Israel Israël Israel. Report Q192. in the name of the Israeli Group by Tal BAND

Israel Israël Israel Report Q192 in the name of the Israeli Group by Tal BAND Acquiescence (tolerance) to infringement of Intellectual Property Rights Questions 1) The Groups are invited to indicate if their system of national law provides rules conferring an effect of the tolerance shown by the holder of an intellectual property right with regard to a third party who infringes his/her right. Does this effect of tolerance apply to all intellectual property rights (patents, designs, trade marks and other distinctive signs) or only to some? The Groups are also invited to provide the justifications put forward in their country for the introduction of this rule on the acquisition of rights as an effect of tolerance and to define its scope. Finally, the last question is to identify if the rules relating to the acquisition of rights through the effect of tolerance should be the same for different kinds of intellectual property rights. Do national laws make a distinction between intellectual property rights that have been registered and intellectual property rights which are simply conferred by use and not by registration? 1.1. In the Israeli legal system there are no specific statutory provisions which legislate for the effect of tolerance by a holder of an intellectual property right on the infringement of such right by a third party. However, there do exist legal doctrines deriving from equitable principles which apply to rights holders, including to intellectual property rights. The two main legal doctrines are laches and estoppel. A brief description of each is set out below: 1.2. Laches Laches can be defined as unreasonable delay or negligence in pursuing a right or claim almost always an equitable one such as to prejudice the party against whom the relief is sought. There are two elements to the defence which must be demonstrated: firstly, that the owner of the right has unreasonably and without justification delayed filing suit for the claimed infringement, and secondly that such delay has caused material prejudice to the infringer. It can be said that to some extent, the passage of time has an influence on the legal right, since after a period of time following an incidence of infringement it may not be possible to enforce the right by way of injunction. However, the passage of time is not of itself sufficient to constitute laches; this, instead, will depend on the circumstances of each case. 1

Usually, equitable considerations, such as laches, do not arise in a claim based on a property right. The above holds true particularly when a permanent injunction is sought. Laches, in and of itself, does not generally justify the dismissal of a claim for declaratory relief. The court may refuse to grant declaratory relief in favour of a right s owner on account of laches, only if the following conditions are met: i) that in the circumstances of the case, the delay could be regarded as equivalent to abandonment of the right; ii) when the position of the other party has been prejudiced due to a delay in filing the suit; and iii) when the other party is able to demonstrate that the delay affected his ability to prove his arguments. However, the situation is different regarding interim injunctions. Like all interim remedies, an interim injunction is dependent on the existence of special circumstances justifying the grant of a relief prior to the case being heard on the merits. Thus, an applicant who delays his claim cannot justify the earlier intervention of the court. Laches is an indication for lack of the urgency required as a precondition for granting interim relief. 1.3. Estoppel The argument of estoppel, which bars any recovery for infringement, arises when the proprietor of the right represents in some way that he will not enforce his right against the infringer and the infringer reasonably relies on that representation. Estoppel is closely related to laches. Laches arises from unreasonable delay by the owner coupled with material prejudice to the infringer; estoppel arises from representation and reliance. 1.4. In deciding whether to allow an argument of laches or estoppel, the court must consider both the respective interests of the parties and the balance of damage. The court must also consider the substance of the claim and the relief sought. 1.5. As explained above, the main effect of tolerance is to give rise to a possible defence. However, there does exist one set of statutory provisions pursuant to which tolerance could lead to the conferring of a right upon the second user, though we are unaware of a case where such provision has been examined by an Israeli court in the context of intellectual property rights. Section 7 of the Movable Property Law, 1971 ( the Movable Property Law ) provides that ownership of movable property expires when the owner relinquishes control with an intent to abandon the property. Section 3 of the Movable Property Law provides in turn that where any movable property is ownerless, any person may, subject to any law, acquire the ownership thereof by taking possession of it with intent to become entitled to it. According to Section 13(a) of the Movable Property Law, such provisions shall apply, mutatis mutandis, also to rights. Hence, it seems possible to apply such provisions to intellectual property rights. 1.6. The doctrines of laches and estoppel have been applied by courts in decisions dealing with intellectual property rights. Some examples are as follows: 1.6.1. Patents: there are cases where a patentee has filed a claim for an interim injunction which has been refused by the court due to a delay in filling this claim. Note that in the particular case of an application for an interim injunction, even a delay which would not of itself be sufficient to constitute laches might nevertheless be enough to prevent the grant of the interim injunction, since one of the grounds for granting an interim injunction is urgency. When considering whether to grant an 2

