Author: Karen Elburg, Jenia Melkhior, Gilad Neeman.

On December 1, 2019, the Israeli Supreme Court rejected a petition by Dr. Ruth Levy against a decision of the Compensation and Royalties Committee in the Ministry of Justice (the "Committee") under Section 134 to the Patents Law, 5727-1967 (the "Patents Law"). The Committee had rejected, in limine, Dr. Levy's motion to receive remuneration for a service invention from her former employer, Teva Pharmaceuticals Industries Ltd. ("Teva"), the other respondent to the petition, due to the expiration of the proscription period.

The Supreme Court's ruling has provided, for the first time, a concrete answer to an issue which troubled Israel’s Hi-Tech industry (as well as the more conventional industries), regarding an employee's right to remuneration for service inventions (inventions invented by them or in which they participated during and as a consequence of their work). The Supreme Court ruled that employees have no “vested right” under Israeli law to receive remuneration for their inventions, and that where there is no actual agreement between the employer and the employee determining whether, to what extent, and on what conditions the employee has a right to remuneration for a service invention, the employee can apply to the Committee for a decision on the matter.

In addition, the Supreme Court ruled that the period of proscription for filing an employee's motion to receive remuneration for a service invention commences on the date on which the employee is required by law to notify the employer of the invention, namely as soon as possible after the date of invention. 

In light of the significance of this ruling, we set out below a summary of the facts and the ruling. 

The Facts 

Dr. Levy worked for Teva for 27 years, and was involved in the development of significant inventions, which were registered as patents, and which yielded substantial profits to Teva. In 2013, as Dr. Levy approached her retirement, she was requested by Teva to sign a retirement agreement that included a waiver of her rights to receive royalties for her inventions. According to Dr. Levy, the waiver was “disguised” in the retirement agreement, and she only noticed and understood its implications after obtaining legal advice. Consequently, she refused to sign the retirement agreement, and applied to the Committee for a ruling that she is entitled to remuneration from Teva for a series of service inventions under Section 134 of the Patents Law. 

In Teva's response to the motion, it raised, inter alia, several preliminary arguments, including that of the proscription period. Teva also claimed that the motion should be rejected in limine due to lack of jurisdiction, since there was an implied agreement with Dr. Levy pursuant to which Teva had already paid "special remuneration" to Dr. Levy for her contribution to the inventions. 

Dr. Levy filed a petition against this decision with the Supreme Court. 

The Supreme Court's Ruling 

The Supreme Court rejected the petition and made several important points in its ruling:

First, the Supreme Court ruled, for the first time, that the Patents Law does not grant an employee the right to receive remuneration for a service invention from the employer. The Supreme Court emphasized, as in previous rulings, that under Section 132(a) of the Patents Law, the default is that service inventions belong to the employer; in the absence of a contractual right to remuneration on service inventions, the employee can approach the Committee and request it to rule on the entitlement, the extent, and the conditions of any such remuneration. The Supreme Court also ruled that any right granted by Section 134 to the Patents Law is not mandatory, nor is it a protective labor-law right. 

The Supreme Court also emphasized that the Committee's ruling on this question is akin to the concept of "ex gratia", as the employee-inventor's right under Section 134 of the Patents Law is by nature a weak right, and that the Committee's decision did not deprive the employee of a right granted to her under law. Taken together with the fact that the Committee's decisions are not subject to appeal, this results in a narrow scope of judicial review that the Court may apply to the Committee's decisions. 

Second, the Supreme Court ruled that the period of proscription for filing a motion to receive remuneration for a service invention commences from the date when the employee is required by Section 131 of the Patents Law to notify the employer of any invention he or she has created, namely as soon as possible after the invention was made. At that time, the employer and employee are required to discuss the matter between them, including whether the invention is indeed a service invention, and then the employee is free to apply to the Committee for an award of royalties –which gives rise to a concrete cause of action for the employee. 

The Supreme Court also ruled that there is no basis for Dr. Levy's argument that the "special remuneration" she received from Teva constituted an admission on Teva's part of her right to receive royalties or remuneration.

The Consequences

On the operative level, our recommendation is to continue to require a proper contractual arrangement with any employee who participates in R&D or takes part in the development of a company's technology, including an explicit waiver of any additional remuneration or compensation. It should also be noted that the Supreme Court's ruling renders redundant any concerns that a company's patent remuneration policy may be used as an indication of the employee's right to receive additional compensation as a consequence of the commercialization of the invention.