Copyright

Telran Communications, Ltd. v. Charlton, Ltd.

Case/docket number: 
CA 5097/11
Date Decided: 
Monday, September 2, 2013
Decision Type: 
Appellate
Abstract: 

 

[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.]

 

Facts:   The Respondent and Cross-Petitioner (hereinafter: Charlton) acquired the exclusive right to broadcast the summer 2006 FIFA World Cup in the State of Israel. The Petitioner and Cross-Respondent (hereinafter: Telran) sold decryption cards (hereinafter: cards) that enabled the decryption of encrypted satellite broadcasts of foreign broadcast networks. The foreign networks broadcasted the World Cup games by encrypted satellite broadcast. The broadcasts could be received and watched in Israel only by means of the cards. The Tel Aviv District Court held that Telran had infringed (indirectly) Charlton’s copyright, and ordered that it pay Charlton damages in the amount of NIS 1,250,000. It should be noted that the Copyright Act of 1911 (hereinafter: the Act or the Copyright Act) is the relevant normative framework in this matter, inasmuch as the alleged breaches occurred prior to the entry into force of the Copyright Law, 5768-2007 (hereinafter: the Law).

 

Held:   The Supreme Court (per Z. Zylbertal, J., E. Rubenstein and Y. Amit, JJ. concurring) granted the appeal, in part, for the following reasons:

 

Intellectual property rights in general, and copyright in particular, are the result of a complex balancing of the various interests in the background of the legal regime established by the legislature. Therefore, the scope of copyright extends only to the boundaries delineated by law.

 

The Act distinguishes between a direct infringement (sec. 2 (1) of the Act) and an indirect infringement (sec. 2 (2) of the Act).

 

“Direct” Infringement: A copyright grants the owner of the right exclusivity in regard to certain acts in regard to the work. Performing one of those act reserved to the owner of the copyright by the Act, without its permission, constitutes a “direct” infringement of the right. Naturally, the Act did not treat of use of a work by means of broadcasting, and therefore, in order to adapt the Act to a changing technological reality, the term “public performance” in the Act has been interpreted to include broadcasting. In accordance with the case law, a broadcast requires the transmission of sounds or images, or their combination, from one instrument that sends the sounds or images. To another instrument that receives and plays or presents the sounds and images to the public. Inasmuch as the card sold by Telran does not “transmit” or “distribute” the World Cup broadcasts – but, as noted, merely enables the decrypting of signals broadcasted by another body – the distribution of the card does not fall within the definition of a broadcast or a secondary transmission. Therefore, Telran did not perform an act reserved to the copyright owner – it did not broadcast the World Cup games (but only provided the cards that make it possible to watch them). Therefore, its conduct did not fall within the ambit of sec. 2 (1), and Telran cannot be held to have “directly” infringed the copyright of Charlton.

 

“Indirect” Infringement: An indirect infringement is the knowing performance of a prohibited act with an infringing copy. In order to establish that there has been an indirect infringement, there must be a direct infringement by a third-party. Three conditions must be met in order to show an indirect infringement: the existence of an infringing copy, the performance of one of the acts enumerated in the section, and that the indirectly infringing party knew, or should have known that the rights to the work belonged to another. In the instant case, the act performed by Telran was the providing of a means for “cricumventing” a “technological fence”. Such an act does not constitute indirect infringement, inasmuch as no exclusive right of Charlton was infringed by a third-party (the foreign broadcasters did not unlawfully broadcast the games to Israel, and as for the viewers, the act of viewing protected content is not one of the acts reserved to the copyright owner under the Act).

 

“Circumventing” Technological Measures: No legislative provision has been adopted in Israel that would make the evasion of technological safeguards an infringement of the rights of the owner of a copyright, both under the old Act or under the new Law. As stated, the fundamental principle is that anything that the law has not included within the scope of copyright is not included among the protected rights. Therefore, the argument that the very selling of cards enabling the circumvention of technological measures constitutes an indirect infringement of Charlton’s copyright cannot be accepted.

 

“Contributory” Infringement: The Supreme Court has recognized that an act contributing to an infringement can impose liability for infringement upon the “contributor”. The Court’s judgment in CA 5977/07 in the matter of The Hebrew University established the following conditions for such a contributory breach: a breach by a third-party; actual concrete knowledge of the breach; and a significant, substantial contribution to its perpetration. It was further stated that “the mere existence of protection does not negate the existence of the breach. Protection prevents the user from bearing responsibility, but does not eradicate the breach.” In addition, it was stated obiter dicta in the Premier League case: “Where a ‘permitted’ use is concerned, there is, indeed, no infringement according to the Law. But that does not suffice to eradicate the fact that, in substance, there is an infringement of the copyright, even if such infringement be permitted for various reasons. This is the case primarily where the combined effect of many protected infringements causes significant harm to the copyright holder. As has already been held, in such circumstances there is nothing to prevent us from recognizing the contributory responsibility of the intermediary that caused the infringement.” The judgment further explains that such permitted uses constitute defenses that the Act chose to grant to users, but do not grant a positive right of infringement.

 

In this regard, Zylbertal, J. added the additional observation that, in his view, the correct interpretation of “permitted use” is that it concerns a substantive finding rather than a technical defense.  A “permitted use” is precisely what it says, i.e., permitted use that, therefore, does not constitute a “protected” breach, and indeed, is not a breach at all. Where there is no breach, there is nothing to which one might “contribute”. Thus, when end users do something that is permissible, the intermediary “contributes” to a permitted act, and cannot be said to breach a copyright holder’s rights that have not been infringed. Zylbertal, J. added that even were we to take the view that permitted use creates a defense, the contributory “infringer” would be protected a fortiori in cases of a “protected infringement”. In any case, he emphasized that his approach would not entirely abolish the contributory-infringement doctrine. That doctrine continues to operate in Israeli law, and it is right and proper that it do so in appropriate cases.

 

In the instant case, having found that there was no direct infringement, there is no need to examine whether the other conditions of a contributory infringement were met, and it must be held that Telran did not commit a “contributory infringement” of Charlton’s rights.

 

Therefore, selling a card that serves as a means for technological “circumvention” does not constitute an “infringement” by Telran of Charlton’s copyright under the Copyright Act.

 

However, it is possible that by those actions, Telran enriched itself at Charlton’s expense. This issue was not considered by the District Court (which found an infringement of copyright, and therefore, was not required to address the head of unjust enrichment), nor was it addressed in the instant case. Therefore, the case was remanded to the District Court so that it might rule upon the cause of action of unjust enrichment, as well as the issue of damages in regard to that cause of action.

 

E. Rubenstein, J. concurred, but added that while the result was legally correct, it was not the desirable result. Its import is that the sinner is rewarded. Rubenstein, J. called upon the legislature, reminding it that it is the legislature’s job to prevent injustice in a changing world in which technological advances are a daily occurrence. He further referred, inter alia, to Jewish law in the matter.

 

Amit, J. concurred that the result was legally correct, but it raised a sense of discomfort. He conjectured, obiter dicta, that it might be possible to include the sale of decryption cards within the definition of the Act by construing “perform” and “public performance” as including making the work available to the public.

Voting Justices: 
Primary Author
majority opinion
Author
concurrence
Author
concurrence
Full text of the opinion: 

The Supreme Court sitting as Court of Civil Appeals

 

  CA 5097/11 

And Cross Appeal

 

Before:                                    The Hon. Justice E. Rubenstein

                                    The Hon. Justice Y. Amit

                                    The Hon. Justice Z. Zylbertal

 

The Petitioner and Cross-Respondent:                       Telran Communications (1986) Ltd.

v.

The Respondent and Cross-Petitioner:                       Charlton Ltd.

 

Formal Respondents:                                                  1. Shabtai Giron

                                                                                    2. Erez Ben Zion

                                                                                    3. Shaul Aslan

                                                                                    4. Fédération Internationale de Football

                                                                                        Association (FIFA)

 

Appeal of the judgment of the Tel Aviv District Court in CC 1094/07, decided on May 19, 2011, per Deputy President Drora Pilpel.

 Hearing date:                                                             27 Sivan 5773 (May 6, 2013)

Attorneys for the Petitioner:                                       Dr. Gilad Wekselman, Adv., Eli Shimon,

                                                                                    Adv.  Racheli Pery-Reichman, Adv.

 

Attorneys for the Respondent:                                   Lior Lahav, Adv. Dan Wistrich, Adv.,

Meiran Eliahu-Fort, Adv.

 

 

 

Facts:   The Respondent and Cross-Petitioner (hereinafter: Charlton) acquired the exclusive right to broadcast the summer 2006 FIFA World Cup in the State of Israel. The Petitioner and Cross-Respondent (hereinafter: Telran) sold decryption cards (hereinafter: cards) that enabled the dycription of encrypted satellite broadcasts of foreign broadcast networks. The foreign networks broadcasted the World Cup games by encrypted satellite broadcast. The broadcasts could be received and watched in Israel only by means of the cards. The Tel Aviv District Court held that Telran had infringed (indirectly) Charlton’s copyright, and ordered that it pay Charlton damages in the amount of NIS 1,250,000. It should be noted that the Copyright Act of 1911 (hereinafter: the Act or the Copyright Act) is the relevant normative framework in this matter, inasmuch as the alleged breaches occurred prior to the entry into force of the Copyright Law, 5768-2007 (hereinafter: the Law).

Held:   The Supreme Court (per Z. Zylbertal, J., E. Rubenstein and Y. Amit, JJ. concurring) granted the appeal, in part, for the following reasons:

            Intellectual property rights in general, and copyright in particular, are the result of a complex balancing of the various interests in the background of the legal regime established by the legislature. Therefore, the scope of copyright extends only to the boundaries delineated by law.

            The Act distinguishes between a direct infringement (sec. 2 (1) of the Act) and an indirect infringement (sec. 2 (2) of the Act).

            “Direct” Infringement: A copyright grants the owner of the right exclusivity in regard to certain acts in regard to the work. Performing one of those act reserved to the owner of the copyright by the Act, without its permission, constitutes a “direct” infringement of the right. Naturally, the Act did not treat of use of a work by means of broadcasting, and therefore, in order to adapt the Act to a changing technological reality, the term “public performance” in the Act has been interpreted to include broadcasting. In accordance with the case law, a broadcast requires the transmission of sounds or images, or their combination, from one instrument that sends the sounds or images. To another instrument that receives and plays or presents the sounds and images to the public. Inasmuch as the card sold by Telran does not “transmit” or “distribute” the World Cup broadcasts – but, as noted, merely enables the decrypting of signals broadcasted by another body – the distribution of the card does not fall within the definition of a broadcast or a secondary transmission. Therefore, Telran did not perform an act reserved to the copyright owner – it did not broadcast the World Cup games (but only provided the cards that make it possible to watch them). Therefore, its conduct did not fall within the ambit of sec. 2 (1), and Telran cannot be held to have “directly” infringed the copyright of Charlton.

            “Indirect” Infringement: An indirect infringement is the knowing performance of a prohibited act with an infringing copy. In order to establish that there has been an indirect infringement, there must be a direct infringement by a third-party. Three conditions must be met in order to show an indirect infringement: the existence of an infringing copy, the performance of one of the acts enumerated in the section, and that the indirectly infringing party knew, or should have known that the rights to the work belonged to another. In the instant case, the act performed by Telran was the providing of a means for “cricumventing” a “technological fence”. Such an act does not constitute indirect infringement, inasmuch as no exclusive right of Charlton was infringed by a third-party (the foreign broadcasters did not unlawfully broadcast the games to Israel, and as for the viewers, the act of viewing protected content is not one of the acts reserved to the copyright owner under the Act).

            “Circumventing” Technological Measures: No legislative provision has been adopted in Israel that would make the evasion of technological safeguards an infringement of the rights of the owner of a copyright, both under the old Act or under the new Law. As stated, the fundamental principle is that anything that the law has not included within the scope of copyright is not included among the protected rights. Therefore, the argument that the very selling of cards enabling the circumvention of technological measures constitutes an indirect infringement of Charlton’s copyright cannot be accepted.

            “Contributory” Infringement: The Supreme Court has recognized that an act contributing to an infringement can impose liability for infringement upon the “contributor”. The Court’s judgment in CA 5977/07 in the matter of The Hebrew University established the following conditions for such a contributory breach: a breach by a third-party; actual concrete knowledge of the breach; and a significant, substantial contribution to its perpetration. It was further stated that “the mere existence of protection does not negate the existence of the breach. Protection prevents the user from bearing responsibility, but does not eradicate the breach.” In addition, it was stated obiter dicta in the Premier League case: “Where a ‘permitted’ use is concerned, there is, indeed, no infringement according to the Law. But that does not suffice to eradicate the fact that, in substance, there is an infringement of the copyright, even if such infringement be permitted for various reasons. This is the case primarily where the combined effect of many protected infringements causes significant harm to the copyright holder. As has already been held, in such circumstances there is nothing to prevent us from recognizing the contributory responsibility of the intermediary that caused the infringement.” The judgment further explains that such permitted uses constitute defenses that the Act chose to grant to users, but do not grant a positive right of infringement.

            In this regard, Zylbertal, J. added the additional observation that, in his view, the correct interpretation of “permitted use” is that it concerns a substantive finding rather than a technical defense.  A “permitted use” is precisely what it says, i.e., permitted use that, therefore, does not constitute a “protected” breach, and indeed, is not a breach at all. Where there is no breach, there is nothing to which one might “contribute”. Thus, when end users do something that is permissible, the intermediary “contributes” to a permitted act, and cannot be said to breach a copyright holder’s rights that have not been infringed. Zylbertal, J. added that even were we to take the view that permitted use creates a defense, the contributory “infringer” would be protected a fortiori in cases of a “protected infringement”. In any case, he emphasized that his approach would not entirely abolish the contributory-infringement doctrine. That doctrine continues to operate in Israeli law, and it is right and proper that it do so in appropriate cases.

            In the instant case, having found that there was no direct infringement, there is no need to examine whether the other conditions of a contributory infringement were met, and it must be held that Telran did not commit a “contributory infringement” of Charlton’s rights.

            Therefore, selling a card that serves as a means for technological “circumvention” does not constitute an “infringement” by Telran of Charlton’s copyright under the Copyright Act.

            However, it is possible that by those actions, Telran enriched itself at Charlton’s expense. This issue was not considered by the District Court (which found an infringement of copyright, and therefore, was not required to address the head of unjust enrichment), nor was it addressed in the instant case. Therefore, the case was remanded to the District Court so that it might rule upon the cause of action of unjust enrichment, as well as the issue of damages in regard to that cause of action.

            E. Rubenstein, J. concurred, but added that while the result was legally correct, it was not the desirable result. Its import is that the sinner is rewarded. Rubenstein, J. called upon the legislature, reminding it that it is the legislature’s job to prevent injustice in a changing world in which technological advances are a daily occurrence. He further referred, inter alia, to Jewish law in the matter.

            Amit, J. concurred that the result was legally correct, but it raised a sense of discomfort. He conjectured, obiter dicta, that it might be possible to include the sale of decryption cards within the definition of the Act by construing “perform” and “public performance” as including making the work available to the public.

 

Judgment

Justice Z. Zylbertal:

1.         A company sold its customers a card that enables the decryption of encrypted satellite transmissions broadcast by foreign networks. The foreign networks transmitted encrypted television broadcasts for which another company holds exclusive copyright in Israel. Did the seller of the decryption cards infringe the copyright of the Israeli copyright holder? That is the primary question before this Court in the appeal and cross-appeal of the judgment of the Tel Aviv District Court from May 19, 2011 (per Deputy President D. Pilpel) in CA 1094/11 (hereinafter: the Judgment), which held that the Petitioner and Cross-Respondent infringed the copyright of the Respondent and Cross-Petitioner.

Background

2.         In the summer of 2006, the 18th World Cup football tournament was held in Germany (hereinafter: the Mondial). The tournament was organized by Formal Respondent 4, the Fédération Internationale de Football Association (hereinafter: FIFA). FIFA owns the international broadcasting rights to the Mondial. The Respondent and Cross-Petitioner Charlton Ltd. (hereinafter: Charlton) purchased the exclusive rights to broadcast the Mondial in the territory of the State of Israel. As stated in the complaint, Charlton discovered that a company named Tube Ltd. (hereinafter: Tube) was publically broadcasting the Mondial games. In response to Charlton’s enquiry, Tube explained that it had purchased a subscription to view the Mondial on a South African network called MNET (hereinafter: MNET) via satellite. The subscription was purchased by means of the Petitioner and Cross-Respondent Telran Communications (1968) Ltd. (hereinafter: Telran) – a private company registered in Israel, which, inter alia, imports, markets and sells communications media – that provided Tube an encoded card that enabled the decryption and viewing of MNET broadcasts. According to Charlton, it discovered that Telran sold and distributed encoded cards (hereinafter: the cards) that made it possible to decrypt encrypted satellite transmissions of foreign broadcasters, among them MNET and another satellite network, ART that (apparently) broadcasts from Jordan (hereinafter: ART, and all together: the foreign networks). The foreign networks transmitted the Mondial games by means of encrypted satellite broadcasts that could be viewed in Israel only by means of the cards. In light of these findings, Charlton brought suit in the District Court.

3.         In its complaint, Charlton claimed that the use of the cards is prohibited in Israel, and that their sale constitutes an infringement of its copyright in regard to broadcasts of the Mondial games in Israel, which are protected broadcasts under the Copyright Act 1911 (hereinafter: the old Act or the Act or the Copyright Act). It was further claimed that Telran had sold at least 7,500 cards at a price of NIS 500 apiece. As a result, Telran and Formal Respondents 1-3, who are Telran directors and stockholders, were unjustly enriched in a total amount of NIS 3,750,000. It was added that in the framework of Charlton’s enquiries into the activities of Telran and their scope, a meeting was held in Charlton’s offices on May 12, 2006 between one of Charlton’s directors, Mr. Alex Weinstein (hereinafter: Weinstein) and a representative of Telran, Mr. Shai Aslan (hereinafter: Aslan), who is the son of Formal Respondent 3. Weinstein recorded the conversation. A transcription of the conversation (hereinafter: the transcript) was appended to Weinstein’s affidavit (Appendix C1 to Exhibit P/1). According to Charlton, Aslan admitted to Telran’s infringing conduct and to the scope of the profits garnered as a result of that infringing conduct.

            In its brief, Charlton claimed a direct infringement of its copyright, or alternatively, a contributory infringement of its copyright (we will address the meaning of these terms, as well as the term “indirect infringement”, below). Direct Infringement: It is claimed that the very distribution of the cards that enable decoding of the satellite signals of the foreign networks constitutes a direct infringement of the copyright, under sec. 2 (2) of the old Act. It was emphasized that the foreign networks that did not have broadcasting rights in Israel and that did not distribute cards for viewing their transmissions (as Telran failed to produce any agreement with any of the relevant networks), encrypted their transmissions such that they could not be viewed in Israel, which prevented infringement of Charlton’s copyright. Telran distributed the encrypted cards, and thereby infringed Charlton’s copyright. Contributory Infringement: It is claimed that this is recognized in Israeli law, which has established that providing infrastructure for perpetrating an infringement creates liability, even if the infringement itself is committed by others. It was emphasized that it was Telran that facilitated the infringing conduct – viewing of “blocked” channels that cannot be viewed in Israel without the cards – by supplying the cards. We would note that, in its brief, Charlton changed the basis of its calculation of damages, and claimed that Telran sold 5,000 cards at a profit of NIS 500 per card, for a total of NIS 2,500,000.

4.         In response, Telran argued that the cards were purchased from the official representatives of the foreign networks, which broadcast lawfully, and that we are concerned with a purely technological device that serves solely for the reception of broadcasts. Therefore, it argued that there was no infringement of copyright. It was further emphasized that Telran has no control over the content of the channels that can be received by means of the cards.  Telran claims that the cards were sold and distributed since 2003, without reference to the Mondial broadcasts, such that there was no connection between the sale of the cards and the Mondial. In addition, several preliminary arguments were advanced: It was argued that there was a lack of privity and a failure to state a cause of action, in that Charlton did not produce the full chain of agreements that would show how it obtained the copyright from the original copyright owner – FIFA; laches – in that the action was instituted four years after Telran began marketing, and a year and a half after selling the subscription to Tube; as well as that the suit was not brought in good faith, and was vexatious – as the recording of the conversation between Aslan and Weinstein was the product of a misrepresentation of its purpose as a business meeting – and that the sole purpose of the suit is to extort monies from Telran.

             In its brief, Telran claimed that it was not proved that the Mondial games were broadcast over the foreign networks, that it was not proved that Charlton owned the Israeli broadcasting rights, and that in any case, it did not hold exclusive rights for broadcasts in Arabic (it would appear from the recorded conversation with Aslan that the buyers of the cards were primarily Arabic speakers). It was further claimed that the cards only made it possible to view the broadcasts in Arabic, and that, as stated, Charlton did not hold exclusive rights over such broadcasts. It was emphasized that the contract under which Charlton purportedly acquired the Israeli broadcasting rights distinguished among Hebrew, English and Arabic, inasmuch as “FIFA knew” that representatives of the foreign networks were selling the cards such that it was possible to receive their broadcasts in Israel, and Charlton was intentionally not granted full broadcasting rights in Arabic. It was further claimed that, in fact, only 120 cards were sold, over the course of several years, and with no connection to the Mondial broadcasts, and that in 2006 – the year of the Mondial games in question – only 22 cards were sold. It was further emphasized that Charlton’s calculation was based upon the conversation between Weinstein and Aslan, but what was stated in that conversation was that there was a market potential of 5,000 cards, and not that such a number was actually sold.

5.         To complete the picture, it should be noted that on May 25, 2008, the Copyright Law, 5768-2007 (hereinafter: the new Law or the Law) entered into force, replacing the Copyright Act. Nevertheless, the old Copyright Act is the relevant normative framework in the instant case, as the claimed infringements occurred prior to the entry into force of the new Law.

The Judgment of the Trial Court

6.         These are the questions that were before the District Court: First, as a claim in limine,  the questions of laches or a lack of good faith in bringing suit; second, do the Mondial broadcasts constitute a work protected by copyright; third, does that copyright belong to Charlton; fourth, did Telran and its owners (Formal Respondents 1-3), or any of them, infringe Charlton’s copyright; fifth, can Telran rely upon the defenses established under the old Act; sixth, is Telran liable under the laws of unjust enrichment; seventh, what is the extent of damages.

            We will now proceed to examine the lower court’s holdings on each of these questions.

7.         (A)       In regard to the in limine claim of laches and an absence of good faith, the trial court held that the recording of Telran’s representative did not amount to a lack of good faith that would constitute an abuse of process or of the right of access to the courts. As for laches, the court found that the complaint had been filed about half a year after Charlton became aware of the sale of the cards by Telran, and held that such a period did not constitute laches that would justify dismissing the suit in limine.

            (B)       The trial court held that the Mondial broadcasts were, indeed, a protected work under copyright law. It held that sec. 1 of the Act establishes that copyright may apply to a “dramatic work”, and that in the Tele Event case (CFH 6407/01 Arutzei Zahav & Co. Ltd. v. Tele Event Ltd., 58 (6) IsrSC 6 (2004), hereinafter: the Tele Event case), this Court explicitly held that a live broadcast of a sporting event constitutes such a work.

            (C)       It was held that Charlton owned the copyright over the broadcasting of the Mondial games in Israel. The court reviewed the entire chain of the transfer of rights from the original copyright holder – FIFA – to Charlton. What is important in the instant case is Telran’s claim that Charlton did not adequately prove the transfer of rights. That claim was rejected by the trial court. The court held that although the original agreements among the various parties along the chain were not produced, but only copies thereof, there was no evidentiary basis whatsoever to ground a suspicion as to the veracity of the photocopies that were submitted, and that those copies, as well as additional evidence submitted (primarily letters from office holders in the various companies and testimony of representatives of Charlton), showed that Charlton held the copyright to the broadcasting of the Mondial in Israel on the relevant dates.

            (D)       The question of the infringement of the right by Telran and its owners was subdivided into a number of questions. First, did the rights purchased by Charlton include Arabic broadcasts in the territory of the State of Israel; second, did the very distribution of the cards constitute an infringement as defined by the Act; third, who perpetrated the infringement.

            (1)        As for the language question, the agreement between ISMM Investment AG (hereinafter: ISMM), which was the owner of the rights by virtue of a chain of agreements, and which is the relevant agreement for the instant question (hereinafter: the Agreement) delineated Charlton’s rights by means of two elements – geography and language. The Definitions paragraph of the Agreement established that Charlton held exclusive rights in the geographic area (Licensed Territory) of the State of Israel, and non-exclusive rights in the areas of Judea, Samaria and Gaza (hereinafter: the Area):

"Licensed Territory" means Israel on an exclusive basis and Palestine (Occupied Territory) on a non-exclusive basis.

