This past summer a significant decision was rendered by the Committee on Compensation and
Royalties, a committee formed under Israel’s Patent Law-1967, putting to rest some of the uncertainty
which was created by an earlier judgment issued by the Israeli Supreme Court in 2012, affecting the
potential royalty rights which an employee might have as to an invention to which he contributed.
The Committee decided that a full and final waiver signed by an employee toward his employer upon
the termination of his employment shall also serve as a waiver as to any right for royalties. More
importantly, the Committed decided that an employee may waive his right to royalties and that such
a right is not a social or dispositive right inherent in an employee.
Background:
Section 132 of the Israeli Law of Patents-1967 (the “Law”) states that an invention made by an
employee, which was arrived at by the employee as result of his service, and during the course of his
service (a “Employment Invention”), shall belong to the employer, unless there is a different agreement
between them as to this matter, or unless the employer waived its right to the invention.
Section 134 of the Law states that to the extent that there is no agreement fixing whether and how an
employee is entitled to royalties in consideration for an Employment Invention, then such matter shall
be fixed by the Committee on Compensation and Royalties (the “Committee”) which was established
pursuant to the Law. (The Committee is currently composed of a retired Supreme Court Justice, the
Registrar of Patents and a renowned professor.)
Section 135 of the Law, states that when coming to consider the question of royalties under Section 134,
the Committee shall, among other things, take into consideration, the following factors: (i) the position
in which the employee held; (ii) the connection between the invention and the work of the employee;
(iii) the entrepreneurship of the employee in the invention; (iv) the possibilities of utilizing the invention
and its actual utilization; (v) the reasonable expenses, expended by the employee in order to obtain
protection for the invention in Israel.
The principle that inventions arrived at by employees during the course of their employment belong to
the employers is well accepted in Israel and is grounded not only in the language of the Law, but also in
specific employment agreements signed by most employees when accepting a position with an
employer in Israel.
The employment agreements invariably state that any Employment Inventions shall belong to the
employer and that the employee shall have not have a right to any consideration as to such inventions.
All of this was the well accepted norm until a few employees started challenging the status quo by
claiming that they are entitled to royalties on inventions which they helped develop, based on the
language of Section 134 of the Law, notwithstanding the fact that these were clearly Employment
Inventions.
Cracks started appearing in the position of the employers when the Committee ruled on one of these
cases a few years ago expressing the opinion that one needs to consider whether the right of the
employee to royalties might be a dispositive social right which an employee is not capable of waiving
even if he signed documents expressing such waiver. In that specific case the Committee ruled against
the petitioner on technical grounds and not on the substance of the claim. The petitioner filed an appeal
to the Israeli Supreme Court, which sent the case back to the Committee asking the Committee to rule
on the substantive grounds of the petition, but what was dramatic in the judgment of the Supreme
Court was that it too raised the question whether the right to royalties might be an inherent right which
an employee cannot waive.
This judgment of the Supreme Court rendered in 2012 created great uncertainty among the managers
and owners of hi-tech companies, since it might have opened the way for an untold number of
employees to claim that they are entitled to royalties on inventions in which they participated, even
though the Patent Law states that these inventions belong to their employer, and even if they signed an
employment agreement stating that they waive all rights to such inventions. Since the Israeli economy is
so highly dependent on its hi-tech companies and on the foreign and local investors who pour funds into
these companies, the uncertainty created by these judgments would force some of these companies to
place potential liabilities into their books for royalties to be paid to employees on what were thought to
be exclusively owned company inventions – an unhealthy situation indeed.
It is of great significance then, that in its most recent opinion (the names of the contending parties
remain confidential by law), the Committee came to the clear conclusion that the right of an employee
to royalties is not a dispositive social right, and that an employee is capable of waiving such right. The
Committee found that a document signed by an employee toward his employer upon the termination of
his employment containing a full and final waiver of all rights which accrued to his benefit or which shall
accrue to his benefit in return for receipt of the final consideration from his employer, is a valid waiver
which also includes a waiver of all his rights to royalties.
The employee has filed an appeal to the Supreme Court which is pending as of the writing of this article
(updates to this article shall be sent when a final judgment is rendered in this important case).
In light of the above judgments, any company involved in research and development in Israel needs to
review its employment agreements in great detail, and with great care, making sure to include a clear
waiver by its employees of any right to royalties under Section 134 of the Patent Law.
*Adv. Meir Fuchs, admitted to practice in Israel and in New York, is a partner in the law firm of Gideon
Koren & Co. and specializes in Hi-Tech and the Life Sciences
Disclaimer: Nothing stated in this article is intended to offer or constitute any opinion or advice on the
subject matter dealt with therein. For any advice or opinion, clients are advised to approach the relevant
lawyer at Gideon Koren & Co.