A Ruling Concerning Service Invention Compensation by a Worker of a Unionized Industry

This is the third decision on employee compensation that issued this month.

In this case, the employee inventor requested that the committee for discussing employee compensation for service inventions rule compensation under Section 134 of the Israel Patent Law. On 22 July 2014, the Company responded by requested three interim rulings:

  1. That the case be thrown out due to the Statute of Limitations.
  2. That the case be thrown out due to tardiness or the employee having given up on receiving compensation
  3. (in absence of above) that the committee set a timetable for the proceeding.

The parties filed responses and further submissions and attended a hearing on 24 December 2015, and the committee decided that the parties should concentrate on the issue of whether or not the committee had standing in this instance.

The Applicant (inventor) submitted his summation on 12 April 2016 and the respondent (company) submitted their summation on 13 December 2016, and a counter response was submitted on 1 March 2017.

The Applicant submitted an affidavit as did Mrs. XXXX (job description not given) and Mr. YYYYY, the head of the patent committee of the respondent.

The facts (censored)

The Applicant started working for the company in 1993 and was employed to_________. In the scope of his duties, he suggested some efficiency improvements and inventions as detailed below.

The company is_____________________.

The applicant detailed eight suggestions that he submitted:

1.______________________

2.______________________

3.______________________

….

Alongside each suggestion, the Applicant noted that the CEO or his deputy appreciated the suggestions which saved the company millions of shekels.

cash prizeFrom the evidence, it appears that each time prizes of 2500 Shekels were awarded, but in some cases the money was shared with other inventors.

With respect to the XXth invention, a specific settlement was reached.

The Applicant sued for 5% of the savings resulting from the inventions, which was estimated at 3.5 million shekels.

The Applicant further requested declarative rulings to the effect that he was the inventor and that the company should reveal details regarding cost savings and any licensing to third parties.

The Contractual Relationship Between the Sides

contractThe parties submitted various agreements which established and defined the relationship between them. Chronologically:

  1. An agreement concerning__________ between the management of company _______ and the secretariat of the workers union. As is apparent from Ms XXXX’s testimony, this agreement was in effect from 1957.
  2. A procedure or regulation from 1985 that related to the 1957 agreement and relied upon it. This defines inter alia, what an efficiency improvement suggestion is.
  3. The patent regulations of the company that were first published in 1990 and updated in 1998, 2002 and 2004. The regulation states that the it is binding on all employees for the entire duration of their employment and a further three years beyond this. The patent regulations define invention and service invention in a manner corresponding to the definitions of the Israel Patent Law, and also define the term “discovery” as being something that is not patentable but nevertheless of commercial importance, and defines the term “service discovery”.

Section 11.1 of the Patent Regulation states that if the company is interested in using the invention it will not owe the employee inventor anything, but in other cases, income from a patented and traded invention will be shared between the company and the inventor.

  1. The Agreement related to invention_________________ that was submitted as an efficiency suggestion. The agreement, which was further signed by two other employees on 4 August 2008, relates to regulating the rights of the parties, but it does not include any financial compensation to inventors or third parties. It further states that the inventors will be allowed to independently file patent applications, however, the company’s rights will not be lost. In such cases, the cost of registration is on the inventors and the registration is only allowed after the company is informed. The agreement notes that the inventors can, in such cases, market or license the invention to third parties after providing notice to the company.

Sections 11 and 12 state:

  1. No waiver, rejection, discount, extension or refraining to enforce rights by a party to this agreement, will be considered as waiving rights or limiting the other side.
  2. The sole judicial authority for this agreement is the Court of ____________ in____ as per the matter in hand.

The Respondent’s claims

  • The company claims that the inventor-employee’s submission be rejected for several reasons:
  • This is not a request for compensation since the inventor received compensation for the service inventions. The inventions are actually efficiency proposals and in each case the inventor received cash awards and CEO or Deputy CEO prizes.
  • The Company claims that the mere fact that there are agreements in place between the parties removes standing from the committee to review the case, regardless of whether the inventor employee deserves compensation and how much it should be, or decides that no compensation is warranted. The company submits that the agreements in place accord with section 134. In this regard the company relies on the fact that all agreements reached by collective bargaining by the worker’s union are part of the agreed employment conditions of all the company’s employees.
  • The assignment that was signed by the worker transfers all the property rights in the invention to the company and states that no compensation will be provided. The inventor-employee does not deny the existence of these agreements merely considers them as forced upon him and therefore voidable.
  • The company notes that the inventor-employee’s statement of case contains a contradiction in that he both claims compensation and that the invention be transferred to him.

