Employee Inventions

August 14, 2017

termination of employment 2Earlier this month, three decisions were published by the tribunal for establishing compensation for employee inventions. The tribunal consists of a judge, the Commissioner and an academic.

The legal basis for the tribunal providing compensation is Section 134 of the Israel Patent Law 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.

The three decisions follow a Supreme Court Appeal of a decision of this nature  Supreme Court 4353/14 Barzani vs. Isscar Ltd, from 8 July 2015 which makes clear that the committee’s powers are non-cognitive and the parties can come to alternative contractual arrangements. The rulings provide a good indication of how the committee sees its responsibilities, but are censored of details that could reveal the employee or the company but some general guidelines can still be drawn:

  1. If there is an agreement in place, including one for token compensation or for no compensation at all, the committee has no standing.
  2. Registering the application in the name of the company and the inventor filing assignments of the corresponding patent abroad, including for a nominal sum such as one US dollar, is not considered as an agreement and does not disqualify the inventor from receiving compensation from the committee.
  3. Clauses in the employment contract or an NDA signed by the employee whilst a consultant before starting to work on a salary basis, that state that any invention by the employee will be the property of the company do not mean that the committee has no standing and the employee will not be entitled to compensation ruled by the committee.
  4. A termination agreement signed by the employee in which he states that he does not have and will not have any claims against the company is considered a waiver of compensation.
    Unlike labour law where the labour court assumes powers to delete or amend clauses in a contract that contravene standard labour law, the compensation to inventors is dispositive and can be waived. Furthermore, the committee does not have the power to amend agreements. Once it determines that there is an agreement in place, whatever its terms, the committee no longer has any standing.
  5. Union negotiated general contracts are considered binding on the employee.
  6. Efficiency proposals and valuable discoveries are probably not service inventions

The three rulings may be found here, here  and here.

 


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 »


A second ruling on employee compensation under Section 134

August 8, 2017

This is a second employee invention where the inventor has referred the case to the relevant committee under Section 134 of the Israel Patent Law 1967. The company countered that the case should be thrown out.

Here are the details:

On 25 June 2013, Mr. XXXX, henceforth Ploni (see Ruth 4:1) requested a compensation ruling under Section 134 of the Patent Law for his employee invention, made during his employment at YYYY Ltd, henceforth the company where he worked over the years____________.

On 13 February 2014, the company 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.

On 11 March 2014, the Employee Inventor responded to the request for a timetable and on 5 June 2014, requested a timetable himself.

In an interim decision from 15 June 2014 the committee ruled:

After reviewing the documents mentioned above, and also the response of 11 March 2014, the committee with relate to the issue of the employee having apparently given up on compensation in light of the correspondence between the parties. Thus Ploni is given 30 days to respond to the question of giving up of rights within 30 days.

Before a hearing was held, on 4 August 2014, the committee suspended the proceeding pending the Supreme Court’s ruling on Bagatz 4353/14 Barzani vs. Isscar Ltd, regarding the cogent nature of the compensation under section 134.

In that case, the Supreme Court affirmed that the Section 134 compensation was dispositive and on 21 September 2015 the committee ruled that the hearing would focus on whether or not Ploni had given up on rights under Section 134.

Applicant’s claims

Ploni is a mechanic engineer that was employed by the company in the capacity of ___________. The company specializes in ______________.  Ploni claims that during his employment with the company he invented ___________. Ploni considers that he is entitled to compensation for his work in developing the invention which resulted in patent applications in Israel and abroad.

Ploni claims that during his employment, he recognized the need for using ___ with special characteristics_____________. Ploni claims to have taken the initiative of approaching the company to develop these solutions. He claims that he received support and the blessing of the CEO, Mr. YYYYY, and from the head of R&D Mr. ZZZZZZZZ and this resulted in a new research area at the company.

Ploni claims to have developed the _________ with original characteristics_____________ and a patent application was filed on _____________. He claimed that the early development was done at home in his own time, and only later was his boss, WWWW informed.

Ploni claimed that the Company had not developed _________until then, but applied the invention to other areas which were successful. Consequently Ploni claims that due to his development of the invention he is entitled to compensation.

Ploni denies being party to any waiver agreement with the company that relates to his inventions as an employee of the company.

The Company’s Claim

The company claims that Ploni signed a secrecy agreement (NDA) that stated that all inventions would be the sole property of the company. On termination of his employment, Ploni signed a statement to the effect that he had and would not have any monetary claims against the company. Furthermore, Ploni signed assignments of the invention to the company.

