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

August 10, 2017

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: Read the rest of this entry »


Israel Supreme Court Issues Long Awaited Decision regarding Service Inventions

July 23, 2015

employment agreement

Isscar is a leading Israel company that manufactures hard metal cutting tools. As an employee at Isscar, Gidon Barzani was involved in the development of hard metal cutting tools at Isscar during the years 1992 to 1995, and again between 1997 and 2001 and was involved in a certain service invention, his actual contribution being a matter of contention. The employee signed various documents that gave up on monetary claims.

In Israel, an employee invention is owned by the employer. However, under Section  134 of the Law, the employee is entitled to compensation, the amount of which is determined by a special committee under Section 109.

The Committee, at the head of which sits the retired Supreme Court Justice, Itzak Englard, the Commissioner of Patents and an university professor, rejected Barzani’s claims as he had had waived his rights to consideration for the inventions when he signed on the general waiver.

Barzani appealed to the Supreme Court as a High Court of Justice (BAGATZ) see here which resulted in the committee freezing its actions.

One of the more interesting legal questions is whether a general waiver as part of the employment contract, where no invention is yet conceived can be considered as legally binding. (Talmudist’s may note a similarity to discussion of unlaid eggs).

The Supreme Court rejected the appeal arguing that it had limited power to interfere since under Section 111, the Bagatz ruling was final. The Supreme Court ruled that Section 134 describes a non-cogent right that is not a socialist employee right that requires special defense. On the face of things and with deference to the language of the clause, the decision appears to be correct, and certainly is sufficiently reasonable that there is no justification for court interference.

Nevertheless, the court noted that in a dynamic and changing world there is room for additional legislation or for companies to come up with voluntary compensation schemes. However, there is no reason for the court to interfere.

Judge Reuven, Deputy President of the Supreme Court quoted Section 109 of the Law as follows:

Where there is no agreement providing compensation to the employee for his service invention, regarding the amount of compensation and the conditions, these will be determined by the Committee for Compensation and Royalties.

Section 111 fixes the finality of the committee’s decision, but there is no doubt that in extreme circumstances, the Supreme Court sitting as a High Court of Justice can interfere. Since, however, the committee includes a retired senior court justice, the commissioner and an academic, interference in its conclusions are likely to be minimal, and this instance does not justify the court’s involvement.

The main argument, following the Actelis ruling of 2010 is concerned with the question of whether Section 134 should be considered cogent or dispositive. The committee came to the conclusion that it is not a cogent right and is not an example of employer-employee labour law where (due to the inherent differences in power between the sides) workers’ rights require special protection. The ruling seems to be correct, but anyway, since the Law states that the committee’s rulings are final, there is no room for the court to interfere.

Nevertheless, the court has criticized the current situation and noted that common sense and natural justice indicate that there is room for a more equitable arrangement,  whether the result of voluntary agreement or of legislation, and such arrangements exist in the private sector.

4353/14 Appeal to Supreme Court, Barzani vs. Isscar, Ruling by Rubinstein Fogelman and Mazuz 8/7/15

COMMENT

There was a lot of interest in this case, and we believe that employers will be giving deep sighs of relief. Employees will probably feel that the system favours the company against the individual. I am aware that some academics have strong feelings, see for example, Dr Shlomit Ravid’s position here and here.

Since the court has criticized the committee’s ruling and is not prepared to get involved, it is not inconceivable that a future committee could reach the opposite conclusion. Indeed, one of the judges of this ruling might, on retirement, sit in such a committee. There may, therefore, be room for clear legislation on the issue.

Personally, I think the Supreme Court decision is correct. I encourage corporate clients to institute compensation programs or at least weekend breaks and the like to encourage employees to come forwards with ideas, but think that changing the law in Israel may result in multi-nationals taking their R&D centers elsewhere, and that is not good for the economy or the workers.


The obligations of a business partner to further an inventor’s patents and product

June 9, 2015

mines This ruling on Appeal by the Supreme Court relates to patents.