interim injunction, the court will take into consideration not only the time that has passed since the patentee learned of the infringement, but also the reliance of the respondent (infringer) on the patentee s inaction and the damage to him as a result of the delay. 1.6.2. Trade marks: in addition to cases where delay in filing a suit will lead to denial of a motion for an interim injunction based on laches, special consideration should also be given to the recordal of a user. Authorization granted to a person other than the proprietor of a registered trade mark to use such trade mark in relation to all or any of the goods in respect of which it is registered must be recorded with the Registrar. If the owner of the right fails to record such authorization, then the use of the mark by another person is considered non use by the proprietor. Not only does it dilute the mark, but it may also lead to revocation based on non use. 1.6.3. Appellations of Origin and Geographical Indications: Section 21B(b) of the Appellations of Origin and Geographical Indications (Protection) Law, 1965 allows any person who has made continued use of a Geographical Indication of a member state identifying wines or spirits to continue to use such Geographical Indication with respect to the same wine or spirit or related product, subject to either of the following conditions being met: a) such use has been continuing for at least 10 years prior to April 15, 1994; or b) such use was done in good faith prior to such date. 1.7. The doctrines of laches and estoppel do not distinguish between registered and un registered rights. 2) The acquisition of rights by tolerance remains subject to conditions, in particular, in relation to the duration of this tolerance and the attitude expressed by the third party that is exploiting the prior intellectual property right without authorization. The Groups are thus invited to indicate the duration necessary for tolerance to confer a right to a third party and deprive the holder of that intellectual property right of the possibility of acting against this third party. The question raised also involves discerning what the starting point of this duration is and the act that the holder of the right must carry out in order to interrupt this period. Is positive action by the owner of the prior right necessary in order to start calculating the tolerance period, or can this date also be assumed? Thus, the Groups are invited to answer the question of what the requirements are in order for tolerance to be considered to have been interrupted: is it necessary to initiate legal proceedings or is it sufficient to protest against the alleged infringement, for example, by means of a letter? 2.1. There is no hard and fast rule in the Israeli legal system as to the necessary duration of a period of tolerance such as would confer a right on a third party and deprive the holder of the intellectual property right of the possibility of acting against this third party. The answer will depend on the circumstances of the particular case. It is likely that a longer period would be necessary for the purpose of establishing a right as opposed to raising a defence. 2.2. The starting point of the duration is the moment at which the owner of the right both becomes aware of the infringement and is in a position to sue the infringer. 3

2.3. An act such as sending a cease and desist letter protesting the presumed infringement will not suffice to interrupt tolerance. If unreasonable time passes between the sending of such a letter and the commencement of legal action, the court may find that such delay was equivalent to waiver or accept an argument of estoppel. 2.4. As noted in paragraph 2.1 above, the Israeli legal system does not provide any firm rule as to the necessary duration. According to one recent decision, the District Court held that a period of one year being the time during which the exploiting party sold the product on the market was sufficient for the court to declare an estoppel, conferring a right on the exploiting party (Ansell limited. v. Super Pharm Israel Ltd. C.F. 643/05). However, that decision is of a district court and is thus not considered a binding precedent. 2.5. There are cases which indicate elements which may be taken into consideration in determining this question, as follows: 2.5.1. Copyright: according to a well known case, denying the right of the author to sue the infringer will only occur if a long period of laches (there is no indication as to how long) is demonstrated. The inaction claimed to constitute laches must clearly show the owner s lack of objection to the infringement. In a case where the infringer has relied on the representation and adversely affected his position, the owner of the copyright was prevented from suing the infringer. 2.5.2. Trade marks: According to a well known case, the defence of laches will be allowed by the courts in the case of an infringement of a trade mark only if, in addition to the period of inaction on the part of the owner of the right, it is possible to prove that the owner of the trade mark, by his behaviour, encouraged the infringer to continue with the infringing acts, and the infringer was adversely affected. 2.5.3. Appellations of Origin and Geographical Indications: For the duration which may confer a right on a third party regarding Appellations of Origin and Geographical Indications see paragraph 1.6.3. 3) The tolerance supposes that the holder of the prior right is aware of the existence of the infringement to his right and accepts it in an intentional way. The question arises then of recognizing the degree of knowledge of the acts of infringement the holder of the former right must show in order for him to be considered to have accepted the conflictive exploitation. Can this knowledge be supposed or must it be proven in a positive way? There is no specific and precise rule concerning the level of knowledge of the infringing acts which the holder of the former right must have in order for this to be considered as tolerance of the exploitation. While there are some decisions which suggest that the knowledge may, in some cases, be inferred, this is not necessarily sufficient to draw a definitive conclusion. In my opinion, in order to claim a right, as opposed to being able to raise a defence, the infringer would need to prove positive knowledge of the infringing acts, to a high degree, on the part of the original rights owner. 4) In the same way, the Groups are invited to indicate the requirements which the third party exploiting the prior intellectual property right without the authorization of its holder must meet. Does this exploitation have to be carried out in good faith? And according to what criteria do the jurisprudence and the national law define this good faith? 4

