Israel Israël Israel. Report Q194. in the name of the Israeli Group by Tal BAND

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1 Israel Israël Israel Report Q194 in the name of the Israeli Group by Tal BAND The Impact of Co Ownership of Intellectual Property Rights on their Exploitation Questions I) The current substantive law 1) Groups are invited to indicate whether, in their countries, the statute of co ownership of IP rights is uniformly organised or if each IP right has its own regulation concerning co ownership, particularly as far as their exploitation is concerned. What options are left for co owners to regulate their co ownership relationship: are the statutory rules mandatory, or do they apply only in case of the absence of a contractual regulation of co ownership between the parties? In general, with respect to IP rights (and, particularly, patents), only the Law, 1967 ( the Law ) provides a mechanism specifically dealing with co-ownership. The Law includes provisions relating to the exploitation of a co-owned patent. Other than the Law, no other statutory provisions exist specifically regulating co-ownership of other IP rights, such as copyrights, trademarks and designs. According to section 13 of the Movable Property Law, 1971 ( the Movable Property Law ), its provisions will apply, mutatis mutandis, to rights, where no other law contains specific provisions therefor. Accordingly, the provisions of the Movable Property Law will apply with respect to those IP rights which have not been regulated under any other law. It should be noted that the mechanism for co-ownership of patents as set out in the Law could perhaps equally apply by analogy to those other IP rights. However, we were unable to locate any case law which could unambiguously provide clarification on the issue. In view of the above, we have included in our response to each question, a reference to both such mechanisms as set out in the Law and in the Movable Property Law. the Law contains provisions that regulate the relationship between co-owners of a patent. However, it is specifically mentioned in most of the relevant sections of the Law that such co-owners may set out the terms of their relationship in the co-owned patent in a written co-ownership agreement between them or by virtue of law. Some of the said provisions in the Law require that such co-ownership agreement be registered with the Israeli Registrar of ( the Registrar ) in order for it to be valid. For example, section 80 of the Law provides that each co-owner of a patent may transfer ownership of his share without the consent of the other co-owners, unless the parties have agreed otherwise and provided that the agreement has been duly registered with the Registrar. With regard to licensing a co-owned patent, see our answer to question 4 below. Section 9(c) of the Movable Property Law provides that an agreement between co-owners as to the management and exploitation of the relevant IP right shall apply also to any person who 1

2 subsequently becomes a co-owner of such IP right and also to any other person, provided that such co-owner or other person knows or ought to know of the existence and terms of the coownership agreement. Section 9(e) of the Movable Property Law provides that save as may otherwise be provided in a co-ownership agreement, the provisions of specific sections of the Land Law, 1969 ( the Land Law ) which deals with co-ownership of rights in land, shall equally apply to the co-ownership of movable property, i.e., including the relevant IP right. Pursuant to both the Movable Property Law and the Land Law, the provisions of the said laws shall apply where no co-ownership agreement exists between the parties. Accordingly, the provisions of the said laws will apply only in the absence of a contractual relationship regulating the rights of coownership between the parties. 2) Groups are invited to explain who has the right to exploit an IP right which is co owned by two or more persons: may each co owner exploit the right freely and without any consent from the other co owners or is this exploitation subject to conditions? Even if this exploitation by only one co owner is permitted by the national law, shall the co owner who exploits a right pay any compensation to the other co owners. Finally, in case compensation is required by the legal rule, how is the amount of compensation determined? according to section 78 of the Law, each co-owner is entitled to exploit the invention, the subject of the patent, in a reasonable manner unless expressly prohibited by law or the written agreement between co-owners provides otherwise. However, if the aforesaid exploitation prevents another co-owner from similarly exploiting the invention, then the coowners may demand from the exploiting co-owner appropriate royalties based on their share in the profits deriving from such exploitation. In addition, according to section 81 of the Law, pursuant to an application filed by some of the co-owners, the court may order the other co-owners to perform certain acts to exploit the patent or any right therein, or grant a licence for its exploitation, or deal with any other matter concerning the patent. It should be noted that any order given under section 81 of the Law may not be made if it is prejudicial to the rights or obligations of a trustee in bankruptcy, receiver, liquidator, administrator or executor of a will, or if it contradicts any of the conditions of a written agreement between the co-owners of the patent. As mentioned above, save as may otherwise be provided in a co-ownership agreement, the provisions of specific sections of the Land Law apply equally to the relevant IP right. Section 31(a)(1) of the Land Law provides that, in most cases, each co-owner may, without the consent of the other co-owners, reasonably exploit the joint IP right, provided that another co-owner is not prevented from similarly exploiting same. According to section 33 of the Land Law, a coowner who has exploited the joint IP right shall pay to the other co-owners, according to their respective shares therein, suitable compensation for such exploitation. Each co-owner is entitle to share in the proceeds of the joint IP right based on his percentage of ownership rights therein. 3) The Groups are also invited to give an overview of their national Law in relation to the benefits which may result from the exploitation of an IP right which is co owned. In particular, the Groups are invited to indicate if their national Law provides any kind of obligation for a co owner who exploits personally its share of an IP right to pay any benefits to the other co owner wherever the second exploits or no the same IP right. 2

