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Waiver of Employees' Royalties for Service Inventions

15.12.15 | 10:37  

The Israeli Committee for Compensation and Royalties, established under the Israeli Patents Law – 1967 (the “Committee”), rendered a groundbreaking ruling on May 4, 2014 that puts an end to a period of legal uncertainty existing from the breakthrough case of Actelis Networks vs.

Yishai Ilani [February 3, 2010] related to the right of employees to benefit from compensation for service inventions. In its recent ruling where the names of the parties at hand remain anonymous, the Committee highlighted the issue whether an employment agreement could include a waiver provision whereby the employee would waive his/her right to royalties for service inventions and whether this provision should be drafted so as to be enforceable and valid. Pursuant to Section 132(a) of the Israel Patents Law, 'service inventions' are defined as inventions created by employees as a result of and during the term of their employment, and belong to the employer, unless otherwise provided by an agreement. Accordingly, Section 134 of the Israel Patents Law provides that an employee shall be entitled to royalties or other compensation for inventions that have become his/her employer’s property.

Deprived of such agreement, the employee may address the Committee in order to set the compensation he/she shall be entitled to for his/her contribution. In the abovementioned case Actelis Networks vs. Yishai Ilani, the Committee pointed out the distinction between the transfer of title of an invention and the transfer of the right to compensation, which is a personal right and may not be assigned to the employer. Therefore, the Committee emphasized that waiving the right to compensation could not be considered as being covered by a general assignment clause.

Unfortunately, the Committee left aside the question of whether, pursuant to Section 134 of Israel Patents Law, an employment agreement could include a provision that would specify that the employee shall not be entitled to compensation for service invention or whether this right to compensation should be considered as a right that cannot be waived, as part of protective labor regulations.

In the case at hand, the Committee held that the entitlement to compensation to service inventions shall not be considered as a mandatory right that would deserve special protection, and therefore, ruled that employees may fully waive their economic right by way of agreement, including by means of a general waiver, and so without explicit reference to Section 134 of the Israel Patents Law.

The Committee additionally clarified that the waiver may be formed like any other agreement – written, oral, or by conduct – in accordance with the general principles of contract law and that it may assess whether the waiver was granted in light of the general contractual framework between the employer and the employee.

In light of the foregoing, we would highly recommend employers to clearly and expressly draft the waiver provision in employment agreement or in any other employment disposal (i.e. termination employment), whereby the ownership to inventions and the waiver to compensation by the employee would be explicitly expressed, or alternatively, whereby a specific arrangement (i.e. a symbolic amount) for royalties and/or compensation to service inventions would be set forth, emphasizing the intent of the parties to waive, or alternatively, to set symbolic compensation to service inventions.

* The author is an Associate at Shavit, Bar-On, Gal-On, Tzin, Yagur Law firm, and holds a Master’s degree in International Commercial Law and Intellectual Property from the Hebrew University of Jerusalem and an Advanced Master in Information and Communication Technology Law from the Namur University (Belgium).