Israel: Employee Remuneration For Service Inventions: Collective Regulation May Help Reduce The Exposure Of R&D Companies

Last Updated: 12 February 2018
Article by Tal Band

A recent precedential decision, issued by the Compensation and Royalties Committee ("the Committee"), in a case in which our firm represented a leading Israeli company, highlights the potential role of collective agreements, or collective arrangements, in reducing the exposure of companies conducting R&D in Israel to claims by their employees for compensation for service inventions. The decision could encourage companies engaging in R&D activities in Israel to consider collective regulation of their employees' right to seek compensation for service inventions, for example by adopting appropriate internal regulations.

In recent years, there has been a surge in the number of claims filed against employers (usually, R&D based companies) by employees, or former employees. Such claims rely on section 134 of the Patents Law, 1967, seeking compensation for the employees' service inventions. These claims often relate to inventions applied in commercial products, and where the compensation sought is often based on the sales of such products. The potential exposure of employers to claims of this nature could be significant, and might have far-reaching ramifications. 

Section 134 of the Patents Law provides that "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 Committee established under Chapter F". As previously held by the Committee in its decision in the Barazani case – in which our firm successfully represented Iscar, one of the world's largest producers of cutting tools for metalworking (owned by Berkshire Hathaway) – the mere existence of an agreement between an employee and his or her employer, which regulates the issue of compensation for service inventions, deprives the Committee of jurisdiction over the employee's claim for compensation. This would be so, regardless of whether the agreement awards some form of compensation, or provides that the employee waives any compensation whatsoever. Many R&D companies in Israel indeed ask their employees to sign individual agreements, which include provisions regarding service inventions, including provisions aimed at bereaving the Committee of jurisdiction over employees' claims for compensation.

A precedential decision was recently provided by the Committee, in a case in which our firm represented a leading Israeli company. The Committee acknowledged the possibility of regulating the issue of compensation for service inventions, not only in the framework of individual agreements, but also in the framework of collective agreements/arrangements. In its said decision, the Committee held that such collective agreements/arrangements similarly deprive the Committee jurisdiction over a claim for compensation, if filed by an employee who is subject to them.

In this particular case, an employee of the company claimed compensation for several 'optimization proposals' which he had conceived during the course of his employment. These 'optimization proposals', which the employee claimed constituted service inventions, were acknowledged by the company's management, and resulted in various awards being granted to the employee. The awards were granted under collective arrangements entered into between the company's management and the employees' union. The employee was not satisfied with the awards granted to him, and filed suit with the Committee, seeking additional compensation of NIS 3.5 million, which, according to him, was equivalent to 5% of the company's total savings that could be attributed to his "optimization proposals".

The Committee, chaired by retired Justice Prof. Izhak Englard, denied the employee's claim. The Committee accepted the company's position that the arrangements regarding the granting of the awards and its patent regulations all constitute collective arrangements.

As such, their provisions are considered an integral part of the employment terms agreed upon between the company and each of its employees. Accordingly, those collective arrangements constitute "an agreement", for the purpose of section 134 of the Patents Law, thereby denying the Committee  jurisdiction over the employee's claim.

The Committee rejected the employee's assertions that the collective arrangements were invalid, and in any event, they did not bind him, as he was allegedly unaware of their existence. The Committee held that the company and its employees, including the plaintiff himself, acted in accordance with these arrangements. The Committee further held that the plaintiff himself used template forms that were annexed to the arrangements. Furthermore, the Committee also noted that the arrangements were formed by a council that included the union's representatives.

From an employer's standpoint, the collective regulation of compensation for service inventions, e.g., by adopting internal regulations, could have advantages over regulating the matter solely in the framework of individual agreements. The main advantage of collective regulation is the establishment of general and uniform policy in the matter, instead of having to individually negotiate the same with each employee. It may also be possible to address, in the framework of such internal regulations, other aspects of service inventions, such as establishing an internal mechanism for resolving disputes that concern inventorship and ownership.

It should be emphasized that a decision whether to adopt internal regulations, and the manner for doing so, might change from company to company, in view of its specific circumstances. We shall be pleased to assist you in this regard.

Link to the Committee's decision (in Hebrew) click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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