What is a Fair Share for Inventors?

By Dennis Crouch

Ian Shanks v. Unilever, [2014] EWHC 1647 (England & Wales High Court of Justice, Patents Court) [Shanks v Unilever judgment]

Ian Shanks invented the disposable personal glucose meter back in the 1980s while an employee of Unilever and wants his just compensation. At the time, his salary was £29,000 and a BMW to use with no bonus for successful inventing. However, as in a number of countries, a UK employee-inventor’s compensation is not solely governed by an employment agreement. Rather, the 1977 Patents Act additionally requires that the compensation be “just” and that the employee be given a “fair share” when the employee’s patented invention results in an “outstanding benefit” to the employer.

The Statute provides:

40(1): Where it appears … that the employee has made an invention belonging to the employer for which a patent has been granted, that the patent is (having regard among other things to the size and nature of the employer’s undertaking) of outstanding benefit to the employer and that by reason of those facts it is just that the employee should be awarded compensation to be paid by the employer, the court or the comptroller may award him such compensation of an amount determined under section 41 below. . . .

41(1) An award of compensation to an employee … shall be such as will secure for the employee a fair share (having regard to all the circumstances) of the [monetary] benefit which the employer has derived, or may reasonably be expected to derive, from the patent for the invention or from the assignment, assignation or grant to a person connected with the employer of the property or any right in the invention or the property in, or any right in or under, an application for that patent. . . .

(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 employee’s duties, his remuneration and the other advantages he derives or has derived from his employment or has derived in relation to the invention under this Act;

(b)     the effort and skill which the employee has devoted to making the invention;

(c)     the effort and skill which any other person has devoted to making the invention jointly with the employee concerned, and the advice and other assistance contributed by any other employee who is not a joint inventor of the invention; and

(d)     the contribution made by the employer to the making, developing and working of the invention by the provision of advice, facilities and other assistance, by the provision of opportunities and by his managerial and commercial skill and activities.”

Here, the Comptroller-General of patents (UKIPO) took the case originally and determined that Unilever’s monetary gain from the patents Shanks patents was £24.5 million and that a fair compensation for Shanks was 5% of that – resulting in £1.2 million. Not bad, but a fairly small amount of the multi-billion-dollar industry that Shanks invention helped to spark. However, the Comptroller also held that the contribution was not of “outstanding benefit” to the company as required by the statute – the result then was that Professor Shanks received nothing.

Shanks then took his case to the High Court in London, but Mr. Justice Arnold has now rejected the appeal affirming that the “the Shanks Patents were not of outstanding benefit to Unilever, and therefore Prof Shanks is not entitled to an award of employee compensation under section 40(1).”

Not outstanding?: To be clear, Shanks invention here was not directly related to any ongoing Unilever project, but one that he figured out on his own initiative and that was aided by the use if his daughter’s toy microscope in his home. The result here is that, without Shanks, Unilever’s profits on this invention would have been none and this particular innovation had a very high rate of return.

Of course, Unilever’s profits overall are in the billions of pounds per year. A £25 million project is so small that it does not even reach Unilever company management – how then could it be outstanding? Here, the judge agreed that Unilever’s size was important – confirming that:

£50,000 would be an excellent return for a small company to get from licensing its patents. Clearly, that would not be an excellent return for Unilever, which by its nature, for example by being able to contemplate greater expenditure on litigation, is able to get higher returns in negotiations than a smaller entity would, as Mr Emanuel conceded. So it seems totally logical to me that a given monetary benefit might be outstanding for a small entity, but not for a larger one.

Shanks will now have an opportunity to appeal this judgment.

76 thoughts on “What is a Fair Share for Inventors?

  1. So lame, with corporations being ever larger year by year, and every year the amount of patents corporately owned growing, what is the point of having this statute if it fades into irrelevance based on nothing but growth of those things?

  2. Also consider that the employee here, having contributed so much, upon losing, will have to pay the employer its attorney fees.

    This is England, where the wealthy and mighty are coddled and justice does not prevail.

    1. Prof Shanks deliberately chose to start this action in the UK Intellectual Property Office (Patent Office), rather than in the High Court.

      In the UK IPO, an award of legal costs (attorney fees) to be paid by the loser to the winner is on a set scale which doesn’t aim to reflect what the parties actually spent. In the absence of unreasonable litigation behaviour, Prof Shanks would normally have to pay Unilever only a tiny fraction of what this case actually cost them.

      Furthermore, his own legal costs were evidently covered by a conditional fee arrangement with his representatives (paragraphs 99-100 of the appeal judgment).

      The appeal costs would be more substantial, but still much less than if the entire case had been run in the High Court. I don’t know if Prof Shanks had after-the-event insurance to cover this, but that’s a typical feature of English conditional fee arrangements.

    2. “This is England, where the wealthy and mighty are coddled and justice does not prevail.”

      In the absence of a contractual inventor compensation plan, how would a US inventor seek extra compensation from his/her employer for an invention which had outstanding benefit?

      1. The great legal answer: it depends.

        It depends on a great number of factors (including employment agreement language and individual wherewithall).

        But let’s move the goalposts back to this situation in which we have a statutory set up and a judicial decision that is plain awful in light of the given statute.

        I do not know if England has the same core separation of powers doctrine that would govern a judge’s tweaking of the statutory texts as evidenced by the decision in Prof. Crouch’s link. Here in the states, this is – and should be – a fundamental driver. It is clear that reading a map is just not the same as writing a map.

        (along that line, Judge Arnold is clearly writing a map and resorting to things outside of the actual statute and re-writing elements that he thinks should have been added into the statute that are not there)

      2. To more honestly answer that question, in the U.S. in most cases all the employee-inventor with a normal employment agreement can do is hope for a bonus and ask for a pay raise for his or her inventive contribution. Being able to list patents on one’s resume can be of some personal value in some cases.
        Of course some such employees may leave and try to start their own company, which is apparently easier to do in the U.S. But they might need a license to their patent from their employer who owns it to do that, depending on the claim scope. Along some realistic advice that they will not get sued for also allegedly taking employer owned trade secrets with them in some cases.

