America-Israel Patent Law

An Additional Implication of the High Court of Justice's Ruling Regarding Service Inventions

In the previous blog post I discussed the recent decision of the Israel High Court of Justice, which clarified that employee-inventors are not necessarily due compensation for their inventions, that their right to such compensation is conditionable, and that a properly drafted employment agreement will preclude such employees claiming compensation beyond that already agreed upon with their employers.  In this post I discuss how that decision affects an ongoing disagreement about patent attorneys who in the course of their work become inventors for their clients.

I discussed this topic in January 2019, in the context of a situation in which a practitioner was listed as an inventor on a PCT application, the applicant then (stupidly) transferred the case to another firm, and someone from the new firm (stupidly) asked the first practitioner to confirm that he was not an inventor and that he had no monetary claims against the applicant.  I speculated that the new firm person was trying to scare his new client into thinking that the prior practitioner might assert that as an employee-inventor he was entitled to compensation from the applicant.  The principal problem with the reasoning behind the scare-mongering was that the practitioner wasn’t an employee of the applicant, and therefore could not possibly be deemed an employee-inventor who might be entitled to compensation under section 134 of the statute. 

But let’s suppose for the sake of argument that the practitioner had been an in-house practitioner, and therefore an employee of the applicant, at the time he made his contribution that necessitated his being listed as an inventor.  What the HCJ’s decision means for such a situation is that, like every other employee, the practitioner would not be entitled to any additional compensation, if the employer wrote the employment contract properly. 

There has been a long-standing disagreement among patent practitioners in Israel as to whether or not practitioners should be allowed to be listed as inventors on their clients’ patent application.  Presently that disagreement has no practical effect, because there is no statute or regulation prohibiting Israeli practitioners from listing themselves as inventors if indeed they are inventors for the sake of at least one claim in a patent application.  But there is now a movement underfoot to introduce legislation and regulations that might enshrine such a prohibition.

It’s clear to anyone who prosecutes patents in the USA that such a prohibition would be folly, as it could jeopardize the validity and/or ability to enforce one or more of a client’s US patents. What’s not clear is the impetus for wanting to prohibit patent practitioners from listing themselves as inventors.  I can think of only two rationales: the possibility that the practitioner may try to extort the client for more money (beyond the agreed-upon compensation for drafting and prosecuting the patent application) in exchange for signing an assignment of rights in the invention and associated patent applications to the client; and the possibility that the practitioner, if he is an employee of the client, may try to seek additional compensation under section 134 of the statute. 

The recent HCJ decision effectively deflated the second concern.   More importantly, even if we ignore the HCJ decision, both concerns can be addressed by statute or regulation, by stipulating that (a) practitioners who are listed as inventors on their clients’ patent applications must, absent an agreement to the contrary, give the client an assignment at no additional charge, and, (b) if the practitioner was an employee of the client at the time the invention was made, then the practitioner waives the right to seek compensation under section 134 of the statute.  Such an approach would preserve the validity of the client’s US patents.  In contrast, addressing those two concerns by prohibiting a practitioner from listing himself as an inventor is overkill that can have extreme negative consequences for the client.

The position that patent practitioners should be precluded from listing themselves as inventors on their clients’ patent applications also seems to reflect a view that patent practitioners are merely scriveners, and that not only is helping their clients to think of different ways the invention could operate or be characterized not part of a patent attorney’s job, it’s actually undesirable to have practitioners act in that way.  I find that view just bizarre.  If practitioners are supposed to help their clients, then why shouldn’t they bring all of their knowledge and experience to bear to that end?  Most practitioners I know haven’t found it necessary to list themselves as inventors, but in the cases where they have the contribution has often been valuable.  If a practitioner can bring that kind of insight to his client, the state shouldn’t preclude clients from availing themselves of those insights.