3 If there is such an obligation, how the amount of money that should be paid to another co owner is determined? A co-owner who personally exploits his share of a patent right is not under any obligation to pay any benefits to the other co-owners. Moreover, section 78 of the Law specifically provides that unless otherwise obligated by law, or by a specific contractual term, every patent rights holder is entitled to exploit his invention in a reasonable manner. However, if such exploitation prevents any of the other co-owners from similarly exploiting such invention, then such co-owners may demand from the co-owner who personally exploits the invention as aforesaid, to pay royalties to the other co-owners. Based on section 31(a)(1) of the Land Law, the co-owner may exploit his share of the relevant IP right freely and in a reasonable manner, without the need for obtaining the approval or consent from any of the other co-owners. However, pursuant to section 35 of the Land Law, each co-owner of the relevant IP right is entitled to an equal share (or a share based on his percentage of ownership rights) of all profits deriving from the exploitation of such right. In any event, co-owners may freely waive, adapt or modify any provision of the co-ownership agreement at their discretion and based on the freedom of contracts. 4) The Groups are also invited to indicate if the co owner may grant a licence to third parties without any authorisation from other co owners, or if the granting of such a licence is subject to certain conditions? If such conditions exist, the Groups will have to specify their content. It should be noted that section 88 of the Law provides that a licence to exploit a coowned patent may only be granted with the consent of all co-owners and without including a provision therein allowing the co-owners to specify same in a written agreement between them according to section 78 of the Law. However, section 88 shall not be deemed to derogate from section 81 of the Law, which latter section entitles any one of the coowners to address the court seeking relief compelling the other co-owners to agree to certain actions regarding the relevant patent rights, such as licensing or any other action that the court may deem expedient in the circumstances. Such relief will not be granted, however, if it transgresses the rights vested in any bankruptcy trustee, receiver, liquidator or legal guardian. We could not find any case law supporting the effectiveness of section 88. However, we believe that co-owners may include a provision in their co-ownership agreement relating to exploitation of the patent by way of grant of a licence in accordance with terms and conditions agreed to by them. Section 34(a) of the Land Law provides that each co-owner may carry out any transaction in respect of his IP right, without requiring the consent of the other co-owners thereto. Moreover, according to section 34(b), any provision in a co-ownership agreement which denies or restricts a co-owner from acting as aforesaid shall not be valid for a period exceeding five years. However, in a decision rendered by the Supreme Court in Civil Appeal 304/72 Bialer v. Bialer, PD 27,1533, it was held that a co-owner in immovable property may not, without the consent of at least the majority of the co-owners, grant a licence to any other person to use the property other than to the co-owners themselves. This decision was criticized by Israeli scholars who hold the view that no distinction should be made between other rights held by a co-owner, such as the right to rent the immovable property and the right to grant a licence to a third party to use same. Furthermore, we believe that, with respect to such decision, a distinction should be made in terms of which the licence to the third party is given by a licensor without consideration as opposed to a licence given to a third party for reasonable 3