        1. So are U.S. inventors less “inventive” than European inventors because they do not get an award of compensation?

          I don’t think so.

        2. Are US companies less likely to establish r&d facilities in Europe than the US because of the award of compensation?

          I have heard that they are.

      3. To be clear, Shanks invention here was not directly related to any ongoing Unilever project, but one that he figured out on his own initiative

        How did Unilever come to acquire it?

          1. Other than perhaps in CA [which had or still has a unique statute on the subject] employment contract invention assignments do not normally need to be limited to inventions relating to present or planned future business activities of the employer, and continued salary payment is valid consideration. It was not unusual for companies to have slightly different employment contracts for employees in CA.

        1. Presumably Unilever’s CRL subsidiary owned the invention under section 39. This sets out the circumstances in which an employer owns an invention made by an employee.
          link to legislation.gov.uk

          Note that it could still belong to CRL, even if not directly related to any ongoing Unilever project. It depends whether Prof Shanks’ normal duties included proposing new projects for possible development. The duties of a senior researcher might well include that. Apparently he did write a report which identified a number of “New product opportunities”, one of which evidently would have made use of the present invention.

        1. (b) CRL was a company owned by what may be called the Unilever Group of companies. It was itself merely a research, non-trading company. Whenever its employees made an invention the rights to it, and in particular the right to apply for patents worldwide, would be assigned to the parent company, Unilever Plc for a nominal sum. That is what happened in the present case. This, or similar sorts of arrangement are not uncommon for large company groups.”

          In cases where the employee is hired to invent, his salary is fair compensation for assignment of the inventions he makes while employed. However, if the invention is made by the employee outside of his normal duties, particularly if employee conceives of the invention outside of those normal duties, his compensation has nothing to do with the invention.

          I would therefore argue that the assignee/employer received assignment of the invention without providing just compensation to the employee where the invention is outside the scope of the employee’s duties, particularly when the invention is made by the employee on his own time. Nominal compensation in terms of an inventor award at the time of assignment should not change the fact that the assignment was without just compensation.

          The continued employment by the inventor should not be looked at as acquiescence. However, if the employee receives significant bonuses or promotions because of the invention, that could be viewed as compensation. The question then becomes whether these bonuses and promotions were adequate compensation.

          In the end, whether the compensation was adequate should be viewed from the point of view of ultimate value to the employer versus the compensation to the employee. 5% is hardly too much in my view. I would suggest more like 25%.

          1. You are making some assumptions about what Prof Shanks’ “normal duties” were. In particular, that making this invention did not fall within them because part of the work was done on his own time. Under English law, that is just one of many factors that would be taken into account. The more senior the employee the less weight it will carry.

            No doubt Prof Shanks could have raised that during the present case if he thought it was relevant, but he doesn’t seem to have done so.

            Under section 39, if the invention was part of his normal duties, and if his duties were such that it might reasonably be expected that inventions would result, then the invention would belong automatically to CRL ab initio. No assignment would be required. Section 40(1) then provides for compensation if appropriate. That’s apparently the present case.

            Otherwise the invention would belong to Prof Shanks himself from the outset. If he then assigned it to CRL, section 40(2) would provide for compensation if he received inadequate benefit from it.

            An important difference between the two situations is that section 40(1) – the present case – requires “outstanding benefit” to the employer. Whereas section 40(2) doesn’t – merely that the benefit actually received by the inventor is “inadequate”.

            You are right that a nominal inventor award doesn’t change any of this (except that it would be deducted from the total value of any compensation found due).

            1. IPMan,

              Thanks for the link to Section 39.

              I see we must part ways on the law, as the notion of “then the invention would belong automatically to CRL ab initio” does not happen in US law. See Stanford v Roche.

              I hesitate to continue, seeing as the foundation has shifted. It will suffice to say that a mirror decision under US law should (and likely would) be overturned on appeal. The principal objection remains the scope of relative comparison for determining “outstanding benefit,” and the deceptive expansion (cloaked in a totality of circumstances) to include a behemoth’s size unrelated to the inventor and invention. Corporate shell games only seem to rob the stated intent of the law. I find the “transfer” to put the invention in practice creates a chain – but the chain should still be limited to the particular efforts of the invention – and not invoke the minimalizing scale effect as was completed in the Unilever case.

              I would point out that the Judge did put forth the best argument first. He should have stopped there though, as his continued arguments weaken the premise that he was not unfairly using the size of the entire corporation – included unrelated attributes in the comparison (it is a red herring to say that ONLY the unrelated attributes were used in comparison, as the dwarfing factor is enough of a detriment to be excluded as even just one factor in a multi-factor evaluation).

              That first argument deals with the notion that a larger company may (not must, nor will – but only may) use a different metric for various decisions because of its size. This however, is only relative to how the company treats individual inventions and efforts within itself, one to another – and NOT – as the judge indicates in relation to a different entity would set a compensation level. It is the judge that is conflating things here. Further, the judge’s position is weakened as he inserts this notion untethered to any particular section of law – he makes it up as he goes. Note the parts of law that are shown – see my comment at post 1 – the actual written parts of the law do not reflect what the judge as done. The judge is judging on law that he would have liked to have been written – not what appears to have actually been written.

            2. IP Man, when you say that in the case where the an invention is made other than an employee hired to invent or the like, the invention what ordinarily belong to the employee, I presume that the English law is equivalent to California law which provides under such circumstances that any prior obligation for the employee to assign the invention to the company is void. In both cases, if the company wants to own the patent rights, they have to negotiate for them.

            3. anon: “I hesitate to continue, seeing as the foundation has shifted. It will suffice to say that a mirror decision under US law should (and likely would) be overturned on appeal.”