            As for the language of the broadcasts, the Agreement established that Charlton had exclusive Hebrew broadcast rights in Israel and the Area; exclusive English broadcast rights in Israel, and non-exclusive English broadcast rights in the Area; and Arabic broadcast rights in Israel for cable television, terrestrial television and satellite television, provided that the satellite signals were fully encrypted as set forth elsewhere in the Agreement:

"Licensed Language" means:

(a) Hebrew in Israel and Palestine on an exclusive basis.

(b) English in Israel on an exclusive basis and in Palestine on a non-exclusive basis. (c) Arabic in Israel only for Cable Television, Terrestrial Television and Satellite Television provided that the signal is fully encrypted as contemplated by the agreement.

            The District Court held that the fact that the Agreement did not grant Charlton exclusive rights in Israel in regard to Arabic broadcasts did not negate the territorial exclusivity that it was granted in the territory of the State of Israel. In other words, Charlton also held exclusive Arabic broadcast rights to the extent that the broadcasts were made within the territory of the State of Israel.

            (2)        The second issue before the court in this regard was whether distributing and selling the cards constituted an infringement of Charlton’s rights. The court held that Charlton held the exclusive right to broadcast the Mondial, and the transmission of broadcasts for commercial purposes also constituted an infringement under sec. 2 (2) of the Act. The court ruled that, in accordance with the judgment in the Tele Event case, the prohibition upon infringing the copyright of the owner of a right to broadcast also applies to the transmission of the broadcasts of foreign networks. The court emphasized that the Tele Event case held that, as opposed to a private individual who acquires a “dish” for receiving satellite broadcasts, a commercial company that transmits broadcasts to its subscribers is involved in prohibited “commercial distribution”. The court explained that Telran sold cards, for a commercial purpose, which made it possible to decrypt the encrypted transmissions of the foreign networks, and that this was the only means by which such transmissions could be received. It was held that Telran knew that the Mondial games were broadcasted over the foreign networks, knew that the cards that it sold made it possible to view those games, and aimed “sale promotions” specifically at the period of the Mondial. It also knew that Charlton held the broadcasting rights to the Mondial. In view of the above, the trial court concluded that Telran had actively violated Charlton’s rights.

            (3)        The final issue addressed by the trial court was that of the identity of the infringing parties. Based upon the above, the court determined that Telran had, indeed, infringed Charlton’s copyright. However, in regard to Formal Respondents 1-3 (the owners of Telran), the court held that Charlton failed to meet the evidentiary burden required to show that any of them fulfilled the requisite elements required to attribute liability for an infringement of its rights. The court emphasized that establishing that a company committed a tort does not necessarily require a conclusion that the company’s organs or office holders bear personal liability, and that the court was under the impression that those defendants were sued solely on the basis of their positions as organs of Telran. This issue was not raised in Charlton’s notice of appeal.

            (E)       Telran argued that it enjoyed various legal defenses, viz., good faith in accordance with sec. 8 of the Act, and market overt under sec. 34 of the Sales Law, 5728-1968 (hereinafter: the Sales Law). The trial court ruled that Telran was not entitled to either of those defenses, as shall be explained.

            (1)        The Good Faith Defense: Section 8 of the Act establishes a defense that exempts the infringer from paying damages to the party whose rights were infringed if he prove that “he was not aware and had no reasonable ground for suspecting that copyright subsisted in the work”. Telran argued that it did not know that copyright applied to the cards it sold and/or to the broadcasts that could be received through them, and that, in any event, it could not have known what programs, if any, would be broadcast by the foreign networks. The trial court held that, in light of the above findings, according to which Telran knew that Charlton held exclusive rights, and that the foreign networks were broadcasting the Mondial games, the claim of good faith must be denied.

            (2) The Market Overt Defense: Section 34 of the Sales Law establishes that a buyer’s ownership of movable property sold by a person who carries on the sale of property of the kind of the object sold, when the sale was made in the ordinary course of his business, is free of any third-party right in the object sold, even if the seller is not entitled to transfer it, provided that the buyer bought it in good faith. The court held that Telran could not avail itself of this defense. Telran, the court emphasized, had not proven that it had purchased the cards from representatives of the foreign networks. Formal Respondent 3 testified before the court that he did not approach the official Israeli representatives of the foreign networks, and no documents were submitted to the court that showed a contractual relationship with any of the foreign networks or the purchase of cards from them. The court added that in CC (TA) 2469/02 Hasbro International, Inc. v Li-Dan Agencies Ltd. (April 8, 2008), it was held that market overt does not apply to an infringer of copyright, as in the contest between the Sales Law and the Copyright Law, the preferred and exclusive purpose favors the owner of the property rights. Applying the provisions of the Sales Law to the Copyright Law would eviscerate the Copyright Law.

            (F)       As for the cause of action for unjust enrichment, the court held that in light of the Tele Event rule, once it has been established that relief should be granted under the Copyright Law, there is no further need to address the question of relief under the head of unjust enrichment. Inasmuch as it had been established that Telran had infringed Charlton’s copyright, the trial court saw no need to rule upon the cause of action.

            (G)       The Amount of Damages – Pursuant to a court order, on July 30, 2009 and August 20, 2009, Telran deposited invoices related to the sale of the cards in the court’s safe. Those invoices could have shed light on the scope of the card sales. On December 28, 2010, Judge H. Brenner ordered that Charlton be permitted to examine the invoices, after the identities of the customers had been blackened out. Charlton did not examine the invoices, explaining that the order granting permission to do so was issued after the hearing of evidence in the case had concluded, and that under those circumstances, the court order was no longer operative. As earlier noted, Charlton based its calculation of damages on the transcript. Telran argued that Charlton had not submitted any evidence in support of the method for its calculation; that the invoices that were handed over to Charlton were returned within a few hours, with a message that it had no intention of examining them; and that Charlton had made no attempt to examine the invoices over the course of a year and a half, such that its claim that it did not have sufficient time prior to the conclusion of the evidentiary stage of the trial could not be accepted. On point, Telran argued that it had sold only 120 cards over a period of several years, without any connection to the Mondial, and that from the beginning of 2006 until August of that year, it had sold only 19 cards.

            The court ruled that the argument that the invoices were not evidence in the trial was unacceptable, as Charlton had sat on its hands for a year and a half, and took no steps to enquire whether or not the invoices had been deposited in accordance with the court’s order. However, the court ruled that the invoices could not be relied upon in determining the scope of card sales, inasmuch as, in its brief, Telran claimed to have sold 120 cards, whereas Aslan attested to the purchasing of 250 cards in his affidavit. In his testimony, Aslan testified that 250 was an overstatement, and that after reviewing the invoices, they discovered that fewer than 100 cards were involved. Unfortunately, it was found that Aslan had signed his affidavit on November 29, 2009, that is, some four months after the invoices were deposited in the court’s safe. In addition, in the recorded conversation, Aslan noted that 5000 cards were sold during the period of the Mondial. The court held that although, in the course of his testimony in court, Aslan stated that he had exaggerated in order to impress Charlton’s representative, in his affidavit he himself attests that he claimed that Telran had sold 5000 cards in the past.

            The court ruled that the plaintiff must prove the damage it incurred and the factual data upon which to base the scope of compensation. However, the burden of proof in regard to the extent of damage is not uniform in all circumstances, and it must be adapted to the objective difficulty in bringing credible, precise evidence as to the extent of damage. It was noted that according to the case law, when the court faces difficulty in quantifying damages, it may make an estimate in order to respond to concrete cases. In light of that, and given the diametrically opposed versions in regard to the amount of damages, the court ruled that the damages must be estimated. Taking all the data into account, the court found that 2,500 cards had been sold. The court found that the amount paid to the foreign networks, as well as the sum stated by Aslan in the transcript, was NIS 500. Therefore, the total damages were set at NIS 1,250,000 (2,500 cards times NIS 500 per card). In light of that, Telran was ordered to pay NIS 1,250,000 in damages to Charlton. In addition, Charlton was awarded NIS 70,000 for attorneys’ fees, and expenses as calculated by the registrar.

            An appeal and cross-appeal were filed against the Judgment, upon which we are called to rule.

The Appeal and the Cross-Appeal

8.         Telran bases its appeal on four primary footings: The nature of the card – regarding which Telran’s primary argument is that the card is merely a technical device that is no different, in the matter before us, than any other device that enables the viewing of broadcasts, just like a television itself. An absence of infringement – the main argument here is that there was no direct infringement, inasmuch as “distribution” is, at most, an indirect infringement; that there was no indirect infringement, inasmuch as its actions did not meet the required conditions, and in particular, the absence of a direct infringement by a third party; and that there was no contributory infringement due to Telran’s lack of knowledge, and due to the absence of a direct infringement.  Charlton’s lack of copyright – regarding which the argument is that Charlton did not have exclusive copyright in regard to Arabic broadcasts. And lastly, quantification of damages – where the main argument is that the scope of damage was not proved, and recourse should not have been made to an estimate, and that the trial court did not distinguish between loss of profit (which is the damage) and loss of income (which is not). More specifically:

            As for the card, it is asserted that it is nothing but a technical device, “raw” material, not unlike a television or antenna, whose sale is not an infringement. Telran, it was stressed, is not a “broadcaster” or “subsidiary transmitter”, like the satellite or cable companies, but a party that lawfully sold legitimate decrypting cards. Telran further explained that it cannot control broadcast content, or blackout screens. Telran did not encode the cards itself, but rather sold encoded cards to its customers. Telran asserted that holding it liable for infringing copyrights would place an absolutely unreasonable burden upon it and others like it, who would be deemed infringers every time that the foreign networks broadcast content over which some other actor holds exclusive Israeli copyright.

            In regard to the infringement, it was argued, first, that there was no direct infringement. It was argued that the District Court found that the infringement perpetrated was the distributing of the card. Such an infringement, it was contended, constitutes an indirect infringement under sec. 2 (2) of the Act. Telran emphasized in this regard that it did not perform any act of direct infringement, in that it did not do anything for which the exclusive right was granted by law to the copyright holder, as the act requires. Second, it was argued that there was also no indirect infringement, inasmuch as an indirect infringement requires the existence of an “infringing copy” of the protected work, which does not exist in the instant case. Additionally, another condition that is not met is the existence of an “infringing third party”, as neither the foreign networks, nor the viewers, or any other party, infringed Charlton’s rights. In other words, in order for there to be an indirect infringement, there must be a direct infringement, which is not the case in this matter. Third, it was argued that Charlton had not raised the issue of contributory infringement in the proceedings before the District Court, and that raising the issue before this Court constitutes an impermissible introduction of a new issue on appeal. On point, it was argued that a contributory infringement requires some active, direct infringement, which was, as stated, not committed. Telran emphasized that supplying a technical device that enables viewing protected content does not meet the requirements of the legal definition of infringement. It was further contended that an additional condition for contributory infringement is the existence of actual knowledge of the infringing conduct, which was also not present, in that the cards were sold before the Mondial games and unelated to them. Another condition that was not met was that of a real, significant contribution to the infringement, in that Telran sold cards in connection with the satellite broadcasts of the foreign networks that broadcast lawfully and were entitled to broadcast, and thus Telran did not contribute in any way to the receiving of Charlton’s broadcasts.

            In regard to the broadcast language, it was contended that the Agreement made a clear distinction between English and Hebrew as opposed to Arabic. It was asserted that holding that geographic incidence “outweighs” language incidence is illogical, inasmuch as once absolute geographic incidence is established, there is no further reason to address the issue of the broadcast language. Nevertheless, the Agreement chose to address it, and with reason. Therefore, the conclusion of the District Court was in error. Secondly, it was argued that the language provision constitutes an additional element to the territory provision. In other words, there is an exclusive right within the territory, but only in regard to those languages designated in the provision. It was emphasized that an interpretation that denies a right must be made in strict accordance with the language of the license.

            As for the method for calculating damages, first, it was argued that the amount of NIS 500 represented expected income, rather than expected profit. The harm to Charlton was of expected loss of profits, such that the calculation is not consistent with the District Court’s ruling, and Charlton did not meet the burden of proof in regard to the extent of profits. Telran argues that, for this reason alone, the appeal should be granted. It adds that the profits of the foreign networks, upon which the trial court relied, did not exceed NIS 300 per card. Second, Telran contended that Aslan’s statement in regard to the sale of 5,000 cards was taken out of context. It argued that Aslan presented this exaggerated figure in order to make an impression, and that no actual finding could be grounded upon it. Furthermore, there was real data in regard to the sale of the cards – Telran’s invoices that were deposited in the court’s safe. In this regard, it argued that the trial court’s ruling that the invoices were admissible as evidence was not consistent with its ruling that the number of cards sold should be estimated on the basis of this evidence and on the basis of Aslan’s statement. Telran emphasized that the cards sold were, for the most part, not sold for viewing the Mondial, but rather for viewing a broad package of channels. It was further argued in this regard that in speaking of 5,000 cards, Aslan was referring to the possible market potential for the cards, and not to the number of cards actually sold by Telran. Lastly, it was argued that in the instant case there were clear, empirical data that were grounded in admissible evidence (Telran’s invoices) in regard to the quantity of cards sold. Therefore, this case does not fall within the ambit of the exceptions in which damages are to be calculated by an estimate.

9.         In its response, Charlton agreed with the judgment of the trial court, except in regard to the extent of damages. Charlton’s primary argument is that distributing and selling the cards constitute an infringement of its rights. Telran’s actions, it argued, constitute both a direct infringement and a contributory infringement. As for the extent of damages, it argued that despite the unambiguous data in regard to the harm incurred by Charlton, the District Court showed unjustifiable consideration for Telran. We will present the arguments in order.

            In regard to the card, it is argued that the District Court made a factual finding that Telran failed to prove its claim that it purchased the cards from representatives of the foreign networks or obtained their permission to transmit their broadcasts in Israel, let alone that those broadcasts were encrypted by or with the permission of the representatives of the foreign networks. Additionally,  no evidence whatsoever was brought to show that marketing the cards was permitted. The card, it was argued, was not merely a “technical” device, but rather a device intended to enable prohibited broadcasting by “breaking” the encryption that prevented viewing without the card. It was emphasized that Aslan noted in the transcript that it was Telran that burned the encoding on the cards. That being the case, we are not concerned with some “inert” object like an antenna, but rather with a device actively encoded to permit the viewing of transmissions that the broadcaster sought to prevent from being received in Israel.

            In regard to its rights to the Mondial broadcasts, Charlton argued that the Mondial broadcasts constitute a copyright-protected work, and that it had proved the chain of transfer of rights that led the court to make a finding of fact that it held the Israeli rights. It was argued that that those rights were, first and foremost, exclusive territorial rights, such that any broadcast of the Mondial games in Israel was prohibited. It added that the rights holder on behalf of FIFA insisted that the broadcasts of the games be encrypted by every broadcaster of the games in order to enforce the territorial exclusivity.

            In regard to the nature of the infringement, it was argued that the infringement was direct and/or indirect and/or contributory. Direct Infringement: As in its argument before the District Court, Charlton asserted that the very distribution of the cards that enabled the decryption of the satellite signals of the foreign networks constituted a direct infringement of its copyright. It argued that the entire purpose of encryption was to prevent prohibited broadcasts, and that the sale and distribution of the cards that circumvented that encryption constituted a direct infringement, or at the very least, an indirect infringement. Contributory Infringement: In this matter, as well, Charlton reiterated its argument that contributory infringement has been recognized in Israeli law, and that Telran, knowing that Charlton held the copyright, enabled the “circumventing” of that right by selling and distributing the cards, which made a real contribution to (and, actually caused) the infringement. It emphasized that Telran was well aware that Charlton held the rights to broadcast the Mondial, and that Telran intensified its sales, and even embarked upon a marketing campaign for the Mondial period.

            In its cross-appeal, and also as part of its response to Telran’s appeal, Charlton raised various arguments in regard to the extent of damages. First, it argued that its losses should be calculated on the basis of the profit garnered by the infringer, i.e., Telran. That profit, it was claimed, was incorrectly calculated by the District Court, inasmuch as 5,000 cards were sold for the Mondial, as is shown by the transcript. Moreover, it is argued that according to Aslan’s affidavit, the amount received for each card was NIS 650, and in his cross examination, Aslan put the amount at NIS 700. Since Telran did not prove the price it paid for each card, the entire amount should be treated as profit. At the very least, it was argued, Telran should be held to have sold 5,000 cards at a price of NIS 500. Second, in regard to the invoices deposited in the court’s safe, Charlton argued that they were made available only after the conclusion of the evidentiary stage of the trial, and therefore the discovery order was of no operative effect, and in any event, they were not submitted in evidence in the case, and should not have been considered by the court. Charlton emphasized that Aslan admitted under cross examination that Telran’s accounting department knew how many cards were sold during the period of the Mondial, but that it was Telran that refrained from providing that information. It should, therefore, be held that the absence of a document that was in its possession shows that the document would have been detrimental to Telran. Third, Charlton argued that interest and linkage should have been calculated from the date of the infringement – i.e., the date of the broadcasts – rather than the date of the Judgment. Fourth, Charlton claimed that the award for legal fees was low – amounting to 5 percent of the judgment – and does not realistically reflect the legal fees.

Discussion and Decision

Did Charlton hold the Exclusive Right to Arabic Language Broadcasts in the Territory of the State of Israel?

10.       The primary questions that must be decided in this framework concern copyright laws and their ramifications for this case. Before addressing that matter, we should dispense with Telran’s argument that the Agreement did not grant Charlton the exclusive right to broadcast the Mondial in Arabic within the territory of the State of Israel. To the extent that broadcasting rights were not exclusively Charlton’s, it would seem that Telran did not infringe Charlton’s copyright. We will now examine this matter, in which I see no reason not to adopt the finding that Charlton proved the “chain of agreements” that originated with the original copyright holder (FIFA).

11.       As stated, the Agreement between Charlton and ISMM defined Charlton’s rights by means of two elements – geographic area and language. The Definitions section established that Charlton enjoyed exclusive broadcasting rights in the geographic area of the State of Israel:

"Licensed Territory" means Israel on an exclusive basis and Palestine (Occupied Territory) on a non-exclusive basis"

            In regard to the Arabic language, the Definitions section stated:

"Licensed Language" means:

Arabic in Israel only for Cable Television, Terrestrial Television and Satellite Television provided that the signal is fully encrypted as contemplated by the agreement.

            Reading the two definitions (the language provision and the geographical incidence provision) indeed raises a question as to whether the language provision restricts the exclusivity granted under the geographical incidence provision. The trial court held that the exclusivity granted in the geographical incidence povision takes precedence, and that the language provision does not derogate therefrom. The court addressed, inter alia, the logic of the matter. No franchisee, including Charlton, that purchases broadcasting rights would invest substantial resources unless it held an exclusive license, for otherwise what purpose would be served by purchasing the license. The trial court also deemed this to be consistent with the language of the Agreement and the intention of the parties thereto.

12.       Indeed, reading the language and geographical incidence provisions in the Definitions section divorced from the operative provisions of the Agreement raises the question whether the language provision is intended to detract from the exclusivity granted in the geographical incidence provision, as Telran asserts, or whether it is not intended to detract therefrom, as Charlton asserts. However, inserting the definitions into the operative provisions of the agreement shows that the language provision is not intended to derogate from the geographical exclusivity granted to Charlton. Thus, for example, sec. 2.1 (a) of the Agreement, which is similar in language and substance to the other operative provisions of the Agreement, establishes in regard to the right acquired by Charlton (with the above definitions in regard to the language and area of the license incorporated in square brackets):

"The exclusive license to make four (4) telecasts of the basic Feed and supplementary Feed (if any) in [Israel on an exclusive basis] in [Arabic in Israel only for Cable Television, Terrestrial Television and Satellite Television provided that the signal is fully encrypted as contemplated by the agreement] during that period"

            The above clearly demonstrates that the language provision of the Definitions section was intended to clarify the modes of transmission that Charlton was permitted to use in broadcasting the games in Arabic in the geographical area over which it was granted exclusive broadcasting rights. It is not intended to limit or deny the geographical exclusivity, but rather to clarify contractually between Charlton and ISMM what broadcasting media were permitted to Charlton for its Arabic broadcasts (bearing in mind that other broadcasting media were permitted for Hebrew and English broadcasts). In other words, the Agreement states that Charlton, and only Charlton, has the right to broadcast the games in Israel, and further clarifies that Charlton’s Arabic broadcasts are limited to cable television and satellite television broadcasts (provided that the signal is encrypted), and terrestrial television. Therefore, Telran’s arguments in this regard must be dismissed, and the conclusion of the District Court in regard to the interpretation of the agreement is affirmed.

Did Telran infringe the Copyright to the Mondial Broadcasts?

13.       Intellectual property rights in general, and copyright in particular, are the result of a complex balancing of the various interests that form the background of the legal regime that the legislature chose to establish: the public interest in encouraging creativity, as well as access to it; the interest of the creator in monetary reward for his creation, as well as recognition and appreciation for it; the interest of future creators and various users in an appropriate “creative operating space”, etc. (CA 513/89 Interlego A/S v. Exin-Line Bros. S.A., 48 (4) IsrSC 133, 163-164 (1994); Explanatory Notes to the Copyright Law Bill, 5765-2005, H.H. Government 196). This requires the delicate, complex balancing of sometimes-conflicting public needs and worldviews. Therefore, copyright extends only as far as the limits defined by law. The legislature made a positive choice to include certain rights, and a positive choice to exclude others in the course of that balancing. Over-extending copyright comprises a serious potential for upsetting the balance established by the Act, as does restricting copyright. This fundamental understanding of copyright law should guide us in examining issues concerning the scope of copyright protection. We must further bear in mind that daily technological advances often present a complex challenge in identifying those limits and preserving that balance. This is all the more so when we are confronted with a “new” issue that we must address with an “old” tool – the Copyright Act, which was drafted over a hundred years ago in an entirely different technological reality. It is with this basic understanding that we embark upon the examination of whether Telran infringed Charlton’s copyright.

“Direct Infringement”

14.       A copyright grants the copyright holder the exclusive right to perform certain acts in regard to a work. These acts are set out in sec. 1 of the old Act (and in sec. 11 of the new Law). Performing any of those acts reserved by law to the copyright holder, without its permission, constitutes a “direct” infringement of the copyright, as provided in sec. 2 (1) of the Act. “Direct” infringement does not require a mental element of the infringer, but treats solely of the question whether one of the acts listed as exclusive to the copyright holder was performed (CA 1007/10 Cohen v. Medina, para. 7 (Feb. 17, 2013), hereinafter: the Cohen case). According to Charlton, Telran directly infringed its copyright. We will now examine that claim.

15.       Naturally, the old Act did not refer to the use of a work by means of broadcasting, and in order to adapt it to changing technological realities, the term “public performance” in the Act has been interpreted to include broadcasting (Tamir Afori, The Copyright Law 167 (2012) (Hebrew), hereinafter: Tamir Afori). It was held in the Tele Event case that the live television broadcasting of a tournament was, as a rule, reserved to the copyright holder (ibid., at p. 22, and see: Guy Pesach, “Broadcasting Rights – Incarnations of the Soap Dispenser [Ruling on] A.S.I.R. and Its Influence on the Communications Market”, 10 Hamishpat 131 (2005) (Hebrew)). Therefore, broadcasting the Mondial games in Israel was a “direct” infringement of Charlton’s copyright. But what is “broadcasting”?

16.       Section 1 of the Performers’ and Broadcasters’ Rights Law, 5744-1984, defines “broadcast” as follows:

Transmission or distribution to the public—by wire, wireless or any other means—of sounds and images or of a combination of sounds and images.

            It should be noted that sec. 14 of the new law includes a similar, if somewhat narrower definition (see: Tony Greenman, Copyright 238 (2nd ed., 2008) (Hebrew) (hereinafter: Greenman)). For our purposes, this is of no practical significance. In CA 9138/09 The Football Association Premier League Limited v. Anonymous (May 13, 2012) (hereinafter: the Premier League case) it was held that “broadcast can be effected by various means, and broadcast is not contingent or limited, in substance, by the technological means for its transmission” (ibid., para. 14, emphasis added). The important words in our context are “transmission or distribution”. In order for a broadcast to made, there must be a transmission of sounds or images or their combination. In CA (TA) 149/94 Israeli Actors’ Pension Fund v. Paltiel, 5755 (3) IsrDC 151 (1995), the Tel Aviv District Court also addressed this matter, holding:

“Such transmission can be by technical, electronic or other means that science has developed or will develop, as long as there be transmission from one instrument, from which the sounds or images are transmitted, to another instrument that receives them and plays or displays the images and the sounds to the public” (ibid., emphasis added).

