The issue of an employee’s right to royalties from an employer for any improvement, advancement, or invention the employee was involved in has come up in Israeli court rulings repeatedly in recent years.

Under section 134 of the Patents Law, the royalties committee in the Israel Patent Office may deliberate on an employee’s right to royalties. A recent Israeli Supreme Court ruling considers the interpretation of this section of the Patents Law.

According to the Supreme Court, an employer may stipulate in the employment agreement an employee’s right to royalties for the provision of service, as well as the compensation the employee may be entitled to for an invention. This provision is permissible, since the right to royalties is not a basic social right, but a weaker contractual one. Though the inclusion of such provision in an employment agreement does not automatically supersede the authority of the royalties committee to consider the issue of an employee’s right to compensation, the value of a clear agreement between the employer and employee that includes future-facing provisions and expressly addresses the right to royalties for provision of service is immense.

Our recommendation, therefore, is to update employment agreements and expressly state in them that the employee shall not be entitled to royalties for the provision of service, with clear reference to sections 132(b) and 134 of the Patents Law.

The Supreme Court also ruled that an employee is required to assert the claim for royalties as close as possible to the date of invention. The employee may not wait with claims about its right to royalties until the end of the employment relationship or until a conflict arises between the employee and the employer on the issue. On the other hand, an employer who concedes an employee is entitled to royalties for an invention re-starts the clock on the statute of limitations on the date of such admission.