              Because of the differences between UK and US law, I suspect a mirror decision would never even arise in the USA. Given that the invention apparently arose in the course of Prof Shanks’ normal duties, how would US law allow him to claim any extra compensation beyond his normal salary?

              Remember this is a case where Prof Shanks himself evidently acknowledged that the invention arose under his normal duties. He claimed under section 40(1), not under section 40(2).

              Had the invention been his and not Unilever’s to start with, then he could have claimed under section 40(2) instead. That has no mention of outstanding benefit or the size of the employer’s undertaking. The question would have been pretty much what you suggest it should be – a simple comparison between the benefit to him and the benefit to Unilever, with no reference to Unilever’s size. The issues you complain about wouldn’t arise.

              anon: “The judge is judging on law that he would have liked to have been written – not what appears to have actually been written.”

              Judge Arnold’s reasoning on the point you dispute is at paragraphs 61-64. He applies the logic behind the earlier interim Court of Appeal decision. On the basis of that interim decision, the parties had already agreed that the benefit derived by the employer equated with that derived by Unilever as a whole (see Arnold’s paragraph 38).

              According to the interim Court of Appeal decision, “The whole scheme is built round a paradigm case, the case where the inventor worked for the same company as received all the benefit of the invention.” They said it was “….unlikely that Parliament intended that where there has been an in-house assignment of a patent, the inventor should be treated wildly differently from an inventor in the paradigm case. (paragraph 9)

              The logic which Judge Arnold derives from this is that he should treat the matter as if Unilever was all one big single company – the paradigm case. If Unilever was one single company, and Prof Shanks worked for that one company, section 40(1) clearly requires the court to have regard (among other things) to the size and nature of that single big company.

              You suggest that the court departed from the actual wording of the law. The Court of Appeal did criticise its drafting. It examined the absurdities which arose from various possible interpretations. Paragraph 32 concludes “In truth this is one of those provisions which is so ill-drafted …. that one has to be guided by its evident purpose (ascertainable from the paradigm case) to ascertain its meaning. My old head of Chambers, Thomas Blanco White QC, used to call this approach to construction of an ill-drafted provision ‘sewing the fly buttons on the statute.'”

              One question in my mind is whether it is right to apply the “paradigm case” logic to the “outstanding benefit” question in section 40(1). The Court of Appeal decision was about the meaning of section 41(2). On its face, section 41(2) applies to section 41(1) but not to section 40(1).

              On the other hand, the Court of Appeal did refer to the “whole scheme” of inventor’s compensation being based on the paradigm case. So it’s not hard to see why Judge Arnold felt bound by it. To address this would require another trip to the Court of Appeal.

            4. IPMan,

              how would US law allow him to claim any extra compensation beyond his normal salary?

              That depends on any wording of any employment contract. Again, See Roche v. Stanford. In the States, normal duties alone are not dispositive.

              The question would have been pretty much what you suggest it should be – a simple comparison between the benefit to him and the benefit to Unilever, with no reference to Unilever’s size. The issues you complain about wouldn’t arise.

              Not so – the sections and issue I rise apply fully to the section that is in play – you seek at the onset to avoid that fact. The law in question does deal with fairness to the inventor in the case that the invention is owned by Corp. I am not sure why you are trying to say otherwise. This avoidance of the purpose of the law colors your views elsewhere as well.

              [Judge Arnold] applies the logic behind the earlier interim Court of Appeal decision.

              OK – this is not a new point and the logic below is also wrong. So what? I am only discussing the logic shown on this thread with the law shown on this thread. I fully admit that I am operating in a somewhat closed environment, so please join me here on the facts and law present – let’s not drag more stuff in that I cannot see for the points I have made with what I have had to work with.

              The logic which Judge Arnold derives from this is that he should treat the matter as if Unilever was all one big single company – the paradigm case.

              Yes – and that is the logic that is a fallacy and turns the Fairness to the Inventor into a travesty. The point of the matter is that no company operates under such a single umbrella for at least efficiency and span of control reasons. Hierarchy exists – and the “just have the Corp so big” is EXACTLY the wrong logic being pursued (at the same time it is being said not to be pursued).

              [The court] concludes “In truth this is one of those provisions which is so ill-drafted …. that one has to be guided by its evident purpose (ascertainable from the paradigm case) to ascertain its meaning.

              Part and parcel of the problem I identify – the court is rewriting the law to its druthers. Here in the States – and especially for patent law, that type of judicial activism is problematic.

              One question in my mind is whether it is right to apply the “paradigm case” logic to the “outstanding benefit” question in section 40(1). The Court of Appeal decision was about the meaning of section 41(2). On its face, section 41(2) applies to section 41(1) but not to section 40(1).

              Not sure I would – or could make that distinction. I read the law (as much of the law that I have) as a cohesive unit – and that unit is not built for the “Fairness” to the Corp.

              To address this would require another trip to the Court of Appeal.

              Not really, we are addressing it here – of course, if you mean for the case itself to reach a better decision, well, yes, more court action is evidently needed.

          2. You are making some assumptions about what Prof Shanks’ “normal duties” were.

            I’m just reading the summary of the case posted upthread which sure makes the situation sound like one where Shanks invention was outside of his “normal duties.”

          3. versus the compensation to the employee

            regardless of any possible assumptions (ahem, IPMan), the point – I believe – that Ned is making is that the focal point should be relatively constrained to the inventor and the invention.

            In NO way should the focal point be so broadened as to lose sight of the very impetus of the law – fair FOR the inventor.

            1. I took Ned to be saying that if the invention is part of the employee’s normal duties – where he is hired to invent – then his salary alone is fair compensation.

              The question of awarding additional compensation (and whether it is fair) would then only arise if the invention was made outside his normal duties.

              The UK law is more favorable to the inventor than this. It provides a possibility for additional compensation in both cases.

              However, if the inventor was paid to invent, then section 40(1) sets a high hurdle: “outstanding benefit”, and one of the factors to be considered is the size and nature of the employer’s
              undertaking.