4 consideration. In view of the above, and since there is no specific reference in the case law with respect to lp rights, we believe that, at present, a co-owner may not grant such licence without the consent of at least the majority of the co-owners. Accordingly, we believe that should a co-owner wish to grant a licence to exploit his IP right to a third party, reliance may be made by such co-owner on the provisions of this section, without the need for obtaining the consent of the other co-owners. However, as mentioned above, the co-owner's entitlement to carry out any transaction in respect of his IP right would, in any event, be subject to the relevant provisions of the co-ownership agreement, if such an agreement exists. 5) The question of the exploitation of an IP right interferes with the possibility of transferring such an IP right to third parties. The Groups should indicate the solution in theirs countries relating to the possibility of transferring a share of co ownership of an IP right to third parties: may such a transfer (by assignment) be carried out freely without any conditions or must it be offered firstly to the other co owners or is it specifically subject to the agreement of the other co owners? The Groups are invited to indicate the conditions to which such a transfer is subject. Section 80 of the Law provides that each co-owner may transfer ownership of his share in the patent without the consent of the other co-owners, unless the co-owners have agreed otherwise in their co-ownership agreement and such agreement has been registered with the Registrar. According to section 83 of the Law, the assignment of a patent by agreement binds only the parties thereto, unless and provided that the assignment has been duly registered in terms of the Law. The Law does not contain rights of first refusal provisions whereby a co-owner wishing to assign his share in the patent must first offer same to the other co-owners. Section 9(d) of the Movable Property Law provides that where one of the co-owners confers a right in his share in the jointly-held IP right to another person, he shall notify the other coowners of such fact; and where a co-ownership agreement has been entered into, the coowner shall notify such other person of the existence and terms of such agreement. Here too, a co-owner is not obliged to first offer his share in the relevant IP right to the other co-owners. It should be noted that every change in the ownership of a trademark or design, must be documented and registered in accordance with Israeli law and regulations, inter alia, with respect to a trademark, under the Trade Marks Ordinance [New Version], 1972 and with respect to a design, under the and Designs Ordinance, ) IP rights may also serve as a guarantee for the investment which is necessary for their exploitation. The question then arises of whether a share in co ownership of an IP right can be used as such a guarantee and under what conditions. Is it necessary to obtain agreement from all the co owners in order to secure an IP right or can each co owner freely secure his own share of an IP right without seeking the consent of the other co owners? The Groups are invited to describe their legal systems on this question. According to section 89 of the Law a patent holder may, in writing, charge the patent or the income deriving therefrom or do both. A patent so charged shall not be effective against any other creditor, unless the charge has been registered with the Registrar, within 21 4

5 days after the date of its creation. Moreover, the charge will be subject to any other right granted in the patent prior to its creation and which right has been duly registered in accordance with section 90 of the Law. There is no specific reference in the Law as to whether it may be possible to secure a share in the jointly-owned patent in the form of a charge or as a guarantee in favour of a third party, without first obtaining the consent of the other co-owners. However, a charge on a patent may, under section 90 of the Law, be realized by permission of the court, which may grant the chargee any relief it may deem proper, including the appointment of a receiver or an order to sell the patent. As mentioned above, unless a co-ownership agreement expressly provides otherwise, the provisions of specific sections of the Land Law shall apply in respect of the relevant IP right. As also mentioned above, under section 34(a) of the Land Law, each co-owner may transfer his share in the co-owned IP right or effect any other transaction in respect thereof, without the consent of the other party. It therefore appears that a co-owner may use his share of the right as a guarantee without first obtaining the consent of the other co-owners. 7) The enforcement of IP rights plays an important role in their exploitation. Such enforcement is mainly achieved by means of legal proceedings that may be filed by the owner of an IP right in order to penalise the infringement of his right by third parties. The question arises of whether such a legal action must be filed by all of the co owners of an IP right or whether it can be filed by only one of the co owners. The Groups are therefore invited to specify the legal solutions and procedural exigences in their countries in relation to the possibility of one of the co owners of an IP right filing an infringement action. Section 178(b) of the Law provides that in the case of a co-owned patent, each coowner may bring an action for infringement. Moreover, if the patent rights holders or some of the co-owners of the patent or of an exclusive licence do not become parties to the infringement action as plaintiffs, then they shell be joined to the action as defendants (and if they do not take part in any of the proceedings, they will not be required to pay costs, as specified in section 178(d)). According to section 31(a)(3) of the Land Law, each co-owner may, without the consent of the other co-owners, take any reasonable action required to prevent damage likely to be caused to the relevant IP right and so as to protect his rights of ownership and possession thereof. A co-owner who has acted as aforesaid may recover the expenses incurred by him from the other co-owners in accordance with their respective percentage interests in such IP right. In light of the above, it would appear that the co-owner may, in most cases, take whatever legal proceedings it deems necessary in the event of an infringement, provided that he notifies the other co-owners of his intention. In terms of section 32(b) of the Land Law, the co-owner may then recover his costs from the other co-owners according to their respective percentage interests in such IP right. 8) The exploitation of the IP rights depends also upon the existence of these rights and, more specifically, upon the capacity of their owner to ensure the continuity of the existence of these rights. Now, the decision on maintaining patents or trademarks by the payment of the renewal fee, may vary according to the legal system of organization of co ownership. The Groups are therefore invited to tell how the question of the decision making process of the maintaining or renunciation of the patents or trademarks is organized in their national law. 5

