Does a former Employee Have Inalienable Rights to Royalties in a Service Invention?

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In Israel Law, an invention by an employee is owned by the company. Section 134 of the Israel Patent Act 1967 provides a mechanism for calculating the compensation that the inventor is entitled to.

In an important decision, the committee consisting of a Judge, the  Commissioner, and a Professor ruled that the compensation is not a cogent right of the inventor, but is dispositive. If, to achieve settlement of redundancy compensation, the employee signs a general waiver of such rights, this is considered biding contractually on both sides.

The ruling, which published in censored form as Plony (Doe?) vs. Corporation Ltd., concerns an employee of a company making cutting tools and was issued by the Committee for Compensation and Royalties of the Ministry of Justice. This Committee rules on employee inventions. The ruling states that a general waiver of the right to further monetary compensation from an employer as part of wrapping things up at the termination of employment, signed to release various redundancy and social benefits, includes an implicit waiver of any right to royalty payments for Service Inventions for which the employee might have otherwise been involved. This is an important decision that brings to a close the uncertainty that has surrounded the matter of royalties for Service Inventions since 2010.

In the present case, the employee worked for the employee for more than one period, and, on termination of each period, signed a document expressly waiving any monetary claims against his employer. The Committee ruled that these general waivers are sufficient to reject the employee’s claim for royalties for Service Inventions in accordance with Section 134 of the Israeli Patents Law, 1967.

The Committee rejected arguments that royalties for Service Inventions under Section 134 of the Patents Law are cogent rights. This issue remained open after a previous ruling by the same committee in Re Actelis Networks v. Illani, February 3, 2010.

Applicant argued that such royalties are basic personal rights under the Basic Laws and that the employer-employee relationship is inherently unbalanced, so, the correct legal interpretation of Section 134 should rule that such rights are cogent, and may not be considered waived. The committee rejected this argument, noting that Shlomit Yanitzky Ravid’s new book on the subject of employee inventions concludes that the Section is dispositive under Israel Law and case-law, despite her criticism of this state of affairs.

This committee’s ruling is final and cannot be appealed.

Ruling: Plony (Doe?) vs. Corporation Ltd., May 4th, 2014

COMMENTS

As the Israel labour courts have a habit of judicially interpreting sub-contractors as employees, this ruling is very significant.

The plaintiff is certainly correct about an imbalance of power between employer and employee. Zvi Glazberg who represented the plaintiff is a fellow blogger and an up-and-coming litigator. From the decision, he seems to have jumped through all the right hoops, etc. The defendant was represented by Shin Horowitz, presumably by Tal Band, the head of the Aippi and one of Israel’s top litigators. There does seem to be a David vs. Goliath aspect to this case.

This ruling settles a great deal of uncertainty that has clouded the industry over the past few years. The  Association of Israeli Industrialists, the ISS Israel Branch, representing corporate counsel, and Israel Association for Advanced Industries (Hi-Tech) petitioned to file amicus briefs see here.

Back in 2009, I collaborated with WIPO, Dr Yanitsky-Ravid and the ONO Academic College to hold a conference on the topic of employee inventions. See here. The event attracted record numbers of participants, and included lectures by Professor Jeremy Phillips, then Knesset Member, Dr. Rachel Adato who is a gynecologist and medical researcher by training, then recently Accountant General, Professor Yaron Zelekha, Professor Chaggit Messer-Yaron, Dr. Shulamit Hirsch of Ramot (the tech transfer organization of Tel Aviv University), Former Knesset Member Ms. Molly Polishuk Bloch who had chaired the 2005 Knesset Science and Technology Committee and had proposed a law to regulate the issue Mr Dov Hirschberg currently director of Powermat, an electronics start-up and of Compugen a genetics company, and Mr. Perry Smith, VP of NDS (now CISCO).

Since the ruling makes clear that the company is involved in fabrication of cutting tools, it does not take a materials scientist with a PhD relating to characterizing hard metals and surface engineering to work out who the employer is, or, with the dates of inventions, who the employee is. Unlike another service invention ruling where the names of parties was disclosed, but the details were sensored for security reasons, see hereIn this case don’t understand what all the secrecy is for.

I think the ruling is correct. I like Dr Yanitzky-Ravid and am looking forwards to reviewing her new book on the subject. I very much enjoyed studying Labour Law under her tutelage, but have discovered that we have very different world views and basic values. I am sure that a ruling for the ex-employee would have had very damaging repercussions for Israel industry.

One Response to Does a former Employee Have Inalienable Rights to Royalties in a Service Invention?

  1. […] Does a former Employee Have Inalienable Rights to Royalties in a Service Invention? – The IP Factor […]

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