SHANKS VS.

UNILEVER PLC & OTHERS

[2019] UKSC 45

I. Background of the case

Unilever plc and Unilever NV are parallel parent companies of a significantly large group
of companies who have been listed in the London and Amsterdam stock exchanges
respectively. However, the business of them is run as a single economic unit, subsuming
all the other subsidiary companies that the abovementioned parent companies (hereinafter
referred to as Unilever) owns. Unilever UK Central Resources Ltd. (CRL) is a wholly-
owned subsidiary of Unilever and were responsible in employing researchers and get into
collective agreements with various think tanks and universities for the purpose of research
and development.

II. Facts of the case

Shanks was an employee of the CRL 1982 to 1986. Even though he was employed to
develop biosensors for use in process control and engineering after his visit to Cranfeild
University, he cultivated interest in developing re-usable and disposable devices for
diagnostic applications. Incorporating his knowledge on LCDs and using his technical
know-how and his daughter’s microscope he invented the prototype for Electrochemical
Capillary Fill Device or ECFD and Fluorescent Capillary Fill Device or FCFD for the
purpose of glucose testing in urine and blood. This technology was one of the major
break-through in diagnostics and formed the basis for many other inventions which
helped Unilever gain profits. It is not disputed that CRL owned the rights to Prof. Shanks’
invention during the time of his employment but after the patent was granted the same
was assigned to Unilever for 100 pounds. Furthermore, Unilever had reassigned it to its
parallel company for 100 pounds who also assigned it to US company belonging to the
same group. All these assignments were made for the purpose of convenience in trade
where each company were involved in trading of the same goods in different parts of the
world. Unilever eventually had derived a net profit of around 24.3 million pounds from
the “Shanks Patents”.

Legal provisions invoked –

Prof. Shanks on June 2006 applied for compensation to the UK Intellectual Property
Office under Section 40 and 41 of the Patents Act, 1977 claiming that the Shanks
patents is an outstanding benefit to the CRL and that as an employee on who’s invention
such patents were granted, he should be given a fair share as a compensation.
III. Legal issues involved in the case

1. What constitutes an “employees undertaking” as mentioned in section 40, which

determines what group or subsidiary needs to be looked into in assessing whether a
particular invention was an outstanding benefit for a company/ group of companies.
2. What constitutes an outstanding benefit and what is the criteria or factors that
determine whether the invention is an outstanding benefit.
3. What constitutes a “fair share” in the profits that were derived from the said patents.

IV. Procedural history of the case

- UK Intellectual Property Office

1) With regard to the first issue the adjudicating officer was convinced with the
arguments put forward by the advocates for Unilever. The adjudicating officer agreed
that the employees undertaking meant the entire group of Unilever companies for the
benefit of which CRL was constituted and the research for diagnostic applications
were funded. The Officer rejected the contention from Prof. Shanks that it is CRL that
the employee and not the Unilever group of companies as a whole.
2) The second issue was regarding the outstanding benefit that was accrued by the
employee undertaking, which in this case was the Unilever group as a whole. The
officer used only one criterion where there was a comparison between the profits and
turnover generated by the Shanks patents and the other patents owned by the Unilever
group and held that even though there was substantial difference in the turnover it
cannot be considered as outstanding benefit in comparison. The profits were attributed
to the license procurement measures and trading strategies used by Unilever and not
to the invention itself.
3) Since it was not considered to be an outstanding benefit there was no question of fair
share. The case was decided against the Applicant on all counts.

- Appeal to the High Court

The High Court dismissed the Appeal stating that the adjudicating officer has not
made any mistake in principle and that there was no outstanding benefit.

- Appeal to the Court of Appeals

The Court of Appeals had also dismissed the Appeal stating that there was no mistake
in principle in holding that the benefit was not outstanding. However, it made an
observation that time value of money was a factor to be considered in determining the
fair share, contrary to what was observed by the High Court.
V. Judgment and reasoning of the Supreme Court

1) Employer’s Undertaking

Unlike the lower courts the Supreme Court clarified that the “employer” in this case is the
immediate employer or the actual employer and cannot be construed as the group of
companies. However, the Court held that in this current setting of a collective agreement
the CRL is the employer but the “employer’s undertaking” means the companies to which
the patents were assigned to by the CRL and the benefit that they derived from the Shanks
patents must be compared with the ones derived usually from other patents owned or
assigned to them. This comparison is the right way to determine outstanding benefit.

2) Outstanding Benifit

The Court went on to say that the size and nature of the undertaking is not very much
relevant because it does not always reflect on the profitability and the benefits that are
accrued by the undertaking because of the invention. 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 business or to engage in unforeseen licensing opportunities. All
these are still benefiting even if it doesn’t reflect in the profits of the company.

The Court therefore compared the profits derived from other patents of the group
companies and held that the invention has considerably influenced the profits of the group
companies and the patents were the prime reason for their future developments in the
same field and hence such benefits were definitely outstanding when compared to the
ones accrued by the others. The Court also dismissed the plea by the Respondents that the
tax that has been paid must be deducted in comparing the benefits. The Court held that
the turnover is what needs to be taken into account and tax deduction is only a method to
downplay the benefits accrued.

3) Fair share

The lower courts have argued on the time value of money and the issue was on
computation of fair share. If time value is to be calculated the inflationary pressure must
also be included which will rise the fair share from 3% to 5%. The Court rejected the
arguments for a 10-20% of fair share and held those arguments were completely based on
causes for the invention rather than the benefits. Those causes were already considered
when assessing if there was an outstanding benefit or not. Finally, the Court held that the
Appellant was entitled to a 5% fair share in the outstanding benefit accrued by the group
because of his invention which also takes into account the time value of money. The
Appellant got the relief of 2 million pounds for his contribution.