Intellectual property rights are increasingly seen as a safe and popular market to invest in. Intellectual property generates licensing revenues, when (i) licensing out to third parties and also (ii) when asserted against potential infringers, who often agree to pay royalties as a much cheaper and more predictable alternative, than the exorbitant expense of intellectual property litigation which can ultimately result in large damage awards against competitors who refuse a license.

One study found that, in 1978, 80% of corporate assets were tangible assets (buildings, equipment and the like) and 20% were intangible assets and that, by 1997, the relative value of tangible and intangible assets had essentially reversed, so that 73% of corporate assets were intangible assets. Intellectual property is or can be used to gain a competitive advantage. Different forms of intellectual property have more or less importance to different businesses (for example, the Coke trademark and the formula for Coca Cola, which is a trade secret, are amongst the most important intellectual property assets of the Coca Cola Company.

So, it is not a surprise that companies big and small put time and effort in creating, protecting and exploiting intellectual property.

One way of doing so is through their employees. Where an employee makes a patented invention in the course of employment, the resulting patent will usually be owned by his employer.  In addition, where the invention is of "outstanding benefit" to the employer having regard to its size and nature, the employee is entitled to a "fair share" of that benefit, under the Patents Act 1977.  The Patents Act also includes an anti-avoidance provision so that if the employer transfers a patent to a connected person, such as its parent as in this case, the amount of the benefit is the amount the employer would reasonably be expected to have received if that person had not been connected to it.

The question of employee's recompense was examined in the recent Unilever v Shanks Court of Appeal case which helps to explain how this compensation is likely to be calculated.  The employee, Professor Shanks, invented a measuring device which was patented by his employer and later widely used in diagnostic kits for diabetics.  His employer, Unilever CRL, transferred the patent to its parent, Unilever Plc, for a nominal sum.

After a period of non-exploitation, Unilever Plc eventually licensed the patent and received £23 million in royalties.  Professor Shanks claimed compensation, arguing that had Unilever exploited his invention sooner and on a larger scale it could have received a benefit of as much as US$1billion and this should be the starting point for assessing his fair share. The High Court agreed with Professor Shanks. 

The Court of Appeal reversed this decision and made some interesting observations. 

It first confirmed that it is the real actual benefit to the actual employer which matters and the inventor cannot complain if the employer has not exploited the invention well or at all. 

Secondly, in response to Unilever's argument that, having regard to its large size and nature, £23 million was not an "outstanding benefit", the Court was "far from convinced" that employees from large companies should not get compensation compared with what they would get if employed by small companies. 

The Court went on to hold that because it was known that Unilever Plc derived a benefit of £23 million risk free and as pure profit, Unilever CRL would reasonably be expected to have derived £23 million from the transfer of the patent to Unilever Plc. 

It rejected both Professor Shanks' argument that the benefit should have been up to $1 billion and Unilever's argument that compensation was not due because it would only have paid an unconnected person a few thousand pounds for the patent at the time of the transfer. 

Based on this finding of the amount of benefit, the actual amount of compensation has been left to the parties to negotiate. This decision clarifies some aspects of how an outstanding benefit will be assessed, in particular how to apply the statutory provisions where patents are assigned within a group.  On the facts of the case the result is not surprising. 

What may be of more concern to large technology companies, and welcomed by their employees, is the suggestion that the hurdle for showing an outstanding benefit is not necessarily higher than for small companies.  Nevertheless, given the benefits that patents provide on the market place, this should not be seen as a disincentive to file for patent protection. A solid intellectual property management policy is a must for all companies.