pay in the relevant period, as calculated from its accounts. Ratio |
Mr Alexander, for Unilever, submitted that Dr Osborns analysis was reasonable and proportionate and that revenues which had to be paid over in tax, such that they could not be enjoyed by Unilever, could not count as a benefit. Ratio |
I find myself unable to accept Mr Alexanders submission for it seems to me artificially to reduce the size of the benefit before deciding how much compensation should be paid to the employee. Ratio |
In my judgement the first step is to quantify the benefit and the next is to decide how much compensation would secure for the employee a fair share of it. Ratio |
The employee must account for any tax due on that share and the employer must account for any tax due on the balance. Ratio |
The approach for which Mr Alexander contends, on the other hand, would mean that the employer has only to pay to the employee a share of the benefit net of tax but can take the benefit of any available relief from tax in respect of the moneys he has paid, whilst the employee will be liable to account for tax on the mon... |
In my judgement the former approach is both fairer and consonant with the legislative purpose of these provisions. Ratio |
It follows that Patten LJ was right to say at para 43 of his judgment that the incidence of tax is a consequence of the benefit rather than a part of it. Ratio |
Assessment of the benefit net of tax would require in every case an investigation of the employers tax position including, among other things, any losses rolled forward. Ratio |
The time value of money Ratio |
Unilever received payments of licence fees under the Shanks patents over the period from 1996 to 2004 and it received the part of the purchase price of Unipath attributable to the Shanks patents in 2001. Ratio |
Professor Shanks made his application for compensation on 9 June 2006. Ratio |
Professor Shanks contends and, indeed, has always contended that Unilever has had the use of the moneys it derived from the Shanks patents ever since it received them and that this should be taken into account. Ratio |
As Arnold J noted, Professor Shanks did not rely upon this contention before him as a basis for challenging the hearing officers decision as to whether the benefit was outstanding. Ratio |
In my judgement he was right to take that course. Ratio |
The mere passage of time cannot turn a patent which was not an outstanding benefit into one which was. Ratio |
However, he did rely on it to increase the size of the benefit of which he should receive a fair share or, to put it another way, to increase the size of his share if he was successful in overturning the hearing officers decision on the issue of outstanding benefit. Ratio |
That remains the position on this appeal and it is convenient to address it now. Ratio |
The hearing officer rejected Professor Shanks argument on the basis that there was not enough evidence before him to justify an increase. Ratio |
The evidence was in his view too speculative. Ratio |
On appeal, Arnold J held that the time value of the money which Unilever had received was not a benefit derived from the Shanks patents within the meaning of section 41(1). Ratio |
He reasoned that the definition of benefit in section 43(7) coupled with the terms of section 41(1) pointed to the assessment being made as of the date the money was received; that the time value of money was not a benefit Unilever derived from the Shanks patents; that if the time value of money were treated as a relev... |
On further appeal to the Court of Appeal, Patten LJ held, like Arnold J, that the benefit under section 41(1) was limited to direct receipts from the exploitation of the patent rights and did not include any allowance for the fact that the employer had had the benefit of those receipts for a period of time prior to an ... |
However, Briggs LJ, with whom Sales LJ agreed on this issue, came to the contrary conclusion. Ratio |
He explained, at para 73, that he would expect the time value of money (or its change in real value over time due to inflation) to be relevant in the quantification of the inventors fair share under section 41(1) because of the deleterious effect on the real value of money of the likely substantial time between the emp... |
Mr Alexander, for Unilever, now submits that the approach taken by Patten LJ and Arnold J is the correct one for the reasons they gave and because it is clear, simple and practical, and that the alternative, though theoretically attractive in some respects, would introduce disproportionate complexity, would drive up th... |
In my judgement Mr Alexander was correct to describe the approach contended for by Professor Shanks as attractive, though I would not for my part characterise that attraction as theoretical. Ratio |
To the contrary, it seems to me to be the approach which accords with justice and common sense. Ratio |
Professor Shanks seeks an award which reflects the fact that, on the assumption he prevails on the other limbs of his appeal, he has for many years been kept out of a fair share of the benefit Unilever has derived from the Shanks patents. Ratio |
Nor, with great respect, am I persuaded by the reasoning of Arnold J or that of Patten LJ on appeal. Ratio |
That reasoning has at its heart the proposition that the time value of the money that Unilever has received is neither a benefit nor derived from the Shanks patents. Ratio |
I disagree. Ratio |
I see no reason why the time value of money cannot be a benefit derived from a patent within the meaning of section 41(1). Ratio |
Unilever has had the benefit of the licence fees and other moneys derived from the Shanks patents ever since they were paid. Ratio |
Another legitimate approach, which amounts to the same thing, is that of the majority in the Court of Appeal. Ratio |
On the assumption that he wins on the issue of outstanding benefit, Professor Shanks is entitled to an uplift because the fair share of the benefit should in this case reflect the deleterious effect on the real value of money of the substantial time between Unilevers receipt of the licence fees and other moneys and its... |
Turning now to Arnold Js other reasons for rejecting this part of Professor Shanks case, the inquiry under section 41(1) will in this case end at the time the order for payment is made. Ratio |
In other cases, in assessing benefit, it may be necessary to look forward. Ratio |
But that is specifically contemplated by section 41(1) which makes clear that, in an appropriate case, an award must be such as to secure for the employee a fair share of the benefit which the employer may reasonably be expected to derive from the patent. Ratio |
I also reject the suggestion that the approach Professor Shanks contends for would cut across the statutory scheme. Ratio |
It is true that the Comptroller has no power to award interest. Ratio |
But that is not what Professor Shanks seeks and in my opinion there is nothing in the scheme which bars the Comptroller from having regard to the impact of inflation in assessing the benefit or what amounts to a fair share of it. Ratio |
