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Compensation for Employee Inventions

From the Patents Law through the Iscar Case:

Past, Present and Future

Avi Ordo, Adv.

October 2015

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Compensation for Employee Inventions – the Law

The basic principle is set out in section 134 of the Patents Law 1967 (“the Patents Law”):

In the absence of an agreement determining whether, to what extent and on what conditions the employee is entitled to compensation for a service invention, the matter shall be decided by the Compensation and Royalties Committee (“the Committee”).

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Compensation for Employee Inventions – the "Old" Case Law

Ilani vs. Actelis Networks (rendered by the Committee; 3.2.2010) Bayer vs. Plurality Ltd. (rendered by the Supreme Court; 1.8.2012)

It is questionable whether an employee can waive (within the framework of an agreement) a right to compensation for service inventions - both the Committee and the Supreme Court left this question undecided.

In any case – a waiver (if at all valid) must be explicit.

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The Committee's Decision in the Barazani Case –First Step in Reducing the Exposure and Uncertainty

The right to compensation is waivable;

The waiver need not necessarily be explicit;

If compensation is agreed upon – the Committee has no jurisdiction;

The Committee shall not revoke agreements, nor alter their terms, including under the Israeli Standard Contracts Law.

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The Committee's Decision in the Barazani Case - How a Waiver can be Established

If the waiver is explicit (e.g. - "I hereby irrevocably waive any right to

compensation under section 134 of the Patents Law") – this would be

sufficient to negate the employee's claim.

If the waiver is not explicit –

if it refers to proprietary rights – this would be insufficient to

negate the employee's claim (an implicit waiver is invalid).

if it refers to personal (monetary) rights – this would be sufficient

to negate the employee's claim (an implicit waiver is valid).

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The Committee's Decision in the Barazani Case - How a Waiver can be Established (continued)

Distinguishing between two main categories of documents:

The first category - documents that include a waiver (or transfer) of proprietary

rights – these would NOT be sufficient to implicitly deduce a waiver of

compensation. For example:

a NDA containing the following provision: “I hereby declare that any

development, invention, improvement … to which I played a role during my

employment shall be the employer's sole property and I do not and shall not have

any rights with respect thereto”.

assignment documents containing the following provision: “In

consideration … I have sold, assigned, transferred and set over … unto the

assignee [the employer], the entire right, title and interest in …”.

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The Committee's Decision in the Barazani Case - How a Waiver can be Established (continued) The second category - documents that include a waiver of personal (monetary) rights –

these would be SUFFICIENT to deduce a waiver of compensation. For example:

A general waiver signed in conjunction with the termination/severance of the

employment relationship providing as follows:“I hereby declare that I do not have and shall not have any claim or demand of

whatsoever nature or type, including with respect to any matter relating to my

employment … and that I have received all payments due and owing to me from

my employer”.

or - “I shall have no monetary claims, either in tort or otherwise, against my employer”.

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The Supreme Court’s Decision (July 2015)

The extent of intervention by the Supreme Court in decisions rendered by the Committee will be very limited.

The Committee was correct in holding that an employee's right to seek compensation for service inventions is NOT unwaivable.

No basis exists for intervening in the Committee's decision in view of all the circumstances of the case.

Suggestion to consider of the existing legislation and/or adopting new type of voluntary arrangements .

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The Immediate Implications of the Supreme Court’s Decision

Waivers signed by employees could, in principle, constitute a valid

defence against claims for compensation for service inventions.

In fact - accepting the distinction made by the Committee with respect

to different kinds of documents from which the waiver being sought

may be deduced.

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Thank you for listening

31 Ahad Haam Street, Tel Aviv 6520204, Israel

Tel: (972) 3 5670876, Fax: (972) 3 5660974

E-mail: avio@s-horowitz.com

Avi Ordo, Adv.