            We must examine whether the card that Telran sold “transmits” or “distributes” the Mondial broadcasts. In examining this matter, we should bear in mind that “the Law intends, in general, to adapt itself to modern means of transmission, and not to exclude precisely those advanced technological means” (the Premier League case, para. 14).

17.       The trial court held that the act performed by Telran was the commercial sale of cards that enabled the decryption of the encrypted broadcast. According to this holding, Telran did not “transmit” or “distribute” the broadcast. It indeed “distributes” a card that makes it possible to decrypt what another party broadcasts – the foreign networks – but that action cannot be interpreted as constituting “broadcasting” (or secondary transmission) within the confines established by law. We would note that Charlton agrees with that finding, and does not contend, so it would appear, that the very selling of the encoded card constitutes “broadcasting”, but rather that it enables the reception of the broadcasts of the foreign networks. According to Charlton, Telran created a platform for viewing the broadcasts. “Viewing protected content without a license” (by the end user – the viewers), it argues, constitutes an infringement (para. 37 of Charlton’s brief). In other words, even according to Charlton, the act performed by Telran is, essentially, the providing of a platform for (a purported) infringement by another. From the above, it appears that Telran did not perform an act that is reserved to the copyright holder – it did not broadcast the Mondial games (but rather provided the cards that made it possible to watch them). That being the case, its acts do not fall within the compass of sec. 2 (1), and it cannot be held to have performed a “direct” infringement of Charlton’s copyright. It would seem that this was also the opinion of the District Court in grounding its finding that Telran infringed Charlton’s rights upon sec. 2 (2) of the Act, which, as we shall immediately explain, treats of “indirect” infringement of the copyright.

“Indirect” Infringement

18.       Alongside “direct” infringement, sec. 2 (2) of the Act (now, sec. 48 of the Law) also recognizes “indirect” infringement – situations in which a particular act is performed that is related to a direct infringement, such as: renting, distributing or selling an infringing copy. Imposing liability for “indirect” infringement, as well, constitutes an additional ring of protection for the interests of the copyright holder, and its purpose is to widen the ambit of liability for the infringement of copyrights (see: the Cohen case, at para 7; Orit Fischman Afori, "Contributory Infringement in Israeli Copyright Law", 52 Hapraklit 3, 6-9 (2012) (Hebrew) (hereinafter: Fischman Afori)). The logic is clear: in order to enable effective enforcement of copyrights, the copyright holder must be able to prevent commerce in infringing copies, even when acting directly against the direct infringer is not relevant. Similar provisions can be found in other areas of intellectual property law. Thus, for example’ in design law (sec. 37 (1) (b) of the Patents and Designs Ordinance), trademarks (sec. 3 of the Trade Marks Ordinance), and patents (sec. 1 of the Patent Law, 5727-1967, although it should be noted that this law classifies the act as a “direct” infringement; and see: Fischman Afori, at p. 7). The Act thus distinguishes the commission of a direct act of infringement (subsec. (1)) from the commission of an indirect act of infringement (subsec. (2)). This Court has also recognized an act that contributes to an infringement as imposing liability for copyright infringement upon the “contributor” (CA 5977/07 Hebrew University of Jerusalem v. Schocken Publishing House Ltd. (June 20, 2011), hereinafter: the Hebrew University case; the Premier League case). We will treat more fully of contributing to an infringement (hereinafter: contributory infringement) below. An indirect infringement is the knowing commission of a prohibited act with an infringing copy (the Cohen case, para. 7). In other words, the commission of an indirect infringement requires that three conditions be met: the existence of an infringing copy, and the commission of one of the prohibited acts listed in the section, while the indirect infringer knew or should have known that the rights to the work belonged to another. We will now proceed to examine whether the actions of Telran met these conditions.

19.       The first condition that must be examined is whether there was a “direct” infringement by a third party. Only if the answer proves positive can we proceed to consider whether Telran performed an act with an “infringing copy” (created by the direct infringer), and whether it knew or should have known that the copyright belonged to Charlton. The act reserved to the copyright holder, Charlton, was the broadcasting of the Mondial in Israel. The act performed by Telran was the sale of the cards. The foreign networks broadcasted the Mondial games (for the sake of this examination, we will assume that the broadcast was lawful, although it is not clear whether this question is of consequence for the present examination, and in any case, Charlton does not claim that the foreign networks’ encrypted satellite broadcasts were unlawful). Those broadcasts were carried out by transmitting encrypted satellite signals. Those encrypted signals could also be received in Israel, but could not be decrypted without the card. Encrypting signals is, in effect, a “technological means of protection” by which the foreign networks sought to prevent unlicensed viewing of their broadcasts. As we have seen, such means of technological “protection” or “hedging” were required by the original holder of the copyright for the Mondial (at least from Charlton, although we may assume that this was required of every Mondial broadcast licensee). Telran’s customers watched the Mondial games that were broadcast by the foreign networks, but only thanks to the card that made decryption possible.

            What have we learned so far? The foreign networks did not “broadcast” the Mondial games to Israel unlawfully, inasmuch as lawfully transmitting encrypted signals that cannot be received without a “decrypter” is, for this purpose (and in this specific regard), like not transmitting to Israel. Even Charlton did not claim that the foreign networks performed an act reserved to it. Telrad’s customers watched the games, but did not broadcast them, and did not use them in the performance of any act reserved to the copyright holder. Although Charlton claimed that “watching protected content without a license is, of course, an infringement of copyright” (para. 37 of its brief), that claim is incorrect. Viewing protected content is not one of the acts that the Act reserves to the copyright holder, it does not require a license under the act, and doing it does not infringe the Act. Therefore, in the instant case, we cannot say that the viewers committed a direct infringement. Therefore, we have not found any infringement by a third party. In such a case, in the absence of any direct infringement by a third party, there can be no indirect infringement within the meaning of the Act, because, as explained above, finding that there was an indirect infringement is contingent upon there being a direct infringement. In light of the above, it would seem to me that we must rule that Telran did not indirectly infringe Charlton’s copyright.

“Circumventing” Technological Measures

20.       What Telran did was to supply a means for “circumventing” a “technological hedge”. Such an act, we have learned, does not constitute an indirect infringement, inasmuch as no right exclusively reserved to Charlton was infringed by a third party. However, Charlton argues that that is not sufficient, in that the act of supplying a device that enables an end user to “circumvent” the technological hedge is, itself, an infringement of copyright. We will examine that argument.

21.       The age of information technology has revolutionized the way copyrighted works are preserved. It is no longer necessary to obtain a hard copy in order to read a book. It can be “downloaded” by touching a button on a portable technological device. To hear music or watch a performance, only a keystroke is required, etc. This technology, for all its blessings, has made it very easy to infringe a copyright holder’s rights. Digital copying devices were not slow to follow. In order to protect their works, copyright holders developed technological measures, essentially “technological fences” or “technological locks”, that permit access only to those who hold a key, and thus prevent infringement of copyrights or of user licenses (see: Niva Elkin-Koren, “Self-Regulation of Copyrights in the Information Age”, 2 Aley Mishpat 319, 332 (5762) (Hebrew), hereinafter: Elkin-Koren;  Anne Barron, “Copyright Infringement, 'Free-Riding' and the Lifeworld”, in Copyright and Piracy: An Interdisciplinary Critique 93, 98 (Lionel Bently, Jennifer Davis & Jane Ginsburg, eds., 2010) hereinafter: Barron). Thus, for example, it is possible to distribute a work in a format that permits only a single viewing or reading, music discs that prevent copying the files to a computer, encrypted satellite signals that can only be decrypted by means of an encoded card, and so forth. Such technological measures constitute “self-regulation” in a double sense – they make it possible to enforce lawful copyrights, and they make it possible to enforce contractual agreements that, at times, are not part of the law (for example, although the law may permit certain uses, technological measures may prevent such uses). However, the introduction of technological measures saw the almost simultaneous development of “cracking” technologies intended to circumvent them (like the “anti-eraser” of the seventies of the last century, which was intended to overcome the “erasure” of color from Israeli public television broadcasts, and restore the color to the television of the end user).  In response to the technological “locks” came technological “keys” that could “pick the locks” without the owner’s permission. Such codebreaking methods have the potential of rendering defenses worthless, and return creators to square one – “classic” defense through the law, without self-regulation by technological means. The question before us is, as stated, whether such technological measures are protected by copyright law.

22.       To illustrate the point, let us imagine a situation of a person who writes a book in invisible ink. What is written is not visible to the naked eye, but can be read by wearing “miracle glasses”. For the sake of this illustration, let us say that a person who purchases the book is under no contractual obligation to the author to refrain from purchasing a pair of “miracle glasses” from a third party, and the relationship between author and buyer is solely governed by copyright law. A third party then sells a pair of “miracle glasses” that he manufactured to the buyer (who, we presume, purchased the book lawfully). The sole purpose of the glasses is to make it possible to read the book. The question is, can the seller of the glasses be accused of an indirect infringement of the author’s copyright?

23.       Under Article 11 of the World Intellectual Property Organization Copyright Treaty, 1996, the parties to the Treaty are required to prohibit the circumvention of technological measures. The Treaty was not ratified by Israel (which signed it in 1997). Pursuant to the Treaty, various countries made legal arrangements making the circumvention of technological measures an infringement of copyright. The Directive of the European Parliament and the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society required that the member states provide legal protection against the circumvention of technological measures. Accordingly, the European states introduced legislation prohibiting technological circumvention, and that defines the related acts as infringements. For example, the British Copyright, Designs and Patents Act, 1988, was amended in 2003, adding sections 296ZA-ZF that make it possible to act against anyone who provides any service intended to circumvent technological measures, and defines such conduct as an offense. We would also note that sec. 298 of that law (added in 1991) specifically prohibits acts that enable access to protected transmissions without the permission of the copyright holder. In 1998, the United States enacted the Digital Millennium Copyright Act. Section 1201 (1) (a) provides:

No person shall circumvent a technological measure that effectively controls access to a work protected under this title.

            In addition, the above law comprises various provisions that prohibit the manufacture of devices intended to circumvent technological measures. These provisions broadened the scope of copyright beyond the primary cluster of rights in terms of adding a “right” to control access to the work; in making it possible to protect aspects that are not generally protected by copyright, such as data, and in preventing access to uses that the law – in balancing the various interests – intentionally left in the public domain (Elkin-Koren, at pp. 335-336; and see: Barron, at p. 117, who even suggests viewing certain “infringements” as desirable and worthy of support). It should be noted that the relevant legal arrangements included under the rubric of copyright do not treat of conduct that infringes the acts reserved to the copyright holder, but rather “infringement” of the protection of copyright. The legal literature therefore tends to refer to the rights that they confer as “digital rights” or “para-copyrights”; Barron, at p. 98). If we return to the example we provided above, then we would say that the countries that adopted this legal arrangement chose to prohibit not only acts involving the work itself, in regard to the book written in invisible ink (such as copying, reproducing, etc.), but also to prohibit the sale or distribution of the “miracle glasses” that enable reading it without the permission of the book’s copyright holder or its licensees.

24.       As opposed to that, the State of Israel has not, as noted, ratified the Treaty, and has not created a similar legal regime (and see: Michael Birnhack & Guy Pesach, “Introduction” pp. 21-22, in Authoring Rights – Reading the Copyright Law (Michael Birnhack & Guy Pesach, eds., 2009) (Hebrew)). The new Law, we should note, has been around for a relatively short time in legislative terms, and was enacted several years after the Treaty and the legislation in Europe and the U.S. In other words, although at the time the relevant legislation was enacted, the legislature was aware of the issue of technological protection measures and of the question of whether to prohibit their circumvention, it chose not to include that issue in the legal regime. This is also expressly clear from the “Call for Public Positions – Technological Protection Mechanisms for Copyrights,” which was published by the Counseling and Legislation Department, and the Law, Information and Technology Authority of the Ministry of Justice on Feb. 19, 2007, and from the responses to that call (the responses, as well as the call can be viewed on the Internet site: http://www.justice.gov.il/MOJHeb/ILITA/Pirsumim/docsforcomments/DRM/) [note to editor: this link appears to be no longer active]. Thus, in Israel there is no legislation under which circumventing technological measures constitutes an infringement of copyright. Recently, the Ministry of Justice published the Copyright Law (Technological Protection Measures and Electronic Information about Managing Copyrights) Draft Bill, 5772-2012, which again recommends enacting a legislative framework for preventing the circumvention of technological measures. To date, it has not been adopted, and it is not part of Israeli copyright law. This further emphasizes that, at the relevant time (and even now), the sale of technological “circumvention” measures was not deemed an infringement of copyright (of the copyright holder).We should note that even the British legislature took the trouble to add legislation prohibiting circumvention to copyright law in England. We may, therefore, conclude that it, too, did not believe that the British Act (of which the Israeli Copyright Act is an early version) deemed the circumventing of technological measures to be an infringement of copyright prior to it amendment. Let us return to our illustration. In Israel, the book written in invisible ink is a protected work. A prohibited act in its regard is an infringement of the author’s rights. As opposed to this, an act in regard to the “miracle glasses” would not be deemed an infringement of the author’s copyright (of course, it might be an infringement of the intellectual property rights of the inventor of the glasses, but that is not the issue before us).

25.       Thus we find that, for the time being, Israel has not chosen to define the circumventing of technological measures as an infringement of copyright. That is the case both in regard to the new Law as well as the legal situation at the time of the sale of the cards by Telran. We must not forget the fundamental principal according to which what has not been legally defined as comprised by copyright is not part of the corpus of protected rights. Therefore, we cannot accept the claim that the very sale of the cards that serve to circumvent the technological measures constitutes an indirect infringement of Charlton’s copyright.

            In light of the above, I am of the opinion that we must rule that Telran did not indirectly infringe Charlton’s copyright.

“Contributory” Infringement

26.       Another issue that we must address is the question of whether Telran’s actions constitute a “contributory infringement” of Charlton’s copyright. This issue, we note, was not addressed at all by the District Court due to its finding in regard to the existence of an (indirect) infringement by Telran.

            Before embarking upon this question, we should address Telran’s preliminary objection that Charlton raised the claim of contributory infringement only upon appeal, which constitutes an impermissible raising of a new issue. However, in paragraphs 27-35 of Charlton’s closing brief to the District Court, Charlton expressly raised this claim. In its closing brief to the District Court, Telran did not address this claim by Charlton. It is decided law that the flaw of first raising an issue in the closing brief is remedied if the opposing party does not object (CA 1184/04 Kreuzer v. Schwartz, para. 18 (April 15, 20017), hereinafter: the Kreuzer case; CA 685/81 Licenses and General Insurance Co. Ltd. v. Borchard Lines Ltd., 38 (3) IsrSC 421, 427 (1984); Yoel Sussmann, Civil Procedure, fn. 215 at p. 512 (7th ed., 1995)). Above and beyond that, I would point out that if I were of the opinion (which I am not) that the claim of contributory infringement was a new claim, it could still be addressed in that it is not a new cause of action, but rather a legal conclusion that arises from the factual picture presented in the complaint (and see: the Kreuzer case, at para. 19).

27.       This Court, as noted, has recognized the contributory infringement doctrine in Israeli copyright law. The following conditions for the existence of a “contributory” infringement were laid out in the Hebrew University case: the existence of an infringement by a third party; actual, concrete knowledge of the infringement; and a significant, substantial contribution to its perpetration (ibid., at paras. 26-27; the Premier League case, para. 16 of the opinion of Deputy Chief Justice E. Rivlin). Before examining whether these conditions were met in the instant case, we should note that the contributory infringement doctrine has been applied both in regard to the old Act as well as to the new Law.

28.       In the Hebrew University case, it was stated that “the mere existence of protection does not negate the existence of the breach. Protection prevents the user from bearing responsibility, but does not eradicate the breach” (ibid., para. 24). Pursuant to that, it was stated obiter dicta in the Premier League case:

“Where a ‘permitted’ use is concerned, there is, indeed, no infringement according to the Act. But that does not suffice to eradicate the fact that, in substance, there is an infringement of the copyright, even if such infringement be permitted for various reasons. This is the case primarily where the combined effect of many protected infringements causes significant harm to the copyright holder. As has already been held, in such circumstances there is nothing to prevent us from recognizing the contributory responsibility of the intermediary that caused the infringement” (ibid., para. 16 of the opinion of Deputy Chief Justice E. Rivlin).

            That judgment goes on to explain that such permitted uses constitute a defense that the old Act chose to grant to users, and not a positive right of infringement (ibid., para. 18). I am of the opinion that it is necessarily a defense rather that a (positive) right of users, as some contend (see, e.g: Niva Elkin-Koren, “Users’ Rights”, p. 327, in Authoring Rights – Reading the Copyright Law (Michael Birnhack & Guy Pesach, eds., 2009) (Hebrew)). In my opinion, an end user who views an infringing copy of a work whose creator enjoys the protection of copyright law does not infringe any right (even if we are concerned with a “protected” infringement), but rather performs a permitted act. However, even without addressing this question, it would seem that we must, at the very least, hold that a “permitted use” is precisely what it says – a permitted use. In other words, even if it is not a positive right of the user, it still is not, and cannot be, an actual infringement (even if “protected”). That which the law itself permits, cannot be an infringement of the law.

29.       The decision that there are permitted uses is, in my view, a substantive decision, and not a technical defense (and see: Fischman Afori, at p. 47; Tamir Afori, at p. 189 fn 1). And note: Chapter D of the new Law, which regulates the permitted uses, is titled “Permitted Use” and not “Protected Use”. In other words, the Law takes the view that the action is permitted, and not that it is forbidden but that the actor is “immune” to sanctions. Let us consider an example from criminal law. A person has a defense to criminal sanctions when he perpetrates a proscribed act under certain circumstances (such as, self-defense, duress, or insanity). In other words, he transgresses the law, but he is not punished because the law protects him against sanctions (and note: the law does not permit him to commit the act). As opposed to this, when a person performs a permitted act, there is no need to ask whether or not to impose a sanction, inasmuch as he did not do anything that is subject to sanction ab initio. That is the case in all that concerns permitted uses of copyright. The user does not perform a proscribed act (i.e., an infringement) for which he enjoys a defense, but rather he performs a permitted act, such that no infringement ever occurred.

30.       Since no infringement ever occurred, there was no infringement to which to “contribute”. Thus, when the end users performed a permitted act, the intermediary “contributed” to a permitted act, and therefore cannot be said to have infringed the rights of the copyright holder, as they were not infringed. Let us return to our last example. Let us assume that A convinces B, who can claim the insanity defense, to commit a crime. B enjoys a legal defense, whereas A can be accused of solicitation (or some similar category). As opposed to that, if A were to permit B to do some permitted act (for example, lawfully walking down a city street), he could not be accused of any crime.

            The very fact that the copyright holder suffered a loss or “significant harm” due to a combination of a large number of permissible acts does not mean that a person who contributed to the commission of those permitted acts infringed a copyright (it is possible, without prejudging the present case, that one might argue that the legal requirements were met for seeking damages for unjust enrichment, as we will discuss below).

31.       In my opinion, the above leads to the correct interpretation of the term “permitted use”. However, I believe that even according to the approach that sees “permitted use” as a defense, one must agree that the defenses can also serve a contributory infringer (as Michael Birnhack suggests in “The Birth of a Tort: Contributory Infringement in Patent Law”, p. 219, in The Technology of Justice (Shai Lavi, ed., 2003) (Hebrew)). Section 18 of the new Law applies to “permitted uses” and not to “permitted users”. The Act permits acts, and is indifferent to the actors. The act performed by the contributory “infringer” is a contribution to an act of a “principal” who is protected by the defense that the Act grants to the conduct. In a certain sense, the “contributory” actor acts in concert with the “principal” in committing the “protected” infringement. In such a case, if the principal is “protected” by virtue of the act, then his accessory is all the more so.

            We will again illustrate these matters with the examples given above. The insanity defense is a defense that applies to a specific person – the person found not to be responsible for his conduct. In other words, the person enjoys the defense by virtue of being insane. As opposed to this, a defense provided for a permitted act does not apply to a specific person, the actor, by virtue of the commission of the act. Therefore, A who permits B (who has been found to be insane) to do some act will not be entitled to a defense, inasmuch as the defense applies to B by virtue of his characteristics. As opposed to that, when A permits B to do some act in circumstances that are subject to a defense by virtue of the circumstances of its commission, then if the actor has a defense by virtue of the fact that the act invokes a defense for the actor, then it follows that the person who allowed him to perform that act will also have a defense.

            We state this only to emphasize that even if we follow the view that permitted use provides a defense, then the contributory infringer enjoys that defense a fortiori in cases of a “protected infringement”.

32.       All the above is somewhat obiter dicta. In the Hebrew University case, the direct infringer produced a course reader that was an infringing copy of the protected work. In the Premier League case, it was assumed that the end users created temporary copies of the broadcasts on their computers, and therefore, there as well, the situation was interpreted as a “protected infringement” (which, in my view, is no infringement at all). As opposed to this, in the instant case, there is no direct infringement at all. We will not repeat the entire analysis that we presented above in regard to indirect infringement, but merely point out that the action of the foreign networks does not constitute a direct infringement, nor does the action of Telran’s customers –the viewers. We would further note that Charlton, too, failed to identify a direct infringer. Its claim, in this regard, was that “watching protected content without a license is, of course, an infringement of copyright” (para. 37 of Charlton’s brief). As we stated above, the act of watching protected content is not one of the acts that the Act reserves to the copyright holder, it does not require a license under the Act, and doing it is not an infringement of the Act. Therefore, the instant case does not present a direct infringement, which is a precondition for a contributory infringement. Thus, in effect, there was no infringement at all (“protected” or otherwise). The above analysis was intended to make it clear that permitted use does not generate a “protected” infringement, but rather no infringement at all.

33.       To remove all doubt, we would make it explicitly clear that the above analysis does not repudiate the contributory infringement doctrine. That doctrine continues to hold in Israeli law, and it should properly be applied in appropriate cases (and see:  Birnhack, at p. 202; as well as Fischman Afori), for example, in parallel to acting against a direct infringer, or where, for various reasons (e.g., limitation of actions), it is not possible or practical to take action against the direct infringer, or in other examples that may come to mind. I would further add and emphasize that even according to the approach that deems “permitted use” as only creating a defense (which is not my view), that can, as noted, also be claimed by the contributory “infringer”, in situations in which the “defense” does not arise from the nature of the act (permitted use), but rather from something particular to the direct infringer (like limitation of actions), the defense can be claimed only by the relevant party, and will not serve the contributory “infringer”.

34.       We therefore find that there was no direct infringement. In other words, the first condition required for the existence of a contributory infringement was not met. Therefore, we need not consider whether the other conditions were met, and we find that Telran did not infringe Charlton’s copyright by a contributory infringement.

Summary in regard to the Infringement of Copyright

35.       In summary: Telran did not perform any of the actions reserved to the copyright holder Charlton. Therefore, it was not a “direct” infringer of Charlton’s rights. No third party directly infringed Charlton’s rights, and therefore Telran was neither an “indirect” infringer, nor a “contributory” infringer. In light of the above, I am of the opinion that we should find that there was no infringement of Charlton’s copyright by Telran. We would reiterate that, in trying to show an infringement, even Charlton argued: “What, therefore, is an infringement of rights? The matter is clear. Without the encoded cards that Telran distributed, those who refrained from purchasing a subscription to the sports channels of the broadcasters [licensed by Charlton] could not watch the Mondial broadcasts” (para. 32 of Charlton’s closing brief). Indeed, were it not for the technological circumvention medium that Telran made available to its customers, they could not have viewed the broadcasts of the foreign networks. The card was therefore a conditio sine qua non – a necessary condition. But the mere fact of its being a necessary condition for viewing the broadcasts of the foreign networks does not mean that its sale constitutes an infringement of copyright. As we saw, that was so in Israeli law as applicable at the time, and it remains so.

Unjust Enrichment

36.       In the District Court, Charlton argued that Telran’s actions constituted unjust enrichment. The District Court ruled that, having found that Telran had infringed Charlton’s copyright, there was no reason to address the tort under the Unjust Enrichment Law, 5779-1979, (hereinafter: the Unjust Enrichment Law) in regard to the infringement of rights, inasmuch a no remedy could be added to that already awarded under the Copyright Act.

37.       In LCA 5768/94 A.S.I.R. Import Manufacturing and Distribution v. Forum Accessories and Consumer Products Ltd., 54 (4) IsrSC 289 (1998), this Court recognized that, in certain circumstances, recourse can be made to the Unjust Enrichment Law in the field of intellectual property law (and see: CA 9191/03 V&S Vin Spirt Aktiebolag v. Absolut Shoes Ltd., 58 (6) IsrSC 869 (2004); Greenman, at pp. 60-72).