Avichai Madmoni, an inventor, sued Ahidatex Nazareth (1977) LTD, Abraham Hazor and Export Erez US Inc. and Export Erez Israel LTD. for failing to successfully commercialize his invention. Judge Barak-Erez summarized the dilemma before the court as follows:

A new invention is dreamed up by a person who then engages with a commercialization company to realize the product via patent registration, manufacture and marketing.  The relationship is less than successful in that registration took place in one country only and the invention was never realized in a commercial product.  Is the commercial company at fault, or does the failure of the product commercialization reflect mistakes of the inventor and market forces that are beyond the control of the commercialization company?

Avichai Madmoni has military field experience which led him to invent a device called a ‘sapper’s sandal’ that protects foot soldiers from mines. Over the years, Madmoni made various improvements, and the following discussion refers to the ‘old sandals’ and the ‘new sandals’. In the distant past, Madmoni sued a different service provider he’d engaged to commercialize the old sandals. He managed to prove that that company had not kept him informed on the scale of the sales and Judge M. ND”V had ruled (Civil Ruling 3509/96) that he was entitled to compensation. Following this ruling, Madmoni and the earlier service provider came to a contractual understanding that Madmoni would forfeit the compensation and would be entitled to sell the old sandals. In February 2000, Madmoni contracted Ahidatex Nazareth (1977) LTD to commercialize his Sapper’s Sandals. Abraham Hazor was the CEO of Ahidatex Nazareth (1977) LTD and the two Export Erez companies were share holders in Ahidatex Nazareth (1977) LTD. The contract related to the marketing and development of the Sapper’s Sandals, and for the registration of patents thereon in accordance with requests from Admoni. The contract stipulated royalties and a requirement to detail sales in the event that Ahidatex manufactures and markets the different sandals and obliged Ahidatex to carry the costs related to the sandals and to finance the patent registration, as stated in the following paragraph (my translation with the parties as identified by the judge):

[Ahidatex] undertakes to finance the drafting and registration of patents in Israel and the world, if requested to do so [by Madmoni], via the attorneys to be selected [by Madmoni] – this on condition that the manufacturing and marketing rights accruing from the patent if developed and registered, will be transferred to Ahidatex as a condition of this agreement, and all with the agreement and approval of [Ahidatex].

 Following this initial agreement, the sides signed other documents. In 2002 Madmoni signed a document assignment his invention to Ahidatex, and a further document that stated that the rights were assigned in light of and in accordance with that stated in the original contract from 2000. In 2004 a further contract was signed that stated that it did not cancel the original contract by that it introduced a number of modifications, including Ahidatex’ financial obligation and Madmoni’s involvement in sales. In the years following the original contract between the parties, there were various steps taken to advance the invention. On 18 March 2002 a new patent application was filed in the US that related to the new sandals, and this eventually issued as US 6,751,892  ” Minefield shoe and method for manufacture thereof ” however corresponding patents were not registered in other jurisdictions. Madmoni was not happy with the relationship with Ahidatex and negotiated to terminate the relationship, and the parties agreed that if Madmoni pays $350,000 to Ahidatex, the commercialization rights would be transferred back to him. To facilitate this, Madmoni contacted a third party, Lior Stitching LTD, to undertake the manufacture and to pay the $350,000 to Ahidatex. Since the patent was ONLY filed in the US, Lior Stitching did not accept the agreement. At this stage, Madmoni sued the defendants in the Jerusalem District Court (Civil Complaint 3070/09), arguing that defendants had violated their contractual agreement and caused him heavy losses.

Madmoni argued that the defendants had failed to file the patent applications in other jurisdictions and had failed to effectively market the Sapper’s Sandals to the Israel Defense Forces and other potential customers. Ahidatex counter-sued Admoni for revealing trade secrets to Lior Stitching, and for return of money they had paid him (Civil Complaint 3551/09). Judge Jacobi of the Jerusalem District Court rejected both the complaint and the counter-complaint in a ruling of 24 June 2012. The District Court reviewed the contracts and heard witness testimony and concluded that there was no breach of contract. The District Court did not find that Ahidatex had contractually obliged itself to file patent applications in other jurisdictions but only if requested to by Madmoni. The District Court found Ahidatex obliged to prosecute the pending patent applications but not to file them unless Madmoni specifically requested applications be filed. Consequently, Madmoni himself was responsible for their not being additional filings. Furthermore, Madmoni himself knew that the patent was not filed in Israel and that the corresponding European application was abandoned.  As far as the old sandals were concerned, Ahidatex was not obliged to market these, but was merely entitled to. As to contracting the Israel Defense Forces, the District Court considered that Ahidatex had acted reasonably and could be held responsible for the failure of the IDF to express an interest. The counter-case was dismissed as being a reaction to Madmoni’s filing suit and lacked inherent validity.