              On the other hand, if the invention was made outside the inventor’s normal duties, you apply under section 40(2) instead of 40(1).

              For an invention outside the employee’s normal duties, section 40(2) just asks if the benefit derived by the employee is inadequate in relation to the benefit derived by the employer. No question about “outstanding benefit”. No need to look at the size and nature of the employer’s undertaking.

              See link to legislation.gov.uk

            2. It appears that you are missing the point – the construction of the terms in 40(1) are at both times being said not to be (singly) the company as a whole (the multi-variable counterargument) and to be (singly) the company as a whole (the bottom line reality).

              It makes no legitimate sense to pay lip service to say a multi-variable analysis is the driver of the decision when in plain truth, a single element has such a driving force.

            3. “the construction of the terms in 40(1) are at both times being said not to be (singly) the company as a whole (the multi-variable counterargument) and to be (singly) the company as a whole (the bottom line reality).”

              You have to consider the words of section 40(1). “Where it appears ….. that the patent is (having regard among other things to the size and nature of the employer’s undertaking) of outstanding benefit to the employer….” [*]

              The first thing is that it’s the same company for both the assessment of the amount of the benefit, and for whether it is “outstanding”. Either you consider the small CRL research company for both, or the whole Unilever group for both. In both cases it’s the same words of section 40(1)(b) – the same benefit and the same employer.

              Obviously, Prof Shanks wants a share of the £23 million realised by the whole Unilever group, not the £100 received by CRL. The interim Court of Appeal decision agreed with him. But in that case the assessment of “outstanding” also has to “have regard among other things to the size and nature” of the whole Unilever Group. [**]

              I think it is you who has misunderstood the multi-factorial assessment. It comes from those words “among other things” in section 40(1). The court has to have regard to the size and nature of the employer’s undertaking “among other things”. Thus, it is quite correct to consider other things than just the size of Unilever as a whole. It’s a qualitative test, not just a straight numerical comparison (para 66 of Arnold’s judgment).

              The other things taken into account included “in relation to patents in general; in the context of Unilever’s licensing activities; in view of Unilever’s patent activities; and compared to Unilever’s activities in general.” (para 65 of Arnold’s judgment).

              Also taken into the multi-factorial assessment were for example “the disparity between what [Prof Shanks] received from the Shanks Patents and what Unilever received” (paras 72-73). And “the absence of commercial risk and the high rate of return” in the exploitation of the patents (paras 76-78).

              Judge Arnold quoted extensively from the IPO hearing officer’s decision on these matters. His job on appeal was to decide whether the hearing officer had erred in principle, not to reconsider everything de novo.

              ————–
              [*] This is the old wording of section 40(1), which was applicable to the present case. It has changed since.

              [**] Actually Prof Shanks also tried to claim a share of more than just the actual £23 million benefit. He pointed out that if Unilever had done a better job of exploiting the invention, the potential benefit would have been much more – maybe $1 billion. He had an argument for a share of that larger potential benefit, but the Court of Appeal said no.

            4. IPMan,

              Your emphasis on “same company” is misplaced.

              The emphasis should be on “undertaking” It is that word that is used in the singular and that word that implicates that the entire company drag-in is simply improper.

              The undertaking is that effort (and that effort through related ties of corporate shell-games and such) related to the invention. It is only those things related to the invention that come into the scope of items to be used for the multi-variate analysis – it is simply a mistake (and a gross mistake) to bring in the ENTIRE company (or even an ENTIRE shell portion) including those elements of the larger whole that have NOTHING to do with the invention into the analysis.

              The error is sought to be masked by the judge with faulty logic. His attempted mask is to say that the ENTIRE company effect is ‘really not that bad an error’ because the ENTIRE company effect is bu tone of the things looked at. This neglects the impact that that single effect simply washes out all the other effects and is simply too prejudicial to consider. Any “size” effect RELATED to the actual invention must not so grossly overwhelm the actual invention as to make the invention a nullity at the start – that is the proper understanding of the TOO BIG paradigm and that understanding is not properly being used in the case.

            5. You have a novel definition of “undertaking”, anon.

              Where does section 40(1) say that the undertaking is only that effort which is related to the invention? It doesn’t say that. It just says “the employer’s undertaking”. That’s it. Period.

              So just who is it that is “resorting to things outside of the actual statute and re-writing elements that he thinks should have been added into the statute that are not there”? (Quoting one of your earlier posts.)

              You also continue to misunderstand the multi-factorial assessment. It is mandated by the words “among other things” in section 40(1). That is broad, open language, not confined just to things related to the invention.

              And you misrepresent the judge’s logic. Nowhere has he said that the entire company effect is ‘really not that bad’. All he’s done is to check that the hearing officer looked at other things as well, as 40(1) requires.

              Ever since the Patents Act was passed in 1977, people here have been saying that 40(1) sets a very high hurdle for an inventor that works for a large company. And that the words “among other things” (the multi-factorial assessment) can only go so far to offset that.

              If you want to criticise section 40(1) itself, then go ahead. You won’t be alone. In fact, that’s why it was subsequently amended (but too late for Prof Shanks, and the amendment still doesn’t really address the entire company effect).

              But please keep your criticism in proportion:

              – Remember that 40(1) only applies where the invention belongs to the employer anyway, because the employee was paid to invent it.
              – Remember that there is a separate section 40(2) which is much more generous where the invention was not part of the employee’s duties.
              – Remember that a US inventor who was paid to invent would in general only be entitled to extra compensation if his employment contract said so. Few do.
              – Remember that if the US inventor was not paid to invent, then (unlike the UK) most US employment contracts still oblige an assignment to the employer if it relates to the employer’s business. And most still do not provide for extra compensation.

            6. IPMan,

              My interpretation is hardly a novel one.

              The use of the word is in the singular. An employer – taken as a whole – has MANY undertakings going on at any one time.
              The use of the word is in context of what the law – as a whole section – is said to be written for (i.e. fairness for the inventor).