Discussion

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.

The Section opens with the words “in the absence of an agreement…”, thus when there is an agreement for employee compensation, its amount and conditions, the committee does not have authority to relate to the case.

Both parties accept that this was a service invention.

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-cognitive (dispositive) 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.

 The Supreme Court upheld this finding in 4353/14 Barzani vs. Isscar 8 July 2015.

Was there a Waiver of Rights by the Inventor?

Re Barzani ruled that the parties can make their own arrangements regarding compensation, and so the question is whether the contractual employment arrangement agreed to by the parties included or serves as a waiver of inventor compensation.

Prior to commencing employment, on 19 May 1996 Ploni signed a non-compete non-disclosure agreement. Paragraph 7 of this states that:

I hereby declare that all developments, innovations, inventions or improvements of products, materials, machines, equipment processes or manufacturing processes which I will be party to by way of my employment or which I will become aware of through my employment, are the property of the company and I have no rights in them.

We note immediately that as ruled in the Actelis vs. Yishai Ilani rejection of 3 February 2010, this wording is not in and of itself a waiver of section 134 rights.

termination of employment 2At the end of his employment, on 11 November 1999, Ploni signed a further document that was titled “Secrecy Agreement” and  paragraph 4 thereof is written in a similar style to paragraph 7 of the non-compete non-disclosure agreement from 1996:

The end of employment document is titled “Declaration” and states:

I declare in this, that with termination of my employment with the company _______ Ltd, and after being released from obligations to the company _______ Ltd, I am entitled to the social benefits of the workers and the pension rights and deposited by the company and I do not have and will not have any claims for damages or other claims.

In patent applications filed in the US, Canada, UK,  Japan and Hungary, assignments of the patent were made. By way of illustration, in the US, the assignment states:

“in consideration of the sum of One Dollar…we, the said ASSIGNORS, have sold, assigned transferred and set over… unto the ASSIGNEE…our entire right, title and interest in…

The Applicant claims that his signature was forged but the committee does not have the authority to examine such claims.

The Company is relying on three separate documents as the basis of their claim that Ploni has waived his rights:

  1. Engagement terms
  2. End of employment terms
  3. Assignments of the various foreign patent applications

In re Barzani the committee ruled that the end of employment terms are those that should be used to ascertain whether or not there is a waiving of rights:

With respect to the first and third documents we believe, as stated in re Ilani, that these are waiving of rights to the patent in favour of the company and do not constitute a waiver of compensation for the invention. The question of a waiver for compensation is found in the document that relates to the termination of employment. In this regard, it is noted that Ilani did not relate to termination of employment documentation.

Ploni claims that the termination of engagement document relates to rights until that time since the collective work agreements related to freeing of pension funds anyway. However, the committee was not prepared to consider this document as meaningless.

The general nature of the end of engagement document does not exclude service inventions, see re Barzani paragraph 44:

The wording of the end of employment document is clear and unambivalent. The Applicant has no and will not have any claims whatsoever. This wording is general and does not exclude employee inventor rights. The nature of this document is to separate the employee from the company and to terminate all obligations between the parties and that withheld benefits and redundancy payments are released to the worker. This document reflects the joint interest of the parties that there will be no future claims against the employer.

The understanding of the employer regarding what rights are included in the waiving of claims in the termination agreement are not relevant to the current issue. The waiver is a general waiver and is forward looking as discussed in re Barzani:

The committee must consider the intentions of the sides as reflected in the concrete agreements that are before them, and where the parties’ intention was to end their relationship and to prevent future legal issues, their agreement should be recognized. The Applicant claimed that he was unaware of rights under Section 134 of the Patent Law, and so the general waiver cannot include this. This claim is not acceptable. The waiver is general in wording and forward looking “there will not be…” “I will not have…”. So even rights that have not yet materialized, and so there is no specific awareness about them, are considered as included in the general waiver. This includes the right to compensation which is likely to materialize in the future.

This implies that Ploni waived all rights.

 

termination of employmentPloni claims that even if there is a general waiver, it should be voided as being boiler plate text in a standard contract and thus not binding. See Section 3 of the Law of Standard Contracts 1982.

 

 

In re Barzani paragraph 48 it is stated that the committee for compensation and remuneration does not have the right to void individual paragraphs of agreements if there is such an agreement.

