Employee Inventions – the first of three decisions

worker's compensationThere is a procedure by which an inventor can request that a tribunal consisting of a judge, the Commissioner and an academic can consider the appropriate compensation to the inventor for an invention made in the course of his employment.

The most recent and important ruling of this nature concerned the contribution of an inventor working for Isscar. That committee ruling was appealed through the courts. For details of that ruling, see here.

There have been two more rulings that have just published. Presumably they were decided now, as Commissioner Kling came to the end of his term of office. As the identities of the inventors and the companies have been withheld, the rulings lack the juicy details. Nevertheless, I have summarized the two rulings below as they give guidelines regarding how the committee considers the issue following the Supreme Court discussion and the various conferences, etc. that related to the issue, including one that I organized.

In the first ruling Ploni (this is the Biblical term for an unidentified character taken from Ruth 4:1) – i.e. Anon vs. Company.

Ploni requested that the committee rule on appropriate compensation for a service invention under Section 134 of the Israel Law. On 20 November 2014 the company requested that the submission be thrown out, and, following a request from the committee that he do so, Ploni responded on 20 September 2015.

A hearing was held on 11 July 2016, which was attended by the Company, their CEO Mr XXXX, and their attorney Daniel Bostonai. Ploni was not represented.

The Main Facts (censored)

The company was founded in 1999 as a start up company that never got beyond the development stage. The field of activity is withheld.

contractPloni is a mechanical engineer that was employed as an external consultant in July 2002, and became an in-house general manager of the company in December of that year. On 16 December 2012, an employment contract was signed between the company and Ploni. This was intended to formalize the Company’s rights in developments and inventions and Ploni’s compensation for his work. The contract stated that Ploni would have no claims for additional compensation or remuneration. Ploni was also signed onto an options deal under which we would be entitled to some shares immediately, to additional shares after a period of time, and to a third batch of shares that depended on company income from sales. The original options agreement was renegotiated on 31 December 2003, to one that allowed Ploni to purchase 7.5% of the company.

From 2005 onwards, the company made several rounds of investment. In 2006, the company and Ploni exchanged various draft contracts to better define Ploni’s terms of engagement. After four drafts were exchanged and the parties failed to reach agreement, Ploni decided that he was NOT interested in continuing with the company and tendered his resignation on 4 February 2007. This came into effect on 4 March 2007.

Ploni’s Section 134 submission was related to Patent Application Numbers XXXXX and YYY from Date 1 and Date 2. These were both abandoned by the company; one was actively abandoned by applicant deciding not to pay the renewal fee allegedly due to lack of application of the patent, and the other was abandoned prior to it ever issuing.

Prior to requesting that the committee calculate a value for the service inventions, Ploni started a proceeding against the Company in the Labour Court. Essentially Ploni requested that the court order the company to allocate 7.5% of all the shares issued by the company to Ploni. The Labour Court ruled the agreements and draft agreements as relating to 7.5% of the company prior to dilution as a result of fund raising. This was appealed to the Supreme Labour Court, and returned to the Labour Court. More details follow below.

The Company’s Claims

  1. The company claims that since the parties had signed a work agreement that ruled out any additional compensation, the committee has no authority to rule compensation and the case should be dismissed. This claim was strengthened by the practice of the company and Ploni over the years.
  2. Since Ploni had signed agreements with investors that stated that the company had no other obligations, he was estopelled from claiming that the company owed him anything.
  3. The allegations that Ploni was owed something for a service invention should be considered moot in light of the statute of limitations, since the latest date by which any right could be considered was the filing date of the respective patent application.
  4. Thus the request for compensation was filed after a significant delay which indicates that Ploni had given up on any and all claims for compensation. \

Ploni’s Claims

  1. Ploni counter claimed that the signed work contract did not relate to compensation for patentable inventions and the parties did not reach agreement on compensation for these.
  2. The statute of limitations had not passed since the relevant date is Ploni’s final date of employment by the company.
  3. The Company were tardy in requesting that the case be thrown out.

RULING

The legal basis of the committee is defined in Section 134 of the Law as follows:

In the absence of an agreement that determines whether the inventor is entitled to compensation and what the compensation should be, appropriate compensation will be determined by the Committee for Compensation established under Section VI.

In the Committee ruling concerning Barzani vs. Isscar Ltd from 4 May 2014, which withstood an Appeal to the Supreme Court 4353/14 Barzani vs. Isscar Ltd, from 8 July 2015, it was determined that Section 134 is non-cogent in that the parties can come to some other arrangement.

“The committee came to the conclusion that Section 134 is not a cogent right and is not employment law that, as socialist rights has special protection. On the face of things, and in line with the wording of the Law, it appears that the committee was correct (the Article states ‘where there is no agreement that sets employee compensation’). That as may be, with the limited right to meddle with committee decisions, the court does not see fit to interfere in this instance.

In this instance, the respondent (Ploni) had the opportunity to purchase company shares. As states in the share option agreement of 16 December 2002, the respondent received his share options as a general manager of the company. As agreed in agreement of 31 December 2002, this was dependent on performance as manager:

“… In the event that vesting of all or any of the Awards is contingent upon fulfillment of certain conditions (“Vesting Conditions”), such as the achievement of certain targets by the Company or Grantee, the details thereof will be set forth in a separate Appendix that will be attached to this Award Agreement as Appendix B.

Appendix B was not submitted. Nevertheless, the respondent agrees that the share allocation was to closely follow the development of the invention by the company. In a hearing on 11 July 2016 the respondent stated that the options were for the profit of the patent.

As stated in the Isscar ruling, the purpose of the arrangement between the parties is understood from the parties’ actions. It is clear that the respondent saw the options as compensation for the service inventions in question. The directives regarding the distribution of options that were signed on 31 December 2003 are understood as being a giving up of any and all other compensation. The court deliberations of the Labour Court may be understood as being the day in court that Ploni was entitled to with respect to options that were not actualized. These ended in a settlement under which Ploni was awarded 40,000 Shekels for options that were not actualized and Ploni himself saw these as the basis for this complaint.

This conclusion renders moot further discussion regarding statute of limitation and estoppels.

The committee accepts that the case should be thrown out. However, as Ploni was unrepresented, they did not award costs against him.

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