              I have already provided both of these notions to you – why do you want to close your eyes to them and then complain that you don’t see them?

              Further, it is not I that continues to misunderstand what a multi-variate analysis means or takes into account. I understand it perfectly. Quite the opposite – it is you that continues to show a lack of appreciation for when the phrase is evidently used as a smokescreen and the effect so swallows the rule as to make the rule a nonsense. Another item in which we have you tightly clenching your eyes and saying “I cannot see.”

              As to the elements you list so as to keep the “criticism in proportion,” I have ALREADY ADDRESSED this comment of yours and I have already told you that those elements are already noted – I have closed my eyes to none of those elements.

              (further, your affirmative note regarding US employment is not correct – as I have already told you)

            7. anon,

              Here’s the fallacy with your interpretation. You say:
              The undertaking is that effort (and that effort through related ties of corporate shell-games and such) related to the invention.

              So in your view, the size of the undertaking is just the size of the business related to the invention – ignoring all the rest of Unilever’s business.

              In the present case, the invention was exploited by licensing, an activity which Unilever didn’t normally do. The size of the undertaking related to the invention is just the gross receipts of £24.5 million.

              But that £24.5 million is nearly identical to the £23 million benefit which Unilever received. The licence income was nearly all pure profit.

              Now perform the test required by section 40(1). Is the £23 million benefit “outstanding”, having regard to the£24.5 million size of the undertaking? Clearly yes.

              But this is going to be the case for almost any invention which is licensed out. Whatever the size of the benefit, it will usually be nearly all pure profit.

              So it doesn’t matter whether the benefit is £230,000 or £23 billion. You are comparing the benefit of the invention to the the gross receipts from the invention (i.e. to the size of the undertaking related to the invention). On that test, it’s nearly always going to be outstanding.

              The fallacy is that you are comparing one facet of the invention with another facet of the invention itself. There is no surrounding context.

              So while your idea might appear superficially attractive, it makes a mockery of the test under section 40(1). The employee will nearly always win. I don’t think that’s what Parliament intended. I think they intended that there would be compensation paid only in cases which stand out from the crowd.

              (further, your affirmative note regarding US employment is not correct – as I have already told you)

              Previously I asked you “how would US law allow him to claim any extra compensation beyond his normal salary?” You replied “That depends on any wording of any employment contract. ”

              I agree. In my more recent post I echoed what you said: “Remember that a US inventor who was paid to invent would in general only be entitled to extra compensation if his employment contract said so.”

              However, I also added “Few do.” Do you disagree with that? Do US employment contracts usually provide for extra compensation?

              I think you know the answer. A few do, but most don’t.

            8. IPMan,

              There is no fallacy in my view. In fact, the only fallacy is that you attempt to paint my view as a fallacy.

              The direct (and well recognized) metric of ROI shows that my view is not only not a fallacy, my view accords better and more accurately with the singular nature of the word used in the statute.

              Return on Investment is a number calculated only with regard to a particular item and its associated costs. It explicitly is not calculated with any sense of the organization as a whole. In truth, if the metric would be co-opted and used how the Judge in the case uses “outstanding benefit,” I would daresay that NO projects ever in large corporations would be approved because EVERY project would fail to provide an adequate ROI.

              Further, it is perplexing that you would offer as an example something that “licence income was nearly all pure profit.” as something somehow NOT to be considered outstanding benefit. It appears axiomatic that something with low (or no) cost that turns into pure profit must be considered to be an outstanding benefit. If such a thing is not so considered, what then would be so considered? something less? is there something possibly more outstandingly beneficial?

              Lastly, I have separated out the employment issue – as that is likely to only cause confusion and is not necessary for this discussion. In fact, I have started up the employment discussion on a new thread, tying in a comment from Ned Heller.

            9. The high ROI was considered. See the judge’s paragraphs 76-78, concluding with:

              “78. This is the point which has troubled me most about the hearing officer’s assessment of whether the benefit was outstanding, since the very high rate of return obtained by Unilever from the Shanks Patents is a striking feature of the present case. Nevertheless, I see no error of principle in the hearing officer’s approach which would justify my intervening in his decision. He accepted that the high rate of return was a factor in Prof Shanks’ favour, and he took that into account in reaching his overall conclusion. The weight to give this factor was a matter for him.”

              Of course, on appeal the judge’s role is not to conduct a de novo assessment.

              The difference between your approach and that of the hearing officer and judge is that you would put ROI above everything else. In your view, Unilever’s return on this invention tells you the size of their undertaking.

              Whereas the hearing officer and judge took it into account as part of the multi-factorial assessment – and it seems the judge would have given it a higher weighting than the hearing officer.

              One problem for your approach, I suspect, is that English courts follow precedent. I think that previous cases have viewed the employer’s undertaking more widely than just the effort or return related to the invention. As I’ve said, you have a novel interpretation. As far as I can see, Prof Shanks didn’t even try to argue for such an interpretation, though he did try to argue that the relevant undertaking was the CRL subsidiary or some sub-unit of CRL.

            10. IPMan,

              We appear to be circling a concept with polar views, and not getting any closer to resolution.

              You state “The difference between your approach and that of the hearing officer and judge is that you would put ROI above everything else

              I heartily disagree – to a certain extent. That extent appears to be the factor I discuss (and that you maintain a closed eye view to): the judge view goes too far in the opposite direction and allows the massive size (even if just one factor in a multi-factor analysis) to swallow that analysis.

              I use the ROI concept – not to say “ONLY that concept,” but to show two things:

              1) your charge of a fallacy is false
              2) the notion of relatedness most definitely should be the guiding factor – as augmented by my other observations throughout this thread.

              Further, my approach is less concerned with any sense of being integrated into the English system and more concerned with noting that the decision is wrong per the given law. There may very well be bad decisions along the way that constrain this bad decision -but such is rather immaterial to an objective evaluation that this WAS a bad decision. My approach – as I have shown – follows the stated intent of the law: fairness for the inventor without having the non-inventor controlled size of the entity have an undue effect.