            In his book Unjust Enrichment (2nd ed., 1998) (Hebrew), Professor Daniel Friedman considers a situation so strikingly similar to the facts in the instant case that it seems as though it were written especially for this case. We will cite the material as written:

“An additional question arises where programs are broadcast in code, and the broadcasting company sells its customers a decrypting device, thereby permitting them to watch or hear the broadcast.    The company’s business is based upon receiving payment from the buyers of the device or by collecting payments based upon a meter placed in that device. Someone comes along and manufactures a device that ‘cracks’ the code and enables him to watch the broadcast without paying. If a private individual ‘cracks’ the code and watches the broadcast, there may be no cause of action against him. However, this point is not entirely clear. The question is whether a distinction should be drawn between invading a closed space, like cable (as was the case in the Cablevision matter, above) and decrypting the code of a broadcast over the airwaves. One might argue that there is no reason for such a distinction, and that the Cablevision rule should apply, but that approach might go too far. In any case, the situation is different if the developer of the decrypting device acts in a commercial setting. In such a case, there are two basic possibilities. One is that the code ‘cracker’ transmits the broadcasts to his customers for payment. That act contravenes the provisions of the Performers’ and Broadcasters’ Rights Law, under which the rights of broadcasters were recognized, and I addressed this point above. The second possibility is that he sells the device to his customers, and they use it to watch another’s broadcasts without paying (while others are required to pay for such viewing). The question of whether, in such a case, there is a cause of action [for unjust enrichment – Z.Z.] against him is not simple. For the sake of the discussion, let us assume that the device he sells has no lawful use, and its only function is to decrypt the broadcasting code of the plaintiff. I tend to the view that in such a case we should recognize the broadcaster’s cause of action against the manufacturer and seller of the device, but the point is not clear” (ibid., at p. 79).

            As earlier noted, the sale of the device that “breaks” the code cannot be deemed “broadcasting” for the purposes of the Copyright Act. However, as Freidman points out, it is possible that, in such a case, the right holder may have a cause of action against the seller of the decrypting device (the card – the technological “circumvention” measure) by virtue of unjust enrichment. This question was not examined by the District Court, and in light of what was stated in that judgment, the point was not argued before us.

            In light of the above, I would recommend to my colleagues that we remand the case to the District Court on the cause of action for unjust enrichment.

Damages

38.       Above, we presented the findings and rulings of the District Court in regard to the extent of the damages incurred by Charlton and the amounts of compensation. Both sides attacked the judgment on this issue, each from its own perspective. In my opinion, there is no need for us to address these matters, in view of the decision to remand the case to the District Court to rule on the suit for unjust enrichment, which was not addressed. First, and with no intention to suggest the possible result of that hearing, it is possible that consideration of the issue may prove superfluous. Second, the parties should be permitted to make their arguments in this matter in accordance with the principles for awarding damages for the said cause of action. Third, inasmuch as the matter is remanded to the trial court, it can revisit its conclusions in the matter, including on the question of whether damages should be calculated on the basis of the income of Telran or its profits, or perhaps on the basis of the profits denied Charlton. In any case, it should be clear that if Telran is ordered to compensate Charlton, it will be able to appeal that award again, as well as the findings in the judgment, to the extent that they remain unchanged.

Conclusion

39.       Telran sold and distributed cards that made it possible to receive the broadcasts of the foreign networks in Israel. Those card were a technological “circumvention” measure. The sale of those cards did not constitute an infringement of Charlton’s copyright under the Copyright Act. Telran did not perform any of the acts reserved to Charlton under the Act. However, it is possible that by those acts Telran profited at Charlton’s expense. This matter was not addressed by the District Court or by us. Therefore, I propose to my colleagues that we vacate the judgment and remand the case to the District Court so that it may address the cause of action of unjust enrichment, as well as the issue of compensation under that head, should Telran be found liable for damages. The District Court is granted full discretion in all that relates to the submission of further evidence and supplementary arguments, after the parties are permitted to present their arguments on the matter. I would recommend that no order be made for costs at this stage, and that, inter alia, the District Court take the results of this appeal into account in awarding costs.

                                                                                                            Justice

 

Justice E. Rubenstein:

1.         My colleague Justice Zylbertal delved deeply into the complex matter before us in this case, and arrived at the conclusion that we are unable to offer relief to the Respondent (and the Cross Petitioner) in all that relates to the sphere of copyright, and that the path remains open in regard to the laws of unjust enrichment, whose effect remains to be examined. In doing so, he adopted a different course from that of the District Court, which found an infringement of copyright, and therefore did not address the head of unjust enrichment. I see no alternative but to concur.

2.         For some detail: My colleague analyzed the various options in copyright law, and reached the (unfortunate, in my opinion) conclusion that inasmuch as the legislature did not include protection against circumventing technological measures in the Copyright Law, 5768-2007, the sale of such does not constitute an infringement of copyright, either under the prior legal situation or under the new Law. In my opinion, this conclusion is legally correct, but not desirable in substance. Its significance for copyright law is that the sinner may be rewarded, and that what we are concerned with in this case is “doing business with his neighbor’s cow” (Mishnah Bava Metzia 3:2; Babylonian Talmud Bava Metzia 35b). Perhaps this decision will be a wake-up call for those responsible for legislation, bearing in mind that they already published the Copyright Law (Technological Protection Measures and Electronic Information about Managing Copyrights) Draft Bill, 5772-2012. The legislature may recall that its job is also to prevent injustice in a changing world in which, as my colleague also noted, technological developments are a daily occurrence – a “tsunami” that is like “waters without end”. In the absence of appropriate protection, the impulse to initiate and innovate may be harmed, as “for whom am I toiling?” (Ecclesiastes 4:8).

3.         As for unjust enrichment, my colleague naturally referred to this Court’s decision in the A.S.I.R. case (LCA 5768/94 A.S.I.R. Import Manufacturing and Distribution v. Forum Accessories and Consumer Products Ltd., 54 (4) IsrSC 289 (1998)). The result is that, in this case as well, the gates of recompense have not been sealed, but that is not the appropriate high road, but rather an escape route for times of legal distress.  I would add that the instant case differs from my comment in CA 9191/03 V&S Vin Spirt Aktiebolag v. Absolut Shoes Ltd., 58 (6) IsrSC 869, 888 (2004), where the matter could be addressed by the “high road”, inasmuch as it concerned a registered trademark, and the legal path was thus open, but the facts did not justify the suit. I therefore said in that case that “since the high road will not serve, neither will the side road”. That is not the case here, where the high road is blocked by a legal obstacle, and therefore recourse can be made to the side road of unjust enrichment. In this regard, also see Prof. Ofer Grosskopf’s enlightening article, “The Eagle and the Princesses – On the Relationship between the Law of Unjust Enrichment and Copyright Law”, in Authoring Rights – Reading the Copyright Law (Michael Birnhack & Guy Pesach, eds., 2009) (Hebrew) 201, and also see p. 224 and fn 85 (“When the intellectual property regime is not up to date in one or more of the aspects enumerated above (time, detail or conformance) there is room to allow judicial legislation”). I do not believe that there is relevance in this case to sec. 3 of the Copyright Law, by which “Copyright shall not subsist in a work other than in accordance with the provisions of this Law”, which has been construed to limit the scope of protection granted to creators (see: Y. Weisman, “Comparative Reading, Characteristics of the Copyright Law, 5768-2007”, in Authoring Rights 69, 80-81) (Hebrew). The example brought by my colleague (para. 37) from Prof. Friedman’s book speaks for itself, and is worth considering so that there not, in fact, be unjust enrichment.

4.         Out of a love for Jewish law, and having mentioned the statement in regard to doing business with one’s neighbor’s cow, I would note the halakha in the matter (Maimonides, Mishne Torah, Mishpatim, Laws of Hiring, 1:6): “If a person who hires a cow from his neighbor, then lends it to another person, and the cow dies of natural causes in the possession of the borrower, then, since the borrower is liable for every occurrence, he should return the value of the cow to its owner, for that hirer is not doing business with his neighbor’s cow. And so it is for all analogous situations”; and also see Shulhan Arukh, Hoshen Mishpat, Law of Hiring, 307:5, that goes beyond the obligatory rule of Maimonides: “And if he says to the hirer, if you like you may lend it (the cow – E.R.), your dispute will be with the borrower and my dispute will be with you, then the borrower must pay the hirer”, in other words, the owner will sue the hirer rather than the borrower. Thus, the law produces the remedy. And see: CA 3422/03 Krone v. Inbar, 59 (4) IsrSC 365, 379-380 (2005) for additional sources on intellectual property in Jewish law; and see N. Rackover, “Cursed is He who Trespasses upon his Neighbor, On Copyright and Publishers”, Parashat Hashavua (A. Cohen & M. Wigoda, eds.) 236 (Hebrew), in addition to his book Copyright in the Jewish Sources (5751) (Hebrew).  

5.         My colleague Justice Amit addressed the frustration of one who cannot reconcile himself to a situation in which it would appear that one who “does business with his neighbor’s cow” may fall through the cracks of copyright law and be a – dubious – beneficiary “within the limits of the law”, as in substance, we are concerned with a work that is not protected as it should be. He therefore creatively proposed the idea of recourse in situations like ours to the category of making something available to the public. It is, indeed, an attractive idea, but even this approach ultimately runs up against the history of non-legislation of technological measures, and the path is blocked. This may reinforce the above call to the legislature.

6. In the end, I concur in the opinion of my colleague Justice Zylbertal.

                                                                                                                        Justice

 

Justice Y. Amit

1.         My colleague Justice Zylbertal cast a wide net that touches upon many questions that were not considered or examined at all in the trial court or in extant case law, primarily the fundamental question of whether “cracking” technological measures constitutes an infringement of copyright.

            As my colleague concluded that Telran cannot be deemed to be a direct, indirect or contributory infringer under copyright law, I will address a few words to this subject. I would preface my comments by emphasizing that what I am about to say is strictly “heretical musings”, without any intent to establish any firm position on the matter in view of the operative conclusion recommended by my colleague, in which I concur.

2.         I will not deny that the result that the Respondent cannot find a remedy within the framework of copyright law raises some discomfort. The Petitioners failed to show any contractual agreement between themselves and any other body from which the decrypting cards were purchased, and failed to present any evidence of how they obtained the cards.

            If we were treating of a relay that redirected the transmission signal to another territorial area, and thereby made the broadcast available to the public for a fee without obtaining the permission of the rights holder, we would no doubt see that act as a “signal hijacking” of the broadcast. Is there really any significantly substantive distinction to be made between the results of such signal intrusion and the operation of the card? Without addressing the distinctions between secondary transmission and active conduct in the two examples, the protected work is placed at the disposal of the public contrary to the desire and permission of the owner of the rights or its licensees, and in both examples, the action is performed for commercial purposes (and compare to the opinion of Rivlin, J. in the Tele Event case, at p. 57).

            The case law has pointed out that the legal tools at our disposal do not correspond with the technological developments in the field of information and communications. This is particularly true of the old Act, which forced the courts to fit new technologies into old molds that were created by the legislature ages before those technologies saw the light of day. In construing the Act, our interpretation must be purposeful rather than literal. In this way, it may be possible to include the sale of code “breaking” cards within the scope of the Act, as will be explained in paragraph 4, below.

3.         My colleague began his discourse by establishing that the term “public performance” has been interpreted in the case law as comprising broadcasting. He continued by addressing the question of whether the card sold by Telran “transmits” or “distributes” the Mondial broadcasts, and found that distributing the cards does not fall within the compass of broadcasting or secondary transmission. He therefore held that sec. 2 (1) of the Copyright Act 1911 (hereinafter: the Act) does not apply, but rather sec. 2 (2), which treats of indirect infringement. But in order to recognize an indirect infringement, an infringing copy is required, and my colleague goes on from there.

            Indeed, some are of the opinion that distribution under sec. 2 (2) (b) of the Act can only be accomplished through the distribution of a copy (and therefore does not include “secondary transmission” – see: Yuval Karniel, “Broadcasting Sporting Events on the Foreign Networks – Does Copyright Law require Screen Blackouts”, 6 Alei Mishpat 259, 274 (2007) (Hebrew)). Additionally, an indirect infringement by “public performance” under sec. 48 (4) of the new Law expressly speaks of an “infringing copy of a work”, which is not met in the matter before us. I would note on this point that an action that does not constitute an infringement under the new Law, is not actionable under the former Act, pursuant to the end of sec. 78 (c) of the new Law.

4.         I believe that one might propose an additional way to assess the matter. The “public performance” referred to as one of the copyright rights under the Act is divided into three separate categories under the new Law: public performance, broadcasting, and making available to the public. This last category is established in sec. 15 of the new Law, according to which, “Making a work available to the public means the doing of an act in relation to a work that shall enable members of the public to access the work from a place and at time chosen by them.” (for a comparison of the old arrangement and the new one, see: Rachel Aridor-Hershkovitz, “From Public Performance to Making Available to the Public: Innovation or Confusion under the New Law?” in Authoring Rights 405 (Michael Birnhack & Guy Pesach, eds., 2009) (Hebrew)). I would further note that nothing in the words “from a place and at time chosen by them” rules out an infringement in cases in which a live broadcast is involved (see the obiter dictum of Rivlin, J. in para. 13 of his opinion in the Premier League case).

            Purposive interpretation of the Act could also include making available to the public, since using the card makes the protected work available to the public. Sec. 1 (2) (d) of the Act establishes that copyright also includes any “other contrivance by means of which the work may be mechanically performed or delivered”, and sec. 2 (2) (b) establishes that infringement of copyright also includes “any person who … distributes - either for the purposes of trade or to such an extent as to affect prejudicially the owner of the copyright”. The term “performance” is defined under sec. 35 (1) of the Act as “any acoustic representation of a work and any visual representation of any dramatic action in a work, including such a representation made by means of any mechanical instrument”. And note: while copying a work requires making a copy (see the definition of “infringing” in sec. 35 (1) of the Act), that is not the case in regard to performance of a work. A creative, purposive interpretation could thus include a technological medium the use of which, like the miracle glasses mentioned by my colleague, leads to the result of making the work available to the public, even as a direct infringement and not an indirect one.

5.         As my colleague noted in his opinion, significant weight should be attributed to the fact that the legislature has not yet seen fit to address the subject of technological measures. Therefore, I see no reason to make any hard-and-fast statement in regard to the approach that would deem “performance” and “public performance” as also comprising making available to the public under the Act, as suggested in para. 4, above. In the final result, I therefore concur in the opinion arrived at by my colleague, but leave for further examination some of the issues that are not necessary for deciding the instant case, such as whether an end user will never be deemed an infringer, or whether a “copy” is required for an infringement under the Act.

                                                                                                            Justice

 

Decided in accordance with the opinion of Justice Z. Zylbertal.

Decided this 27th day of Elul 5773 (Sept. 2, 2013).

 

Safecom, Ltd. v. Raviv

Case/docket number: 
CA 7996/11
Date Decided: 
Monday, November 18, 2013
Decision Type: 
Appellate
Abstract: 

Facts: An appeal against the Haifa District Court's judgment dismissing the Appellants' claim against the Respondent for the infringement of its copyright in technical drawings. At trial, the Appellants argued that drawings used by the Respondent for the registration of a patent in the USA for a voltage backup system for cable systems (a product that competes with a product of the first Appellant (hereinafter referred to as "Safecom") infringe Safecom's copyright in the drawings of its products. There is no dispute that there was a previous business relationship between the Respondent and the Appellants, and the Respondent had access to the Appellants' drawings. The District Court held that Safecom's drawings did amount to a protected work, but in the instant case there had been no copying of Safecom's drawings, or a substantial part of them, and for that reason the claim was dismissed.

 

Held: The Supreme Court (per Justice Y. Danziger, Justices Z. Zylbertal and E. Rubinstein, concurring) granted the appeal and held:

 

The Court took a broad view of copyright law and stated that, under the precedents of this Court, copyright protection of a work requires that an original work is involved. This is established through the analysis of three subordinate elements – the origin criterion, the investment criterion, and the creativity criterion. The presence of just one element is not sufficient for the purpose of proving originality.

 

Another basic principle of copyright law is that the idea underlying a work will not be protected by copyright, and that protection is only afforded to the way in which the idea is expressed. This distinction between idea and expression in certain senses also overlaps the requirement of originality that underlies the copyright protection of works. This overlap is particularly relevant when functional works are involved.

 

In view of the distinction between idea and expression, the approach that has developed that states that when a particular idea can be expressed in only a single way, then a work expressing that idea will not be afforded protection. This approach has been called "the merger doctrine". When there is an absolute merger between the idea and its expression, and when there is only one way to express the idea, it is the accepted view that the work expressing that idea will not be granted copyright protection. However, opinions are divided on the question when there are just a few possibilities of expressing the idea. According to one approach, as held in the American case of Morrisey, copyright protection should not be granted in such a case, while according to another approach, the work will be granted copyright, but that copyright will only be infringed when there is absolute or almost absolute similarity between the works. This controversy is relevant in the instant case because the Respondent asserts that Safecom should have proven exact copying because its drawings constitute an idea that can only be expressed in limited ways. In the opinion of Justice Danziger, in order to decide this issue, reference may be made to the fundamental rule of copyright law presented above – the requirement of originality, in particular when the issue relates to functional works.

 

Functional works raise various difficulties at the stage of analyzing the requisite originality for copyright protection. However, once a functional work has met the originality requirement and the choice criterion, it is a protected work in all respects, substantial parts of which may not be copied.

 

According to the choice criterion, the intended function or purpose of the work should be ascertained, and an examination made as to whether the form of presenting that purpose – the expression – required that the creator choose from among several options that could have achieved the same purpose. When there is a solitary option to achieve that purpose, it is inappropriate to afford protection to that sole method of expression. However, when the creator has a choice among several options, copyright protection should not be denied to the chosen expression.

 

Even if only some of the elements that make up the functional work have passed the "choice filter", that does not prevent them from being work protected against copying. In the opinion of Justice Danziger, The only  consequence of a work being functional concerns the standard for the analysis of copying when the protected elements constitute an idea that can only be expressed in a limited number of ways..

In such a case, a higher threshold will be necessary to establish copying, and almost absolute similarity between the protected elements and the allegedly copied elements will be required in order to establish that substantial similarity.

 

Implementation of that approach in the instant case leads to the conclusion that certain elements of Safecom's drawings do constitute protected work.

 

The Court further held that whether Safecom's drawings in whole constitute a protected compilation, or whether some of the elements are protected separately as artistic work, the number of ways to give expression to a demonstration of the product's electrical process is limited. Nevertheless, even working on that assumption, it would appear from a comparison between Safecom's drawings and the respondent's drawings that 13 of the Respondent's drawings do amount to an identical (or at least almost identical) copy of the Safecom drawings. In this regard it was held, inter alia, that when substantial elements of the work do not gain copyright protection and remain in the public domain, then copying all those protected elements will attest to the copying of a substantial part of the work, a fortiori when there is absolute, or almost absolute, similarity. This is especially so since there is no dispute that the Respondent did have full access to Safecom's drawings. Since the Respondent chose to make exact use of Safecom's protected visual resources, he infringed its copyright in those elements.

 

The use that the Respondent made of the drawings does not amount to a permitted use. In this connection, Justice Danziger was of the opinion that the use of a work in accordance with the uses defined in chapter four of the new law as "permitted uses" does not constitute a contravention of the new law. Permitted use constitutes a right that is granted to the user to make certain types of use of a work (in view of the controversy in the case law in this respect, Justice Danziger is of the view that the time may have come for an extended bench to deliberate this issue). However, the Respondent’s use of Safecom's drawings and their presentation to the American Registrar of Patents for the purpose of the registration of a patent for a product that competes with Safecom's product, is not a permitted use under section 20 of the new law. That use also does not meet the standards that have been established for fair use, as defined in section 19 of the new law.

 

The case was remanded to the District Court for a decision upon the appropriate relief in respect of the infringements.

 

Justice E. Rubinstein, concurring, sought to add another criterion, that of common sense, namely the accumulation of all the overall facts before the court. When a work is involved, appearance is also acknowledged to be a significant parameter in intellectual property law. In the instant case, in preparing the file, when the bench looked at the drawings involved, the great similarity between the drawings was immediately conspicuous. Consequently, the foregoing result was obliged not only by common sense but also by the appearance. In conclusion, Justice Rubinstein refers to several of his  other opinions, in which he considered intellectual property rights in Jewish law.

Voting Justices: 
Primary Author
majority opinion
majority opinion
Author
concurrence
Full text of the opinion: 

In the Supreme Court

CA 7996/11

Sitting as a Court of Civil Appeals

 

 

 

Before:

Justice E. Rubinstein

Justice Y. Danziger

Justice Z. Zylbertal

 

 

 

The Appellants:

1. Safecom Ltd

2. David Zilberberg

 

v.

 

 

The Respondent:

Ofer Raviv

 

 

Appeal against the Haifa District Court's judgment of August 28, 2011 in CF 542-04-09, given by His Honor Judge Dr. A. Zarnakin

 

 

Date of session:

Cheshvan 6, 5774 (October 10, 2013)

 

 

On behalf of the Appellants:

Adv. Nahum Gabrieli

 

 

On behalf of the Respondent:

Adv. Tamir Afori

 

 

     

JUDGMENT

 

Justice Y. Danziger

 

This is an appeal of the judgment of the Haifa District Court (His Honor Judge Dr. A. Zarnakin) of August 28, 2011 in CF 542-09-09, dismissing the Appellants' claim against the Respondent for the infringement of copyright in their technical drawings.

 

Factual Background

 

1.         Appellant 1, Safecom Ltd (hereinafter: "Safecom"), develops and markets products for the electrical backup of cable TV broadcasting systems, and the Appellant 2, David Zilberberg (hereinafter: "Zilberberg") is its manager and one of its shareholders. Zilberberg became acquainted with the Respondent when the latter sought to market Safecom's products to a company for which he worked, and he also connected Zilberberg to an American company, Innovative Solutions 21, Inc. (hereinafter: "the American company"), which led to the marketing of Safecom products in the USA. On June 18, 2002, an agreement was made between Safecom and the American company according to which the American company would be the exclusive distributor of Safecom products (hereinafter: "the Agreement"). The Agreement provided that ownership of all copyright, patents and other intellectual property rights connected with the products, including graphics, sketches and models, that were developed by Safecom would be retained by it. The Respondent had no formal status in the American company, but he was involved in the technical matters associated with marketing Safecom's products in the USA, and, in that context, he also took part in the preparation of technical drawings of Safecom products. In May 2005, the Agreement was terminated by Safecom, and in 2008, it learned of the filing of a patent application in the USA by the Respondent together with the American company's president, which concerned a voltage backup system for cable systems. In view of Safecom's complaint that the drawings underlying the patent application infringed its copyright in the drawings of its products, it filed suit in the District Court. By consent of the Respondent, the court awarded a provisional injunction. An objection filed against the registration of the American patent registration was dismissed.

 

2.         Safecom asserted that the Respondent had copied 14 original drawings that Zilberberg had prepared as part of a presentation for the Safecom products, which was furnished to the Respondent in 2003, when the agreement was still in force. According to it, the drawings that Zilberberg prepared were protected by copyright and owned by it, while the Respondent's drawings were absolutely identical and had been copied "one to one" and, as such, constituted an infringement of its right of reproduction. In order to emphasize the copying, Safecom pleaded that its drawings contained a mistake in the presentation of the switch box, and that mistake had been copied by the Respondent.

 

3.         The Respondent, for his part, asserted that the claim was governed by American law because the alleged infringement had been committed in the USA, and since that law had not been proven, the claim should be dismissed. According to him, under American law the claim would be dismissed because of the applicable American rules of fair use. In regards the very infringement, the Respondent pleaded that since the act was governed by the Copyright Act, 1911 (hereinafter: "the Old Law") it was first necessary to prove that the alleged infringement also constituted an infringement under the Copyright Law, 5768-2007 (hereinafter:  "the New Law"). According to him, under section 21 of the New Law, the copying of a work that is deposited for public inspection constitutes permitted use and no infringement is therefore involved. As regards the alleged copying, the Respondent pleaded that there was no relevant similarity between the Safecom drawings and his drawings, either visual or substantial. According to him, there are approximately 32 elements in the patent application drawings, while in the presentation there are only 19. This is because of the difference between the technology used in order to manufacture Safecom's products and that presented in the patent application. The Respondent further pleaded that the similarity between the drawings lay in their common functionality in a manner that does not afford protection. The Respondent also pleaded that he was party to making the drawings and therefore had a right of ownership in the Safecom drawings, and that the Agreement did not apply to him because he was not an employee of the American company. The Respondent also filed a counterclaim, but since no appeal has been brought in respect of it, we need not refer to it here.

