A new era in Employee Inventor compensation?

Kelly & Chiu v GE Healthcare Limited [2009] EWHC 181 (“the Amersham case”)

The Amersham case has pushed open the door for employee inventors to seek significant financial compensation where an invention, which they devised, has resulted in "outstanding" benefit to their employer. Such claims have been possible for many years but the success of Drs Kelly and Chiu in this case and particularly the size of the awards (£1 million and £500,000 respectively) will prompt many employee inventors to consider their rights. That being said, any fear of the floodgates opening is unfounded. There are a number of hurdles that any claimant must meet; not least that the invention must be “something special”.

The law

Sections 40 and 41 of the Patents Act 1977 UK (the “Act”) provides a statutory scheme for employee inventors to claim compensation where the invention is of outstanding benefit to their employer.

Prior to 1 January 2005, the Act provided for the employee inventor to claim for financial compensation in circumstances where a patent obtained as a result of an invention that they devised during the course of their employment affords an outstanding benefit to the employer. It has traditionally been quite difficult for employee inventors to show that the benefits received by the employer were specifically as a result of the patent itself. The Patents Act 2004 sought to remedy this situation by amending the Act so that compensation is payable when the invention itself, and not just the patent, has been of outstanding benefit to the employer. The amendments apply to any patents applied for after 1 January 2005.

The Amersham case concerned a patent that was applied for prior to 1 January 2005. Therefore, the inventors had to show that Amersham received outstanding benefit as a result of the patent itself, not the invention per se.

The Amersham case - the facts

Two research scientists who were employed by the medical device company Amersham International (now GE Healthcare) sought an award of compensation from their employer under section 40 of the Patents Act 1977, claiming a share of the benefit which they alleged had been derived from certain patents. Notwithstanding that this scheme has been in place since 1978, the Amersham case is the first reported successful claim by employee inventors for compensation under sections 40 and 41 of the Act. The claimants were involved in the first synthesis of a compound known as P53 which later formed the basis of a radiopharmaceutical heart imaging agent which Amersham then went on to protect with a family of patents. The highly successful product was marketed under the brand Myoview and had estimated sales of more than £1.3 billion. The High Court awarded £1 million to Dr Kelly as the lead inventor and £500,000 to his co-inventor, Dr Chiu.

When can a claim be made?

Although this point was not expressly considered in the Amersham case, an employee inventor can make a claim at any time up until one year after the patent ceases to have effect. Whether the claim falls under the pre or post amendment provisions will depend on the date of filing of the individual patents in question. In practice it is more likely that any claims will be made towards the end of the life of the patent as the outstanding nature of the benefit of the patent or invention (as the case may be) may not be apparent for some time.

Who is entitled to make a claim?

This mechanism is only available to those employees who are recognised as being the inventor or joint inventor.That is, they must be the actual deviser of the invention (in the ordinary course of their employment or in the course of duties specifically assigned to them). The scheme is not available to those who merely contributed to the project as part of the technical team.

Requirements for a successful claim

The Amersham case can be distilled to five key elements that an employee inventor would need to demonstrate in order to bring a successful claim under sections 40 and 41 of the Act:

1. the invention and/or patent affords a benefit to the employer
2. the benefit is "outstanding"
3. the award of compensation to the employee inventor is "just"
4. The monetary value of the benefit to their employer
5. The appropriate share of this benefit that should be attributed to the employee inventor

1. Benefit to the employer

The benefit of the patent must be of benefit to the employer. In the Amersham case it was held to be to protect against generic competition and the corresponding reduced profits and also to enable Amersham to conclude various corporate deals.

2. Outstanding nature of the benefit

The Court found that “outstanding” is “something special” or “out of the ordinary” and was “more than substantial, significant or good”.

The employee inventor has to show that the benefit to the company was more than one would usually expect to arise from the duties for which the employee was paid. However, it is not necessary for the employee inventor to show that the benefit could not have been exceeded. Whether a benefit was outstanding would be determined in relation to the size and nature of the business and the total context of its activities. This could include research and development and production costs for the product compared with profit generated.

In the Amersham case, the R&D costs for the Myoview product were recouped in the first year of sales and found to be “far beyond anything which one could normally expect to arise from the sort of work the employees were doing”. The patented product had also played a strong part in the facilitation of various commercial deals and had the product not been patented then there would be a substantial chance that these deals would not have been achieved, or at least not on such favorable terms.

In the case of the pre-2005 law, there is no requirement that the patent is the only cause of the benefit. However, the existence of the patent must be a cause of the benefit. If the benefit was a result of multiple factors (for example manufacture, promotion or licensing) the benefit may have to be apportioned in order to isolate the benefit derived from the patent. Therefore the other causes may prevent the benefit arising from the patent being considered outstanding and the other causes may also influence the quantum of the benefit from which the employee may claim.

