In the first reported decision concerning compensation of employee
inventors under s. 40 of the Patents Act 1977 (the 1977 Act), the
High Court has awarded damages and provided guidance on
compensation provisions under the 1977 Act. In light of this
decision, companies engaged in R&D should consider methods for
fairly rewarding outstanding contributions made by employee
inventors. They may, however, take comfort in the judge's
conservative approach to calculating compensation.
Legislative uncertainties in the 1977 Act
S. 40 of the 1977 Act gives an employee the right to seek
compensation from their employer under certain circumstances.
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S. 40 provisions
- the employee has made an invention belonging to the employer for
which a patent has been granted;
- the patent is of "outstanding benefit" to the employer; and
- it is "just" that the employer should be awarded compensation.
S. 41 sets out the basis on which the award of compensation should
be determined.
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The uncertainties inherent in this provision have meant that in
the 30 years that have elapsed since its incorporation into UK law,
there have been no decisions made in respect of it, although it is
thought that there have been a number of out of court settlements.
The principal problems with s. 40 have been identified as being the
meaning of "outstanding benefit" (which is not defined) and the
fact that it was the patent that had to be of outstanding benefit
and not the invention protected by the patent. This last difficulty
has recently been resolved such that since 2004, compensation is
payable if there is outstanding benefit from the patent or the
invention (Patents Act 2004).
Kelly and Chiu -v- GE Healthcare Limited
There has now, finally, been a reported decision on s. 40 in the
case of Kelly and Chiu -v- GE Healthcare Limited(1).
Doctors Kelly and Chiu worked for Amersham International plc (now
GE Healthcare Limited) and were the inventors of what proved to be
a highly commercially successful radioactive imaging agent that was
the subject of a patent granted to Amersham. The product cost in
the region of £2.5m to research and develop (a sum recouped in the
first year of commercial sales). Total sales of the product to date
exceed £1.3bn! Furthermore, the success of this product propelled
Amersham International onto the international stage and made the
company a takeover target for GE.
During the hearing, the court looked at a number of issues
including:
- the meaning of "inventor" - this is the "actual deviser" of the
invention but not somebody who merely contributes to it;
- under the section prior to its amendment by the Patents Act 2004,
the court confirmed that it is the patent (as opposed to the
invention) that must be of outstanding benefit to the employer;
- "outstanding" means something special or out of the ordinary and
more than substantial, significant or good. The benefit must be
more than one would normally expect to arise from the duties of the
employees in question for which they are paid;
- the patent (or the invention, in the case of those developed
following the Patents Act 2004) must have been the cause of the
benefit although it does not have to be the only cause. The benefit
derived from the patent may have to be apportioned to isolate it
from other causes which contribute to the success of the product
(such as sales and marketing). The valuation of such benefit is to
be performed ex post facto; and
- under s. 41, the amount of compensation to which the inventor is
entitled is that to secure a just and fair award to the employee;
such reward should not be limited to an amount that might
compensate him for loss or damage (e.g. like assessing damages for
breach of contract or tortious behaviour) nor treat the inventor as
if he were an external patentee or licensor.
In applying these findings the judge (Mr. Justice Floyd who
incidentally was instructed by the writer on an s. 40 issue back in
1986 when a junior barrister) decided that the patent was of
outstanding benefit to Amersham because it extended their market
monopoly, preventing generic competition, and resulting in, on a
very conservative estimate, an additional £50m in revenue.
In looking at the share of this sum which should be due to the
inventors, the judge investigated several different analyses
including those based on the way universities reward academic
inventors as well as the way in which Amersham itself rewarded
consultant inventors. On the evidence the judge decided that, with
a very conservative view, the inventors were entitled to 3 per cent
of the relevant benefit, which he divided between the inventors: 2
per cent (£1m) to Dr Kelly and 1 per cent to the junior inventor,
Dr Chiu (£0.5m).
Compensation: conservative but fair
By its nature this is a highly unusual case; the invention was
highly successful and made Amersham a world class business. Some
might feel that Drs Kelly and Chiu deserved more, but one suspects
they were not unhappy at the outcome and the conservative approach
of the judge will have given companies engaged in serious R&D
some comfort that they will not find themselves on the end of
damaging and costly employee claims.
Notes:
(1) Kelly and Chiu -v- GE Healthcare Ltd [2009] EWHC
181 (Pat), 11 February 2009.
Please click on the links below for the other articles in
the July 2009 IP/IT newsletter
Contacts
Mark Lubbock
T: +44 (0)20 7638 1111
E: mark.lubbock@ashurst.com
Ian Starr
T: +44 (0)20 7638 1111
E: ian.starr@ashurst.com
This newsletter is not intended to be a comprehensive review of
all developments in the law and practice, or to cover all aspects
of those referred to. Readers should take legal advice before
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