 

The District Court's Judgment

 

4.         The District Court first dismissed the Respondent's claim that the matter is governed by American law. The court held that the Respondent had received the presentation in Israel.  It was therefore reasonable to assume that the act of copying had also been performed in Israel, and it had not been proven otherwise. In any event, the court held that the Respondent did not dispute the court's jurisdiction to try the matter in accordance with domestic law when the provisional injunction application had been considered, and he was therefore estopped from pleading the same. As regards Israeli law, the court held that the Safecom drawings do indeed amount to a protected work, according to both the Old Law and the New Law. The court dismissed the Respondent's claim that the use he had made was permitted use under section 21 of the New Law since the section treats of  the use of works that have already been deposited for public inspection and not use which itself constitutes deposit for public inspection.

 

5.         As regards the alleged copying, the District Court first held that the Respondent was not a joint owner of the rights in Safecom's drawings, because, even if he was not one of the American company's formal officers, he did substantially function as such and the agreement should therefore be applied to him. The court nevertheless dismissed Safecom's claim that the Respondent had admitted copying the drawings. The court emphasized that the Respondent's claim with respect to the difference in the number of elements between Safecom's drawings and the drawings in the patent application had not been rebutted, and a visual similarity had therefore not been established. The court dismissed Safecom's claim with respect to copying the mistake in its drawings because, according to it, no mistake was in fact involved. Finally, the court held that because of the great functionality of the Safecom drawings, some similarity was obliged between drawings that sought to present a similar product, and Safecom's drawings, or a substantial part of them, had therefore not been copied.

 

            Hence, the appeal.

 

The Grounds of Appeal in Brief

 

6.         The Appellants – through their attorney, Adv. Nahum Gabrieli – argue that the District Court erred            when it held that there had been no copying in the instant case. According to them, they did not have to adduce direct evidence of copying the drawings because the law makes it possible to suffice with circumstantial evidence to prove copying. The Appellants assert that the access that the Respondent had to the drawings, which is not in dispute, together with the substantial similarity between their drawings and his, leads to the sole conclusion that there was copying. The Appellants emphasize the identical elements between their drawings and those of the Respondent that do not derive from the functional presentation of the products, like the same twists and turns in the lines that are shown on them. According to them, the Respondent himself admitted that there are many ways to draw the products concerned, and he even showed example drawings of similar systems that were different from the drawings in the instant case. Moreover, in principle it cannot be held that when functional technical drawings are involved, copying cannot necessarily be inferred. The Appellants add that the finding that the similarity between the drawings was not the result of copying is inconsistent with the relationship between the parties, as described above. Finally, the Appellants aver that the court was mistaken when it reviewed the substantial similarity on the basis of the number of elements appearing in each of the drawings, rather than a general impression of the substance of the part copied, which according to them, obliged the conclusion that there had been prohibited copying.

 

The Respondent's Reply in Brief

 

7.         The Respondent – through his attorney, Adv. Tamir Afori – argues that the District Court rightly distinguished between proving a visual similarity and establishing a substantial similarity. According to him, in the instant case there has not been copying, as a matter of fact, because even if it were established that he had access to Safecom's drawings, the court found, as a matter of fact, that there was no visual similarity between the works. According to him, in order to establish such a similarity, the Appellants should have produced an expert opinion insofar as the matter concerns a technical drawing. In any event, the Respondent asserts that there had been no copying of a substantial part that was original to the Appellants, and that the copying of parts of the work that are not original in any event does not amount to copying and to an infringement of any right of the work's owner. According to him, in the instant case works are involved, only parts of which are original, and it is necessary to carefully analyze whether the original parts that were copied constitute a substantial part of the Plaintiff's work. Since, in the instant case, functional works are involved, the respondent argues that only the identical copying of original parts should be regarded as an infringement of copyright. The Respondent emphasizes that after filtering out all the non-original parts of Safecom's drawings, what remains is at most a "copy" of curved lines that do not constitute a substantial part of the work.

 

8.         The Respondent adds that it was inappropriate to deny his rights in Safecom's drawings since he was a joint author of them because of the Agreement between Safecom and the American company to which he was not party, and it should therefore be held that he is a joint owner and joint author of the Safecom drawings. Furthermore, the Respondent asserts that it was inappropriate to hold that the law governing the infringement is Israeli law since the Appellants had not established that the infringement asserted by them was committed in Israel, and that burden rested with them. According to him, his agreeing to the award of a provisional injunction does not attest to his agreeing to conduct the principal case in accordance with Israeli law. Finally, the Respondent argues that even if he is not the owner of the Safecom drawings, he is still their joint author, and the use that he made of them is therefore a permitted use under section 27 of the New Law, which permits the author of an artistic work to make works that constitute a partial copying or derivative of it, even if he is not the owner of the right. Moreover, according to him, the use that he made of the drawings is also protected by virtue of section 20 of the New Law because it was done in legal administrative proceedings or, in the alternative, it was fair use under section 19 of the New Law.

 

9.         In the hearing before us an attempt was made to bring the parties to an overall understanding that would make the need for our ruling unnecessary, but that attempt was unsuccessful.

 

Discussion and Ruling

 

10.       This appeal raises questions at the very heart of copyright law, and that, essentially, address the foundations upon which the protection of works is based, and in particular, the matter of the author's originality; the distinction between idea and expression; and infringement of the right to copy the work. These questions are highlighted with regard to the protection of functional works, and they require elucidation and clarification. Having read the parties' summations and listened to their oral arguments in the hearing before us, I have reached the overall conclusion that the appeal should be allowed and the case should be remanded to the District Court in regard to the matter of relief. I shall also recommend that my colleagues do the same.

 

The Basis of the Protection of Works – Originality

 

11.       The requirement of originality has been recognized by this Court as a threshold for the existence of copyright in a work [for more on the originality requirement, see: Michael Birnhack, “The Requirement of Originality in Copyright Law and Cultural Control,” 2 Alei Mishpat 347, 352-355 (2002) (Hebrew) (hereinafter: "Birnhack")]. The development of the requirement in Israeli case law has been based on the provisions of the Old Law, despite the fact that the Hebrew version did not mention "originality", whereas the binding English version provides, in section 1, that copyright will be granted in respect of:

 

            "every original literary, dramatic, musical and artistic work…" [emphasis added  – YD].

 

            The requirement of originality was anchored in the New Law in section 4(a), which provides:

 

            "Copyright shall subsist in the following works:

            (1) original works that are literary works, artistic works, dramatic works or musical works, fixed in any form"  [emphasis added – YD].

 

12.       This Court reviewed the case law relating to the elements underlying the requirement of originality at length in CA 8485/08 FA Premier League Ltd v.  Israel Sports Betting Regulation Council (March 14, 2010) (hereinafter:  the Premier League case) [http://versa.cardozo.yu.edu/opinions/fa-premier-league-v-israel-sports-b.... It was held that the requirement of originality is analyzed on the basis of two main criteria – investment and creativity.

 

            In the scope of the investment criterion, the author must have invested certain labor in the work in order to gain the right to its rewards, similar to the theoretical basis for recognizing the right to "corporeal" property [see: the Premier League case, para. 26; CA 513/89 Interlego A/S v. Exin-Lines Bros SA, IsrSC 48(4) 133, 164 (1994) (hereinafter referred to as the Interlego case)]. This criterion is based on the labor approach and the theory of natural rights based on the teachings of the philosopher John Locke as theoretical justification for the grant of property rights generally and copyright in particular [for a broader discussion, see: Birnhack, pp. 373-375; Guy Pesach, “The Theoretical Basis for the Recognition of Copyright,” 31 Mishpatim 359, 386-391 (2001) (Hebrew) (hereinafter: "Pesach"); Justin Hughes, “The Philosophy of Intellectual Property,” 77 GEORGETOWN L.J. 287, 297-98, 302-10 (1988); Wendy J. Gordon, “A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property,” 102 YALE L.J. 1533 (1992)].

 

            In the context of the creativity criterion, which is based on the rationale according to which the purpose of copyright law is to enrich the creative world and the range of expressions available to the public, the nature of the investment, independently of its quantity, must be considered in order to show that it contributes to that purpose [see: Premier League, para. 27; Interlego, pp. 164-165]. This approach is based on a more social concept of copyright but, nevertheless, also on a utilitarian-economic approach, according to which a balance should be made between the cost – the incentive to be given to the author in the form of the monopoly granted to him in respect of the use and control of his work -- and the benefit of safeguarding the public domain for future work [see: Pesach, pp. 361-374; William M. Landes & Richard A. Posner, “An Economic Analysis of Copyright Law,” 18 J. LEGAL STUD. 325 (1989)].

 

            I would add that, in my opinion, in the scope of the originality requirement three subordinate elements should be identified, and in addition to the investment criterion and the creativity criterion, the origin criterion should be analyzed. By this I mean a requirement that the work should originate in the author and that it should not be based on another work – or in the words of my colleague Justice E. Rubinstein "original, meaning independent" [see: CA 3422/03 Krone AG v. Inbar Reinforced Plastic, IsrSC59(4) 365, 378 (2005); CA 360/83 Strosky Ltd. v. Whitman Ice Cream Ltd., IsrSC 40(3) 340, 346 (1985) (hereinafter: the Strosky case). For further on originality as origin, see Birnhack, p. 355-372].

 

13.       This Court has also considered the question of the nature and quantity of the originality requirement's elements that suffice to realize it. In respect of the investment criterion, it has been held that all that needs to be proven is a minimal investment of some human resource [see: Interlego, p. 173; Premier League, para. 34]. On the other hand, a quantitative definition of the requisite creativity is somewhat more complex and it appears that this Court has not yet fashioned a single formula for its realization.  Nevertheless, the definition of the requisite creativity for the protection of a work has been delineated in case law by a process of elimination. Thus, it has been held that the creativity criterion does not impose a particularly high threshold for the author, and that slight and even worthless creativity might sometimes suffice [see: Interlego, p. 173; CA 23/81 Hirschco v. Orbach, IsrSC 42(3) 749, 759 (1988) (hereinafter: the Hirschco case); CA 2687/92 Geva v. Walt Disney Co., IsrSC 48(1) 251, 257 (1993) (hereinafter: the Geva case)]. It has also been held that the work need not be novel in comparison with existing works in the same sphere [see Strosky, p. 257; Geva, p. 257].

 

14.       Because of the lack of any cohesive definition of the creativity requirement, and because of the absence of any controversy with regard to the definition of the investment necessary for the protection of a work, the possibility has been raised that a substantial investment in a work can compensate for a lack of creativity in such a way as will meet the requirement of originality and establish protection for the work. However, that approach was rejected by this Court long ago in Interlego, in which the approach of American law was adopted, as expressed in the American Supreme Court's judgement in Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 US 340 (1991) (hereinafter: the Feist case), according to which mere investment is not sufficient for the copyright protection of a work [see: Interlego, p. 165, 169; Premier League, paras. 36-38].

 

15.       To sum up the foregoing, the case law laid down by this Court is that for the grant of copyright protection in respect of a work, it must be established that an original work is involved, three subsidiary elements being analyzed – the origin criterion, the investment criterion and the creativity criterion – the existence of only one element being insufficient for the purpose of establishing originality.

 

The Protected Part of the Work – The Idea/Expression Dichotomy

 

16.       Before I move on to discuss the originality required for the protection of functional works, I wish to consider another basic rule concerning the copyright protection of works – the distinction between idea and expression. A basic principle of copyright law is that the idea that underlies a work will not be protected by the right, and that the protection is afforded only to the way in which it is expressed. This rule is embodied in section 7B of the Copyright Ordinance, which governs the instant case, and was subsequently anchored in section 5 of the New Law, which provides:

 

            "Copyright in a work as provided in section 4 shall not extend to any of the following, but copyright shall apply to the way in which they are expressed:

 

            (1)       an idea …"

 

17.       This Court has consistently emphasized the said distinction in its case law [see, for example: CA 10242/08 Mutzafi v. Kabali, (October 10, 2012), para. 24 (hereinafter:  the Mutzafi case); CA 2173/94 Tele Event Ltd. v. Golden Channels & Co., IsrSC 55(5) 529, 544 (2001) (hereinafter: as the Tele Event case); Strosky, p. 346; CA 139/89 Harpaz v. Achituv IsrSC 44(4) 16, 19 (1990)]. This distinction is based on the concept that the grant of protection to mere ideas would frustrate one of the major purposes of copyright law – the encouragement of creation and leaving sufficient "raw material" in the public domain [see: Tony Greenman, Copyright, vol. I, 75 (second ed., 2008) (hereinafter:  "Greenman")]. The distinction between idea and expression, in the context of textbooks for example, has sometimes led to the conclusion that the author's right has been infringed because of the fact that the expression of the method of study created by him (which constitutes a mere idea) has been copied [see, for example: Hirschco], but also sometimes to the opposite conclusion that all that has been "copied" is the actual idea that underlies the work [see, for example: Mutzafi].

 

18.       The rule that an idea is not protected and only the way in which it is expressed is protected overlaps the rule that facts per se are not protected. This rule finds expression when compilation works are involved, and it has been held that such works will only be protected insofar as the choice and arrangement of the raw materials – which constitute unprotected facts – meet the requirement of originality (see: Interlego; CA 2790/93 Eisenman v. Kimron, IsrSC 54(3) 817 (2000); Tele Event]. This requirement is  expressed in section 4(b) of the New Law, which provides:

 

            "… originality of a compilation means the originality of the selection and arrangement of the works or of the data embodied therein".       

 

            However, in view of the rising status of the creativity requirement and the determination that investment does not suffice to prove originality, it has been held that, in certain cases, a "compilation work" will not be sufficiently original and will therefore not gain protection [see: Premier League, paras. 51-54]

 

19.       We can see that the distinction between idea and expression is of major importance in copyright law, and that, in certain senses, it also overlaps the requirement of originality that underlies the copyright protection of works. The overlap between these two basic principles of copyright law is particularly relevant when functional works are involved, as will be explained below.

 

The Merger Doctrine and Functional Works

 

20.       Having regard to the distinction between idea and expression, the concept has developed whereby, insofar as a particular idea can be expressed in only a single way, then protection will not be given to a work that constitutes that expression. This concept has been called the "merger doctrine". The merger doctrine has received little reference in the case law of this Court [see: Geva, p. 262; CA 2682/11 Petach Tikva Municipality v. Zissu (May 20, 2013), para. 49]. The doctrine originates in American law, and its application in modern case law is based on the judgement in Baker v. Selden, 101 US 99 (1880) (hereinafter: the Baker case). In the Baker case, consideration was given to whether a book that presents a new method of bookkeeping and also includes blank forms that make it possible to implement the method, grants its author an exclusive right to use the actual method. The American Supreme Court laid down a rule in that case for use in analyzing works, the only or main use of which is utilitarian. The Court in that case held that:

 

            "… where the art it teaches cannot be used without employing the methods and diagrams used to illustrate the book, or such as are similar to them, such methods and diagrams are to be considered as necessary incidents to the art and given therewith to the public" [ibid., p. 103].

 

            The federal courts in the USA have relied on this statement in order to develop the merger doctrine. The best-known judgment, which most broadens that doctrine, is Morrisey v. Procter & Gamble Co., 379 F.2d 675 (1st Cir. Mass. 1967) (hereinafter: the Morrisey case). In that case, it was held that when a single idea has a very narrow range of possible expressions, a work that constitutes one of the expressions is not to be granted copyright protection (ibid., pp. 678-679)]. Numerous federal courts have supported the rule in Morrisey, but dissenting opinions have also been aired [see: Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 2.18[C] (2002) (hereinafter: Nimmer)].

 

21.       Baker and its development in case law have been strongly criticized [see: Nimmer, § 2.18[C]. Firstly, it has been argued that in Baker itself, the American Supreme Court restricted the rule cited above solely to the right to use the method or idea given expression in the work, and that the use of the expression in order to present the method will constitute an infringement of the copyright, or in the words of the American Supreme Court:

 

            " The use by another of the same methods of statement, whether in works or illustrations, in a book published for teaching the art, would undoubtedly be an infringement of copyright" [ibid., p. 103].

 

            Secondly, it has been argued that the distinction between copying the expression for the purpose of using the method (or idea), compared with copying the expression for the purpose of showing the method (or idea) is artificial. It has therefore been proposed to determine that copying for the purpose of using the idea will also constitute copyright infringement, and that all that should be permitted is the use of the method or idea for functional needs [see: Nimmer, § 2.18[C]-[D]]. This proposal is based on the understanding that copyright does not preclude reliance upon a work that constitutes a certain expression of an idea and presents a particular method in order to turn the method into a product. Such protection is only granted by patent law. For the purpose of demonstration, let us assume that a company manufactures a particular electrical product that is not per se protected by copyright. For the purpose of manufacture, the company produces drawings that constitute a protected work (as detailed at length below). In view of the proposition presented above, a competing company will not be able to copy the drawings, but assuming that the product itself is not protected by a patent or design, the competing company will be able to manufacture the product on the basis of the drawings without infringing copyright. I would immediately say that I accept this latter distinction, and in my opinion, it should be adopted.

 

22.       Despite the criticism that has been presented, it does appear that when there is a complete merger between the idea and its expression, and when there is only one way to express the idea, a consensus does exist that the work that gives expression to that idea will not gain copyright protection [see: Greenman, p. 83; Nimmer § 2.18[C][2]; Paul Goldstein, Copyright § 2.3.2 1 (1989)]. However, opinions are divided on the question when there are just a few possibilities of expressing the idea. According to one approach, as held in Morrisey, in such a case, copyright protection should also not be granted, but according to another approach, the work will be granted copyright, but it will only be infringed when there is absolute or almost absolute similarity between the works [see: Greenman, p. 83; Geva, p. 262]. This controversy is relevant, because, in the instant case, it is asserted by the Respondent that Safecom should have proven exact copying because its drawings constitute an idea that can only be expressed in limited ways (para. 12 of the Respondent's summations). In order to decide this controversy, in my opinion, reference may be made to the fundamental rule of copyright law presented above – the requirement of originality.

 

23.       Issues concerning the merger doctrine arise in many cases in respect of certain types of work. Thus, in the modern era, the question arises in respect of computer programs [see: Greenman, p. 81]. In addition, it has been asserted that the courts in the USA are expanding the application of the doctrine to visual works [for more on this, see: Michael D. Murray, “Copyright, Originality and the End of the Scenes a  Faire and Merger Doctrines for Visual Works,” 58 BAYLOR L. REV. 779 (2006)]. Another area in which the work, by its nature, raises issues concerning the merger doctrine is that of functional works. The instant case involves a functional work that is also a visual work. In fact, the merger doctrine can be well understood not only on the basis of the distinction between idea and expression, or to be more accurate, the merger between them, but also on the basis of the originality requirement, in particular insofar as it concerns functional works.

 

24.       In Interlego, President M. Shamgar considered at length the difficulties that the requirement of originality raises as regards functional works. One of President Shamgar's most important findings in this respect was that, in principle, a work is not to be denied copyright protection merely because it is functional [ibid., p. 160]. Nevertheless, President Shamgar held that in respect of these works the Old Law applies a filter in addition to the requirement of originality, which he called "the artistry criterion" [ibid., p. 173]. I would immediately explain that President Shamgar based the reference to that criterion on section 35(1) of the Old Law, which defines artistic work as works of painting, drawing, sculpture and artistic craftsmanship, and architectural works of art, and engravings and photographs [emphasis added – YD]. In the instant case, Safecom's drawings meet the exact definition of a "drawing" as an artistic work in accordance with section 35(1) of the Old Law, and on the face of it, the artistry criterion therefore does not apply to them directly. However, in my opinion, inspiration may be drawn from that criterion in order to interpret the application of the merger doctrine to Safecom's drawings, and to analyze their originality as a functional work.

 

25.       In Interlego, the difficulty that functional works pose for the requirement of originality was described in a way that very much brings to mind the principles of the merger doctrine. In President Shamgar's words:

 

            "When the form is dictated by the function, namely when the function limits the possible forms in which the product can be designed, then there is no justification for granting copyright to the form that is a product of functional-artistic judgement, since the protection that is given protects the function, not the author's original choice of the specific form. This is a circumstance in which the product's form is determined because of its functional task" (ibid., p. 177) (emphasis original – YD).

 

In fact, the words "function" and "form" can be substituted for the words "idea" and "expression". In order to resolve this problem, President Shamgar proposed six possible criteria for identifying the "artistry" of a work: the choice criterion; the author's intention criterion; the public acceptance criterion; the public's willingness to pay criterion; the minimal aesthetic standard criterion; and the art for art's sake criterion (ibid., p. 179). After a detailed discussion, President Shamgar proposed the "choice criterion" as the test appropriate to the examination of whether or not a work's expression derives solely from its functionality. He defined the criterion as follows:

 

            "The choice criterion: one of the characteristics of art is that it reflects the ability to express an idea in a variety of ways. As far as we are concerned here, this is a very broad criterion since it will be fulfilled whenever the creator of the functional product has the ability to choose between several options (ibid., p. 179).

 

            And following:

 

                        "It appears that in view of the purposes of copyright as indicated, and in light of the principles for the solution as formulated, the choice criterion should be regarded as a proper one in the context of examining the final product. That is to say, as long as the form obtained is one of several alternatives. The alternatives should be effective. An effective alternative is one that not only performs the functional task of the product but also meets the limited options of form existing in respect of future works deriving from the connection between function and form. There should be alternatives which, in addition to the functional task, meet the restriction of form that derives from the product's functional task or in other words, there should be several alternatives that all meet the restrictions of form that derive from the functional task" (ibid., p. 181).

 

26.       Applying the choice criterion can be of help in determining the proper protection of work regarding which it is asserted that its great functionality limits the ways for expressing the idea it represents. According to the choice criterion, the function or purpose for which the work is intended should be sought and an examination made as to whether the form of presenting that purpose – the expression – is accompanied by the author's choice from among several options that could achieve the same purpose. The application of this criterion might certainly lead to different conclusions with regard to different elements of the work. One can think of a functional work, some of the elements of which constitute essential expression of the purpose for which it has been created and therefore do not require the author to choose from alternatives when creating them, while at the same time, other elements are not dictated by its purpose, and it is clear that the author had a large range of possible choices with respect to the mode of expression. In view of this, one can again enquire into the controversy existing with regard to the relevance of the merger doctrine. As aforesaid, in my opinion when there is a solitary option for the expression of a particular idea, it is inappropriate to grant protection to that solitary mode of expression. However, when there are several possible expressions of a particular idea, even if they are very few, then in my opinion, having regard to the choice criterion, the author does have a choice among those possible expressions, and it is therefore inappropriate to deny copyright protection to the expression chosen. Nevertheless, I am willing to accept the approach that in such cases, when the number of options is very limited, then in order to prove copyright infringement, it will be necessary to apply the copying criteria strictly, and require that the work that is alleged to be an "infringing work" be almost absolutely the same as the protected work [see: Geva, p. 262; Strosky, p. 357; Greenman,  p. 83].

 

Copying a Functional Work

 

27.       The question of the criteria for copying in copyright law is an elusive one. Nevertheless, in the early 1970s, this Court laid down standards for the test in CA 559/69 Almagor v. Godik, IsrSC 24(1) 825 (1970) (hereinafter:  the Almagor case). The standards that were laid down in Almagor are still in use and were recently summed up by Justice Y. Amit in Mutzafi as follows:

 

            "(–)     It has to be proven that the defendant copied real and substantial parts of the plaintiff's work, the quality rather than the quantity being decisive.

            (–)       Copying can be inferred when the defendant had access to the plaintiff's work and the similarity between the works is of such an extent that it is unreasonable to suppose that it is the hand of chance.

            (–)       The accumulation of points of similarity is of importance. The more there are, the greater the concern that copying is involved.

            (–)       The question whether the similarity between the two works is sufficient to determine that copying of a real and substantial part is involved is one of fact and degree. The answer to the question should be given not on the basis of a mechanical comparison of a number of words or lines that are similar in the particular works, but in accordance with the judge's impression of the works as a whole" (ibid., para. 26).

 

28. Do these standards change when the protected work is a functional one? In my opinion, that question should be answered in the negative. As I have described above, functional works raise various difficulties at the stage of analyzing the requisite originality for the purpose of recognizing them as copyrighted works. However, once a functional work has passed the originality requirement stage and the choice criterion, it is a protected work in all respects, and substantial parts of it may not be copied. In this respect, even if only some of the elements that make up the functional work have passed the "choice filter", that does not affect their being work protected against copying.