            11. anon,

              If Parliament had wanted the courts to view the benefit of the invention just in relation to the overall return on the invention, it could have very easily said so. It could have said “…having regard among other things to the size and nature of the employer’s undertaking in relation to the invention“.

              But it didn’t say that. It evidently wanted something that stood out on a comparison involving more than just comparing the invention with itself.

              People have been pointing out the resulting difficulty for inventors employed by large undertakings ever since 1977.

              Nevertheless, some inventors employed by large undertakings have achieved awards, using exactly the same sort of analysis as took place in the present case. It’s harder, but it’s not impossible. The benefits just need to be larger than they were here.

              And that is what the judge in the present case looked for in the hearing officer’s assessment. Did the hearing officer’s approach mean that no benefit, however large, could ever be outstanding? “I accept that it would not be correct to construe section 40(1) as meaning that, if the employer’s undertaking is large and profitable, no benefit can be outstanding however large it is. Nor did counsel for Unilever submit to the contrary.” (para 69)

              So he looked at the numerous factors the hearing officer considered. Had he fallen into that error?

              “In my judgment it is clear …. that the hearing officer did not make the error he is accused of. He did not decide that Unilever was too big to pay or that no benefit could be outstanding however large because of the size and nature of Unilever’s business. Nor did he decide that £24.5 million was not an outstanding benefit simply because it was an arithmetically small sum compared to Unilever’s profits over the same period. On the contrary, the hearing officer undertook a multi-factorial assessment which including having regard to the size and nature of the relevant undertaking, as the statute required him to do.” (para 71)

              You are of course welcome to argue that Parliament should have written section 40(1) differently, if you wish. Until they amend it, however, we are stuck with “the employer’s undertaking”, not “the employer’s undertaking in relation to the invention”.

              “The employer’s undertaking” has a perfectly natural meaning, which is the meaning that the courts have given it. You are arguing for a different meaning, and supporting that on grounds of fairness to the inventor. It would indeed mean that rather more inventors would get awards, but it is far from clear that that’s what Parliament intended. A perfectly natural reading of section 40(1) as a whole suggests that they intended awards to be the exception rather than the rule. The language they used does however make it harder (but not impossible) for employees of large undertakings.

            12. Quite simply, “undertaking” in the singular IS my meaning while “undertakings” in the plural is YOUR meaning.

              No need to rewrite the statute – the statute is fine.

            13. (sigh)

              You have your eyes closed – yes, the word is in the singular.

              That is precisely why my view is the better one.

              Your view is necessarily a plural use of the word – and that plural use is just not the use in the statute.

              It appears that you are the one needing to change the statute to reach the proper use of the word you want to use. My word – the singular one – is already there.

              That’s kind of the entire point.

            14. (sigh indeed)

              This is just basic English grammar. Consider the phrase “the employer’s entire undertaking”. The word “undertaking” is singular, not plural. Just as it is in “the employer’s undertaking relating to the invention”. The sizes may differ, because one is a subdivision within the other, but both are singular.

              In fact, Prof Shanks put forward several candidates for the relevant undertaking. Again, some were subdivisions of others. But as a matter of English grammar, all were singular.

              Notably, “the employer’s undertaking relating to the invention” was not one he argued for, so it’s hardly surprising that he didn’t get it.

            15. Your grammar is a bit tortured.

              Anyone with real world experience would not use the singular as you are attempting to do (subdivision…? that would only apply in a unity set – anyone recognizing that more than one inventive endeavor by an entity might be at play simply would not use the singular as you are attempting to do).

              You keep on struggling – proving my point with every additional post you make.

              In a way, I should say thanks. I just don’t think you have your eyes open enough to appreciate my thanking you.

            16. ps, your grammar lesson might apply to something like sheep.

              Undertaking however, is different. You are just nor correct here. You want to put the items together into a single bucket, when the items should be differentiated. The point of the law is to differentiate, not mush everything together.

        2. And you would lose in most states. [As usual, I hope no one ever takes comments on this blog as to what anyone thinks should be the law as anything to rely on.]

          1. Paul, are you basing your comments on contract law principles?

            On statutes, both Minnesota and California have statutes on the assignability of inventions not related to one’s work. They not assignable.

            I would think a court looking that the legalities of the situation, the adhesion form of contracting involved, the lack of any real compensation for the assignment, and California and Minnesota law on point, and it would not be as cut and dry as you might believe.

            1. anon, without reasonable compensation, there really is no assignment, just intimidation. I think the Feds would hold that stealing, through intimidation, a man’s invention is not an assignment within the meaning of Federal Law.

            2. anon, on the title issue, consider the following. Sasha, an illegal having forged documents, is hired by Big Pharma. He executes the standard employment agreement that presently assigns to the company all inventions he makes while an employee that are related to company business. He goes to work in a laboratory working with lab rats testing new products.

              He lives in a house with an elderly woman who has Alzheimer’s. One day he shares with her his special weed he gets from his home country, a place where no one is known to have Alzheimer’s. She shows instant improvement and shortly she is cured of the disease.

              At work, Sasha discloses what happened to his boss who then commissions an investigation that includes Sasha. The test results on lab rats show promise. The active ingredient is isolated. A patent application is drafted naming Sasha the inventor. He is asked to sign an assignment and a declaration. He refuses – whereupon he is promptly fired. Shortly thereafter, the Feds, tipped off by Big Pharma, arrest and deport Sasha.

              Big Pharma files the patent application naming Sasha. Big Pharma records the employment agreement and the fact that Sasha refuse to execute the declaration when asked.

              Time passes, the FDA approves the use of the isolated active ingredient for Alzheimers. The profits roll in, amounting to more than 1 billion a year.

