The high-tech industry in Israel (and worldwide) relies on innovations and technological developments made by industrial workers. While we are used to seeing start-ups developing certain technologies, in many cases, many of such developments are being initiated and invented by employees in an established and existing company.
The ownership of the invention and the rights granted to the employee and the employer in respect of the invention is regulated by the Patents Law, 5727-1967 (hereafter: “the Patents Law“).
In the event that the inventor of a patent is an employee of a company, and in the absence of any other agreement between that employee and the employer, the employee’s inventions are considered part of his work, and therefore ownership of the invention, which was actually invented by the employee, belongs to the employer, subject to the terms provided in the Patent Law, inter alia, that it is an invention, that the parties have working relations, that the invention was formulated during the work of the employee with the employer and that the employee came to the invention “due to his work” with the employer. For example, a doctor who works at a hospital and invents a patent in his field of work, due to his work, the ownership of the patent belongs to the hospital.
As stated above, besides the question of ownership of the invention, the Patent Law also regulates the issues of compensation for the employee in respect of the invention and the conditions for its acceptance.
The Patent Law provides that, in the absence of an agreement between the parties, the compensation to which the employee is entitled to in respect of the invention shall be determined by the Compensation and Royalties Committee – a committee composed of a former Supreme Court Justice, the Registrar of Patents and any academic or scientific expert in the relevant field of the patent.
When examining the compensation the employee is entitled to, the committee examines the type of employee’s position and his contribution to the invention and the costs involved in its development. In general, the more significant the employee’s contribution in the invention is, the committee tends to set higher royalties rates.
It should be noted that in order to provide an incentive for employees to develop technologies for the company in which they work, many technology companies have in recent years adopted a mechanism for employee royalties and compensation in respect of employee developments and inventions within the company.
Status of Civil servants
The world of hi-tech and technology has become an inseparable part of many industries in the world of science, including medicine, agriculture and more. In a world where start-ups and exits are appealing to many employees, and in order to maintain manpower at work, veteran industries have also decided to adapt to the new status quo. For this purpose, governmental corporation such as hospitals have decided to adopt mechanisms and to encourage employees to develop and invent patents in their field of work.
The State has established a number of different provisions that regulate the subject of the development of its employees’ knowledge. Thus, alongside the Patents Law, the Civil Service Regulations (hereinafter: “the CSR“), which is intended to guide government ministries in the matter of management of state-owned products of knowledge, authorizes the Invention Committee (appointed by the Minister of Justice) to determine whether to award compensation/royalties to an employee who invented an invention in which the rights are in the hands of the State.
The CSR (in Chapter 72) defines in which cases inventions invented by civil servants shall be defined as service inventions (state owned), as well as all provisions regarding notices of inventions, rights of workers and the State in inventions and prizes to the inventors.
With regard to royalties (or prizes) due to a State employee, these will be determined by the Invention Committee. The Invention Committee is authorized to determine whether the State is entitled to the rights of the employee’s invention and the extent of the royalties, if any, due to the employee for the invention.
Inventions of civil servants in the health system
Beyond the provisions of the CSR, the management of research and knowledge products in the government health system was specifically regulated within the framework of the Ministry of Finance in the instruction of the Planning and Budgeting Committee. These instructions regulate the conduct of studies in general government hospitals and health corporations operating in their fields, as well as the management of assets that are the products of knowledge in these bodies.
The Instructions of the Planning and Budgeting Committee stipulate that a product of knowledge (invention) shall be deemed to be the property of the State, including in the event that the product is created by an employee due to his service in a government hospital or health corporation or during his period of employment, even if concurrent with his work in the government hospital or health corporation, the same worker worked in an additional job outside of service in a research or academic institution.
On the other hand, the Instructions stipulate that a product of knowledge will not be considered a property of the state in cases where the inventions committee determined, inter alia, that the product is not derived from research or from a project carried out at the hospital; The invention was made solely by the employee, without the participation or assistance of other persons related to the hospital; And that the invention was not made at the hospital facilities or through the use of hospital resources and if there is no link between the area of employment of the employee in the hospital or the health corporation for invention.
In addition, the regulations stipulate a number of conditions regarding the relationship between the employees of the Ministry, hospital or corporation and the company investing in the specific research.
Thus, these provisions stipulate, inter alia, that a hospital employee or an employee of the corporation shall not be employed in an additional job with an investment company or a start-up company during the period of their employment as a civil servant or in the health corporation and for one year thereafter, or for a period shorter than one year, if the State and the Supervisor of Wages approved it (subject to the provisions of the Public Service Law (restrictions after retirement), and to any additional law).
In addition, an investing company or a start-up company shall not make any payment to the researchers for consulting hours, whether in money or in money equivalent, including by granting rights or options, such that the hospital or corporation employee will not receive any consideration for the research work nor its products, other than from the hospital or corporation directly. In exceptional and specific cases, where there is a constraint that requires payment to the researcher by way of granting a right in equal amount, such payment may be made with the prior approval of the Director General of the Ministry of Health and the Accountant General.
In the event that the product of knowledge belongs to the State, subject to the provisions of the R&D and the employee meets the conditions regarding the entitlement to royalties, the CSR stipulate that the employee (or team of employees) will be entitled to royalties from the commercialization of knowledge at a rate of about 35% of the net income.
In recent years, we have seen more and more employees developing and inventing patents in their work, including by civil servants. It is very possible that this phenomenon is the result of the employers’ choice to regulate a mechanism in connection with the royalties and rights that the employee receives in connection with his development, when this is done within the framework of his work.