          The only consequence of a work being functional concerns the standard for the analysis of copying when the protected elements constitute an idea that can only be expressed in a limited number of ways.. In such a case, a higher threshold will be necessary to establish copying, and almost absolute similarity between the protected elements and the allegedly copied elements will be required in order to establish that substantial similarity.

 

 

Were Safecom's Drawings Copied?

 

29.       Having considered the elements necessary to establish the protection of a work and prove its protection when the emphasis is on functional works, I shall now analyze whether, in the instant circumstances, Safecom's drawings amount to protected works, and whether the use that the Respondent made of them amounted to copying in infringement of the copyright.

 

30.       Firstly, it should be noted that drawings do generally meet the definition of an artistic work under section 35(1) of the Old Law, and, in any event, the Respondent does not assert that Safecom's drawings do not fall within the scope of the works to which protection is granted. Consequently, an analysis has to be made of whether the drawings meet the requirement of originality and, in such event, because they are functional works, whether they also meet the choice criterion. It is not without reason that it is said that a picture is worth a thousand words, and I shall therefore first present one of the parties' drawings as they appear in the comparative table that the Appellants filed (Exhibit 1 of their exhibits).

 

*  On the left – the Safecom drawing; on the right – the respondent's drawing

 

            The Safecom drawings portray an electrical product whose purpose is to provide electrical backup when there is a malfunction. The drawings show an illustration/photograph of the product with boxes at its sides in which there is text that expresses some electrical function, each of the drawings showing – on the product and between it and the boxes – lines and arrows that describe the electrical function that the drawing seeks to describe by visual expression. I would first state that I accept the Respondent's argument that the boxes, per se, like the text within them, do not amount to protected works. I also accept his argument that his drawings show a photograph of a product that is different from Safecom's, and that it is therefore not a copy. Nevertheless, that does not suffice as regards the question of the drawings' originality and the question of copying.

 

31.       It should first be noted that even if each of the elements of the Safecom drawings does not, per se, amount to an original work, that does not negate the possibility that the combination of the elements into a single visual work does amount to a compilation that affords protection to the way in which the elements are arranged, as opposed to the protection of each element individually [see: Greenman, pp. 119-124]. Nevertheless, even without finding that the Safecom drawings amount to an original compilation, in my opinion it can be found that they do constitute a sufficiently original artistic work.

 

32.       From looking at Safecom's drawings there appears to be no doubt that their purpose is to demonstrate the electrical process and the functions performed by the product that it manufactures. For the purpose of that demonstration, there is no doubt that it is necessary to use predefined expressions, such as the text that describes common electrical functions and such as showing the actual product to which the text relates. Together with that, Safecom's drawings also include lines and arrows that demonstrate the flow process described in the drawing. From looking at the drawings, it appears that this demonstration, which has a functional task, can be expressed in a large number of ways that can achieve the purpose, while Safecom chose a particular means of expression according to which the lines and arrows would be of a certain length and certain thickness, taking a winding course appropriate to the way in which it chose to position the product and the text boxes on the drawing. It is my opinion that Safecom's said choice affords it copyright protection in respect to the particular visual element that seeks to "correspond" with those elements that do not amount to a protected work.

 

33.       Having found that some of the elements of Safecom's drawings do amount to copyrightable artistic work, it remains to determine whether the Respondent's drawings constitute a reproduction of its drawings. I stated above that when a functional work is involved, insofar as there is a limited number of ways in which to express the underlying idea, it will be necessary to show that the work that is allegedly an infringement is almost completely the same as the protected elements in the functional work. I am prepared to assume, for the purpose of the discussion, that whether Safecom's drawings in whole constitute a protected compilation, or whether some of the elements are protected separately as an artistic work, the number of ways to give expression to a demonstration of the product's electrical process is limited. Nevertheless, even working on that assumption, from a comparison between Safecom's drawings and the respondent's drawings it appears that as regards the drawings marked Fig. 2 to Fig. 13, and Fig. 15 and Fig. 16 (Exhibit 1 of the Appellants' exhibits), the Respondent did make an identical (or at least almost identical) copy of the protected elements of the Safecom drawings in the form of the lines that describe the flow process.

 

34.       The Respondent asserts in this regard that filtering out the photograph of the product that was not copied and the elements that are not protected in the form of the boxes and the text on them, "at most what are left are… certain curved lines that describe the connections between the parts of the system. Curved lines in a drawing are not a 'substantial part' of the work. Real de minimus is involved" (para. 14 of the Respondent's summations). I cannot accept that argument. The fact that certain elements of the work are not copyrighted, whether because they are unprotected works, mere ideas or a complete merger between idea and expression, leaves those elements in the public domain and thereby permits their free use by anyone so desirous. However, when other elements of the work are copyrighted, it cannot be said that the fact that other elements of the work are not protected makes copying them insubstantial. Such a finding would negate the very protection of those elements, and that cannot be accepted. In my opinion, specifically when substantial elements of the work do not gain copyright protection and remain in the public domain, then copying all those protected elements will attest to the copying of a substantial part of the work, a fortiori when there is absolute, or almost absolute, similarity [on the substantiveness of the reproduction having regard to the amount of the copying, see Mutzafi, para. 91). This is especially so since there is no dispute that the Respondent did have full access to Safecom's drawings. It should be borne in mind that the Respondent could have made use of those unprotected elements of Safecom's drawings and added different visual descriptions to them that demonstrate the functionality of the drawings, and he could also have arranged the elements of the drawing differently, which would have achieved the functional purpose as well. Since the Respondent made exact use of Safecom's protected visual resources, he infringed its copyright in those elements.  Justice's Netanyahu's statement in Strosky is apt in this regard:

 

            "A general inverse relationship equation may be appropriate inasmuch as the less originality and intellectual effort in the work, the more exact the copying that is needed for its copyright infringement. According to this equation, it can be said that the originality and effort in the sign are modest, while the copy is almost exact. That suffices for infringement" (ibid., p. 357).

 

Permitted Uses

 

35.       Having found that the Respondent did infringe Safecom's copyright in its drawings, it remains to discuss the Respondent's arguments that his actions and the drawings that he made constitute permitted use according to the New Law and therefore do not amount to infringement. The Respondent bases his arguments on section 78(c) of the New Law, according to which an act that does not constitute an infringement of copyright in accordance with that Law will not constitute an infringement of copyright under the Old Law, despite its application in the circumstances. In view of that argument, it should first be determined whether the use of the work, in accordance with the uses that are defined in chapter four of the New Law as "permitted uses", constitutes copyright infringement. In my opinion, the answer to that is in the negative. In CA 5097/11 Telran Communications (1986) Ltd v. Charlton Ltd. (September 2, 2013) (hereinafter referred to as "Telran"), my colleague Justice Z. Zylbertal expressed the opinion that use in accordance with the uses defined in chapter four of the New Law cannot amount to a contravention of that law (ibid., paras. 28-30). That opinion is based both on the wording of the Law and on the perception that there are certain uses that, according to the purposes underlying copyright, amount to a right of the user and not merely a defense against contravention of the Law [for further, see Niva Elkin-Koren, “Users' Rights,” in Michael Birnhack & Guy Pesach, eds., Copyright (2009) 327 (Hebrew)]. I accept this position both as regards the finding that permitted use, as defined in chapter four of the New Law, does not constitute a contravention of the law, and as regards the finding that permitted use in fact constitutes a right that is granted to the user to make certain types of use of a work. I am conscious of the fact that this position is contrary to the holding of Deputy President E. Rivlin in CA 9183/09 Football Association Premier League Ltd. v. Anonymous (May 13, 2012) (hereinafter: the Anonymous case), para. 18 of his opinion, and in view of the existing disagreement, the time may have come for an extended bench to address this issue.

 

36.       Having found that permitted use does not amount to a contravention of the New Law, consideration should be given to the types of permitted use that are asserted by the Respondent in the instant case.

 

            Firstly, the argument Respondent raises avers that his use of Safecom's drawings is permitted use under section 20 of the New Law, which permits the use of a work in legal administrative proceedings to the extent justified having regard to the purpose of the use. I cannot accept that argument. I am prepared to assume for the purpose of the discussion that using the work for the purpose of presenting it to the registrar of patents in a particular country does constitute use in legal administrative proceedings, despite the fact that such a finding is not free of difficulties. However, the main element of this permitted use is the extent of the use, having regard to its purpose. In the instant case, the purpose of using Safecom's drawings and presenting them to the American Registrar of Patents in the patent registration application was the registration of a patent in respect of a product that competes with the one that Safecom markets. My opinion is that such use by a direct competitor, using the copyrighted work for the purpose of direct competition with the owner of the work, cannot amount to permitted use under section 20 of the New Law.

 

37.       Secondly, the respondent raises an argument that the use that he made of Safecom's drawings amounts to fair use, as defined in section 19 of the New Law. Section 19(a) of the New Law comprises an open list of types of use of protected works that will be permitted and fair. Section 19 (b) of the New Law enumerates four non-exclusive factors that are to be considered in order to determine whether a particular use amounts to fair use, including:

 

            "(1) the purpose and nature of the use;

            (2) the nature of the work of which use is made;

            (3) the extent of the use, qualitatively and quantitatively, in relation to the work as a whole;

            (4) the effect of the use on the value of the work and its potential market".

 

            This Court has held that "these are not essential or cumulative factors but a non-exhaustive list of parameters that might indicate the fairness of a particular use that is made of a protected work" [Anonymous, para. 19 of the opinion of Deputy President Rivlin].

 

            The four subordinate criteria listed in section 19(b) of the New Law are based on the subordinate criteria that have been laid down in the American Copyright Act [see: 17 USC § 107]. Empirical research that has been conducted attests that although the fourth subordinate criterion – the effect on the potential market – is most often mentioned as the decisive factor regarding the fairness of use, the first subordinate criterion – the purpose and nature of the use – does in fact have the most marked effect on the decision, the most influential factors being the commerciality and transformativeness of the use [see: Barton Beebe, “An Empirical Study of US Copyright Fair Use Opinions,” 1978-2005, 156 U. PENN L. REV., 549 (2008); Neil Weinstock Netanel, “Making Sense of Fair Use,” 15 LEWIS & CLARK L. REV. 715 (2011)]. It appears that these factors were also the most influential in this Court's ruling in Anonymous [ibid., para. 20].

 

            In the instant case, it appears that the use that the Respondent made of Safecom's drawings did not meet the standard of fair use. Thus, in the scope of the first subordinate criterion, it is clear that the Respondent's use was commercial because its whole purpose was to bring about the registration of a patent in respect of his product that competes with Safecom's product. Moreover, on analyzing the question of transformative use, it does not appear that the Respondent's use of the Safecom drawings led to the creation of a new expression, different from the original expression embodied in them. As regards the third subordinate criterion – the extent of the use – I have already found above that the Respondent made an exact, or almost exact, copy of Safecom's drawings, and the extent of the use is therefore full. Finally, having regard to the fourth subordinate criterion, it is clear that since the product marketed by the respondent directly competes with Safecom's product, there is no doubt that the use affects the potential market for Safecom's drawings.

 

            Incidentally, I would mention that I cannot accept the Respondent's argument that the American Patent Office has expressed its opinion that the use of a protected work for the purpose of a patent application amounts to fair use. From studying the opinion (which was annexed as Appendix J to the Respondent's volume of supporting documents), it appears that the American Patent Office means that the use of protected works that the Office itself makes in its relationship with those filing patent applications amounts to fair use [see: United States Patent and Trademark Office, USPTO Position on Fair Use of Copies of NPL Made in Patient Examination (January 19, 2012)].

 

38.       Thirdly, the Respondent contends that the use that he made of Safecom's drawings is permitted in accordance with section 27 of the New Law. Section 27 of the New Law provides:

 

            "Making a new artistic work which comprises a partial copying of an earlier work, or a derivative work from an earlier work, as well as any use of the said new work, are permitted to the author of the said earlier artistic work even where said author is not the owner of the copyright in the earlier artistic work, provided the new work does not repeat  the  essence  of  the  earlier  work  or  constitute  an  imitation thereof".

 

            In order to fall within the scope of the section, the Respondent must show that he was at least a joint author of the Safecom drawings. The District Court found that the Respondent had waived his rights in the drawings in favor of Safecom in the scope of the Agreement. The Respondent argues in this connection that even if he had waived his rights in the drawings, as regards the New Law he is still the first joint author of them. In my opinion, there is no need to rule on this issue because even if the respondent is a joint author of Safecom's drawings, section 27 of the New Law does not work in his favor in this case because the use that he made of Safecom's drawings amounts to an absolute, or almost absolute, copy of them. It cannot, therefore, be said that "partial copying" of Safecom's drawings, or a work deriving from them, is involved, and it can easily be found that the Respondent's drawings "repeat  the  essence  of  the  earlier  work  or  constitute  an  imitation thereof".

 

39.       Before concluding, I shall briefly consider the Respondent's argument concerning the law governing this case. According to the Respondent, copyright law is naturally territorial, as is the application of the Old Law. Since Safecom's drawings were copied in the USA, the Respondent asserts that the law governing the case is American law, which was not proven by the Appellants, and the appeal should therefore be dismissed. The District Court considered the Respondent's said argument and held that the drawings were not only copied in the context of filing the patent, but that the Respondent had received the presentation containing Safecom's drawings in Israel and copied them on the computer at his home in Israel. Consequently, the District Court held that Israeli law could be applied to the case. Those findings of the District Court are findings of fact, in which I have not found it appropriate to intervene at the stage of appeal. I would merely state that even were it appropriate to find that this case is governed by American law, that would not necessarily lead to the dismissal of the appeal in the absence of proof of the foreign law. This is particularly so when a sphere is involved that is regulated by numerous international conventions, which lead to relatively great conformity among the different state laws [see, for example: CA 169/94 Werner v. Amorim, IsrSC 50(3) 119, 124 (1996); CA 1227/97 Red Rock Quarry and Stone Works Ltd. v. Ibrahim IsrSC 53(3) 247, 259 (1999); CA 7687/04 Sasson v. Sasson (February 16, 2005), para. 10].

 

40.       In conclusion, I would recommend to my colleagues that we find that certain elements of Safecom's drawings amount to protected work, that 13 of the Respondent's drawings amount to an absolute, or almost absolute, copy of Safecom's drawings, and that the use that the Respondent made of the drawings does not amount to permitted use. I would also recommend to my colleagues that we remand the case to the District Court for ruling on the appropriate relief in respect of those infringements, and that the Respondent pay the Appellants' costs in the amount of NIS 40,000.

 

 

 

Justice Z. Zylbertal

 

            I concur.

 

 

 

Justice E. Rubinstein

 

A.        I concur in the illuminating opinion of my colleague, Justice Danziger.

 

B.        My colleague gave thorough consideration to a broad picture of copyright law, with regard to originality as a condition for the protection of a work, the protection of the way in which an idea is expressed, as opposed to the idea itself, and the criteria concerning works of a functional character, which is a complex matter in itself.

 

C.        I would like to add another criterion to all these – the common sense criterion, which might sound too broad because it can be said that common sense should guide us in every case, and on the other hand it is not necessarily the same for everyone in individual matters. However, by saying "common sense" in the instant case, I mean the accumulation of all the overall facts before the court.  When a work is involved, appearance or the sight of the eyes ("better is the sight of the eyes than the wandering of the desire", Ecclesiastes 6:9) is also acknowledged to be a significant parameter in intellectual property law (and see: CA 3422/03 Krone v. Inbar, IsrSC 59(4) 365, in respect of drawings as well. See also, inter alia, CA 7125/98 Mipromal v. Kalil, IsrSC 57(3) 702, 710 et seq.). Incidentally, the expression "the criterion of common sense" (in a slightly different sense) can be found in case law. See the statement by then Justice Grunis in ALA 5454/02 Taam Teva v. Ambrosia, IsrSC 57(2) 438, 453 (2005) citing this criterion per the learned commentator Seligson (Trademarks and Similar Law, (5733), 80-81 (Hebrew)) as regards the comparison of a conceptual message. And in the instant case, in preparing the file, when we – the bench – inspected the drawings involved, in our eyes there was a great similarity that was immediately conspicuous. Consequently, as I see it, the result that we have reached was required not only by common sense but also by the sight of our own eyes.

 

D.        Intellectual property law does, indeed, in many cases involve subtle nuances in respect of which it is frequently difficult to separate the wheat from the chaff, and much has been written about the difficulties of litigation in this sphere (see: D. Freiman, Patents (second printing, 2008) 7); but in my opinion, the case before us is not one of the difficult ones and anyone looking at the drawings that my colleague presented in his opinion (para. 30) needs no arcane language and can take them at face value, almost like the well-known definition by US Supreme Court Justice Potter Stewart concerning pornography, who said that it is perhaps difficult to define but "I know it when I see it".

 

E.         As aforesaid, I concur with my colleague's review, together with his cataloguing and arrangement of the matter.

 

F.         Before concluding, I would mention that Jewish law, especially in its modern embodiment, but even long ago, has considered the matter of intellectual property rights; see my opinion in CA 9191/03 V&S Spirt Aktiebolag v. Absolute Shoes, IsrSC 58(6) 869, 888-892, which also discusses (at p. 890, para. 18(3)) the Jewish law foundations of enforcement in intellectual property matters, and I would here emphasize the approaches of Jewish law that concern a another’s craftsmanship, trespass and theft, and more; in Krone, supra (at p. 379), I also considered the matter of a graphic pattern (or drawings) as a cause of action in Jewish law, and also see my opinion in ALA 7774/09 Weinberg v. Weisshof (2012) paras. 9 to 12 and the authorities cited there.

 

 

 

            Decided as stated in the opinion of Justice Y. Danziger.

 

Given this 15th day of Kislev 5774 (November 18, 2013)

 

 

 

Justice

Justice

Justice

 

 

 

 

 

            

de Kwakel B.V. v. Hajaj

Case/docket number: 
CA 10717/05
Date Decided: 
Tuesday, September 3, 2013
Decision Type: 
Appellate
Topics: 
Abstract: 

[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.] 

 

This is an appeal on a judgment of the Tel Aviv District Court, in which the appellants’ action for a permanent injunction against the respondents, which would prohibit them from utilizing (within the meaning of this term in the Plant Breeders’ Rights Law, 1973) protected varieties of “gerbera” seedlings and flowers (hereinafter: “the protected varieties”), the registered rights in which are held by the appellants (Dutch corporations). Respondent no. 1 admitted (in 2005) that since purchasing some 20,000 protected seedlings from a registered agent of the appellants in 1999, he has been propagating them repeatedly “until today,” but he claims that he has done so with the permission of the appellants.

 

The Supreme Court (per Justice H. Melcer, Justices S. Joubran and E. Rubinstein concurring) granted the appeal on the following grounds:

 

Upon registration, the breeders’ right in a protected variety is deemed to be intellectual property – similar to a patent. Following registration, the breeder acquires a property right in the variety, giving him the power to prevent anyone else from utilizing, without his permission or unlawfully, the variety in which the right is registered. The scope of the right is prescribed in sec. 36 of the Plant Breeders’ Law, and sec. 65 of the Law regulates the relief that may be granted in actions for infringement on breeders’ rights.

 

Following the amendment in 1991 to the International Convention for the Protection of New Varieties of Plants, 1961, and Israel’s signature of the Convention in October of that year, the Plant Breeder’s Law was amended (Amendment no. 2 5756-1996), and inter alia, sec. 36A was added to the Law. In this section, the legislator anchored the doctrine of exhaustion of rights, or the “first sale doctrine”; the meaning of this is that subsequent to the first sale of the seedling of the registered variety by the holder of the breeders’ right or with his consent, within the territory of the State of Israel, the breeders’ right in that seedling is exhausted. At the same time, two reservations were established; when either of these eventuates, the cluster of rights granted to the breeder under the Law, which is defined in the term “utilization” in sec. 1 of the Law, is “restored” to him. The first reservation (which is relevant to the matter at hand) deals with utilization involving repeated propagation of the variety (sec. 36A(1) of the Law); the second reservation deals with the export of propagating material, or harvested material of the variety, which enables its propagation in a state that does not protect varieties of the genus or species to which the protected variety belongs, except for purposes of “private” consumption (sec. 36A(2) of the Law). The purpose of the said amendment was to achieve a balance between the property right of the breeders, who are entitled to an injunction under sec. 36, in certain circumstances, and the public interest in not permitting expansion beyond the exhaustion of the breeders’ right that he sold, except in a case of repeated propagation or export of propagating material for the purpose of propagation.

 

From a combined reading of the relevant provisions of the law, the legal situation that arises is this: every “utilization” –  in the broad sense of the term in sec. 1 of the Law – of a registered variety, without the permission of the holder of the breeders’ right, or without a permit having been granted for this by law (e.g., within the bounds of the permitted uses under sec. 37 of the Law, such as utilization “for any act performed privately and not for commercial purposes” (sec. 37(2) (end)), falls within the definition of infringement on a breeders’ right, which grants the breeder the right to prevent the infringer from continued utilization of the protected variety, by means of an injunction (alongside additional remedies). The sale or the marketing by any other means of an item of the protected variety by the holder of the breeders’ right, or with his consent, within the territory of the State of Israel, exhausts the right of the breeder with respect to that item, and he may not invoke the steps afforded in the Law against a person who utilizes the registered variety in those ways, without his permission, or unlawfully, unless the utilization involves repeated propagation of the registered variety (or unlawful export, as stated in sec. 36A(2) of the Law). If such repeated propagation (or unlawful export) are involved, the powers and rights of the holder of the breeders’ right are restored to him, and he is entitled to take the steps afforded to him by the Law against any person who utilizes the registered variety in such manner without his permission, or unlawfully, thus infringing on his property right, and he is entitled to the full relief granted by the Law to the holder of the right in the case of infringement, including an injunction.

 

The practical significance of these provisions is that from the moment that the seedling of the protected variety is sold or otherwise marketed in Israel by the holder of the breeders’ right or with his consent, the holder of the breeders’ right has no claim against a person who utilizes the protected variety by way of cultivation, sale, import, export or marketing in any other manner of the seedling, or by way of maintenance for the purpose of one of these actions, as long as these actions do not involve repeated propagation of the variety, or the export of propagating material or harvested material of the variety, which allows for its propagation in a state that does not protect the varieties of the genus or species to which the protected variety belongs, except for the purposes of consumption, as prescribed in sec 36A(2) of the Law.

 

As opposed to this, the repeated propagation of a protected variety for commercial purposes, as well as the cultivation, offer for sale, or sale, export, import or marketing by other means, or maintenance for the purpose of performance of any of these actions, of the seedlings of a protected variety, which were produced by way of repeated propagation (or of the products of a protected variety, the crops derived from them or what they produced such as their flowers, their fruits etc., as determined and elucidated later in the judgment) amount to an infringement on the breeders’ right (unless they were expressly permitted and the conditions of the permit were met) that gives rise to an entitlement to relief that will prevent the continuation of the infringement in these ways, even if the product of the protected variety is initially sold or otherwise marketed within the territory of the State of Israel by the holder of the breeders’ right or with his consent.

 

In other words, it is forbidden for the grower who purchased seedlings of the protected variety to “produce” new seedlings of that variety by way of “repeated propagation,” for commercial purposes, without receiving permission from the holder of the breeders’ right. As stated, according to the Court’s position, within the definition of the expression “utilization that involves repeated propagation of the [protected] variety” are included not only the propagation itself (as the respondents argue), but also all utilization (within the definition of this term in sec. 1 of the Law) of the protected variety and of its “harvested material” (such as its flowers, fruits and the like) that were obtained as a result of the utilization of the protected variety by way of repeated propagation, without the breeder’s permission. “Preparation for the purpose of propagation” as well as maintenance of the variety for the purpose of repeated propagation (for commercial purposes) also fall within the definition of the expression “utilization that involves repeated propagation of the variety” that constitutes infringement on the breeders’ right. This expansive interpretation is mandated in light of the explicit language of sec. 36A of the Law, and it is consistent with the purpose of the 1996 Amendment, which was intended to broaden the protection of the breeders’ right; it is also consistent with the international obligations of the State of Israel, by virtue of the provisions of art. 16 of the Convention.

 

The injunctive relief to which the holder of the breeders’ right is entitled and its scope in the circumstances of sec. 36A(1) of the Law: The holder of a breeders’ right, whose right was infringed on by way of utilization involving repeated propagation of the variety for commercial purposes, without his permission, is entitled, as a rule, to relief by way of an order that will prevent the infringer from continuing to utilize the protected variety (within the meaning of secs. 36(b) and 1 of the Law), even if the item of the protected variety was initially sold or otherwise marketed in Israel, by him or with his consent. At the same time, the extent of the relief is equivalent to that of the right, and no more than that. This means that it is within the power of the order that is issued under the circumstances of sec. 36A(1) of the Law to prevent only utilization for commercial purposes that “involves repeated propagation of the variety.”

