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Case law: Supreme Court gives guidance on employee’s right to share in employer’s earnings from patent

Employers considering whether a patent for an invention created by an employee is of ‘outstanding benefit’ under patent laws, so compensation should be paid to the employee, should compare income from the invention with that from other inventions - not the entire income of the employer.

December 2019

This update was published in Legal Alert - December 2019

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

An invention developed by an employee in the course of their work belongs to their employer. However, under patent law if the invention is of ‘outstanding benefit’ to the employer and is patented, the employer should pay the employee compensation based on the benefit that 'may reasonably be expected to derive from the patent'.

An employee claimed compensation on the amount his employer earned from his invention which earned the employer some £24m.

Before the case was heard by the Supreme Court, all other rulings had been in favour of the employer. The rationale had been that while the financial benefit to the employer was substantial and important, the employer was so large (a global company) that the amount of income and profit generated by the patent was, proportionately, not outstanding when compared with the employer’s overall turnover and profits.

This approach was based on the wording of the applicable law, which says regard should be had ‘among other things to the size and nature of the employer's undertaking’ as to whether a patent was of outstanding benefit.

The Supreme Court disagreed with previous rulings. It said that the comparison in this case could be with income generated by other patents and inventions, both in the UK and overseas. Applying this test, the patent in this case was of outstanding benefit to the employer and – given that the costs required to monetise the patent had been insignificant and the risks minimal - the court awarded the employee his ‘fair share’ of £2m equating to around five per cent of the income generated.

The Court also said it was open to it to assess whether the benefit was outstanding by reference to the whole group of which the employer was part, and not just the employing company itself.

Operative date

  • Now

Recommendation

  • Employers considering whether a patent is of ‘outstanding benefit’ and how much compensation should be paid to the employee who came up with the invention, should compare income from the invention with that from other inventions, and not the entire income of the employer.

Case ref: Shanks v Unilever plc [2019] UKSC 45

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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