by Intellectual Property Attorney Bill Honaker, the IP Guy
If you have UK Inventors or a UK place of business this could affect you!
In the United States, agreements normally control compensation for employees who are inventors. Employees usually sign an employment agreement that requires them to assign their inventions to the business. The express consideration in these agreements is usually “$1.00 dollar and other valuable consideration”. That other valuable consideration is their employment. The employee gets hired to invent, and the company gets the benefit of those inventions.
Ownership of Inventions and paying a fair share to inventors is different in the United Kingdom.
The United Kingdom has a statute that controls the ownership of inventions made by employees. Generally speaking, if the invention is made by an employee who is expected to invent, the business owns it. That statute also controls the payment of a fair share of the benefit derived or expected on a patented invention of outstanding benefit to the employer. This can create some unexpected consequences.
So what is Outstanding Benefit?
The UK Supreme Court recently ordered Unilever PLC to pay a former employee of one of its subsidiaries £2 million. The employee, Professor Shanks, worked for Unilever Central Resources LTD from 1982 to 1984. He developed a sensor for monitoring glucose, insulin or immunoglobulin levels in diabetics known as the Electrochemical Capillary Fill Device (“ECFD”) and also developed a similar system known as the Fluorescent Capillary Fill Device (“FCFD”). Unilever patented the technology and subsequently licensed it, and ultimately sold the technology making about £24 million.
This decision came as a surprise too many. Requests for additional compensation are not common in the UK, and the standard outstanding benefit was considered a very high standard. Professor Shanks was persistent in his claim for compensation. He first filed it in 2006 with the Comptroller General of Patents who ruled against him in 2013. Professor Shanks then appealed to the High Court, and then the Court of Appeals. Each ruled against him. The Supreme Court did not.
On the issue of outstanding benefit, the Supreme Court disagreed with the Comptroller who compared the £24, million that Unilever benefited to Unilever’s overall revenue. The Comptroller was of the opinion that £24 million was substantial, but when compared to the overall revenue of Unilever was not an outstanding benefit. Professor Shank’s counsel argued that this approach results in large companies being just too big to compensate inventors.
The Supreme Court took a different approach. They focused on the benefit derived from the licensing revenue and sale of the technology. The Court felt that Unilever made only a moderate investment, obtained patents, negotiated licenses, and sold the technology. They enjoyed large rewards, with no significant risk, reflecting a very high rate of return. These rewards were not the result of Unilever’s wider business assets or infrastructure, or any bargaining power due to its size. The Court concluded that there was an outstanding benefit. They then determined that fair compensation was 5% of the £24 million.
Key Points of UK’s Rights to Employees Inventions and Compensation
- Employers own an employee’s invention if the employee’s duties would reasonably be expected to result in inventions, or if there was a special obligation to further the interests of the employer’s undertaking.
- To be an employee under this statute, the person must be mainly employed in the UK. If not mainly employed anywhere, or it cannot be determined where the employee is employed, a person can take advantage of the statute if attached to a business in the UK. With international businesses and remote workers, this could affect many businesses.
- You cannot contract away this obligation.
- Any request for compensation has to be made after a patent is granted and within one year after it ceases to have effect. If the patent extends for its normal term, that’s 21 years.
- The patent can be granted anywhere, a UK patent is not necessary.
This decision could lead to many new claims for compensation. Any company with UK employees or a business in the UK should take special interest in this decision. You need to prepare to counter potential claims for additional compensation. Five percent of revenue over 20 years could be a serious hit.
Bill Honaker, “The IP Guy” is a former USPTO Examiner, a partner with Dickinson-Wright, and author of the forthcoming book, Invisible Assets – How to Maximize the Hidden Value in Your Business. He’s especially good at keeping clients out of court. To get answers to your questions about copyrights, give him a call at 248-318-7015 or email Bill@IPGuy.com.
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