 

Utilization of a registered variety, similar to “utilization” of other things that are the bearers of abstract intellectual property rights, requires, in accordance with the provisions of the Law, permission from the holder of the breeders’ right (other than in situations that constitute “permitted use” within the meaning of sec. 37 of the Law – which are not our concern here). However, the Plant Breeders’ Law does not relate to the manner in which the permission must be given. Consequently, several different modes for granting the said permission have developed. The most common way is by granting a license to use by the holder of the breeders’ right, or his representative. As a rule, the preferred way is to grant a written license. However, according to the Court, in the absence of any contrary provision in the Law, there is nothing to prevent that permission to utilize a registered variety from being given orally (even though this may give rise to disputes and evidentiary difficulties, and is therefore not recommended). Without making an ironclad determination, in suitable circumstances the permission may also be deduced from the conduct of the parties. Similarly, the Court does not rule out the possibility that in certain circumstances, permission will also be given retroactively and in a less formal manner.

 

In the absence of any reference to the matter in the Plant Breeders’ Law, the validity of the said licenses (in all their possible forms) will be determined in keeping with the general laws that apply to transactions of this type (such as the laws of general contracts, laws of standard contracts, consumer protection laws and antitrust laws) and within the bounds of which the breeder is entitled, in principle (and subject to the general constraints of the laws), to attach conditions to utilization of a variety that he bred (even if it is not registered) that may not necessarily fall within the parameters of the property right granted to him by virtue of the Law.  Without ruling definitively, conditions of this type are likely to include, inter alia, the imposition of a (compulsory) duty to report utilization of the bred varieties (both registered and non-registered); a compulsory undertaking to pay royalties (including for the utilization of varieties that are not protected by the Law); and an undertaking (obligatory) to allow the breeder, or his representative, to establish for himself the scope of utilization by the grower – and all subject to these obligations being valid under the general law and taking into account that in attaching conditions of this type, the breeder may expose himself to claims under the Restrictive Trade Practices Law.

 

The very act of reporting to the breeder on utilization by way of repeated propagation of the items of the registered varieties that were purchased lawfully by the grower, and the payment of royalties for their utilization, per se, cannot “repair” the breach and grant the “utilizer” protection or immunity from a claim for infringement on the breeder’s right where the law, or the holder of the right, explicitly forbade the grower to utilize the varieties in the said circumstances. This is especially so when there is a dispute between the two parties as to the amount of royalties that are to be paid for utilization of the variety.

 

At the same time, the power of the holder of a breeders’ right to revoke the license in a protected variety that he bred, as well as the power to sue that is granted to him under the Law, must be exercised in an accepted manner and in good faith. The scope of good faith is determined according to the nature of the relations between the property owner and the “other.”

 

In the present case, the Court was convinced that in the period relevant to the action, the respondent utilized (within the meaning of the term in the Plant Breeders’ Law) for commercial purposes, without the permission of the appellants and unlawfully, products of the seedlings from the protected varieties that were bred by the appellants, in a manner that involved their repeated propagation. The utilization by the respondent did not come under the aegis of the “protection of exhaustion” prescribed in sec. 36A of the Law, and it constitutes an infringement on the monopolistic right to utilize the protected varieties that is granted to the appellants in accordance with the provisions of the Plant Breeders’ Law.  

 

From a combination of the provisions of sec. 35(b) and 65(a) of the Law it emerges that by virtue of the prerogative accorded to the holder of the property right in the protected varieties, the appellants are entitled to prevent the respondent, by means of an order, from utilizing, for commercial purposes, the protected varieties in a way that involves the repeated propagation of the variety. (Issuing a sweeping injunction, as requested, for all utilization and not only for utilization involving repeated propagation of the variety is not warranted, in that it deviates from the bounds of the “monopoly” that is granted to the breeder in the Law, and it is also not warranted in the circumstances of this case, inter alia, for reasons connected to anti-trust laws). There is no justification for limiting the injunctive relief, or to negate it, for reasons of “equity.”

 

It was made clear that respondent no. 1 bears direct liability for infringing on the appellants’ rights (in that he himself utilized the protected varieties, for commercial purposes, in a manner involving their repeated utilization, without the appellants’ permission), whereas respondent no. 2 – the owner of the agricultural lands on which the infringement was perpetrated – is liable for the infringement of the rights of the breeders, inter alia, by virtue of the doctrine of contributory infringement, which in Israeli law applies to the laws of patents (and the application of which was recently recognized in copyright law as well), and is recognized in this judgment in relation to the laws of breeders’ rights too.

 

Therefore an injunction was issued ordering the respondents to refrain from all utilization that involves repeated propagation of the protected varieties for which the appellants hold the registered breeders’ right, for commercial purposes, without the permission of the appellants.

Voting Justices: 
Primary Author
majority opinion
majority opinion
Author
concurrence
Full text of the opinion: 

CA 10717/05

 

1.         Florist de Kwakel B.V.

2.         Terra Nigra B.V.

 

v.

 

1.         Baruch Hajaj

2.         Abraham Hajaj

 

The Supreme Court

Sitting as a Court of Civil Appeals

[3 September 2013]

 

Before Justices H. Melcer, S. Joubran, E. Rubinstein

 

Appeal on the judgment of the Tel-Aviv-Jaffa District Court of 26.9.2005 in CF 1914/01, and on the complementary judgment of 2.5.2007, per Judge R. Ronen

 

Supreme Court cases cited

[1]        HCJ 3546/93 Yuval Agricultural Produce Ltd. v. Ornamental Plant Export and Marketing Council (21.11.93)

[2]        CA 2909/98 North Fodder Ltd. v. Hazera (1939) Ltd. [2000] IsrSC 54(3) 652.

[3]        CA 2600/90 Elite, Israel Chocolate and Sweets Factory Co. Ltd. v. Serange [1996] IsrSC 49(5) 796, 804.

[4]        LCA 6025/05 Merck & Co. Inc. v. Teva Pharmaceutical Industries Ltd. (19.5.2011).

[5]                           CA 4630/06 Sheffer v. Tarbut La’am (1995) Ltd. (8.7.2012).

[6]        HCJ 5379/90 Bristol-Meyers Squibb Co. v. Ministry of Health [2001] IsrSC 55(4) 447.

[7]                           CA 471/70 R. Geigy S.A. v. Pazchim Ltd. [1970] IsrSC 24(2) 705.

[8]        CA 326/00 Holon Municipality v. NMC Music Ltd. [2003] IsrSC 57(3) 658.

[9]                           LCA 371/89 Leibowitz v. A. et Eliahu Ltd. [1990] IsrSC 44(2) 309.

[10]     CA 2909/98 Northern Feed Ltd. v. Hazera (1939) Ltd. [2000] IsrSC 54(3) 652.

[11]         LCA 6141/02 ACUM v. Galei Zahal [2003] IsrSC 57(2) 625.

[12]         CA 1636/98 Rav Bariah v. Habshush [2001] IsrSC 55(5) 337, 349.

[13]     CA 9191/03 V&S Vin Sprit Aktiebolag v. Absolute Shoes Ltd. [2004] IsrSC 58(6) 869.

[14]         CA 2287/00 Shoham Machinery Ltd. v. Herer (5.12.05).

[15]     LCA 5768/94 AShIR Imports and Distribution v. Forum Accessories and Consumer Goods Ltd. [1998] IsrSC 52(4) 289.

[16]     LCA 9123/05 Admov Projects (89) Ltd. v. City State of the Alfo Group Ltd. (25.10.07).

[17]         CA 11900/05 Alumot Holon Ltd. v. Lehem Hai Ltd. (19.6.07).

[18]         LCA 112/93 Tzudler v. Yosef [1994] IsrSC 48(5) 550.

[19]     HCJ 1993/03 Movement for Quality Government in Israel v. Prime Minister [2003] IsrSC 57(6) 817, 899.

[20]         LCA 6339/97 Rocker v. Salomon [2001]IsrSC 55(2) 275.

[21]         CA 2850/99 Ben Hamu v. Tenne Noga Ltd. [2001] IsrSC 54(4) 849.

[22]         CA 442/85 Zohar v. Travenol Laboratories [1990] IsrSC 44(3) 661.

[23]         CA 9046/96 Ben Barukh v. Tnuva [2000] IsrSC 54(1) 625.

[24]         CA 10242/08 Muzafi v. Kabali (19.10.2012).

[25]         CA 78/04 Hamagen Insurance Co. Ltd. v. Gershon [2007] IsrSC 61(3) 18.

[26]         CA 6160/99 Druckman v. Laniado Hospital [2001] IsrSC 55(3) 117.

[27]         CA 5240/92 Halamish v. Ashraz [1993] IsrSc 47(1) 45.

[28]     CA 5977/70 The Hebrew University of Jerusalem v. Schocken Publishing House Ltd. (20.6.2011).

[29]     CrA 108/66 “Dan” Cooperative Society for Public Transport v. Attorney General [1966] IsrSC 20(4) 253.

[30]         CA 3400/03 Rubinstein v. Ein Tal 1983 Ltd. (23.3.05).

[31]     CA 3901/96 Raanana Municipal Council for Planning and Construction v. Horowitz [2002] IsrSC 56(4) 913.

[32]         CA 715/68 Fru-Fru Biscuits v. Frumin [1969] IsrSC 23(2) 43.

[33]         CA 1319/06 Shellac v. Tene Noga (Marketing) 1981 Ltd. (20.3.07).

[34]         CA 44/76 Ata Textile Co. Ltd. v. Schwartz [1976] IsrSC 30(3) 785.

[35]     FH 5004/11 Schocken Publishing House Ltd. v. Hebrew University of Jerusalem (11.9.11).

[36]         CA 9183/09 Football Association Premier League Ltd. v. A. (13.5.2012).

[37]         FH 4465/98 Tivol v. Cheg-Hayyam [2001] IsrSC 56(1) 56.

[38]         CA 6222/97 Tivol v. State of Israel [1998] IsrSC 52(3) 145/

 

District Court cases cited

[39]         CF (Tel Aviv) 349/98 Sayag v. Ornamental Plant Export and Marketing Council (22.8.07).

[40]         CF (Tel Aviv) 1377/92 Hazera (1939) Ltd. v. Southern Agricultural Produce Ltd. PM 5774 (1) 360, 364-5.

[41]         OM 2949/98 Sayag v. Ornamental Plant Export and Marketing Council (19.3.98).

[42]         CF (Merkaz-Lod) 1549-08-07 Maariv Modi’in Publishing Ltd. v. Businessnet Ltd. (17.10.12)

 

Magistrates Court cases cited

[43]         CF (Magistrates Court Netanya) 3038/02 Michael v. Aviv Floral Packing House Ltd. (31.1.2005)

 

US Cases cited

[44]         Bowman v. Monsanto Co. et al. 657 F 3d, at 1348.

[45]         eBay Inc. v. MercExchange 547 U.S. 388 (2006).

Australian Cases Cited

[46]         Cultivaust v. Grain Pool [2005] FCAFC 223.

 

International Conventions Cited

International Convention for the Protection of New Varieties of Plants

 

Legislation Cited

Agency Law, 1965

Basic Law: Human Dignity and Liberty, sec. 3

Civil Procedure Regulations, 1984, reg. 362(b)

Civil Wrongs Ordinance [New Version], sec. 74.

Contracts (General Part) Law, 1973, general and 39, 61(b)

Copyright Law, 2007, secs. 19 48, 53

Courts Law [Consolidated Version], 1984, sec. 75.

Interpretation Law, 1981, sec. 4

Ornamental Plants Council (Production and Marketing) Law, 1976.

Ornamental Plants Council (Export and Marketing) (Conditions for the Activities of Authorized Exporters) Rules, 1979

Patents Law, 1967, § 49, 178-187, 117, 65(a)

Plant Breeders’ Rights Law, 1973, 1, 2, 36(b), 36(e), 36A, 65, 4, 38-44

Plants Council (Production and Marketing) Law, 1973, and secs. 72, 73.

Program for the Recovery of the Israeli Economy (Statutory Amendments to Achieve Budgetary Goals and Economic Policy for the 2003 and 2004 Budgetary Years) Law, 2003 (S.H. 5763-22003 no. 1892 of 1.6.2003, p. 446)

Restrictive Trade Practices Law, 1988 sec. 29, sec. 3(2)

Unjust Enrichment Law, 1979

 

For the Appellants – D. Ginar

For the Respondents – M. Ofri

 

Justice H. Melcer

 

“I have also a flower.”

“We do not record flowers,” said the geographer.

“Why is that? The flower is the most beautiful thing on my planet!”

“We do not record them,” said the geographer, “because they are ephemeral.”

“What does that mean — ‘ephemeral’?”

“Geographies,” said the geographer, “are the books which, of all books, are most concerned with matters of consequence. They never become old-fashioned. It is very rarely that a mountain changes its position. It is very rarely that an ocean empties itself of its waters. We write of eternal things.”

“But extinct volcanoes may come to life again,” the little prince interrupted. “What does that mean — ‘ephemeral’?”

“Whether volcanoes are extinct or alive, it comes to the same thing for us,” said the geographer. “The thing that matters to us is the mountain. It does not change.”

“But what does that mean — ‘ephemeral’?” repeated the little prince, who never in his life had let go of a question, once he had asked it.

“It means, ‘which is in danger of speedy disappearance.’”

“Is my flower in danger of speedy disappearance?”

“Certainly it is.”

“My flower is ephemeral,” the little prince said to himself, “and she has only four thorns to defend herself against the world. And I have left her on my planet, all alone!”

That was his first moment of regret. But he took courage once more.

“What place would you advise me to visit now?” he asked.

“The planet Earth,” replied the geographer. “It has a good reputation.”

And the little prince went away, thinking of his flower.

(Antoine de Saint-Exupéry, The Little Prince; trans. from the French by Katherine Woods,  Pan Books, pp. 54-55 (1974)).

 

1.    This is an appeal against a ruling of the Tel Aviv-Jaffa District Court (Judge R. Ronen) in CF 1914/01, in which the action of the appellants for a permanent injunction against the respondents, prohibiting them from utilizing (within the meaning of this term in the Plant Breeders’ Rights Law, 5733-1973 (hereinafter, “Breeders’ Rights Law” or the “Law”)) varieties of protected seedlings and flowers of the gerbera variety, in which the appellants hold the registered breeding rights.

Below is the information relevant to the decision.

Background

2.    The appellants (hereinafter, “the appellants” or “the breeders”) are Dutch corporations in whose names the breeders’ rights were registered in accordance with the provisions of the Breeders’ Rights Law, regarding certain varieties of ornamental plants of the “gerbera” type (hereinafter, “the protected varieties”).

3.    In  2001, the appellants brought an action in the Tel Aviv District Court for a permanent injunction against the respondents—a father and son, owners of agricultural lands in Moshav Porath (the son, Respondent No. 1, is considered, so it is claimed, to be amongst the leading cultivators and marketers of flowers of the gerbera variety in Israel) – prohibiting them “from cultivating and/or propagating and/or preparing for the purpose of propagation and/or offering for sale and/or exporting and/or importing and/or marketing in any way and/or maintaining for the purpose of any of the above-mentioned activities seedlings and/or flowers of the gerbera varieties . . . ” in which the appellants hold the registered breeders’ rights, “and all – whether directly or indirectly, whether themselves or through others.”

In their suit, the appellants argued that in the 1999/2000 and 2000/2001 growing seasons, the respondents utilized (within the meaning of that term in the Breeders’ Rights Law) seedlings and flowers of the protected varieties on the lands in their possession, without the permission of the breeders, unlawfully and while making false declarations concerning the extent of the cultivation undertaken by them. They did so by propagating material that they produced and planted themselves, or received from others, and by means of cultivation, sale, marketing, and export of said seedlings and flowers, as well as by maintaining them for the purpose of each one of said activities.

The appellants argue that since the respondents’ utilization of the varieties was effected without their permission and unlawfully, they are entitled to prevent it by, inter alia, virtue of the provisions of §§.36 and 65 of the Breeders’ Rights Law.

At this point, an additional “actor” who was on the scene at the time relevant to the claim should be mentioned: namely, the Ornamental Plants Production and Marketing Council (hereinafter, “the Council”), which is a corporation established by the Ornamental Plants Council (Production and Marketing) Law, 825-1976 (hereinafter, “the Ornamental Plants Council Law”). From the time of its establishment and until May 1999, the Council served, by virtue of the Ornamental Plants Council Law, as the sole and exclusive exporter of ornamental plants from Israel. In May 1999 the Ornamental Plants Council (Export and Marketing) (Conditions for the Activities of Authorized Exporters) Rules, 1979, were enacted, permitting the export of flowers through authorized exporters. As part of the Council’s activities as an exporter (up until 1999), it signed agreements with flower growers in Israel, including the respondents, that regulated, inter alia, the marketing of flowers and their export, as well as collection of payment abroad for the exported flowers and its transfer to the growers (hereinafter, “the agreements of the Council”). In addition to its role as an exporter as aforesaid, the Council also served as the representative in Israel of breeders from abroad (including the appellants). Allow me to clarify: under sec. 20(a)(2) of the Breeders’ Rights Law, a breeder who is not a resident of Israel must appoint a local representative in Israel, who is authorized to represent him in any matter relating to an application to register the breeders’ rights in the Register of Rights. Pursuant to this obligation, the Council obtained authorization from various breeders abroad to represent them in Israel. The role that the Council assumed for itself was not included in the roles conferred upon it by law. In this capacity, the Council granted the growers sub-licenses for the utilization of those varieties whose owners it represented (see: CF (Tel-Aviv) 349/98 Sayag v. Ornamental Plant Export and Marketing Council [41]; HCJ 3546/93 Yuval Agricultural Produce Ltd. v. Ornamental Plant Export and Marketing Council [1]); and from the export payments that it transferred to Israeli growers who marketed flowers through it, the Council deducted sums that it charged on behalf of the breeders as utilization fees and/or royalties for utilization of the varieties. In accordance with the agreements of the Council, the growers are obliged to pay “breeders’ royalties” in respect of their utilization of both registered varieties and non-registered varieties.

It should be noted that on January 1, 2004, following the amendment of the Plants Council (Production and Marketing) Law, 1973 (hereinafter, “Plants Council Law”) as part of the Program for the Recovery of the Israeli Economy (Statutory Amendments to Achieve Budgetary Goals and Economic Policy for the 2003 and 2004 Budgetary Years) Law, 2003 (S.H. 5763-2003 no. 1892 of 1.6.2003, p. 446), the Plants Council Law was repealed and the Council in its previous structure ceased to exist (see secs. 72 and 73 of the Plants Council Law).

The Application for a Permanent Injunction and the Parties’ Arguments

4.    As argued in the written pleadings, in the course of the years during which the Council served as an exporter, the respondents exported annually, through the Council, flowers of the protected varieties to an extent that was a function of an annual utilization upwards of 220,000 seedlings. With the opening of the ornamental plants export market to competition in May 1999, the respondents stopped exporting their flowers through the Council, but according to the appellants, the respondents continued cultivating and utilizing the protected varieties without having received permission from the breeders (or permission from their representative in Israel, namely, the Council).

Note that from every gerbera seedling, several flowers may be grown. It was argued before this Court that most of the growers produce three flowers from one gerbera seedling; in contrast, respondent no. 1 (hereinafter, “the respondent”) succeeds, due to his skill, in producing up to ten flowers from one gerbera seedling. As long as the Council was the sole exporter, it collected royalties for utilization of the varieties in accordance with the number of flowers exported overseas. In contrast, there was no supervision over the sale of flowers produced by the growers from the bred varieties in Israel, and royalties were not collected for utilization of the varieties in this manner. Once the Council no longer served as the sole exporter of ornamental plants, the need arose for a mechanism that would allow the breeders’ representatives in Israel, including the Council, to establish the extent of utilization of the varieties by growers (including by way of repeated propagation) and to collect royalties in respect of such utilization. Hence the practice of conducting a “count” of the seedlings in the cultivation areas by means of a “counter” appointed for that purpose by a representative of the breeders was developed (for elaboration of this matter, see: CF (Netanya) 3038/02 Michael v. Aviv Flowers Packing House [43]).

Under these circumstances, the Council, in its capacity as representative of the breeders, approached the respondents and asked them, or so it was argued in the claim, to allow it, or someone on its behalf, to enter the cultivation areas of the gerbera plants under their control, in order to establish the extent of their utilization of the protected varieties. The appellants claim that the respondents refused to allow the requested count to be conducted, and provided only “self-reports” with respect to the extent of cultivation of the seedlings in the 1999/2000 and 2000/2001 seasons. These reports included details of the varieties of gerbera plants that were bred by the appellants in total, some of them protected, and some for which the appellants’ rights had not yet been registered.  According to the appellants, it emerged from these reports that the respondents utilized, according to their own report, 108,500 seedlings of the protected varieties in the 1999/2000 season, and 62,200 seedlings of the protected varieties in the 2000/2001 season.

The appellants claim that these reports are inaccurate. Their claim relies on estimations based on the size of the cultivation areas controlled by the respondents, on the extent of the cultivation of plants by the respondents in the years preceding these seasons, and on the refusal of the respondents to allow a representative on behalf of the Council to enter the fields under their control in order to count the seedlings.

The appellants further argue that the respondents did not pay them the full amount of royalties due in respect of their utilization of the protected varieties, even according to their own declaration (according to the appellants, the respondents paid them approx. NIS 50,000 in respect of the two growing seasons, when according to their self-reports, they ought to have paid three times that amount; in contrast, according to the appellants’ assessment of the estimated “real figures,” the respondents ought to have paid an approximate amount of NIS 400,000 for the two growing seasons).

Under these circumstances, the appellants notified the respondents, through the Council, in a letter dated 20.2.2000, that they  

do not allow . . utilization of their gerbera varieties, and they will not renew any agreement or authorization if such existed. . .  and this includes, inter alia, cultivation, propagation, sale, offer for sale of their varieties [.]” (Emphasis added – H.M.).

In an additional letter dated April 12, 2001, the appellants reiterated their notice whereby the respondents were notified they were not allowed: “to utilize, in any form or manner (including by way of propagation, planting, cultivation or marketing) any variety whatsoever of their gerbera varieties.

When these communications went unanswered, the action for a permanent injunction against the respondents, which is now the object of this appeal, was brought before the District Court on June 3, 2001not long before the beginning of the 2001/2002 growing season (the growing season for gerbera plants is the period between the month of October in a given year and the month of May the following year). I will also point out that together with bringing the action for a permanent injunction, the appellants also submitted a petition for a temporary injunction until this action is adjudicated. The respondents did not respond to the petition in a timely fashion, and under these circumstances, the District Court (per Judge Y. Zefat) granted the appellants’ request and issued a temporary injunction. The order was made conditional upon the deposit of a personal undertaking, and a cash deposit, or an autonomous bank guarantee from an Israeli bank in the amount of NIS 25,000. From the material before us it emerges that the undertaking and the deposit or guarantee were not executed and the temporary injunction did not, therefore, take effect and was not delivered to the respondents.

Moreover, on October, 2001 the District Court issued a ruling on the action ex parte. The ruling was later set aside, after the respondents explained their failure to respond by saying that at that time, they were negotiating with the Council and believed that the dispute would be resolved outside the courtroom, and that they subsequently undertook to allow a count to be conducted, as elucidated in para. 6 below (this count, too, is in dispute).

5.    In the statement of defense submitted following the above mentioned developments, the respondents argued that the action had in fact been brought by the Council in an attempt to limit competition in the plant export sector when that sector had been opened to competition (after the Council ceased to be the sole exporter), and as a means of applying pressure to the respondents following a financial dispute that arose concerning the amount of royalties that the respondents had been asked to pay for their utilization of varieties bred by the appellants. According to the respondents, the Council also tried to collect from them, unlawfully, royalties for their utilization of varieties that were not registered, and when its demand was not met, the action for an injunction was brought.

The respondents also argued that there was no dispute between the appellants and Respondent no. 2, an elderly man who is, indeed, registered as the owner of the rights in the agricultural lands, but has not, they claim, been involved in agriculture and the cultivation of flowers for some two decades; his “only sin,” they argue, lies in the fact that he allows his Respondent No. 1, his son, to work his land, for no consideration.