The Groups are also invited to indicate if the third party that exploits a prior intellectual property right without authorization must be unaware of the existence of this right in order to be considered to have acted in good faith or if knowledge of the prior right does not exclude good faith? 4.1. According to the general law, one of the requirements which the third party exploiting the prior intellectual right without the authorization of its holder must meet, is to raise the defence of laches at the first opportunity (in most cases this would mean in the statement of defence). 4.2. Given the fact that the estoppel and laches doctrines originated from law of equity, there is an implied requirement that the party which is exploiting the right without authorization will do so in good faith, in order for him to enjoy the benefits of said doctrines. General court rulings refer to, inter alia, the reliance (in good faith) of the defendant on the representation made by the owner of a right, that the latter has no intention to sue. 4.3. The law does not define what conduct amounts to acting in good faith. Good faith is evaluated on a case by case basis. The criteria that are usually taken into consideration include the behaviour of the parties and their intentions. The court considers these criteria by both a subjective and objective examinations. 4.4. It is reasonable to assume that a party who, without authorisation, exploits prior intellectual property rights unaware of the existence of the prior right, has a better chance of being considered to have acted in good faith. Nevertheless, it is important to note that Intellectual Property law, except for the Copyright Law, does not recognize lack of knowledge regarding the existence of a right, in itself, as a defense to an infringement action. No case law was found which discusses the question as posed. Based on general principles of law, I believe that, where the later user knows of the existence of a third party s intellectual right rights, particularly a registered right, he could be considered to have acted in good faith only if he had a good reason to believe he was entitled to exploit the right, irrespective of the registration (e.g., because the registration was believed to be invalid or because he acted under the assumption that he was licensed to do so). 5) The Groups should also indicate if their legal system provides other conditions (such as for example, the value or the geographical extent of the infringing activity) which the exploitation of the second right by the third party must meet in order to be able to call upon the benefit of the tolerance of this right by the holder of the prior right. Another question relates to the conditions that have to be fulfilled by the use of intellectual property rights which are subject to tolerance. Do national laws impose conditions on this use relating to its importance, duration or continuous nature? No Israeli laws specify conditions which the exploitation by the third party must meet in order to benefit from tolerance of this exploitation by the holder of the former right. However, I believe that extensive, prolonged, unauthorized use, over a wide geographical area, together with investment of resources by the third party (see paragraph 11.2 below) during the period of tolerance, will strengthen the argument for laches and the rights asserted by a third party. 5

6) If the system of national law provides for the acquisitive effect of tolerance, the question arises of identifying the consequences from the point of view of the rights of the third party who is benefiting from this tolerance. First of all, the question arises of discerning whether this third party may only continue the same exploitation as that which benefited from the tolerance of the holder of the prior right or if, on the contrary, he may modify the nature as well as the extent of the exploitation which he has undertaken. The Groups are thus invited to indicate if the jurisprudence and the legal provisions in their country limit the exploitation of the prior right by the third party to the possibility of continuing that exploitation under precisely the same conditions as the exploitation that benefits from tolerance (both from the point of view of the form, the sign, the model or the product that is the subject matter of a patent and from the territorial and economic extent of this exploitation). In addition, the question arises of identifying if the intellectual property right benefiting from tolerance (trade mark or another distinctive sign, design or invention) can be transferred to another third party and if this other third party may also profit from the tolerance from which its predecessor took advantage. Thus, the question is to recognize if tolerance has an effect that is limited to the person who has benefited from it through the holder of the prior right or if the tolerance is attached to the sign, design or invention which has been used, independently of the person who has carried out this exploitation. The Groups should explain the solutions adopted on this subject by their national laws. 6.1. In Israel, there is no explicit indication in respect of the above either by way of statute or general principle. However, an analogy may be drawn from Section 63 of the Patents Law, 1967 ( the Patents Law ). According to this Section, where a patent has lapsed and a person commences to exploit the invention in question in Israel, or makes actual preparations for exploiting it after notice of lapse of the patent is published, such person is entitled to continue to exploit the invention, for his business purposes only, even after the patent is restored. 6.2. This Section has been interpreted as requiring the third party to continue to exploit the invention in the same manner as done prior to the determining date, save for obvious developments. Based on this we can assume that a third party who benefits from the period of tolerance is entitled to continue to enjoy his right in the same manner as during such period, subject to the requirement that the extent and the scope of the exploitation be the same. 6.3. Section 64 of the Patents Law provides that the right (defence) under Section 63 is generally non transferable except where it is transferred together with the business in which the third party used the invention. Accordingly, one can say that the right is attached to the business and not necessarily to the person. If one were to adopt such a rationale with regard to a right deriving from a period of tolerance, one would assume that the person who, without authority, carried out this exploitation, will generally be the only one who could enjoy the result of said tolerance and such defence would not be non transferable. However, as may be apparent, the right (or defence) may be attached to the business and be transferable with the transfer of the business. 6