3. Just award

Employees inventors will not need to show:

· loss
· any effort and skill beyond the call of duty or
· that they received inadequate remuneration at the time in order to demonstrate that they should receive compensation,

although these factors would be taken into account in determining what is a fair share of the benefit. The Court held that a consideration of what is “just” is not limited to the wording of section 40 of the Act and will depend on the circumstances.

4. Value of the benefit to the employer

In order to consider the value accrued in relation to claims being made under the pre-2005 law, the Court said that it would normally compare what would have been the position of the company if the patent had not been granted with the position achieved with the benefit of the patent.

The Court made it clear that an ex ante approach was not appropriate where the benefit of the patent had been realised, stating that the proper approach is to take those benefits into account. The valuation would be performed ex-post in light of all evidence as to what benefit the patent has achieved or is likely to achieve.

5. Employee’s share

In determining the share of the benefit to be afforded to an individual, the factors set out in section 41(4) of the Act are taken into consideration. That is: the nature of the individual’s duties and their remuneration and other benefits; the level of effort and skill employed by the individual; whether others who were not named as inventors had contributed significant advice or assistance; what contribution had been made by the employer, and the fact that an employee made an invention could have been a consequence of him having been assigned a routine task at the right time.

The Court held it was not necessary for the employee to be placed in as strong a position as an external patentee or licensor.

In the Amersham case, the employee inventors received a salary (not shown to be above or below industry rates), a tax free lump sum on retirement, a final salary pension, an ex gratia payment and share options. They also received recognition for their invention for example: being able to negotiate a much higher salary for a subsequent post, internal promotions, and international reputation in the field. These advantages were found by the Court to have the effect of reducing the share of the benefit afforded to the employees, but not cancelling it out.

The fact that other people in the corporate research setting contributed to the invention and its development but were not joint inventors and could therefore not receive compensation did not negate any award being made.

The Court also held that it is important not to underrate the contribution of the employer. However in this case, the Court weighed up that the cost of the R&D was relatively small in proportion to the profit made and that Drs Kelly and Chiu’s roles involved significant thought and creativity (not routine operations) with the fact that it was the employer that took on the overall risk of the project and provided the opportunity and resources to work on the project.

After considering various valuation approaches and external licensing arrangements in the field, the Court estimated the financial benefit to the company as £50 million, and awarded 3% of this sum to the claimants, equating to £1.5 million. The Court acknowledged that its estimate of the total benefit to the company was conservative (a very low percentage of the company’s turnover), and that the employee's share of the value of a patent was also conservative at 3% and may in principle lie somewhere in the broad range of between 0 and 33% or above. The Court made it clear that any reward should not be limited to just a single year’s salary if the benefits to the company extended beyond a year.

The value of a compensation claim may lie within a large range and will be heavily subject to the facts.

Application to other fields of industry

The Amersham case concerned a patented medical product, which was marketed and sold to specialist practitioners on the basis of its patented advantages over other similar products on the market. It was not aimed at the general public. There is a lot of data available concerning the effect of generic competition on the pricing of medical products and the change in profits post the expiry of the patent. Therefore, it is relatively easy for an employee inventor to demonstrate that the patent itself has contributed to the outstanding benefit received by the business.

In the Amersham case the claimants also produced evidence from a competitor company to the effect that if the product had not been patented, they would have released a similar product very quickly.

In contrast, in fields of technology in which patents are easier to design around, or where the end product is sold to consumers and design and marketing play a much bigger role in determining commercial success, it may be more difficult for an employee inventor to establish a right to compensation on the basis of the patent itself.

That said, claims made under the amended law, will be substantially easier for a potential claimant to show that the invention has resulted in outstanding benefit to the employer, not just the patent.

What now?

The Amersham case demonstrates willingness by the Courts to consider in detail the input made by employee inventors to patent rights that prove to be of outstanding benefit to the business of the employer and to place a monetary figure on that input.

The awakening of many employee inventors to their right to claim compensation for their inventions may prompt some claims that would previously not have been made. However, the success of such claims will depend on the claimant being able to demonstrate that the benefit to the employer was “outstanding” or exceptional in light of the normal practice of the business, and that it is appropriate that the employee should receive a share of this benefit over and above any compensation or benefit that they have already received.

It is likely that this threshold will be difficult to meet in most circumstances and therefore the number of successful claims is expected to be relatively low. However, for the successful cases, the award may be significant.

Although the case does not address the post-2005 amendments, it is assumed that much of the reasoning in this case, which relates to the pre-2005 law, will apply by analogy.