The Applicant’s Claims

  • The inventor-employee claims that the invention was not part of his regular duties.
  • The inventor-employee considers each agreement separately; the first of which he alleges ceased to have effect in 1961 at the very latest, and the procedure in the company regulations is an independent procedure and is not binding on the Applicant.
  • Section 4 of the agreement states that the inventors rights are protected by law, and with reference to re Barzani and re Ilani (discussed below), any waiving of rights has to be explicit and in a dedicated document.
  • The inventor-employee claims to not have been aware of the procedure prior to requesting compensation and Section 134 relates to agreements not to procedures.
  • The inventor-employee alleges that the existence of an agreement does not cancel the right to compensation. He bases this understanding on Actelis Networks vs. Ilani 3 Feb 2010, and on 3564/12 Dr Beyer vs. Flourality ltd (in receivership), 1 Aug 2012.
  • The Applicant claims to have turned to the senior management several times regarding compensation for his invention and was told that they were working on it.
  • If the prize was to be considered as compensation, it should have been made explicitly clear that this was the case.

Both sides accused the other of inequitable behavior.

Ruling

The authority of the committee is given in section 134 which states:

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.

Thus when there is an agreement for employee compensation, its amount and conditions, the committee does not have authority to relate to the case.

The committee has, therefore, to first determine whether or not there is an agreement of the type considered by Section 134 between the Applicant and Respondent that regulates compensation for service inventions. This determination is made within the established framework that Section 134 is dispositive. See Supreme Court 4353/14 Barzani vs. Isscar Ltd, from 8 July 2015

Additional but not independent questions are whether efficiency suggestions are ‘service inventions’ and whether prizes are ‘compensation’. However, as determined in re Barzani paragraph 48, the committee does not intervene if there in cases that there is an agreement that provides compensation:

In our opinion, the respondent is correct. Although in Rothem vs. Teva Medical Ltd (25 July 2005) we decided that the committee is allowed to decide whether it has standing, such as whether a specific invention is a service invention or not, and whether or not there is a compensation agreement. However, the standing of the court in section 3 of the Law of Standard Contracts is not merely declarative but is constitutive in nature. The court does not decide whether a clause is void, but it voids the clause and can even reinterpret it without voiding it. This power to actively interfere with clauses between workers and employees is not a power enjoyed by this committee. If there is an agreement regarding compensation, whatever its shape or form, it renders the committee irrelevant.

Regarding whether the these cases are service inventions, if it appears that they are not in fact service inventions, this also renders the committee irrelevant. The respondent considers efficiency suggestions are not ‘inventions’, and anyway, compensation was provided by way of the prizes issued. The Applicant considers that the invention were not part of his employment and were therefore not service inventions.

The Existence of an Agreement

worker's compensationWith regard to the agreement___________ and the company regulations of 1985, the Applicant considers that these are not an agreement, inter alia since they were signed in 1959 which preceded the legislation of the Israel Patent Law in 1967, and thus of section 134. The existence of this agreement was not known to the workers, and so its binding nature had long lapsed. Furthermore, the current procedures used by the company, wherein workers are encouraged to suggest efficiency measures that may result in prizes and CEO awards cannot cancel their rights in the Law, and the company additionally failed to inform the workers that the prize deprived them of their right to compensation.

The Applicant further alleged that as a worker, he was unaware of the ___________agreement and the resultant regulation, the submission of applications for prizes for efficiency suggestions were made on paper, without meeting or any other connection with the committee that ruled on the prizes. The notices that relate to the prizes do not relate to the agreement of even mention it. Furthermore, the __________ was never shown to him.

Furthermore, the agreement itself relates to protecting the legal rights in the invention.

The Respondent counters that the agreement ___________ was a general employee 0 worker agreement that bound the Applicant by virtue of it regulating the workplace, and it was based on the 1985 regulations that stated, inter alia, that the ___________agreement will remain in force as long as neither party requests to change it or to cancel it (page 56 thereof). Thus the Respondent considers that the agreement was in force as custom for a long period, and was ratified in the regulations and is in effect at least since 1985 and is binding on the efficiency suggestions of this instance.

Since the committee that issues the prizes comprises workers and management, the worker cannot claim ignorance of this regulation.

The respondent considers that where the Applicant requests and receives the prize he is accepting the conditions relating to the prize.

Section 4 of the agreement states:

The central authority encourages initiative and the creative talents of the companies’ workers to improve working procedures, and will compensate inventors for implemented suggestions by cash prizes or other appropriate means. Inventors’ rights by Law will be defended.

Section d relates to the time-frame of the agreement:

This agreement will be in force until 1959 and will be extended for a further two years unless one or other of the sides will inform the other in writing prior to 1 August 1959 that he wishes to cancel or amend the agreement.

Whether the agreement _________ was in force or not between 1959 and 1985, there is no doubt that in 1985 it was in effect via the regulations. In this regard, Ms __________’s statement on behalf of the company_________, that since the ‘service inventions’ in question are efficiency suggestions that the Applicant was compensated for in accordance with the regulations, he could not claim lack of knowledge.