THE APPEAL

Madmoni contended that it was clear to Ahidatex that they should file more widely and in particular, should file applications in Israel and Europe. He alleged that the assignment gave Ahidatex, as the more experienced partner, free reign to file wherever they wanted. Consequently, he didn’t contemplate the eventuality that Ahidatex would not file in Europe and Israel. Madmoni alleged that the District Court had erred in their understanding of the contractual relationship and had ignored provable evidence that Ahidatex had failed to fulfill their obligations. Madmoni also alleged that Ahidatex had been tardy in negotiating with the IDF. Madmoni further accused Hazor of negligence and inequitable behavior and thus considered the District Court had erred in dismissing charges against him. The defendants requested that the Appeal be dismissed on the grounds determined in the Court of First Instance. The Appeal was essentially against factual and not legal determinations and was thus an illegitimate attempt at forcing a retrial. The Supreme Court suggested that the parties attempt mediation but this was not successful.

RULING

After reviewing the case, the Supreme Court upheld the District Court’s findings and dismissed the appeal. The defendants had not undertaken to absorb any and all costs in patent prosecution but merely to underwrite the cost of prosecuting and maintaining the patents filed by Madmoni himself. The Supreme Court also did not see fit to interfere with the District Court’s findings that the IDF’s failure to purchase the product was the result of Ahidatex’ poor marketing. As far as equitable behavior of the CEO, despite accepting that the obligation on the CEO and investors should be interpreted widely, the court did not see fit to find them responsible in this case. There is no doubt however, that this is one of those difficult cases, not because of the legal aspects, but because of the sorrow and feelings of loss of an inventor whose hopes are dashed. Nevertheless, the court did not find that legal obligations towards him were ignored. The decision was upheld but no costs were awarded.

Civil Appeal 7300/12 to Supreme Court concerning Madmoni vs. Ahidatex et al. The ruling by Judge Barak-Erez, with Judge Rubinstein and Chayot concurring, 3 June 2015.  

COMMENT

The ‘Sapper Sandal’ or ‘minefield shoe’ is a sort of snow shoe with a large surface area due to inflatable pockets underneath that engages a soldier’s boot. I have no doubt that it spreads pressure over a larger surface area and that it reduces sudden pressure. It should, therefore, have some efficiency against mines of various sorts. On the other hand, it may be less successful than the inventor imagines, and I suspect will make walking difficult. That as may be, having a patentable invention is not necessarily the same as having a workable solution.

I do not know if armies need a solution for a soldier to cross a mine field or a way for clearing mine fields. I do not know if this solution has military value. Presumably, however, the Israel Defense Forces is quite capable of such a determination. If the Israel Defense Forces IDF had adopted the idea but manufactured without Ahidatex, there would be some argument that failing to file in Israel had caused damage. This does not, however, attribute this damage to Ahidatex rather than to Madmoni.

In general, military hardware inventions should be filed in the US, Europe and Israel to cover major manufacturers. This particular invention is low tech and could be manufactured widely and if it works, could be of interest in all conflict zones.

In my experience, inventors sometimes have unrealistic expectations.  They get emotionally attached to their solutions, whereas commercial entities are more likely to be motivated by commercial considerations. It is an unfortunate characteristic of entrepreneurship in general, that one cannot know up front what is the correct strategy, and patents of this type, are, by their nature, aimed at creating new markets. If there is a real need, someone else may come up with a competing product that is as good or better, or merely cheaper. Finally, it should be appreciated that when entering into contracts, both parties should be very careful that the contract is clear and unambiguously covers all eventualities. This can avoid unnecessary litigation from which all parties (except for the attorneys) lose.