State of Israel Sues Omrix for NIS 500 million, Claiming Core Technology is Based on Service Inventions. Have They Killed the Golden Goose?

The State of Israel, represented by Dr. Shlomo Cohen & Co., Law Offices, has filed a NIS 500 million ($132 million) lawsuit in the Tel Aviv District Court against Omrix Biopharmaceuticals Ltd. and entrepreneur Robert Taub. Omrix, purchased by Johnson & Johnson in 2008 for $438 million, has commercialized a number of related inventions concerning medical adhesives for use in treating hemophiliacs and other applications. In the lawsuit the State claims that the company has stolen its Intellectual Property.

The State is basing its claims on testimony and documents submitted by state witness Prof. Uriel Martinowitz who they claim is the real inventor of Omrix’s patent portfolio.

This case, which is unprecedented in Israeli judicial history, is based on the following allegations:

  • Martinowitz is the true inventor.
  • In accordance with those sections of the Law regarding service inventions of security personnel and state employees, the inventions can fairly be considered belonging to the State, since when Prof. Martinowitz developed the inventions he worked in the IDF and subsequently in Sheba Hospital which is state-owned.
  •  Martinowitz could and should have reported the inventions to his employer, the IDF or the hospital management or perhaps the Ministry of Health, who could then have reached a fair arrangement with Dr. Martinowitz and Omrix.
  •  The legal opinions on which Omrix based its position that the inventions were not Service Inventions, were tailored to order, and therefore worthless.
  •  Fraud was committed when Omrix removed Martinowitz’ name from one of the earliest of the US patents, and when he was not listed as an inventor in subsequent patent applications.

Comments

A press release issued by the Justice Ministry on December 22, 2009 states, “the charges were filed in accordance with Government policy of protection and restoration to the State of Intellectual Property and Patents, and of dealing with the phenomenon of causing damage to State Property and the rule of Law.”

Not everyone agrees that this declared government policy is supported by the facts. In her book, The Capitalism of Knowledge, (Israel Ministry of Defense, 2008) Prof. Hagit Messer Yaron writes that the State has done little to create mechanisms for technology transfer. In fact, it is likely that had Prof. Martinowitz tried to work within the framework of Government bureaucracy, he might have hit a brick wall. And he would not have been alone.

In a lecture at a seminar co-hosted by JMB, Factor & Co., the Ono Academic College and WIPO in September 2009, Professor Messer Yaron reiterated this position and Dr. Yaron Zelikha, who, as Accountant General, had tried to set up a committee to further the issue, concurred with her.

AIDS Research

In 1996, Dr. Zeev Treinin, the director of the Veterinary Institute of the Ministry of Agriculture discovered / invented a promising treatment for AIDS. Acting properly, he did not file a patent application independently. He approached his employer who was not interested. Although no patent application was filed, the invention was published in an academic journal. This placed the technology in the public domain. Not surprisingly, no commercial drug developer was willing to invest the vast sums of money required to commercialize this AIDS treatment, as they would be defenseless against generic versions thereof.

Until filing the current case, the State has generally turned a blind eye to unauthorized patenting and commercialization of civil service inventions and has not set up mechanisms for patenting and technology transfer as exists in Israeli universities. Had Prof. Martinowitz acted properly and turned to his employers, it is questionable whether he would have been more successful than Dr. Treinin.

By way of example, while the Law sets out a mechanism for dealing with public sector inventors, the committee for determining appropriate royalties for service inventions never convenes. Similar treatment caused Sir Frank Whittle, the inventor of the jet engine, to emigrate from the UK to the USA, where he was appreciated.

The Statement of Case alleges that Prof. Martinowitz was involved in academic research. This may have been a costly error. In September 2009, in the case of the University of Western Australia v Gray, the Australian Full Federal Court upheld a decision that a medical doctor affiliated with both the university and a teaching hospital, behaved reasonably when he filed patent applications in his own name. The ruling established that academic researchers were not employed to invent, per se. In a similar decision, Leland Stanford Junior University vs. Roche, the US Court of Appeal Federal Circuit ruled that the faculty inventor Mark Holidniy owned rights in his invention for an HIV testing kit despite contractual obligations with the university and the Bay Dohl Act. It may be further argued that since 1980, the Basic Laws provide an additional basis for defense. Regardless of whether a doctor is a civil servant employed by a State hospital, one of the health funds (HMOs) or a trust-owned hospital, the job description is the same and similar rules should apply. Even if Prof. Martinowitz is established as the true inventor, the Courts may follow US and Australian precedents and decide that his inventions are his own.