              Sasha then returns on a visa and hires your firm to represent him. Your firm files suit against Big Pharma for patent infringement, using the patent issued in the name of Big Pharma. Sasha claims he has legal title because he never assigned the patent to Big Pharma and because the discovery of the relationship of his special weed to curing Alzheimer’s was his separate invention unrelated to his work at the company.

              Please discuss the standing issue.

            3. The argument boils down to the refused assignment and whether or not “related” attaches.

              A secondary issue may be whether “isolation” is enough to warrant patent coverage.

              Since you do not go into details of the type of work that Big Pharma does, it is not certain that the relatedness can be solved given the facts of your hypo. Standing is not determinable without more.

              An indication that no invention is present – and that the isolation is not enough – can be seen by the fact that an un-isolated version appears to have the same effect as the isolated version, which would indicate no difference in kind inures from the isolation and the main issue may be moot.

            4. Ned

              You asked previously about the enforceability of an obligation to assign in the UK. So let me answer your hypo about Sasha and Big Pharma from a UK perspective, assuming the employment is in the UK rather than the US.

              The agreement as you describe it diminishes the rights Sasha would have under section 39. It requires assignment of all inventions related to the company business, irrespective of whether they are made in the course of his duties, and irrespective of whether his duties are such that an invention might reasonably be expected to result.

              To that extent, it would be unenforceable under section 42. So it’s pointless having the obligation to assign. Whether it’s there or not, the best Big Pharma can achieve is what section 39 gives them.

              (Forgive me for a dig at anon: section 39 doesn’t permit the sort of indentured servitude that the agreement you describe would represent.)

              It seems pretty clear that the invention was not made in the course of Sasha’s duties, so I think it belongs to him in the first instance.

              If he nevertheless assigns it to Big Pharma for less than it turns out to be worth, then he can claim compensation under section 40(2). Unlike section 40(1), there would be no question about whether the benefit was outstanding. And no issues about Big Pharma’s size. Just whether the benefit derived by Sasha is inadequate in relation to the benefit derived by Big Pharma, and whether an award would be just.

            5. The sad thing is, IP, the most states impose no limits on what it can ask of an employee for an assignment. So companies routinely ask for assignments of everything the employee invents during employment. I was reviewing just such an agreement for a Boston hire recently. The agreement was drafted by an Atlanta firm.

              Of course I had the new employee specifically carve out exceptions. They were accepted. But these agreements are draconian and way overbroad. The attitude exhibited by Paul Morgan is held by most who represent only US corporations. They think that continued employment is enough consideration. Well, it is not, in my view.

            6. the most states impose no limits on what it can ask of an employee for an assignment

              That’s not a patent law issue.

              That is an employment law issue.

  3. What about this?

    Provided by statute:

    Employed named inventors whose assignments agreements do not grant at least 5% of profits or royalties attributable to their patents may at their option regain ownership of their patents ten years after grant upon payment to the assignee of a statutory amount that might be adjusted for inflation. Initially, set that amount to $50000, representing the cost of acquisition and maintenance. (The royalties are divided pro rata.) If more than one inventor wishes to purchase, the first to make offer gets the patent.

    (There might be problems with terminal disclaimers.)

    Also, upon failure of payment of a maintenance fee, assigned patents revert to the inventors who are notified and may then pay the fee.

    Now with the above, we might see a lot more assignment agreements with royalty obligations written in.

  4. U.S. companies like Lockheed that have had contractual inventor compensation plans based on some percentage of royalty or profit (instead of a flat fee patent award) have ended up in mutually expensive litigation with which no one is happy, just like this one in the UK. Even flat fee per patent award systems have led to internal corporate disputes, as to who-all should be named on the patent. Some countries like Japan have had inventor compensation laws just as ambiguous as this UK one, but which had simply been widely ignored until the famous Japanese “blue laser” inventor suit. I would be curious as to the sequels, and about employed-inventor extra compensation systems that do NOT lead to legal and bureaucratic messes?

    1. [Re the above, in 2004, “the inventor of the blue light-emitting diode was awarded [by the Tokyo High Court] a record 20 billion yen ($189 million) in compensation from his former employer for patent rights that he handed over to the company.” … “A provision in Japan’s Patent Law that outlines the payment for rights transfers is under revision.”] [I assume it has been revised?] [The inventor was smart to take a job in CA before suing his former employer in Japan.]

    2. Another actual example: Years ago a company sold a new product with an unrealized minor optical defect with just a small output quality effect. A low-level German employee figured out a cheap simple fix. It had no licensing value for any other product and no known effect on company profits. That employee made a claim under the German inventor compensation system and got a fairly good award anyway, due particularly to the fact that he was a low level employee rather than a scientist or engineer hired and paid to invent as part of his job.

      Fair enough, you may say, but here is a profound unintended hidden consequence of these national inventor compensation systems for their respective countries. The potentially large hidden cost to their national economies of corporations avoiding locating their R&D facilities in those countries where its ambiguous inventor compensation system is an issue they are concerned about!

      1. Paul, I take it you do not oppose laws such as in California that prevent assignments of employee inventions unrelated to an employee’s work and that he develops on his own time with his own resources?

        California does not seem to lack in R&D because of such laws.

  5. The Statute provides:…
    40(1): Where it appears … (having regard among other things to the size and nature of the employer’s undertaking)

    Note that 40(1) does not indicate RELATIVE SIZE of the entity, but rather indicates the particular undertaking (I would posit that “undertaking appears to be being taken far too broadly and not as I would put it as the appropriate scope of the invention itself). But the case here appears to be making the statutory construction be of something else; the employer’s undertaking then should be compared to what, exactly? To the OVERALL size of the corporation, including far-flung and completely unrelated ventures? Do we REALLY want to inoculate behemoths based on how large they are (unrelated to the particular inventive activity)?

    I see nothing in any listed subpart of 41 to indicate anything other than the immediate and invention-related aspects should be coming into the equation.

    To wit:

    44(a) appears to be a determination of relativity of the impact of the invention’s worth itself to what the inventor is already paid to do.

