My Israeli employee invented something. Does my US company own it?

A Delaware parent sells its Israeli subsidiary for USD 90 million. Eighteen months later a former algorithm engineer, who signed a standard assignment clause in 2019 and left quietly in 2023, files a claim for royalties on the patent family that carried the valuation. American acquirers find this hard to believe, and Israeli patent counsel do not, because the right the engineer is asserting is statutory and it survives the assignment clause most foreign employers rely on.

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Detailed Answer

Sections 131 and 132 of the Patents Law 5727-1967 handle ownership cleanly. An invention that an employee arrived at in consequence of their service and during the period of their service is a service invention (אמצאת שירות, amtzaat sherut), and it belongs to the employer. No assignment is needed to achieve that result, though an assignment clause is still worth having for inventions falling outside the definition and for foreign filings. The exposure sits in Section 134, which provides that in the absence of an agreement determining whether the employee is entitled to consideration for a service invention, and on what terms, the matter is decided by the Compensation and Royalties Committee, a statutory tribunal chaired by a judge and sitting alongside the Israel Patent Office. Section 135 lists what the Committee weighs, including the employee's role, the extent of the employer's contribution and resources, and the value derived from the invention. The Committee's case law is where foreign employers get caught. It has held that a general assignment of ownership does not by itself remove the Committee's jurisdiction over remuneration, and that jurisdiction is displaced only where the employee expressly waived the right to compensation or royalties in the agreement. Ownership language and remuneration language are two different sentences, and a contract that contains only the first leaves the second open for years after the employment ends.

For a company outside Israel the practical work is contractual and it has to be done before the invention rather than after the exit. The Israeli employment agreement should say, in terms, that the consideration for any service invention is included in the salary and benefits paid, and that the employee waives any claim to further compensation or royalties under Sections 132 to 135. Israeli employment law reads waivers narrowly and against the employer, so the clause has to be specific rather than buried in a general intellectual property paragraph, and it has to be in the agreement the employee actually signed rather than in a US parent's global policy handbook that was emailed round afterwards. Get the choice of law right as well: an Israeli employee working in Israel is protected by Israeli mandatory employment law whatever the contract says about Delaware, and a Compensation and Royalties Committee claim is not something a US arbitration clause reliably captures. Where employees are engaged through a foreign parent, an employer of record or as contractors, the position is messier still, because the statutory scheme keys off employment and a contractor arrangement can put ownership itself in doubt. Companies structuring Israeli R&D should read this alongside the wider protections set out in the guide to protecting intellectual property in Israel as a foreign business, and the choice of vehicle in the guide to a foreign company's branch versus subsidiary in Israel.

In Practice: Section 132 of the Patents Law 5727-1967 vests the service invention in the employer automatically, while Section 134 sends remuneration to the Compensation and Royalties Committee unless the employee expressly waived it in writing, and Section 135 sets the criteria the Committee applies. Claims are routinely brought years after the employment ended and after an exit, and a contested proceeding before the Committee runs 2 to 4 years with expert valuation evidence. Correcting the position for an existing Israeli team is a fixed cost measured in NIS 15,000 to NIS 40,000 of Israeli employment and patent advice; leaving it uncorrected is an open-ended percentage of the enterprise value.

When to Consult a Lawyer

• You are acquiring an Israeli company or an Israeli R&D team. Service invention waivers are a standard diligence item in Israel and their absence is priced, so the point to find them is before the share purchase agreement rather than in a post-closing indemnity claim.
• Your Israeli staff are engaged as contractors or through an employer of record. Section 132 operates on employment, an Israeli court may recharacterise the relationship, and the ownership analysis differs depending on which way that goes.
• An employee has already left and is asserting rights over a patent. Do not respond with the assignment clause alone, because the Committee has repeatedly held that ownership language does not answer the remuneration question, and an early admission narrows what can be argued later.

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Speak With an Israeli Attorney

An Israeli attorney can review your Israeli employment agreements for an effective Sections 132 to 135 waiver, correct the template for new hires, and defend or settle a Compensation and Royalties Committee claim from a departed inventor.

Contact us for a confidential initial consultation.