Employee patents
Date: 10 April 2009
Authors: Christopher de Mauny
Issue: Vol 159, Issue 7364
Categories: Features, Employment, Property
* * * * * *
The decision in Kelly v GE Healthcare [2009] All ER (D) 114 (Feb) should be of interest to anyone advising technology undertakings or the employees of such undertakings. Without delving into the detail of patent law, a new technical invention may be lead to entitlement to a patent. If the legal conditions for patentability are satisfied a patent confers on its owner the exclusive right to commercialise the subject matter of the patented invention for twenty years: it is a statutory monopoly for that product or process. Thus the decision may also be of interest to advisors of undertakings who are not technology undertakings as such but who conduct any kind of in-house product development that has a technical rather than aesthetic character.
Under the Patents Act 1977 (PA 1977) inventions made by employees in the course of their employment usually belong to their employer. Section 39(1) of PA 1977 provides that an employee's invention belongs to his employer where it was made in the course of his normal duties or duties specifically assigned to him: this covers situations where employees are employed to conduct research or similar activities. Some industries rely heavily on patent protection to recoup the costs of research (for example, the pharmaceutical industry) whereas others use patents as a means to attract initial market share for innovative products. Either way, patents granted for employees' inventions are often of significant benefit for any undertaking involved in developing new products. In fact, it is likely that a significant proportion of patents are granted to employees rather than to individual inventors.
Due to this statutory framework, employees usually receive no specific recompense for their inventions (beyond their usual salary) unless their employer chooses to run a rewards or bonus scheme. Recognising that this provides no link between employees' actual output and the consideration they receive for it, s 40 of PA 1977 contains a power for the court to grant compensation to an employee who makes an invention which leads to a patent which is of “outstanding benefit” to their employer, where it appears just to do so taking into account factors including the size and nature of the employer. Criteria for calculating the compensation appear in s 41. These are: the nature of the employees' duties and the remuneration they have received, the effort and skill they devoted to making the invention, the effort and skill any other person devoted to the invention and the contribution by the employer in terms of the provision of advice, facilities and assistance and in commercialisation.
To date there have been very little case law in this area as most claims settle out of court. Mr Justice Floyd approached s 40 essentially from first principles. His conclusions at [60] may be summarised as follows:
● Compensation is available only to the inventor, being the person who actually comes up with the idea which forms the subject matter of the invention, consistent with the House of Lords' treatment of who is entitled to a patent generally in Yeda Research v Rhone-Poulenc Rorer [2008] RPC 1, [2008] 1 All ER 425.
● Compensation is available to an employee who devises an invention in the ordinary course of his employment or during the course of special duties assigned specifically to him.
● The patent must be of outstanding benefit, not the invention. Note that s 40 has been amended (with effect from 1 January 2005 for new patent applications) to include the patent or the invention but, given the 20-year lifetime of patents, the pre-2005 form will be relevant for years to come. The patent must be a cause, though not necessarily the only cause, of the outstanding benefit which must be assessed with regard to the size and nature of the employer.
● “Outstanding” means something beyond the benefit that might normally be expected to result from the employee's duties but does not require that the benefit could not have been greater.
● In considering the benefit to the employer, it will normally be useful to assess what the employer's position would have been if it had not had the patent and compare with its actual position.
● It must be just to make an award to the employee but what is or is not just is not limited to the factors set out in s 40 (the size and nature of the employer).
● Contrary to what GE had argued, there is no need for an employee to show any kind of loss or that his effort or skill exceeded what was ordinarily required by him. The concept of “compensation” is not limited in that way; nevertheless, these factors would be relevant under s 41.
● Valuing the employer's benefit was a retrospective exercise to be based on the best available evidence of the benefit the patent has conferred.
● Where an employee succeeds in demonstrating it is just for him to receive an award, the calculation should provide him with a fair reward, not limited by considerations such as loss nor so great as that which could be achieved by a party with a much stronger bargaining position (such as an external licensor).
Dr Kelly and Dr Chiu worked at Amersham which was taken over by GE in recent years. During the mid-1980s Dupont, a competitor of Amersham, invented a substance, marketed as “Cardiolite”, for imaging the heart using radioactive isotope emissions. Cardiolite was protected by patents. Dr Kelly and Dr Chiu (together with a colleague, Dr Latham) worked on developing a product to compete with Cardiolite, eventually leading to their invention of a similar product marketed as “Myoview”. Two patents for Myoview were granted with effect from 1987 and 1988 respectively. Myoview was a great commercial success as explained below.