Furthermore, the parties showed the regulations regarding patents to the committee, which, even without relating to the enforceability of the agreement_____________ to this instance, the respondent found that the patent regulation was separate and in addition to the agreement____________, and explicitly relates to service inventions and discoveries.

The regulation differentiates between inventions that are patentable, and discoveries which are not patentable but may, nevertheless, be commercialized. The regulation defines service discoveries as discoveries that the employee makes as a result of his employment and during the period of employment.

The regulation also determines that If the employer uses the patent or discovery for its own needs, it need not make any payment to the employee. In other instances, the profits from inventions and discoveries are divided equally between employer and employee.

On behalf of the Respondent, Mr._________ declared that the regulation was an obligating arrangement between the respondent and the workers and that the Applicant himself had acted in accordance with the agreement when, together with others, he submitted notices of invention.

In addition, Efficiency suggestion no. _________ was submitted by the Applicant as being both an efficiency improvement suggestion and an invention. This indicates that there was an understood difference in terminology between the two categories.

That said, the Respond claimed that Agreement_______________ and the regulations where a class agreement recognized in both black letter and case-law, and so were part of the general employment terms of each and every individual worker.

It is noted that both the patent regulation and the agreement________ included appeal procedures and against both results and conclusions reached by the committee. As is apparent from the evidence, the Applicant did not use these procedures. Furthermore, we find it difficult to accept that the Applicant was unaware of the binding agreements and regulations, whilst he was using them to file efficiency suggestions and patent proposals using the relevant forms and in accordance with them.

Furthermore, as the Respondent noted, these regulations were drafted together by the authority which included workers’ representation.

The committee now considers the relationship between the general agreements and the personal employment contract. In Appeal 3-15 Eliyahu Shvili vs. State of Israel and Ministry of Defence, 25 May 1992, the National Labour Court ruled that:

We clarify and emphasize that both the govt employment terms and the Ministry of Defense Orders are a “Group Arrangement” rather than a group agreement, and as such are implied conditions in the individual workers’ contracts and no more.

This statement was made with regards to the Ministry of Defense, but can be applied to the present case by comparison. However, the court continued and stated that:

In this instance, where the Appellant received the first appointment in writing and he accepted it and acted in accordance with it, this means that the parties made a new agreement whose clauses override that of the standardized nature of the govt employment terms and the Ministry of Defense Orders, if they include a clause that cancels the temporary arrangement.

We can reach the same result based on the Bagatz ruling 239/83 page 216 which states:

We see that a party to a personal employment contract is not permitted and is not able to unilaterally change its implicit or explicit conditions, without bringing the whole contract to an end. To this general rule, there are a number of exceptions which are not really exceptions at all, but rather cases that are excluded from the general framework.

Secondly, there are cases where the parties to an individual work contract create a new contract which is essentially identical to the previous one, with one a specific change and whilst the other clauses remain in place. This is not really an exception at all, since the change is based on agreement between the parties, albeit after the original contract was signed. The specific change may be implicit or explicit (see Labour Court Appeal 38/3-4 [5] regarding agreement to change a clause, and Labour Court Appeal 37/2-26 [6] page 107. Obviously one cannot conclude that there is implicit agreement in a case where one party announces that he does not accept the change.

In this instance, the Applicant did not provide any evidence that the parties had made a new agreement, whether explicitly or via their actions, which changed the state of affairs from that stated in the ______agreement, the regulations and the patent procedure. Apart from the agreement of 2008 which only related to one specific efficiency proposal as a service invention, where the agreed conditions are clear.

The agreement_____________ and the regulations establish a process for determining whether or not the worker deserves compensation – we are referring to the efficiency committee. In contrast, the patent procedure sets forth specific compensation between worker and employer in cases where a service patent or discovery are commercialized.

The status of the collective work agreement is discussed by the labour courts in 1002/04 General Workers Union and Engineer’s Union vs. the General Health Service, 13 September 2005:

The status of a collective wage arrangement with respect to that of a wage agreement has been extensively discussed in rulings of the Labour Court. After the law of Collective Agreements was passed, the courts took the approach that there are no collective agreements that do not accord with the Law of Collective Agreements.  The reason for this was to ensure that all collective agreements would include the strict formalities. Thus the court related to collective arrangements, i.e. to collective agreements that did not fulfill the general requirements, whether with regard to the identity of the parties or some other flaw that prevented them from being registered, as agreements that were not legally binding, i.e. as analogous to gentlemen’s agreements in Common Law. Nevertheless, even in the early days, the general and the labour courts did recognize arrangements that lacked the formalities, but the courts did see such arrangements as inferior to collective agreements in accordance with the Law. Even President Zvi Bar Niv, whilst standing firm on the need for formal collective agreements, noted that one should consider collective arrangements as valid, if inferior to collective agreements (Labour Court 38/61-3 Levi Spector et al., Port Authority, Management of the Ashdod Court, p.d.a. 10, 118, 129…).