As for complexity and delay, there is nothing unduly complex about an assessment of the impact of time on the real value of money; nor should the possibility of an uplift encourage delay, for if in any case the employee has delayed unduly, the Comptroller would no doubt take that into account in carrying out his assess... |
In this case there is no finding by the hearing officer that Professor Shanks was unreasonably slow to make his application; nor can he be criticised for his conduct of the proceedings. Ratio |
In my judgement, and on the assumption he is otherwise successful on his appeal, fairness demands that his award of compensation should reflect the detrimental effect of time on the value of money. Ratio |
Was the benefit outstanding? Ratio |
The hearing officer carried out his assessment of the appropriate characterisation of the benefit of the Shanks patents to Unilever by considering that benefit in a number of ways. Ratio |
He looked at it in the light of Unilevers overall profits and turnover, by reference to patents in general, in the context of Unilevers licensing activities, in the light of Unilevers patent activities and finally, as compared to Unilevers activities in general. Ratio |
In the course of this analysis the hearing officer made a series of findings and observations which are to my mind rather striking. Ratio |
He held that there was an extreme disparity in numerical terms between the benefit Unilever received and the regular salary and 100 assignment fee that Professor Shanks was paid. Ratio |
He observed that there was scant evidence before him of Unilevers other licensing activities and that he had been provided with no example of another licensing deal which had provided Unilever with an income at or above the level of the Shanks patents. Ratio |
He found that the Shanks patents had produced a very high rate of return; that Unilever had made a very small effort to commercialise Professor Shanks invention; that Unilevers licensing efforts were serious but not exceptional; and that Unilever had generated the benefit it derived from the Shanks patents at no signif... |
In drawing his conclusions, he held that the benefit was a substantial and significant one in monetary terms, and that in comparison with the benefit to Unilever of other patents, it did stand out. Ratio |
In my opinion all of these matters point strongly to the conclusion that the Shanks patents were an outstanding benefit to CRL having regard to the size and nature of its undertaking as I would hold these features must be understood. Ratio |
How then did the hearing officer arrive at his conclusion that they were not? I think the key aspects of his reasoning may be summarised as follows. Ratio |
Looking first at Unilevers profits and turnover, the hearing officer agreed with Professor Shanks that it was simplistic to look simply at the figures for the overall turnover or profits of the undertaking and to say that a given benefit was only a small percentage of that. Ratio |
He explained that a relatively modest sum might represent an excellent return for a small company but would not do so for a larger entity, such as Unilever, which by its nature, for example being able to contemplate greater expenditure on litigation, could secure a higher return in a negotiation. Ratio |
Ultimately, he continued, it was a matter of considering the benefit in the overall context and making an assessment as to whether it was outstanding. Ratio |
Turning next to the benefit of the Shanks patents in relation to patents in general, the hearing officer explained that there was expert evidence before him on this issue but he found none of it of much assistance. Ratio |
Instead he reasoned that the assessment had to be carried out in the context of the employers undertaking and that he found it hard to see how a benefit of a relatively modest sum of, say, 50,000 could be considered an outstanding benefit in the context of Unilevers overall budget. Ratio |
This was followed by a consideration of the benefit to Unilever of the Shanks patents in the context of its licensing activities. Ratio |
Here the hearing officer recognised that the Shanks patents did stand out in terms of the licensing income they generated but thought that it did not follow that the benefit was outstanding. Ratio |
How the benefit was obtained was, in his view, irrelevant. Ratio |
What mattered was whether the benefit was outstanding in the context of the undertaking as a whole. Ratio |
The hearing officer then considered the benefit to Unilever of the Shanks patents in light of Unilevers broader patent activities. Ratio |
Here he referred to the evidence of Dr Mulder who held the position of Vice President Patents at Unilever. Ratio |
Some years earlier Dr Mulder had attempted to value Unilevers patents but he accepted in the course of his cross examination that his analysis did not produce a value of the patents in monetary terms but rather in terms of the value of product sales to which they related. Ratio |
He was therefore unable to identify any other patent which was more beneficial to Unilever than the Shanks patents. Ratio |
Finally, the hearing officer compared the benefits from the Shanks patents with the benefits generated by its other activities and referred in this connection to the unchallenged evidence of Dr Mulder that Unilever had a number of highly successful products, such as Viennetta ice cream, spreads and deodorants, and that... |
He said this gave some indication of the sorts of sums that could be of great benefit to Unilever and they were an order of magnitude greater than the benefit derived from the Shanks patents. Ratio |
The hearing officer expressed his conclusions in these terms: 222. Ratio |
Considering the totality of the evidence, I was left with a clear impression. Ratio |
The benefit provided by the Shanks patents was a substantial and significant one in money terms - the sort of sum that Unilever would, on the evidence, worry about Furthermore, in comparison to the benefit from other patents to Unilever, from the evidence before me it does, in Mr Emanuels words stand out. Ratio |
But Unilever makes profits at an order of magnitude greater on other inventions - albeit primarily by manufacture and at a much lower rate of return than was provided by the Shanks patents. Ratio |
Further, this is not such a case as Kelly, where Floyd J held that without the patents in that case, Amersham would have faced a crisis. Ratio |
There was no suggestion from either party that the Shanks patents were crucial to Unilevers success. Ratio |
223. Ratio |
In my view, taking account of the size and nature of Unilevers business, the benefit provided by the Shanks patents falls short of being outstanding. Ratio |
Did the hearing officer make an error of principle in assessing the benefit? Ratio |
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