We are pleased to report that S. Horowitz & Co. has secured yesterday (July 8th) an important ruling by the High Court of Justice, in favor of Iscar Ltd. ("Iscar"), a world-leading producer of innovative cutting tools for metalworking, in the field of employees inventions. The decision has important implications on employers in general, and the R&D based industry in Israel, in particular.
Ending several years of uncertainty that much troubled the R&D based industry in Israel, the High Court of Justice (Justices Rubinstein, Vogelman and Mazuz) confirmed that section 134 of the Israeli Patents Law, 1967 ("the Patents Law"), does not grant to employees an unwaivable right to seek compensation for employee inventions (termed "Service Inventions" in the Patents Law).
Section 134 of the Patents Law, reads as follows:
"In the absence of an agreement determining whether, to what extent and on what conditions the employee is entitled to remuneration for a service invention, the matter shall be decided by the Compensation and Royalties Committee (“the Committee”)".
In its judgment, the High Court of Justice refused to intervene in a decision rendered by a special tribunal (the Committee) on May 4th, 2014, which denied, in limine, a claim for compensation filed against Iscar by a former employee, Gideon Barazani. The Committee held that an employee may waive his right to seek compensation for service inventions under section 134 of the Patents Law; that such waiver need not necessarily be explicit. In the specific circumstances, the Committee held that Barazani had indeed waived his right to seek compensation for service inventions when he signed, upon his voluntary retirement from Iscar, a general waiver and release.
The Committee's decision in the Iscar case provided much awaited clarity to the R&D based industry. Two previous decisions, rendered over recent years by the Committee (the Ilani case) and the Israeli Supreme Court (the Bayer case), gave rise to the question as to whether an employee may waive his or her right to seek compensation for service inventions, or rather, whether the right to seek compensation cannot be waived, similarly to employee's rights protected by Israeli labour laws (such a minimum wage and annual leave). Both the Committee and the Supreme Court had left this question undecided; they were decided for the first time in the Committee's decision in the Iscar case. However, Barazani filed a petition with the High Court of Justice, seeking to set aside the Committee's decision.
In denying Barazani's petition, the High Court of Justice clarified, for the first time, the boundaries of its intervention in decisions rendered by the Committee. The Court held that the extent of intervention by the High Court of Justice in decisions rendered by the Committee will be very limited. The Court was of the opinion that, within those limited boundaries of intervention, the Committee's decision in the Iscar does not merit intervention.
The Court further held that, given the language of section 134 of the Patents Law, the Committee was correct in holding that an employee's right to seek compensation for service inventions is NOT an unwaivable right.
Nevertheless, the Court commented that, as we live in a changing and dynamic world – both in terms of employment settings and the increasing technological creativity of employees - it may be appropriate for arrangements to be adopted, either voluntarily by employers, or by way of legislation, in order to award employees who have invented a service invention.
The Court further held that there was also no basis for intervening in the Committee's decision in view of all the circumstances of the case, including the contractual documents underlying the relations between the parties.
What is the importance of the Court's decision? The Court's decision lays to final rest the concerns as to whether waivers signed by employees could, in principle, constitute a valid defense against claims for compensation for service inventions. As held by the Court, the right conferred by section 134 of the Patents Law can be waived.
Which documents would constitute a waiver of the employee's right to seek compensation for service inventions? In the Iscar case, the Committee distinguished between different categories of documents:
- Documents that merely deal with the transfer of proprietary rights, from the employee to the employer. Examples of such documents are employment and confidentiality agreements, in which the employee merely acknowledges the employer's full and exclusive rights in service inventions; as well as deeds of assignment signed by the employee, necessary for applying for patent protection in the USA and other countries. The Committee held that documents falling within this first category shall not be considered as a waiver of the employee's right to seek compensation, unless the documents contain explicit language that the employee waived his right to seek compensation for service inventions.
- Documents that contain a general release and waiver by the employee of any suits, claims or demands whatsoever against his or her employer. Such documents may usually be signed by employees in the context of severance of the employer-employee relations. The Committee's decision holds that documents falling within this second category will be deemed a waiver by the employee of his or her right to seek compensation, even if they do not explicitly refer to such right.
Given the above distinction, there still remains a risk that documents signed by employees in the past, and which were thought at the time to constitute a valid waiver of the right to seek compensation, will not be considered as such. Thus, it is important for employers to carefully examine those documents signed by their employees and seek proper advice in order to evaluate their possible exposure.
What steps can employers take to reduce their exposure to claims for compensation for service inventions? There are several practical steps that employers may consider in order to reduce their potential exposure to employee claims for compensation: (1) have the employee sign an explicit waiver of his right to receive any additional compensation for service inventions in excess of his or her salary; (2) have the employee sign a general waiver and release at the end of his or her employment; or (3) award the employee, under personal agreement or the company’s general guidelines/policy, limited compensation for service inventions arrived at by him/her during the course of his/her employment. These steps are not mutually exclusive or exhaustive. In this regard, it is important to note that the Committee held that, any degree of compensation previously agreed upon between an employer and an employee, as a reward for service inventions, would suffice to deny the Committee's jurisdiction over a suit subsequently filed by the employee to receive additional compensation.
Will the Court's decision trigger an amendment to the Patents Law? In view of the Court's comment that it may be appropriate for compensation arrangements to be adopted, either in a voluntary manner by employers, or by way of legislation, it is foreseen that discussions may take place, in the Ministry of Justice and other fora, to evaluate the need and scope of any steps to be taken.