Usually if an employee creates a new invention or other intellectual property in the course of his or her employment it belongs to the employer. Even if those rights go on to make the employer millions the employee is entitled only to his or her salary. However, for many years there has been an exception to this rule in UK patent law, entitling the inventive employee in this scenario to a “fair share” if a patented invention which he or she created is of “outstanding benefit” to the employer.
However, until last year no employee had successfully claimed under this provision (currently to be found in section 40 of the Patents Act 1977), and many wrote it off as a bit of a legal curiosity. As two recent court cases show, times are changing.
Two research scientists, Drs Kelly and Chiu synthesised a new compound which formed the basis of a patented radioactive imaging agent whilst working for Amersham International (now GE Healthcare). The imaging agent became worth at least £50,000,000 to their employer. Just before he retired from Amersham in 2003 Dr Kelly sued his employer under section 40. The case finally came to judgement in 2009.
The court said that for an invention to be of “outstanding benefit” to the employer it had to be “something special” or “out of the ordinary”; the benefit had to be something which the employer would not normally expect to arise as a result of an employee fulfilling his duties.
The court’s view was that a “fair share” in this case was equivalent to a 3% royalty on the estimated revenue derived by the employer solely as a result of the invention. Dr Kelly received £1,000,000, and Dr Chiu £500,000.
More recently, Professor Ian Shanks sued his previous employer Unilever UK Central Resources Limited (“CRL”) for compensation under section 40 following his patented invention leading to the development of blood testing kits used particularly by diabetics. CRL subsequently transferred the ownership of the patent to its parent Unilever plc for about £200. Ten years later, Unilever plc licensed the patent to various third parties and ended up receiving around £23,000,000 in royalties.
It was argued that CRL had only made £200 out of the patent and so there had been no outstanding benefit to the employer for Prof Shanks to share in. The court felt differently; despite some awkward wording in section 41 of the 1977 Act, the effect of this section was that where a sale or licence of a patent had been to a person connected with the employer (which includes a group company as in this case) the amount of the benefit should be a sum which could reasonably be expected to be so derived by the employer if that person had not been connected with him – in other words, on an arms length basis. It was fairly clear that an arms length value would have been closer to the £23,000,000 the Unilever plc ended up putting in its pocket rather than the £200 that CRL received.
It is noteworthy that both cases relate to inventions which were created back in the 1980s, showing that it can take many years before these issue emerge. In addition, both cases were decided on the law as it stood before the Patents Act 2004 came into force which included provisions intended to make life easier for employee inventors to claim compensation in relation to patents filed after June 2005. Technology companies that develop patented inventions can expect more claims of this nature in the future.
© Taveners March 2010