    44(b) appears to be a determination of relativity of the impact of the invention’s worth to the level of ordinary effort of an objective employee in the inventor’s role.

    44(c) appears to be a determination of relativity of the impact of the invention’s worth to the scope of others’ involvement and contribution relative to that solely of the inventor.

    44(d) appears to be a determination of relativity of the impact of the invention’s worth to the scope of the corporation’s contribution of various resources (for the invention) relative to that solely of the inventor.

    Where exactly does a behemoth’s non-specific-inventive “other” become a part of the calculation?

    1. I am also reminded of the corporate disparity that often exists and is reflected in the multiplier of a CEO’s salary (with full benefit package) and the average worker’s package (or perhaps in line with the notion here) of a professional hired to invent.

      Fair is always one of those “loaded” words, where context controls. I see nothing in the statute that lends itself to be gauging “fair” to what the corporation as a whole is valued at. As I pointed out, each and every listed item instead points to a context of a particular, singular and much smaller contextual focus.

    2. Section 44 is about the “fair share,” which was calculated at 5%. The court used Unilever’s size in the distinct analysis of whether there was an “outstanding benefit.”

      I agree with you completely that the separate determination of no “outstanding benefit” doesn’t sound right. The determination should focus more on the ROI for the project. While section 40(1)’s wording is problematic, the court’s approach suggests that a single employee’s contribution will almost never be of “outstanding benefit” to a multi-billion dollar company – that seems inconsistent with the “it is just” prong of that same section.

      1. Even separating 41 (and 44) from 40 to arrive at the meaning of “outstanding benefit,” in 40 alone; the statutory construction uses “undertaking” in the singular and given the nature of the statute (fairness for the inventor), the undertaking at point is not the undertaking of the entity in total (size, stretch, reach, inclusive of everything not even related to the invention at hand), but the undertaking of the specific invention and related business.

        Unless there is more than what is on the surface here, this is a horrid judgment.

        1. The problem in taking the “undertaking” as just the particular research subsidiary which employed the inventor is that in the present case that subsidiary didn’t receive any benefit from the invention, so there would be nothing for Prof Shanks to claim a share of. The subsidiary gave the invention away to the wider Unilever group for a nominal consideration. The benefit then arose in the wider group.

          Section 41(2) deals with that situation. There was an earlier interim appeal which considered how to apply it.

          As a result, the parties agreed that the benefit to be considered in the present case is the benefit to the whole Unilever group. See paragraph 38 of the current appeal decision.

          Once you have decided that the undertaking is the wider Unilever group for the purpose of whether there was any benefit at all, it is difficult to escape the conclusion that the size of the wider Unilever group is the relevant undertaking under section 40(1) when you consider whether the benefit was outstanding.

          Nevertheless, it is not the only factor to be take into account. Paragraph 71 of the current appeal decision finds that the IPO hearing officer
          “….. did not decide that Unilever was too big to pay or that no benefit could be outstanding however large because of the size and nature of Unilever’s business. Nor did he decide that £24.5 million was not an outstanding benefit simply because it was an arithmetically small sum compared to Unilever’s profits over the same period. On the contrary, the hearing officer undertook a multi-factorial assessment which including having regard to the size and nature of the relevant undertaking, as the statute required him to do.”

          1. The subsidiary gave the invention away to the wider Unilever group for a nominal consideration. The benefit then arose in the wider group.

            The chain of relation holds – and the larger entity view is still a fail.

            This foreign decision stinks no matter how one looks at it.

          2. Paragraph 71 is hogwash – it is the current judge closing his eyes to what actually happened and mouthing “no foul, as far as I can see.”

            (note he turns around in the next paragraph and – under any honest interpretation – includes the entire enterprise thinking, even as he says that such was not applied).

            The decision stinks.

            1. Without the “entire enterprise thinking”, Prof Shanks would have failed at the first hurdle. If you don’t take account of the entire enterprise, there was no benefit at all to his employer, let alone an outstanding benefit that he could claim a share of.

              As to whether it stinks, at least UK law has a provision for an employee inventor to receive extra compensation in some circumstances, even if not in the present case. I gather from the dialogue above between Paul and Ned that only 2 out of 50 US states have such laws. Does the law in the other 48 stink? I don’t know the details of the law in any US state, but maybe one possibility is that the UK law is worse for inventors than 2 states but better than the other 48?

              I think you’ve misunderstood para 71. It says that the hearing officer undertook a “multi-factorial assessment”. Thus he didn’t base his decision purely on what you call the “entire enterprise thinking”. He didn’t say that no benefit could ever be outstanding because of Unilever’s size. However, he did still have regard to Unilever’s size and nature, as one of the multiple factors he considered.

              Your disagreement is with the fact that he considered more than just the CRL subsidiary. But as noted above, Prof Shanks would have failed at the first hurdle had he not done so.

              What I suspect you really want is to consider the benefit received by Unilever’s entire enterprise, but then not to consider that in relation to the size of their entire enterprise. It’s difficult to see how you can do one but not the other and still remain within what the law requires.

            2. Not so IPMan – the chain of relation holds – but does NOT drag in everything else with it.

              To do so would be to show a roadmap to the very thing being claimed NOT being done.

              Utter B$ if you ask me (if that was not evident).

            3. anon,

              Does US state law typically provide for compensation in cases where the invention was made as part of the inventor’s normal duties? Or only if it arose outside those duties but he nevertheless assigned it?

              Note that the UK law only requires “outstanding benefit” and only looks at the size of the employer’s undertaking in the former case. If the the invention arose outside the inventor’s normal duties, those questions are not required.

            4. IPMan,

              As noted above, the US does not ascribe to this type of indentured servitude.

              My views are colored by foundations of US law. They may not translate fully into what your sovereign nation has decided to do, and thus my comments should only be taken to the particular points (for example, the error of the judge and the incorrect attempt to squelch the “too big to pay” argument) and should not be attempted to cover the English law in toto.

Comments are closed.