7) In the same context, the question of the exhaustion of the right also intervenes. Indeed, if the products or the signs benefiting from the tolerance are put on the market, the question of the freedom of circulation of these goods arises, since they can hardly be regarded a priori as commercialised with the authorization of the holder of the prior right. It should thus be discerned if the tolerance is limited to the acts of the exploitation carried out by the person who benefits from it initially or if the tolerance also extends its effects to the third parties that bought products, in particular, for their export abroad. 7.1. The exact boundaries of the exhaustion doctrine in Israel are not yet settled. For example, the question whether this doctrine permits the export abroad or parallel importation of such product is still disputed under the relevant Israeli law (save in the case of trade marks, where it was held that trade mark registration cannot form a basis to prevent parallel import). 7.2. While no case law could be found, it is believed that the tolerance defence in question is, by its nature, transferable. If only the initial third party user benefits from the tolerance, the property itself would effectively not be transferable, since no other party would wish to acquire it. In effect, this would significantly limit the benefit derived by the initial third party user. 8) The acquisition of rights through the effect of tolerance also raises the question of the definitive and irrevocable character of the acquired right. One can indeed ask the question of whether it is not possible to call into question the effects of tolerance, for example, by means of a regulation that organizes the coexistence of the two rights. The Groups are thus invited to indicate if such a regulation is possible in their national systems and how it might be organized. 8.1. Israeli equitable principles do not include any explicit rule which generally provide for the coexistence of the two rights resulting from the tolerance of the original rights owner. However, there are certain statutory provisions which refer thereto, as follows: 8.2. Section 30 of the TMO provides that where it appears to the Registrar of Trade Marks that there is honest concurrent use, or where there are other special circumstances which in his opinion justify the registration of identical or similar trade marks for the same goods or description of goods by more than one proprietor, the Registrar may permit such registration subject to such conditions and limitations, if any, as he may think fit. However, if it appears that there is a high degree of similarity between the marks and that both refer to the same type of goods such that the public may be misled, the Registrar will usually not permit such coexistence. 8.3. Section 21B(b) of the Appellations of Origin and Geographical Indications (Protection) Law allows for the coexistence of two rights under the conditions stated above (see paragraph 1.6.3 above). 8.4. Sections 63 of the Patents Law (see paragraph 6.1 above) allows for the coexistence of a registered right (defence) and a right that arises due to prior use. Similarly, according to Section 53 of the Patents Law, a person who, on the determining date 1, exploits in Israel in good faith the invention for which the patent is applied for, or makes in good faith actual preparations for its exploitation, shall be entitled to exploit that invention, in the course of his business, without paying any consideration for such exploitation. 1 For the purpose of this provision, the determining date means the date on which the application for the grant of a patent in Israel is field, or, if a priority right is claimed for that application, the date of the filing of the foreign application on which the claim for the priority right is based. 7