Attorney Dr. Shlomit Yanisky Ravid was awarded a Ph.D. from the Hebrew University for her thesis on employee rights. She believes that Israel Patent Law regarding Service Inventions provides the courts with a great deal of leeway in interpretation. Although there may be evidence that Prof. Martinowitz did not behave correctly, the State has made a deal with him, so his culpability is moot. Instead, it is suing Omrix and its Managing Director Robert Taub.

A further problem in the case is that Prof. Martinowitz, is a state witness who has behaved improperly and has his own complaints against the defendants who owe him $750,000 promised but never paid. These facts undermine his credibility.

According to the Statement of Case, the defendants approached their IP Counsel, licensed both in Israel the US, for a legal opinion relating to the question of whether the inventions are Service Inventions. Counsel opined that Martinowitz’ early inventions were not Service Inventions since they were invented after his discharge from the IDF and while on leave. Furthermore, as counsel to Omrix, the same attorney determined that Prof. Martinowitz was not the inventor of the claimed invention that previously carried his name.

As Omrix actively involved legal counsel, the company may claim to have performed due diligence, presented the facts to a leading IP Lawyer, and thus did no wrong. An important question in this case may thus turn out to be whether the IP lawyer made sufficient effort to identify the inventors.

Even if only some of the allegations in the Statement of Case are correct, Omrix’ IP counsel may have some explaining to do. Particularly, as according to the Statement of Case, one of the early applications listed Prof. Martinowitz as an inventor when it was filed, but his name was subsequently removed. The Statement of Case asserts that claims allegedly directed to Prof. Martinowitz’ contribution were canceled in the US, justifying removing his name from the application. However, these claims were apparently restored on allowance without reinstating his name. While the patent attorney may be able to show that he was acting in good faith, it certainly raises the question as to the extent to which a patent attorney should be able to accept information at face value from a client, or whether there are some cases in which this is insufficient. Either way, the State, the defendants, and Johnson & Johnson may seek explanations as to exactly what happened.
Furthermore, since the Israel patent application has been abandoned, the defendants may argue that the Israel Court has no jurisdiction, and that the case should have been filed in the US.

Surprisingly, the State used the boutique IP Law firm that handles Johnson and Johnson’s large Israel trademark portfolio.

Although, precedents on various issues such as the obligations on researchers in the public sector may now be resolved, one wonders if this was the correct test case for the Government to bring.

Due to the strategy adopted by the State’s Counsel in the Statement of Case as filed, the charge of inventor fraud hangs like a cloud over Omrix’ patents and probably makes them unenforceable until the identity of the inventor(s) is resolved. However, in alleging fraud, State Counsel has established a basis for the USPTO to revoke the patents as being based on inventor fraud. If revoked, there will be no royalties and no market exclusivity. To reclaim its allegedly stolen property intact the State should have argued that a mistake was made in identifying the inventor. Mistakes can be corrected.

By adopting a questionable approach and by filing what seems to be a poorly constructed Statement of Claim, the State may have simply killed the golden goose, whereas by doing nothing, the State could have collected income from taxes, both income and corporate.

While this case will no doubt give State Employees pause for thought when it comes to the rule of law, establishing mechanisms for rewarding inventors in the public sector is equally imperative.



Categories: infringement, Intellectual Property, Israel IP, Israel Patent, Israel Related, Opinion, Patents

6 replies

  1. I understand your point on International trends, etc but I would refrain from mentioning this decision as a precedent since the situation there was different than in other Universities, at least in the following points:
    1. The Stanford Patent Assignment agreement is written that the scientist agrees to assign. The court held that this language reflects a mere promise to assign and not a present assignment.
    2. Page 12 of the decision says that at Stanford, “unlike industry and many universities, Stanford’s invention rights policy allows all rights to remain with the inventor if possible”. As you see, the Stanford policy and Assignment agreements are basically different than those in most Universities and in my understanding this was the cause for the CAFC interpretation.

    • I don’t see the issue as legal precedent. Outside of the US it has no formal importance. That said, I do see it as indicative of International trends. Associates in Canada think that courts there would go pro inventor. Steve Adler and the labor courts in Israel are pro-inventor, and the general direction in Israel is towards the individual and away from institutions. Standard contracts are frowned upon.

      If Omrix is not settled out of court or dropped completely (it was the wrong case to bring), I assume that whatever the District Court rules, there will be an appeal. We may get some clear case law. We may also see powerful lobbying and possibly an amendment to the written Law as well.

      The case will be worth watching.

  2. thanks for the serious blog post

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  1. Israeli Hospital Inventors to Receive Royalties for Their Inventions « The IP Factor
  2. Israeli Hospital Inventors to Receive Royalties for Their Inventions « The IP Factor
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