In our opinion, the respondent (company) is correct. Although in Rothem vs Teva Medical Ltd 25, July 2005, we ruled that the committee can rule regarding whether it has authority or not, and whether a specific invention is considered an employee service invention, and whether or not there is an agreement regarding compensation. The Court authority found in Section 3 of the Standard Contract Law is not merely declarative, but is constitutive. The court does not consider whether sections of the contract are void or not, but rather actively cancels them or changes them. This committee does not have these powers. As soon as the committee recognizes the existence of an agreement between the parties, its job is done and it is not authorized to interpret or cancel clauses. Furthermore, since Section 134 allows compensation to be rejected there is logic in concluding that section 23(a)2 of the Law of Standard Contracts does apply. See Appeal 825/88 Israel Footballer’s Association vs. The Israel Football Association p.d. 48(5) 89, page 102-103, and paragraph 8(v) of Appeal 1291/03 Shlomo Naomi vs. Mister Mani Ltd, 20 December 2006.

The respondent claims that the statute of limitations applies, but since Ploni is considered as having waived his rights, this is moot.

Under section 134 the committee rules that the Applicant has waived his rights. Considering the relative assets of the parties, each party will bear their own costs.

Ruling by Prof Englehard, Then commissioner Kling and Professor Michael Talinker, 20 April 2017.


Wet-wipes, The Issue of Inventorship and the Responsibilities of the Patent Attorney

September 22, 2016

wetnap-were-ready-for-any-messThis ruling concerns a product that resulting from the contributions of two people who were formerly friends. A patent application was filed that named both people as both inventors and applicants. Later, after powers-of-attorney signed by each of the named inventor – applicants had been filed, there was an attempt to ‘correct an office error’, to list one of them as an inventor only. The corresponding PCT application and the national phase entry applications, including two issued patents in the United States only bore the name of one inventor and applicant. In an Opposition ruling the Israel Patent Office has now accepted that the second named inventor is indeed an inventor and also an owner.

Apart from emphasizing the need to determine who is the inventor and who is the owner of an invention when the patent is filed, the need to put everything into writing, and the dangers of working with friends, the case raises interesting questions regarding what contribution to reducing a patent to practice entitles someone to recognition as an inventor and whether this standard is the same in all jurisdictions. It also raises interesting questions regarding the duties and responsibilities of the patent attorney to ascertain the facts, or at least to avoid signing on contradictory statements regarding ownership and invention in different jurisdictions.

BACKGROUND

IL 152867 titled “Tissue Container With Auxiliary Compartment”is a patent application for a package of wet-wipes
rc-chairswith an adjacent container for nappy cream. The Application was filed back in November 2002 and listed Boaz Krystal and Liat De-Vries as inventors and owners. The patent application was allowed at the end of June 2010.

Subsequently, an Opposition was filed by WET-NAPS LTD and Liat De-Vries on 4 October 2010 under Section 31(3) of the Israel Patent Law 1967 on the grounds that Boaz Krystal was not in fact an owner, and that the patent was exclusively owned by Ms Liat De-Vries.
affidavitsMr Boaz Krystal and his wife Mrs Dorit Krystal each submitted affidavits. Mrs Liat De-Vries submitted a primary affidavit and a supplementary one in response to Mr Boaz Krystal’s affidavit. Wet-Naps Ltd. is owned by Mr Ilan De-Vries, who is Mrs Liat De-Vries’ husband. He also submitted an affidavit on behalf of the company.  Mr David De-Vries, a patent attorney at Reinhold Cohn & Partners who drafted and filed the application and is a cousin of Mr Ilan De-Vries, Ms Ronit Tal who is an acquaintance of Liat De-Vries and Mr Yoram Hadar who is an industrial designer, also submitted affidavits. A hearing was held and the parties submitted their summaries.

wetnapWet-Nap Ltd manufactures, exports and markets wet-wipes. The company had a business relationship with Packtop Ltd., a company directed by Mr Boaz Krystal that distributes wet-wipes amongst other things.   At the time of filing, both the Krystals and the De-Vries couple were good friends.

roobarbs-shedThere is no argument that Mr Boaz Krystal and Mrs Liat De-Vries met at the Wet-Nap Ltd factory, where Mr Boaz Krystal heard the idea of including baby ointment together with a package of wet-wipes from Mrs Liat De-Vries. There is also no argument that Mr Boaz Krystal and Mrs Liat De-Vries had some kind of collaboration, to develop and improve this invention and to file a patent application for it. Eventually a joint application was filed in both Mr Boaz Krystal and Mrs Liat De-Vries names. However, the parties disagree regarding Mr Krystal’s contribution to the development of the invention and consequently disagree regarding whether he is to be considered an inventor and owner of the patent.