6 and other IP rights (i.e., copyrights, trademarks, designs) There is no specific reference in the Law and in the relevant case law regulating the maintenance or renunciation of the co-owned patent. Therefore, we believe that the procedure set out in the Movable Property Law (which also refers to the Land Law, as described above) will be applicable in this regard. Section 31(a)(3) of the Land Law provides that each co-owner may, without the consent of the other co-owners, do anything reasonably required to prevent any damage likely to be caused to the relevant IP right and so as to protect his rights of ownership and possession thereof. The relevant co-owner shall then notify the other co-owners of his actions. It is therefore likely to assume that payment of the renewal fees will be deemed an action necessary to prevent any damage being caused to the relevant IP right and, therefore, the co-owner may pay such fees without first obtaining the consent of the other co-owners (and thereafter recover from the other co-owners their respective share in such expense). Further, pursuant to section 81 of the Law, the other co-owners may always file an application with the court in connection with any matter relating to the co-owned patent, inter alia, in connection with maintaining the patent. 9) The Groups are also invited to describe their national rules of international private law in relation to conflicts of law relating to the co ownership of the IP rights and conflicts of jurisdiction in order to enforce these rights. More specifically, the Groups are requested to indicate if their international private law rules accept that the statute of ownership of an IP right co owned in different countries be regulated by one law. In this case, what law is applicable for determining the statute of co ownership? What is the criteria for seeking the proper jurisdiction in cases of conflict between the co owners concerning their rights? There is no clear-cut answer to these questions under both the Israeli statutes and case law. However, one may deduce from section 81 of the Law that each co-owner may seek redress from the court in order to compel any of the other co-owners to perform certain actions regarding the exploitation or defence of the patent. From this it transpires that, with respect to a patent registered in Israel, the jurisdiction applicable to all co-owners will be the Israeli District Court. Other IP rights(i.e., copyrights, trademarks, designs) With respect to other IP rights that are not capable of being registered, such as copyrights, we were unable to find any applicable mechanism in effect from both the statutes and case law. However, with regard to the protection of IP rights, we are able to assume that the jurisdiction in which conflicts between co-owners will be resolved, will be that in which the relevant IP right has been exercised, i.e., if the co-owners are from different countries, but the conflict is based upon exploitation of the relevant IP right in Israel, then the jurisdiction for resolving such conflict will be Israel. According to Israeli case law, it would seem that intellectual property laws have territorial applicability. For example, in Civil Appeal 681/00 Super Plast v. Starplast Industries 1967 Ltd. (handed down on January 30, 2005) the District Court held that the and Designs Ordinance, 1926, which constitutes the historical basis upon which subsequent legislation in the field of patents was enacted, is limited to the boundaries of the State of Israel. Therefore a design right, being a registered right, is of territorial implication and the provisions of the said Ordinance will apply only within the boundaries of the State of Israel. 6

7 It should also be noted that only recently the Supreme Court repeated the notion that intellectual property laws are territorial. Such a comment was made in a Supreme Court judgment in the case of Motion for Leave to Appeal (Civil) 8831/05 Harari v. Dialit (handed down on August 29, 2006) in which it was held, inter alia, (in sections 6 and 7 of the judgment) as follows: As is known, intellectual property is an abstract normative creation. In the absence of any tangible property, the law or case law determines when an intellectual property right shall arise and what will be the terms for its fulfilment, its scope and its limitations hence the national character of intellectual property rights is derived; since the national law recognizes these rights and their design, the application of the rights is limited generally to the territory in which the law in question applies. Generally, and for the purpose of the present case, also the mode in which the design right is defined and the protection afforded the design are the product of national legislation and they therefore vary from state to state Therefore, it seems that also an Israeli design right, as an Israeli patent right, is a territorial right, limited to the borders of the State of Israel 10) Finally, the Groups are invited to indicate what other specific solutions or problems relating to the question of the exploitation of IP rights co owned by two or more persons are raised in their respective countries. II) One problem on the issue of co-ownership is the lack of any coherent arrangement in the relevant Israeli law and regulations. While there exists a relatively adequate arrangement for patents which, as stated above, are regulated under the Law, no such arrangements exist for the other IP rights referred to above (i.e., trademarks, designs or copyrights). The current practice, i.e., adopting terms from the Land Law and/or the Movable Property Law is far from being satisfactory, due to the unique nature of the relevant IP right, as opposed to other movable property and contractual rights. Thus, a specific mechanism should be installed to alleviate the current uncertainty. Save for the need for an appropriate mechanism in place regulating the co-ownership of IP rights other than patents, we strongly believe that any future arrangement should preserve the basic principle of freedom of contracts. Proposals for future harmonisation The Groups are also invited to formulate theirs suggestions in the framework of an eventual international harmonisation of national/regional intellectual property rights or, at least, an improvement or completion of the existing solutions. 1) In particular, the Groups are requested to indicate if they consider that the principle of freedom of contracts should apply to allow the co owners to determine the statute of the rights and the conditions for their exercising or if the rules governing co ownership of IP rights should be mandatory. We believe that where the existence of co- ownership of IP rights is concerned, the principle of freedom of contracts creates a proper balance between co-owners of the relevant IP right, thereby allowing them to freely and independently determine the terms and conditions to be reached in the co-ownership agreement. Likewise, we believe that the arrangement in place in the Law (as well as that in place in the Movable Property Law and in the Land Law) should be implemented only where the co-owners of the relevant IP rights have not entered into a co-ownership agreement. We believe that unless the issue of co-ownership of IP rights is a matter relevant for the public interest, there is no need for the rules governing such rights to be mandatory. 7

