Uncertainty Regarding Inventions and Patents developed by Employees

The uncertainty regarding the employee’s right to receive compensation for service inventions

The Israeli Patents Law (the “Law“) states that as long as there is no agreement stipulating otherwise, the intellectual property rights in an invention that an employee developed during, and as a result of, his employment is owned by his employer. Section 134 of the Law provides that if there is no agreement determining whether an employee is entitled to compensation for such inventions, and under what terms, the matter will be decided by the Special Committee for Compensations and Royalties.

In recent years, Israeli courts have issued various rulings regarding the interpretation of Section 134. The courts have held that an employee’s right to receive compensation for his inventions is personal and is separate from the ownership rights in the invention itself. The courts have further held that this right can be waived by the employee. The waiver is examined according to the general principles of contract interpretation.

In order to avoid misunderstandings, it is common practice in Israel for R&D employees to sign a contract providing  that (i) their salary and related employment terms constitute the full consideration to which they are entitled for the development of inventions for the employer and (ii) they waive the right to demand additional compensation for such inventions.

The Tel Aviv Regional Labor Court has recently addressed the enforceability of this type of agreement. The court held that due to the consent of the parties, as reflected in the plaintiff’s employment agreement (following extensive negotiations), and as evidenced by the parties’ conduct, the agreement is valid and enforceable, and therefore the plaintiff would not be entitled to any remuneration or royalties for inventions that the employee developed during and as a result of the employment.

This issue is important for each Israeli company engaging in the development of technology and intellectual property as well as its investors and potential acquirers, as it is in the interest of all parties concerned to reduce the company’s exposure to potential lawsuits by existing or former R&D employees.

The Court’s decision maintains a level of commercial certainty. However, it may not apply to each employee who signs an employment contracts with similar clauses. For example, in the case of a non-R&D employee who incidentally developed an invention that may be used by the employer, or an employee who did not have the privilege of negotiating his/her contract prior to signing, may yield a different result. Each case should be reviewed on its own.

If you receive a claim or a lawsuit from a current or former employee regarding his/her right to receive consideration for service invention, or if you wish to reduce the likelihood of such claims in the future, we recommend consulting with an IP attorney.

The writer is the head of the Intellectual Property and Privacy Department at the GKH office

The information included in this article was taken from Ella Tevet’s article, which was published in Globes on July 29th, 2019. LInk 

This communication is for general informational purposes. It is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making a decision of a legal nature with respect to the issues discussed herein. This communication does not create an attorney-client relationship between Gross, Kleinhendler, Hodak, Halevy, Greenberg, Shenhav & Co. (GKH) and the recipient.
Gross, Kleinhendler, Hodak, Halevy, Greenberg, Shenhav & Co. (GKH), is one of the leading law firms in Israel, with over 170 attorneys. GKH specializes, both in Israel and abroad, in various fields of law including Tax, Mergers and Acquisitions, Capital Markets, Technology, Banking, Project Finance, Litigation, Antitrust, Energy and Infrastructure, Environmental Law, Real Estate, Intellectual Property and Labor Law.

Ella Tevet

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