Waiver of Consideration for “Service Inventions” – Update
A recent decision handed down by the Committee for Compensation and Royalties (the “Committee“) formed under the Israeli Patents Law – 1967 (the “Patents Law“) appears to restore natural order in respect to Israeli employers’ ability to preclude their employee’s right to receive consideration for inventions conceived in the course, and as a result, of their employment. The decision minimizes monetary exposures of Israeli R&D companies with respect to claims and demands by their employees to receive consideration with respect to such inventions.
Legal Premise
Section 134 of the Patents Law grants employees the right to receive consideration for “Service Inventions” (inventions conceived in the course, and as a result, of their employment) unless otherwise agreed upon in a separate agreement between the parties. The Section also provides that where “there is no agreement that prescribes whether, to what extent, and on what conditions the employee is entitled to remuneration for a service invention“, the entitlement to consideration and its amount shall be determined by the Committee.
In the matter of Ilani1, the Committee held that an employee’s right to receive consideration for Service Inventions is a personal right and is entirely separate from the proprietary rights in such Service Inventions. Such right shall not be assigned to the employer (to the extent such right is assignable). Under the circumstances of Ilani, the employee assigned and transferred all proprietary rights in the Service Invention to the employer. The Committee held that in such circumstances the employee’s assignment of proprietary rights to the employer does not preclude the employee’s right to receive consideration under Section 134. The Committee further held that such right must be explicitly waived by the employee (for example, by referring to Section 134 of the Patents Law).
In the matter of Plurality2, the Israeli Supreme Court did not determine whether an employee’s right to receive consideration under Section 134 of the Patents Law can be waived or not and further held that the existence of an explicit waiver of Section 134 of the Patents Law might not prevent the Committee from questioning the validity of the waiver.
Employers’ Monetary Damages Exposure
Following these rulings Israeli employers found themselves in a predicament: Signing a general intellectual property assignment provision and/or a general waiver, under which an employee waives any rights or claims against his employer (standard practices until the Ilani ruling) might not have been sufficient to protect the employers from future claims by their employees for consideration. Nevertheless, even if the employees explicitly waived such right, the Committee could question the validity of such waiver.
Therefore, in such circumstances, R&D companies were exposed to monetary damages from claims and demands made by their R&D employees to receive consideration under Section 134 of the Patents Law.
New Decision Rendered by the Committee (May, 2014)
On May 4, 2014, the Committee rendered a decision3 that minimizes Israeli employers’ exposure with respect to their employee’s right to receive consideration under Section 134 of the Patents Law.
The Committee clarified the uncertainty regarding the nature of the right under Section 134 of the Patents Law, and held that such right can be waived by the employee (i.e., the right is dispositive). It was explained that the right to receive consideration is not a social right which derives from the employment relationship requiring special protection. In addition, the Committee indicated that it is the legislature’s role to determine whether the right under section 134 of the Patents Law cannot be waived.
The Committee further held that not in every circumstance the employee’s waiver of his right to receive consideration under Section 134 of the Patents Law must include explicit reference to such right. Such waiver agreement can become crystallized like any other agreement (i.e., in writing, orally or implied by behavior) in accordance with the interpretation rules of the general Israeli contract laws.
In the specific circumstances of this matter, the Committee concluded that the employee waived his right to receive consideration under Section 134 of the Patents Law, based on two main reasons: (i) the employee signed certain documents which included clear and conclusive language providing that the employee does not and will not have any future claims against the employer (i.e., in general, he does not and will not have, at any time, demands or claims of any kind against the employer, whether in tort or any other claim). Such conclusive language should not be interpreted as to exclude future claims with respect to rights under Section 134 (even if the employee had no specific knowledge of such right); and (ii) such documents were signed within the framework of the employee’s termination of his employment (under which the employer transferred certain funds to the employee). The Committee held that such circumstances support the conclusion that both parties’ intention was that by terminating their employment relationship, the employee waived any claims that he may or will have in the future against the employer.
Conclusion:
Such decision appears to restore natural order in respect to Israeli employers’ ability to preclude their employee’s right to receive consideration for Service Inventions: the right under Section 134 of the Patents Law can be waived by the employee. The Committee will examine, on a case by case basis, the general contractual framework between the parties, using interpretation rules of the general Israeli contract laws. In the event that the employee’s and employer’s intention is to end their relationship and to prevent any future lawsuits then the Committee will see such understanding as including the employee’s waiver of future claims under Section 134 and will probably not question such understanding.
We note that such decision does not change the previous ruling which enables the Committee to examine the validity of employee’s waiver. However, this decision clarifies that in certain circumstances, such waiver does not necessarily have to be explicit. Such waiver can be learned from the circumstances of the specific matter.
As a matter of practice, although such decision seems to alleviate the requirement to obtain explicit waiver under Section 134 of the Patents Law, we continue to recommend drafting employment agreements with explicit waivers, in order not to leave the interpretation open to the Committee.
For additional information please contact Adv. Ella Tevet, Tel: +972 (3) 6074541, email ellat@gkh-law.com
1 Actelis Networks v. Ishai Ilani, Application to determine remuneration for service invention (2010).
[2]LCA 3564/12 Dr. Bayer v. Plurality Ltd (in Liquidation) et al.(2012).
[3]Ploni v. Company Ltd, Application for ruling of consideration for service inventions (2014).