8 2) The Groups are also requested to indicate if a statutory rule should give equal rights to all co owners to individually exploit the IP rights or, without the authorisation of others co owners, to grant the IP rights to third parties or whether, due to the exclusive character of an IP right, such exploitation can only take place with the agreement of all co owners. Should this requirement of the agreement of all co owners apply to all acts of exploitation and acts in defence of IP rights, or only to the acts of disposal of IP rights for the benefit of third parties, such as licensing or transferring to a third party? As mentioned above, if not otherwise agreed upon, all co-owners are regarded as equal rights holders vis-à-vis the relevant IP right, by virtue of all statutory agreements on the matter. As to individual exploitation of the relevant IP right, as stated in our answer to question 1 above, different arrangements apply with respect to holders of patent rights as opposed to holders of other IP rights. Instilling new and independent arrangements specifically intended for the regulation of other IP rights warrants a most basic and fundamental change that needs to be implemented in order to achieve future harmonisation of legislation in the area of IP. Currently, the arrangements applicable to the other IP rights are not specifically fine-tuned to include IP rights, since they primarily rely upon the Israeli general property laws (i.e., the Land law and the Movable Property Law). For the current arrangement in effect with respect to patents, please refer to our answer to questions 2, 3, 4 and 5 above. We believe that the arrangement in place with respect to patents is fairly balanced and should continue to apply. Other IP rights For the current arrangement in effect with respect to other IP rights, please refer to our answer to questions 2,3, 4 and 5. As mentioned in our answer to question 4 above, please note that according to the Israeli Supreme Court ruling, licensing the right of a co-owner (other than a patent) is not permitted, without the consent of the other co-owners. This ruling, however, does not apply to the underlying basis of the arrangement, which allows a co-owner to exploit his share of the right, without first requiring the consent of the other co-owners to do so. As to the exploitation and defence of IP rights, we believe it appropriate to implement an arrangement embodying applicable provisions from the Law, the Movable Property Law and the Land Law (e.g., section 32 of the Land Law which provides that each co-owner must bear his own expenses, according to his share in the relevant IP right, with regard to the exploitation, defence and maintenance thereof. If any co-owner is found to have borne a larger portion of the expenses associated therewith, then such co-owner should be entitled to receive reimbursement from the other co-owners). We further believe that the arrangements described above create the proper balance amongst the various IP rights and, therefore, should be adopted in specific legislation applicable to IP rights other than patents. 3) The Groups are also invited to give their preference as to the possibility of an enforcement action for infringement being initiated by all co owners or only by some of them. Regarding the arrangement in place with respect to patents as set forth in the Law, please see our answer to question 7. We believe that this arrangement should apply to all other IP rights and not only to patents. In this way, the holder of the relevant IP right will be able to protect such right, even if the other co-owners do not wish to become parties to the proceedings. However, it should be noted that under section 178(d) of the Law, if a co-owner is joined as a defendant pursuant to section 178, but chooses not to participate in the proceedings, then such co-owner shall not be required to pay or contribute its portion of the costs of such proceedings. We believe it also 8

9 appropriate to incorporate into the Law the spirit of section 32 of the Land Law, which allows a co-owner who has contributed to the proper maintenance and management of the relevant IP right, to recover any costs or damages from the other co-owners. This arrangement could equally apply with respect to an infringement action in that each co-owner who has contributed to the protection of the relevant IP right may recover any costs or damages from the other co-owners. 9