And further on in the ruling:

Nowadays, there is no place to consider collective arrangements as gentlemen’s agreements that are not legally binding when they adversely affect clauses in personal employment contracts. Since the general Contract Law established the underlying principle of equitable behavior in work contracts, there is no place for implicit exclusion. Contracts are considered in light of equitable behaviour (good faith). The parties to a contract are those that legislate it. If the clauses do not contradict public order and good faith and are just and fair, there is no room to ignore them. There is similarly no room to relate to general arrangements as legally inferior. They are contracts in all respects and are binding on the parties, i.e. the general parties – the social partners. The body representing the workers, the union or elected committee agrees labour terms with the employer on behalf of the workers that it represents and obligates and benefits them by agreement.

As to explaining worker’s agreements, the court ruled that:

The general arrangement is an agreement that the parties to it reach. The parties are the legislatures. Their common desire is reflected in the agreement. When interpreting the agreement, it must be done whilst considering the subjective desires of the parties. This is true of collective agreements. It is reached by representation of the workers and the employer or employers’ representatives. It establishes the worker’s rights. It does not merely bind the workers that are party to it, but also establishes norms for individual workers. In this regard it is similar to the Law. Such as with respect to its interpretation, as with collective agreements, one has to give weight to objective intentions. In addition, we are considering an agreement that reflects employment norms and not trade norms. The need for equitable behavior and honesty and consideration of the other party is enhanced…

…When coming to interpret a collective agreement or arrangement, and to try to establish the intentions of the parties, we have to first give weight to the language of the agreement. That said, the agreement has to be considered in its industrial context, as has the civil service work agreement, the constitution of the General Workers Union, the constitution of academic institutions and other collective agreements, where the subject needs of a collective agreement must be balanced with the objective purpose of such agreements, with consideration of the rights and obligations of the parties, the ‘social partners’, their rights and obligations of the individual workers.

See Appeal 19590-07-14 Aharon Nofekh Z”L vs. Bar Ilan University, 14 November 2016.

This being the case, we rule that the agreement____________, the regulations and the patent procedure are agreements as far as compensation under section 134 of the Law and thus this committee has no authority to interfere.

There is a third agreement from 4 August 2008 which we had to consider. During the hearing, the Applicant alleged that the agreement was flawed in that it established that the invention was a service invention invented by employees during their employment and was connected to their employment. However, the document that summarized the discussion of the efficiency committee regarding the corresponding efficiency proposal____________ stated that the invention was not invented as part of the regular work of the Applicant. Consequently, the agreement from 2008 includes a mistake and is therefore effectively void due to the mistakes, even though it does seem to establish compensation according to the Applicant as well.

With regard to the Applicant’s claims concerning the invalidity of the agreement, the contract itself establishes the bodies that are to be appealed to.

From reviewing the agreement and listening to the claims of the parties in the hearing it is clear that the 4 August 2008 agreement considers compensation and the rights of the parties in detail. It will be noted that the employer actually agreed to release this invention to the inventor and his parties, and allows them to file a patent application themselves at their own expense, and to commercialize it with third parties or to transfer it to third parties.

From this it is clear that there was an agreement regarding compensation. This negates the authority of the committee to rule compensation under Section 134.  Complaints by the Applicant regarding how the agreement was applied should be dressed to other forums.

Having established that there is an agreement in the case mentioned, the does not need to relate to other issues raised in the instance, or to whether efficiency proposals are service inventions, whether prizes are compensation.

Conclusion

Having concluded that there was an agreement regarding compensation for the Applicant’s service inventions we refuse the request for compensation under Section 134.

Due to the nature of the case, the sides should bear their own costs.

Due to the importance of the committee’s ruling in this decision regarding collective agreements we consider this ruling should be published, but the sides have seven days to decide what sections should be withheld.

Professor Englard, then Commissioner Kling and Professor Michael Talienker, 3 May 2017.

COMMENT

As part of the engineering studies at Imperial College London, I spent three months at a work experience placement at the National Physics Laboratory in Teddington.  It was an interesting and educating experience. Not so much with regards to physics, but more with regards to how large institutions operate. Michael Hesseltine was then the UK Minister of the Department of Trade and Industry. In an internal weekly newspaper of the Department he expressed dismay at the waste of paper that was damaging to the environment and was costly. Suggestions for reducing the paper chase were solicited. Workers were requested to detail their suggestions on Form #$% in triplicate!

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