Floyd J analysed the research and development process that had led to Myoview and the role that Dr Kelly and Dr Chiu had played in that; it was not disputed that they were the inventors of Myoview but the input of other members of staff (not least Dr Latham who was also a name inventor) had to be taken into account.
Joint venture
Between 1994 and 1996 Amersham was involved in a progressive acquisition of another manufacturer, NMP, as part of a joint venture with a third company, Sumitomo. In 1997 Amersham acquired another companu, Nycomed. The judge found that Amersham's ownership of the Myoview patents was a significant factor in achieving these deals: without these patents, there was a substantial chance that the deals would not have gone ahead or at least not on such favourable terms. Myoview also led to the Amersham being awarded in 1998 of the Queen's Award for Technological Achievement
Evidence from Amersham's senior management was to the effect that the patents for Myoview were very important: the company had to look years ahead to plan its research and revenues. A strong patent for a successful product could effectively guarantee high revenues for the lifetime of the patent. Myoview's sales reached £20m in its first year (1996–7) and climbed rapidly, reaching £1.3bn by 2007.
Having reviewed this evidence as to the development of Myoview and its commercial success, Floyd J addressed the crucial question of what benefit the patents had contributed to Amersham. The parties differed over whether a sufficient link had been established between the benefits of the product to Amersham and the patents. Floyd J proceeded by considering what the position would have been if Amersham had gone ahead with Myoview but without their patent monopolies. Had that been the case, their negotiating position for the corporate deals entered into (which were of “enormous” benefit to them) would have been weakened. He accepted that, as the invention is a pharmaceutical substance, it was unlikely that any other company would have attempted to copy it until it had achieved regulatory approval but that once it was approved a large number of generic pharmaceutical competitors would most likely have copied Myoview in absence of the patents.
Weighing all those factors, and taking into account the size and nature of Amersham as required by s 40, Floyd J held that the patents had been of outstanding benefit to Amersham. He had no difficulty in reaching this conclusion, given the way that corporate deals on the back of this very successful product had transformed Amersham. Having done so, he considered whether it would be just to make an award to Dr Kelly and Dr Chiu.
Retirement claim
One argument raised by Amersham was that Dr Kelly (in particular) had waited until he was about to retire from Amersham in 2003 before making his claim. Dr Chiu had left Amersham much earlier after only two years. Floyd J did not accept that this was a relevant factor in determining whether it was just to award compensation, though he did take into account the level of the remuneration they had already received. He concluded it was just to make an award in this case.
Valuing the compensation, Floyd J first valued the benefit Amersham had received using an ex post approach for calculating a royalty on an established product before assessing the price reduction that would have occurred when generic manufacturers entered the market (which was prevented by the patents) to estimate the quantifiable benefit that resulted from the patents. Assessing this conservatively, he arrived at a figure of £50m as the benefit from the patents.
Using the s 41 factors outlined above, Floyd J then assessed the share of this benefit Dr Kelly and Dr Chiu should receive. He noted that neither was paid above normal industry rates for their work, both had devoted a high level of skill and effort to the work but that there had been contributions from others (most notably Dr Latham) and that Amersham had invested significantly to develop the invention into a commercial product. Taking again a conservative figure, Floyd J awarded 3% of the £50m, split 2% to Dr Kelly (£1m) and 1% to Dr Chiu (£500,000).
This decision demonstrates the kind of sums that an employee can potentially recover where his invention has made an outstanding benefit to his employer's business. It also shows how the court is likely to construe s 40 in the future. Although this decision was made under the unamended s 40, it does to some extent give a possible example of how the amendment to s 40 may allow more employees to recover in the future. Floyd J acknowledged that the invention would have been effectively protected during the time that regulatory approval was being obtained since generic producers would probably wait for that before copying the product (though this was not “protection” within the meaning of s 40). Under the new s 40, only the invention need cause the outstanding benefit so that if, for example, the invention provided an outstanding benefit during the regulatory approval period but the patent itself did not for some reason (perhaps a further invention had superseded it in the mean time), recovery under the amended s 40 might still be possible whereas under the unamended form it is likely that no causal link would be found between the patent and the benefit.
Share this page
