Newsletter 51 – August 15 2014

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THE LEGAL NEWSLETTER

We are pleased to present another English-language edition of our firm newsletter. In this edition we provide a brief synopsis the Antitrust Commission’s directions for exchanges of information between competitors during due diligence investigations, and a recent court decision concerning an employee’s right to royalties for service inventions.

The newsletter, which our firm publishes periodically, addresses important practical developments in the field of Israeli corporate and commercial law.  The objective of the newsletter is to create awareness of these developments and of the underlying principles of the issues discussed.  We hope that you will find the newsletter informative and helpful.  Any comments or suggestions are appreciated.  If you need further information or have any questions concerning the issues discussed in this newsletter, please contact either Yoram Shiv, 972-3-607-4777, yoram@sask.co.il, or Alex Berman, 972-3-607-4777, alex@sask.co.il.

Sharir, Shiv & Co., Law Offices

Antitrust Authority / Exchanges of information between competitors during due diligence investigations

Israel’s Antitrust Authority has issued a circular that sets forth procedures for due diligence investigations between competitors, due to the potential risk to competition created by the exchange of business information between competing entities.

The Antitrust Authority does not consider all such disclosures of information as potential risks to competition. Rather, the nature of the transaction and the measures taken by the parties to lessen harm should be evaluated. The circular sets forth the following rules of conduct:

  1. Identify “sensitive” information at the beginning of the due diligence process. Factors to take into consideration include the relevant market, the nature of the information, and the potential harm to competition that could result from disclosure. Sensitive information should be provided to competitors only according to the following rules.
  2. Sign a confidentiality agreement prior to the disclosure of any sensitive information.
  3. Disclose sensitive information selectively, in stages, disclosing only information actually required during any stage. Selectivity does not mean mutuality – mutual disclosure of information is not in itself sufficient reason for disclosure. Sensitive information should be returned or destroyed when no longer required for due diligence purposes.
  4. Maintain as low a level of detail as possible, in order to help prevent the ability to “reverse engineer”.
  5. Use an external body, such as a lawyer or accountant, to review a competitor’s sensitive information.
  6. Use dedicated teams and information barriers when viewing a competitor’s sensitive information. Teams should be as small as possible to help avoid contamination, and not all members of the team should be privy to all information.
  7. Document information exchanges, in order to help monitor conduct and ensure careful and rigorous exchanges of information between competitors.

Compensation and Royalties Committee / Royalties to employees on account of service inventions

The Compensation and Royalties Committee (“Committee”) confirmed the validity of agreements under which an employee waives its rights to royalties in connection with service inventions, the development of which the employee participated during the course of its employment.

The case at hand involved an employee who had been involved in the development of six inventions during the course of his employment, all of which were ultimately registered as patents in the employer’s name. The employee and his employer had entered into various agreements dealing with these inventions:

  1. Confidentiality Undertakings in which the employee waived his property rights to the inventions, transferring these rights to his employer.
  2. Assignment of Patent Rights, in which the employee transferred his invention rights that were registered as patents to his employer.
  3. Waiver of Claims, signed upon the termination of the employee’s employment, in which the employee waived all current and future claims against his employer, including all financial and tortious claims.

The Committee held that as a general rule, an employee is able to waive its rights to royalties, and that an agreement between an employee and employer negating the employee’s entitlement to remuneration is valid. Consent to such an agreement may be in writing, orally or through conduct.

Regarding the case at hand, the Committee examined the three types of agreements into which the employee had entered. The Committee held that neither the Confidentiality Undertaking nor the Assignment of Patent Rights waived the employee’s right to royalties. In contrast, the Committee held that the Waiver of Claims, in which the employee waived all future rights of action against the Company, was evidence of the employee’s explicit intention to waive his right to royalties for the service inventions and represented a valid waiver. That the employee was not aware at the time of signing what future rights he might be waiving was not invalidating in and of itself. Therefore, the Committee held that the employee was not entitled to royalties according to the Israeli Patents Law.

This newsletter provides general information and should not be used or taken as legal advice for specific situations, which depends on the evaluation of precise factual circumstances.