9) Lastly, the Groups are invited to give their appreciation on the operation of the mechanism of the acquisition of rights by means of the effect of tolerance in their country. And the Groups are also invited to indicate if the rules in their country, as they exist, could be used as a basis for possible international harmonization. 9.1. The Israeli system includes doctrines that are applicable to all fields of law, including intellectual property rights. As stated above, in Israel the effect of tolerance of an infringement is more likely to allow the raising of a defence on the part of the infringer, rather than the creation of an independent right. 9.2. In my opinion, the situation is generally satisfactory and there is no need to create specific rules to deal with the effect or consequences of tolerance in the field of intellectual property. Those issues can be dealt with by application of general equitable principles. The advantage of doing so is the creation of flexibility enabling each case to be determined according to its own circumstances. In this way, the court will be able to strike a balance between differing elements, such as the behaviour of the infringer, the behaviour of the proprietor of the right and the public interest. II) Proposals for harmonization The Groups are invited to formulate suggestions on the possible international harmonization of laws of intellectual property in the field of the effect of the tolerance of acts of infringement. These suggestions should be founded on the evaluation that the Groups make of the legal system of their country, so as to base future harmonization on the legal solutions which appear to be the most effective and easiest to implement. 10) First of all, the Groups should formulate an opinion as to the intellectual property rights which could be damaged by the effect of tolerance of an infringement. Does this tolerance have to take effect with regard to all intellectual property rights or only for some (for example, for distinctive signs)? The intellectual property rights which would likely be most adversely affected by tolerance of infringement are those based on some sort of distinctiveness: i) trade marks, since they are particularly identified with the owner of the right; and ii) appellations of origin and geographical indications, since these rights are based on identifying a product as originating from a specific territory or a region or locality within such territory. Other intellectual property rights such as patents, may also be prejudiced by tolerance, but that would perhaps require a stronger case of tolerance or acquiescence. 11) The Groups are also invited to give their opinion as to the nature of the tolerance, if it were to be the subject of international harmonization: is it to be limited to being a means of defence in the event of infringement proceedings or should it confer a right pertaining to the second user by date? 11.1. In my opinion, if the right has not been abandoned by the owner, the tolerance should be limited to a means of defence in the event of infringement proceedings. 11.2. Intellectual property rights comprising of distinctive marks, such as trade marks, may also confer an independent right on the second user. However, such independent right does not arise as a consequence of the tolerance of the owner of the right. Such tolerance merely enables the exploiting party to independently establish goodwill in the product (the predicate of the right) on his own and, in so doing, to cause the public to associate such product with him. 8

In a decision of the Israeli Registrar of Patents, Designs and Trade Marks it was held that, as a consequence of the use of a trade mark over a twenty year period, by a second user, including the establishment of goodwill during such lengthy period, the second user has independently established a right of ownership in the mark (Application to cancel Trade mark no. 61408, Domino s Pizza). The decision was to allow co existence of the two contenders to the mark. 11.3. In the case of a well known trade mark, the court s tendency to allow a defence based on tolerance is limited and, in any event, is subject to establishing good faith on the part of the exploiting party. 12) The Groups are also invited to formulate suggestions as to the conditions (such as: duration, extent and value of the second exploitation by date, the knowledge of the infringement by the holder of the prior right etc.) which the tolerance should fulfil in order to produce legal effects in the event of possible international harmonization of intellectual property rights. The conditions which the tolerance should fulfil to produce the legal effects in the event of a possible international harmonization of the intellectual property rights may be as follows: 12.1. Knowledge of the infringement by the proprietor of the right being infringed. The question is whether this knowledge may be presumed or must be proven in a positive way. I tend to think that the knowledge must be positively proven, especially so with respect to a registered right. 12.2. The duration of the period of tolerance should be significant. The determination of the length of the tolerance will depend on the specific circumstances of each case, and there will be taken into account the nature and extent of reliance by the infringer on the inaction of the rights owner. 12.3. The scope of the acts of infringement must be significant. Generally, wide use is also likely to influence the level of knowledge of the rights owner (the greater the extent of the use, the greater the chances are that he will become aware of it). 12.4. The exploitation must have been carried out in good faith. 12.5. In a case where an infringer wishes to obtain a right, not only a defence, he must meet stringent conditions; that is to say, he must prove longer duration or wider scope of use of the rights. There is no need, though, to expressly define such duration or scope, since this should rather be left to the discretion of the courts. 13) Finally the Groups can formulate any additional opinions as to the possible international harmonization of the rules of intellectual property rights on the conditions and effects of the acquisition of rights by means of the effect of tolerance. Please see our suggestions and opinion as previously set out in our responses to questions 10 to 12 above. Summary No specific statutory provisions exist under Israeli law dealing with the effect of tolerance by a holder of an intellectual property right with respect to the infringement by a third party of such right. However, legal doctrines do exist such as laches and estoppel deriving from equitable principles, which also apply to intellectual property rights. The duration of the tolerance period is not specified in any law, but will be determined on a case by case basis. The behaviour of the rights owner and of the third party exploiting that right will also be taken into consideration by the court in reaching its decision. In light of the current position in Israel, I believe that an infringer has a greater chance of raising a defence, than of establishing an independent right, but there may be exceptional cases where an infringer may be worthy of such right. 9