High Court of Justice: Employees May Be, But Aren’t Necessarily, Due Compensation for Service Inventions

The Israel Patent Statute includes a few sections (131-136) dealing with inventions invented by employees.  Section 132 establishes a default setting whereby an invention made by an employee during the period of his employment and as a result of his employment (aka a service invention) belongs to the employer.  The employer and employee may agree otherwise, and the employer retains the option of foregoing its rights in a service invention.  Section 134 says that if the parties haven’t agreed on compensation for a service invention, the employee may ask the Compensation and Royalties Committee (“CRC”, a body established elsewhere in the statute) to establish if he is entitled to compensation and if so, how much. 

Law students are taught that judges are wise to parse their words carefully, and to restrict their decisions to the legal questions actually before them.  Unfortunately, not all adjudicators hew to that maxim, and a few years ago, the CRC suggested, without actually deciding, that even if an employment contract explicitly states that the employer owns the employee’s service inventions, the employee might still be entitled to additional compensation. The CRC even mused that the employee’s right to such compensation might be inalienable.

Earlier this month, in a case involving Teva and a former Teva employee (HJC 8672/17), the CRC’s ponderings were put to rest by Israel’s High Court of Justice.  The HCJ clearly stated that employers and employees may set the terms for compensation for service inventions, and that doing so divests the CRC of its jurisdiction to set such compensation.  The decision thus introduces a measure of certainty into what had for several years been an uncertain area: Israeli companies with properly drafted employment agreements need not fear potential unexpected payouts to employee inventors.

In point of fact, and somewhat ironically, it’s not clear that the HCJ needed to entertain that question to reach its decision, as the CRC disposed of the case by confirming the CRC’s finding that the petitioner’s complaint to the CRC was time-barred under the statute of limitations.  Rejecting several alternatives set forth by the petitioner, the HCJ ruled that clock starts ticking when the inventor invents the invention in question, so if the inventor and the employer can’t agree on compensation for the invention, the inventor must initiate proceedings with the CRC within seven years of inventing the invention.

There are two aspects of the decision that US practitioners may find interesting (or curious), even if of no practical import to their own practices.  First, the court didn’t delve into the distinctions made in US law between conception and reduction to practice, didn’t use the term “claimed invention”, and in fact didn’t refer to a particular patent.  This, even though the petitioner, Dr. Ruth Levy, is listed as an inventor on 24 US patents, all of which are assigned to Teva.  From a US perspective, it seems strange to discuss rights in an invention outside the context of one or more patent claims.  Indeed, a large part of the criticism directed at the US Supreme Court in the wake of the Mayo/Myriad/Alice cases is that it has encouraged lower courts and the PTAB to ignore patent claims when assessing patent eligibility.  Nevertheless, there is some sense to the arrangement regarding service inventions in Israel law.  The Israel patent statute distinguishes between an invention and a patentable invention, even if it only defines the latter.  It’s not difficult to conceive of situations in which an employee invention may be valuable to the employer, but not result in a patent, and hence the question of (extra) compensation to the inventor may arise.

The second aspect will be appreciated by those who follow the goings-on of the Patent Trial and Appeals Board at the USPTO.  In the US, there’s a time bar to petition for an Inter Partes Review of a patent before the PTAB if the petitioner has been served with a complaint in a lawsuit involving that patent, and the statute also says that the USPTO’s determination to institute or not institute an IPR is not appealable.  Hence there’s been litigation over whether the PTAB’s determination regarding a time bar (as opposed to the substantive grounds for institution) is appealable.  In Israel, one hoop that the HCJ had to jump through before deciding this case – and the reason the case was before the judges sitting as the HCJ, rather than as the Supreme Court (which some people understandably confuse with the HCJ, because both bodies are constituted by the same judges, who sit in the same physical courtrooms whether acting as SC or HCJ) – was the fact that the statute says there are no appeals from the compensation decisions of the CRC.  The HCJ, which is constituted to hear petitions against state action, determined that it had jurisdiction over the question of the statute of limitations.  (Although there are no appeals from the substantive compensation decisions of the CRC, per §136 CRC itself may revisit and revise its determinations if circumstances have changed, e.g. if the value of the invention doesn’t become apparent until years later, as if often the case with pharmaceuticals.)

There’s one more aspect of the decision that I’ll discuss in the next blog post.