The Main Documents in the Prosecution File Wrapper

roobard-and-custard-friendsThe Application was filed in November 2002 by Reinhold Cohn Patent Attorneys. The Application form lists both Mr Boaz Krystal and Mrs Liat De-Vries as joint owners due to them being inventions. Both parties filed Powers of Attorney, and the Filing Certificate gives both names.

On 10 December 2002, Adv. David De-Vries of Reinhold Cohn Patent Attorneys submitted a notice stating:

office-error“Due to an office error, the name of the inventor, Mr Boaz Krystal was inserted as an Applicant. With our apologies for this, we are submitting a new cover sheet and application form in duplicate, listing Mr Boaz Krystal and Mrs Liat De-Vries as joint inventors, but Mrs Liat De-Vries as the sole owner.”

On 10 December 2002, Adv. Edna Haruti, now Mr Krystal’s representative, submitted a letter in which it was stated that Mr Krystal was a joint owner together with Mrs Liat De-Vries as he had invented the tissue container with auxiliary compartment together with her.  Adv. Edna Haruti also noted that registration of the patent in the name of Mrs Liat De-Vries only was contrary to the agreement between the parties.

shimon-shalitOn 2 February 2003 Patent Attorney Shimon Shalit, then Senior Examiner in charge of formalities at the Israel Patent Office, responded to both Reinhold Cohn and to Mr Krystal that Mr Krystal could not be removed as an owner in the application as filed, since there was no indication that he had assigned his invention to Mrs Liat De-Vries prior to the application being filed. In absence of such proof, since Mr Krystal was not an employee of Mrs De-Vries, by virtue of being a co-inventor, he was also a co-owner.

(As an aside – On 12 March 2006 Mrs De-Vries submitted a divisional application of IL 152867 for certain applications of the invention. This divisional application (IL 174309) was examined, allowed and issued as a patent. On 1 December 2010 IL 174309 lapsed due to failure to pay the renewal fees. That patent is not directly relevant to this Opposition, but Wet-Naps Ltd and Liat De-Vries related to it in their claims).

procrastinateIn the protocol of a hearing held on 5 February 2007 before then Deputy Commissioner Noah Smulevezh it was decided to defer the issue of ownership until the examination of the application was completed. It was further ruled that Reinhold Cohn would be address of record, but would update Mr Krystal or his representative regarding actions taken to get his input before responding to office actions. The patent application was eventually allowed and published for opposition purposes, resulting in this opposition proceeding.

The Opposers’ (Wet-Naps Ltd and Mrs Liat De-Vries) Main Claims
wetnap

Mrs De-Vries and Wet-Naps Ltd claimed to have thought of the idea and developed the invention whereas Mr Krystal had merely provided technical drawings and a business plan for commercializing the product. They alleged that during the period in question, Mr Krystal provided technical and consultancy services to the company as almost an in-house service provider and as such, was exposed to the invention. They further claimed that Mr Yoram Hadar (industrial designer) and Patent Attorney David De-Vries provided sketches for the product that eventually evolved into the patent application. They further alleged that Mr Krystal had suggested a specific implementation (embodiment?) – storing the cream in a blister pack or sachets, which developed into  Read the rest of this entry »


Inventor Compensation Under Section 134 of the Patent Law

January 13, 2016

compensation       employment-agreement (1)

Section 134 of the Israel Patent Law allows for a committee including the Commissioner of Patents, a judge and one other to decide whether an employee is entitled to compensation for a service invention, and how much this should be.

In Barzani vs. Iscar, the Supreme Court through out Barzani’s appeal of the committee ruling and denied his request for compensation.

The Israel Supreme Court (Appeal 3564/12 Dr Nimrod Bayer vs Florality LTD) overturned a District Court decision that upheld a waiver signed by Dr Bayer and Dr Nimrod Bayer requested that the committee decide on appropriate compensation. The committee chaired by Judge Professor Itzhak Engelard and including the Commissioner of Patents Asa Kling and Professor Shmuel Peleg. issued a ruling on 24 December 2015.

It seems that in this instance, the parties came to an agreement. Consequently the request for compensation submitted to the committee was refused. The ruling clarifies that this decision does not affect Dr Beyer’s moral rights to be considered the technological driver of the company or affect third party rights. It puts an end to the issue and no costs are awarded but the decision is published with the names of the parties at their request.

COMMENT

We suspect that the anonymous suspension procedure we reported in 2014 related to this case. Not much can be learned from this ruling except that the committee does meet. At least occasionally.


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.