On the merits, Respondent No. 1 argued that as early as 1993/4 he began importing gerbera seedlings, including those of the types bred by the appellants, whether or not the rights in them were registered. He contends that he has purchased seedlings from authorized suppliers of the breeders (such as Herman Crystal Co. Ltd and Migros Ltd.), and that “from time to time he utilizes varieties by way of propagation” (see: sec. 22 of the statement of defense, and sec. 20 of his deposition). According to Respondent No. 1, this was done pursuant to his right by virtue of the agreement to purchase the seedlings from the supplier (a document entitled “Terms Relating to Order of Gerbera Seedlings” was submitted to the District Court, appended to the “Order for Gerbera Seedlings from Herman Crystal Ltd.”) which stated, inter alia, that self-propagation of seedlings is permitted (see sec. 22 of respondent no. 1’s principal deposition). Note: contrary to the position of the respondents, propagation by virtue of the purchase agreement is permitted only in consideration of payment of royalties, and if these are not paid, a prohibition on utilization applies (for elaboration see para. 43 below).

The respondents argued that in the case of protected varieties, seedlings of which have been sold or have been marketed in Israel by the holder of the breeders’ rights or with his consent, as in the case before us, the breeders’ right under sec. 36A of the Law is limited and it applies only to repeated propagation of the variety, and/or to export of propagating material of the variety to countries that do not protect varieties of the species to which that protected variety belongs. However, other actions such as cultivation, sale, and marketing in respect of those protected varieties will not constitute an infringement on the breeders’ right within the meaning of the Breeders’ Rights Law.

The respondent further argued that he did not refuse to allow the Council representative to visit his fields, but rather made the count conditional upon his presence, and also demanded the “counter” to commit to confidentiality, in view of his previous acquaintance with him, from which it emerged that the “counter” was not careful about maintaining confidentiality (sec. 35 of the statement of defense).

Here it should be pointed out that in his statement of defense, the respondent confirmed that the self-reports that he submitted to the Council with respect to the 1999/2000 and 2000/2001 seasons related to “utilization by way of propagation only” (sec. 36 of the statement of defense).

Finally, the respondent argued that in view of his reading of the defenses in sec. 36A of the Law, the appellants are entitled, at most, to receive relief by way of prevention of propagation, but they are not entitled to receive the relief requested in the statement of claim; according to him, such sweeping relief is contrary to the provisions of the Law.

The Count Conducted in the Respondents’ Fields after the Action had been Brought

6.    After the action had been brought and judgment had been rendered against the respondents ex parte counsel for the respondents notified the appellants, in a letter dated December 7, 2001 as part of the proceeding to set aside the above judgment, that the respondent is prepared to allow a representative of the appellants to visit his fields in order to obtain a first-hand view of the number of varieties that he is cultivating, subject to an undertaking on the part of the representative to maintain confidentiality with regard to the information that will be disclosed to him.

7.    The count was conducted in the presence of Respondent No. 1 and his counsel on February 24, 2002, in the wake of said notification and the setting aside of the judgment rendered against the respondents ex parte, revealed that the respondent had cultivated some 180,000 seedlings of the protected varieties, and a great number of seedlings from the unprotected varieties, over an area of approximately 42 dunams (contrary to earlier statements of the respondent, according to which his land extends over an area of only 25 dunams). It should be noted that the data that appear on the counting forms were submitted to the lower court by the “counter,” who submitted an affidavit and was examined on it, and which data was confirmed by the signature of the respondent on the forms.

The Parties’ Principal Arguments in their Summations in the District Court

8.    In their summations in the District Court, the appellants argued that the protection of sec. 36A of the Law cannot relieve the respondents, if only because the respondent admitted that since 1999, he has cultivated gerbera varieties by way of repeated propagation. In this context, the appellants refer to what the respondent said in his cross-examination. That is, when the respondent was asked: “What have you been doing since 1999? Where have you obtained seedlings for the export of gerberas?” he replied: “What I bought in those years – I have been propagating those varieties to this day” (Protocol 9.6.2005, p. 12, lines 31-32), and later added that he does not buy seedlings from other growers (p. 13, lines 4-5).

The appellants further argued that the provisions of the purchase agreement for the seedlings, on which the respondent attempted to rely, in fact support their claim, for it states there explicitly that

The seedlings that are the object of the order are intended for self-cultivation only; self-propagation is permitted in a vegetative manner only and for the use of the grower alone, only on the farm lands that he controls; sale of the seedlings or their transfer to another, whether prior to propagation or thereafter, is prohibited (sec. 4 of the purchase agreement).

And further:

A grower who does not pay the price of the seedling or the royalty or who breaches another of his obligations according to this order will be barred from utilizing the seedlings or their flowers in any manner whatsoever (including their marketing and/or export); without derogating from the above said, the grower hereby gives his consent that in such a case, an order prohibiting such utilization may be issued against him (sec. 7 of the purchase agreement)

(Emphasis added – H.M.).

According to the appellants, this is sufficient for the claim to be accepted and the requested relief granted.

In addition, the appellants contended that in accordance with the provisions of sec. 36A of the Law, not only is repeated propagation prohibited, but any utilization involving repeated propagation of the protected variety (marketed in Israel by the breeder or with his consent) is also prohibited.

9.    In their summations, the respondents argued that in the cross-examination of the appellants’ representative (who also served as the director of the Breeders’ Unit in the Council), the true issue underlying the claim emerged: that the alleged refusal of the respondent to allow the count to be conducted in his fields, and consequently to pay royalties for the varieties that are not registered, for such a count includes the non-registered varieties as well, and the grower’s signature on the counting form constitutes confirmation of the amount of royalties required for their utilization. As proof, they point to the cross-examination: when the appellants’ representative was asked “[i]s it correct, that if [the defendant] would have paid all the royalties, including for non-registered varieties, there would not have been a problem?”, he answered: “[I]f he would have allowed the count and confirmation of its accuracy, there would not have been a problem. . . ” (Protocol 9.6.2005, p. 8, lines 17-19; emphasis added – H.M.). At the same time, the respondents argued that they had indeed agreed that a count be conducted, but they had demanded that it be done only in relation to the registered varieties; the Council representative refused, however, to conduct such a count and insisted that the seedlings of non-registered varieties be counted, too. Also, the respondents raised further arguments concerning the absence of the appellants themselves and their “representation” by the Council representative.

Ultimately, the respondents argued that bringing an action for an injunction—as opposed to a monetary claim, or a claim for a mandatory injunction obligating the respondents to allow the appellants’ representative to enter the area and to count the seedlings—is tainted by lack of good faith and amounts to abuse of a right. The respondents also argued that the appellants are in possession, through the Council, of approximately seventy five percent of the protected varieties, and they therefore constitute a monopoly; under these circumstances, the demand made of the respondents to desist from cultivation, marketing, sale, export, etc. of the protected varieties amounts to a violation of sec. 29 of the Restrictive Trade Practices Law, 5748-1988, according to which “A monopolist may not unreasonably refuse to provide . . . an asset or a service over which the monopoly exists.” Moreover, the respondents argued that in accordance with the general case law on issuing a permanent injunction, in the present circumstances it is unwarranted to grant the appellants the sought relief, thereby cutting off the source of the respondents’ livelihood.

The Ruling of the District Court and the Complementary Judgment Rendered after the Appeal had been Lodged

10.  The District Court, as stated, dismissed the appellants’ action for a permanent injunction against the respondents. According to the District Court, the appellants claimed there had been two main infringements: the first is related to the fact that the respondents did not permit the appellants’ representative to access their land in order to count the plants and the second goes to the fact that the respondents’ self-reporting was inaccurate.

As for the argument concerning the first infringement, the District Court ruled that the respondent agreed to the count of the registered varieties, and under these circumstances it cannot be established that he was in violation of the breeders’ rights under the Law, which protects only against “utilization of a registered variety.”

As for the argument concerning the second infringement, with respect to the inaccuracy of the self-reporting submitted by the respondent, the District Court ruled that it accepts the respondent’s readings of secs. 36 and 36A of the Breeders’ Rights Law, whereby all the actions, except those expressly prohibited in secs. 36A(1) and (2) of the Law, are permitted. Accordingly, the District Court ruled that the respondent’s actions, including the cultivation of the flowers, their sale, and their marketing, should not be considered actions involving repeated propagation of the variety.

The District Court further determined that the Law assumed that the breeder is entitled to condition utilization of the registered variety upon his consent, and such consent is likely to involve the payment of royalties. However, once an item from a protected variety has been sold once, with the consent of the breeder, within the territory of the State of Israel, the breeder’s consent is no longer required for further utilization of that same variety, except in the situations described in secs. 36A(1) and (2) of the Law. According to the District Court, if the seedling was sold once again, or if the buyer cultivates it, the breeder is not, as a rule, entitled to royalties, unless the buyer “propagates” the seedling by a prohibited repeated propagation, or effects a prohibited export of propagation material or harvested material of the variety.

Following this, the District Court further determined that under the Law, the respondent has a duty to report those seedlings that were created as a result of repeated propagation of the registered varieties – as the respondent contends he did in the self-reports that he submitted. Indeed, had a count been conducted in “real time,” it would have been possible to test the accuracy of the self-reports, but because the “counter” did not agree to conduct the count (in view of the respondent’s opposition to counting the non-registered varieties), there is no proof that these reports were inaccurate; consequently, there was no “infringement” which would entitle the appellants to relief in the form of an injunction.

Furthermore, the District Court accepted the respondents’ argument whereby the appellants’ reliance on the provisions of the purchase agreement constitutes a prohibited broadening of the scope of the claim; the Court ruled that the question of the appellants’ rights by virtue of the purchase agreement—to which they were not a party—did not arise in the written pleadings and the principal depositions of the appellants.

As an aside, the District Court noted that even had the action been accepted, it would not have been appropriate to issue an injunction against respondent no. 2 (in the judgment, “respondent no. 1” was written by mistake  – H.M.) merely because he was the owner of rights in the land on which respondent no. 1 cultivated the flowers. However, the District Court noted that the respondents’ argument that the claim should have been dismissed because the authorized representatives on behalf of the appellants did not appear in court had no merit, for the representatives of the Council appeared on behalf of the appellants and testified about the facts that were known to them.

11.  The judgment of the District Court was rendered prior to the final date for submission of responding summations on the part of the appellants, in accordance with the procedural arrangement between the parties that was accorded the force of a ruling. Accordingly, as decided by this Court, the case was returned to the District Court in order for the responding summations to be considered and a complementary decision be given; this indeed was given by the lower court (hereinafter, “the complementary decision”).

In the complementary decision, the District Court ruled that the interpretation attributed in the judgment to sec. 36A of the Law bore a certain degree of similarity to the interpretation proposed by the appellants, whereby “as soon as repeated propagation of the variety is carried out without the authorization or consent of the holder of the rights in the variety, the chain of authorization is broken.” At the same time, the District Court once again rejected the appellants’ argument that the respondent admitted that he utilized and is utilizing the appellants’ varieties by way of self-propagation, in determining, inter alia, as follows:

According to the correct interpretation of sec. 36 of the Breeders’ Rights Law, the grower is entitled to utilize varieties that he purchased from an authorized agent, as long as he does not propagate them. The defendant argued that he purchased the varieties registered to the plaintiff from authorized agents, and that he submitted self-reports to the plaintiffs. The plaintiffs bore the burden of proving that the defendant’s self-report was incorrect, either because the defendant purchased registered varieties without the knowledge of the plaintiffs, or because he did not report the self-propagation of the registered varieties. The plaintiffs did not prove this. At the time the suit was filed, no count had been conducted on the defendants’ land. The count that was conducted after the suit was filed relates both to registered varieties and to those that are not registered, and it is therefore impossible to establish in light of the count, even if we relate to its findings, that the self-report of the defendants was inaccurate. Therefore, the plaintiffs did not prove their claim of infringement regarding the self-reports (paras. 9 and 10).

Therefore the District Court upheld its judgment, and the appeal returned to this Court.

Summary of the Parties’ Arguments on Appeal

12.  The appellants argue that in accordance with the Breeders’ Rights Law, utilization of a variety, within the meaning of this term in the Law, requires permission from the holder of the right in the protected variety. The holder of the breeders’ right is entitled, on his part, to prevent any person other than himself from utilizing the variety without his permission, just as a person is entitled to prevent another from entering his house or from using his car. This is certainly the case, according to the appellants, in circumstances where the breeders have lost faith in the growers.

The appellants further argue that they notified the respondents, in a letter dated 20.2.2000, that they were prohibited from utilizing the varieties that had been bred by them, and under these circumstances, the continued utilization of the varieties by the respondents was a violation that inter alia entitles the appellants to an injunction, by virtue of sec. 65 of the Law.

According to the appellants, the gerbera seedling produces flowers for the duration of only one season that lasts for approximately one year, and rarely, two years. In their view, at the end of the “life-span” of the seedling, additional seedlings of the protected varieties, or flowers that were produced by repeated propagation, may not be found in the respondents’ fields. From the material that was presented to the District Court it emerges that in the year 1999, the respondent purchased a total of 20,000 seedlings of the registered and the non-registered varieties. Since then, the respondent, to the best of their knowledge, has not purchased additional seedlings of the varieties bred by the appellants, and has based the cultivation of flowers in his fields on seedlings of the varieties bred by the appellants that he produced by way of repeated propagation from seedlings he had purchased in the past. According to the appellants, the self-reports of the respondent (even if inaccurate, as the appellants claim), as well as the count conducted after the suit was filed (with the respondents’ consent, as stated, as part of the proceeding to set aside the judgment given against them ex parte), in which the fields of the respondent, extending over an area of some 42 dunams, were found to contain approx. 180,000 seedlings of the registered varieties, constitute proof of the vast extent of utilization of registered varieties by the respondent by way of prohibited repeated propagation.

According to the appellants, a correct interpretation of sec. 36A of the Law is that not only is self-propagation itself “contaminated” and may be prevented, but also any matter which “entails self-propagation,” or is derived from it—such as cultivation of seedlings that were created by way of repeated propagation, marketing of their flowers, and their sale—is not covered by the protections provided under sec. 36A of the Law.

In addition, the appellants argue that the District Court erred in ruling that the respondents were subject only to the duty of reporting repeated propagation, for the Law does not impose any duty of reporting and does not grant immunity to anyone who reports such infringement.

The appellants also contend that respondent no. 2 himself violated their rights in the registered varieties, or knowingly participated in such violation, and the injunction ought therefore to apply to him as well.            

13.  The respondents agree with the judgment of the District Court, and reiterate the arguments raised there. In addition, they argue that for many years, respondent no. 1 has been involved in repeated propagation of the varieties bred by the appellants, with knowledge of and agreement from. According to the respondents, sec. 36A of the Law restricts the breeders’ rights and grants whomever lawfully purchased seedlings from an authorized agent of the breeders a defense against a claim of utilization, in any way whatsoever, of the protected variety, except for ways expressly prohibited in sub-secs. (1) and (2) of sec. 36A of said Law. As such, whereas the “repeated propagation” of the protected varieties without the consent of the breeders is prohibited, the cultivation, marketing, sale, export, import and the like of those seedlings that were lawfully purchased, or that were propagated with the knowledge of the breeders, and of their flowers are permitted, even without obtaining specific permission from the breeders.

Additionally, the respondents argue that even if it should be determined that they were in breach of the rights of the breeders in the registered varieties, relief by way of an injunction is neither appropriate nor correct under the circumstances, for the appellants did not prove that denying the request for an injunction will damage them financially, whereas granting the requested relief to the holders of the right simply because they so desire may financially destroy the respondents, who continue to pay royalties for utilization of the varieties.

Deliberation and Decision

14.  This appeal raises several fundamental issues: what is the nature, character, and scope of the breeders’ right? Is the holder of a breeders’ right in a registered variety entitled to prevent a person whose occupation in Israel is the cultivation of a registered variety and its marketing, from continuing to utilize this variety after its seedlings were sold to him by an authorized agent of the breeder? And if so, under what circumstances, and with what reservations (if any)?

All the parties notified us that they are seeking a determination on these important questions, after attempts at conciliation or mediation conducted between them were of no avail.

The answers to the above questions will be elucidated in the discussion below. Before I embark on that discussion, however, I wish to quote a short passage from The Little Prince (an excerpt of which was quoted above), which describes the adventures of the protagonist of the story on Planet Earth. In my view, the simple words of the narrator there can shed light  even to those who are not expert in the law  on the nature of the right that is the focus of the appeal before us. It goes as follows:  

But it happened that after walking for a long time through sand, and rocks, and snow, the little prince at last came upon a road. And all roads lead to the abodes of men.

“Good morning,” he said.

He was standing before a garden, all a-bloom with roses.

“Good morning,” said the roses.

The little prince gazed at them. They all looked like his flower.

“Who are you?” he demanded, thunderstruck.

“We are roses,” the roses said.

And he was overcome with sadness. His flower had told him that she was the only one of her kind in all the universe. And here were five thousand of them, all alike, in one single garden!

“She would be very much annoyed,” he said to himself, “if she could see that  . . . ”

. . .

Then he went on with his reflections: “I thought that I was rich, with a flower that was unique in all the world; and all I had was a common rose. A common rose  . . . That doesn’t make me a very great prince . . . ”

And he lay down in the grass and cried.

[ . . . ]

The little prince went away, to look again at the roses.

“You are not at all like my rose,” he said . . .  “To be sure, an ordinary passer-by would think that my rose looked just like you – the rose that belongs to me. But in herself alone she is more important than all the hundreds of you other roses: because it is she that I have watered; because it is she that I have put under the glass globe; because it is she that I have sheltered behind the screen; because it is for her that I have killed the caterpillars . . .  because it is she that I have listened to, when she grumbled, or boasted, or even sometimes when she said nothing. Because she is my rose.”

(Antoine de Saint-Exupéry, The Little Prince; trans. from the French by Katherine Woods,  Pan Books, pp. 62-3, 70 (1974)).

I shall now proceed to a legal analysis of the case.

15.  Since the beginning of time, plants and flowers have been supplying the human race with a major part of its needs. We use them, inter alia, as food, as raw material for industry, for medicinal purposes, as cosmetics, as ornaments, and even to express emotions. The breeding of new varieties of plants is a process requiring a great deal of knowledge, money and time. The breeding period may sometimes last for many years. From recognition of the importance of the continued investment in the breeding of new plant varieties, breeders’ rights laws began to develop. In their essence, such laws grant a plant breeders’ right of a proprietary nature to a person who has bred a new variety of a plant. This right is similar in nature to the right of a person who was granted a patent for his invention. Similar to patent law, the law of breeders’ rights grants the breeder of the protected variety, who is lawfully registered in the register of rights, exclusivity for a limited period of 20 or 25 years from the date of registration (subject to exceptions secs. 4, 38-44 of the Breeders’ Rights Law), during which he is, in principle, the only one authorized to utilize the variety, or to allow others to utilize it, in return for payment of royalties. The purpose of breeders’ rights law is to incentivize breeders to develop new varieties of plants which people are able use and from which they can derive benefit, by means of granting an exclusive (monopolistic) right to utilize the variety bred by the breeder during the protected period, to allow the breeder to retrieve the costs of his investment in breeding the variety, as well as to make a reasonable profit. These laws grant proprietary rights to a person who displays innovation in developing plant varieties, and as a rule, they create a balance between the desire to encourage freedom of thought and creativity and their various expressions in order to advance the individual and society through the discovery of new varieties and the desire to allow utilization of those varieties for commercial purposes, for the benefit of others (such as growers, merchants, marketers, etc.) and for the benefit of society at large (see: Doron Brosh, Breeders’ Rights and Patents and Statutory and Institutional Regulation  in the Agricultural Sector vol. 1 (2006) (hereinafter: Brosh), 89-91).

16.  The legislation in the area of breeders’ rights in Israel, as in many other states, is based primarily on the International Convention for the Protection of New Varieties of Plants, which was signed in Paris in 1961 and was amended in Geneva in 1972, 1978 and 1991 (hereinafter, “the Convention”, within its meaning in the Breeders’ Rights Law as well).

Similar to other international conventions and agreements in the area of intellectual property, the Convention was designed to create international cooperation in the protection of the rights of breeders of new varieties of plants. The provisions of the Convention express a balance between the interests of the agricultural production for the benefit of the public, and the property interests of the breeder, and they create a basis for uniform legislation in the states that are members of the Union for the Protection of New Varieties of Plants (UPOV), which was established by virtue of the Convention (see: articles 1-4 of the Convention).

Following the amendment of the Convention in 1991, and its execution by the State of Israel in October of that year, and in order to adapt the provisions of the Breeders’ Rights Law, enacted in 1973 to the provisions of the amended Convention which expanded the breeders’ rights, the Israeli Law was amended on 13.2.1996 by the Plant Breeders’ Rights Law (Amendment no. 2) 1996 (hereinafter: the 1996 Amendment).

Within the 1996 Amendment, the legislator amended, inter alia, the definition of the terms “variety” and “utilization” as they appeared in the Law, and expanded the right of breeders, applying it also to “harvested material” (“a plant and any part of it, including its fruit, which is not intended for cultivation or propagation” (sec. 1 of the Law)) which was obtained by unauthorized utilization of propagating material of the protected variety (sec. 36(b) of the Law). With this, the definition of the term “harvested material” was also amended to extend to “a plant and any part of it, which is intended for cultivation or propagation, including seeds and tissue cultures” (sec. 1 of the Law). It was further established that the protection of the breeders’ right would also apply to “a variety essentially derived from the protected variety” (sec. 36(e) of the Law). Similarly, sec. 2 of the Law was amended, to state that the provisions of the Law would apply “to all botanical species and varieties,” and not only to “all botanical species and varieties specified in the appendix” (emphasis added – H.M.), as appeared in the previous version.

17.  In accordance with the provisions of the Law, the breeders’ right in the variety, which is essentially “a group of plants within a single botanical taxon of the lowest known rank” (for a full definition of “variety,” see sec. 1 of the Law) will be vested in a person, including a corporation (see sec. 4 of the Interpretation Law, 1030-1981), when the right is registered in his/its name in the breeders’ rights register and subject to the variety fulfilling all the conditions that render it eligible for registration, under secs. 6-7 of the Law: primarily, that it is a “new,” “uniform” and “stable” variety, within the meaning of these terms in secs. 6 and 7 of the Law.

The breeders’ right in the protected (registered) variety will remain in force as long as the registration remains in force (sec. 4 of the Law). The duration of the breeders’ right is normally 20 years from the date of registration. With respect to certain varieties specified in the Law, the right of the breeder endures for a period of 25 years from the date of registration. In certain cases, as determined by the Minister of Agriculture, the period may even be longer (see: sec. 38 of the Law).

18.  As a rule, it is possible to register a right in a variety that was bred in Israel in the breeders’ rights register (sec. 3(a) of the Law). At the same time, “[a]n Israel citizen, an Israel resident or a resident of a Union state – including a body corporate established by law in Israel or in a Union  state – may apply for the registration of a breeders’ right in the Register of Rights also in respect of a variety bred outside of Israel” (sec. 3(b) of the Law; emphases added – H.M.; to complete the picture in this context, see also secs. 71-73 in Chap. 10 of the Law, dealing with “Application by non-resident”) .

These provisions demonstrate the fact that beyond the purpose of encouraging agriculture and the development of new plant varieties in Israel, the legislator wished, inter alia, to encourage breeders from abroad to allow Israeli growers to utilize the varieties that they bred overseas and to market them in Israel, without concern about infringement of their rights here, as well as the desire to facilitate the integration of Israel into the European Common Market. This desire found expression in the words of the then-Minister of Agriculture, when he submitted that draft law for its first reading in the Seventh Israeli Parliament (D.K., Session 177 of 3.5.1971, folder 24, p. 2278):

The breeding of a new variety requires work over a long period. Much time, knowledge and resources must be invested. In the present situation, when there is no law for the protection of the breeder and his rights, he sees no reward for his work. For every person, after the variety appears on the market, can buy the seeds and utilize them without the breeder himself earning what is due to him. Therefore, just as there is a need to protect inventions and patents, there is also a need to protect breeding rights. The lack of protection of breeding rights in Israel causes additional problems[.[ Recently, foreign countries have grown hesitant to send new varieties to us, even if only for trial purposes, unless the variety is registered and the breeder’s rights are ensured in Israel. This has already caused a fairly significant number of new varieties—which, had they been cultivated in Israel could have contributed to the growth of agricultural production—to be withheld from us.

The then-Minister of Agriculture subsequently explained the need to enact a law, inter alia, as follows:

[T]he enactment of a law for the protection of breeders’ rights is a precondition for Israel’s participation as a member in the International Convention for the Protection of New Varieties of Plants, and if we are to join this Convention in the future, the varieties that are bred in Israel will also be protected in foreign countries that are members of the Union. Moreover, this may also facilitate our integration in the European Common Market, which intends in the future to trade only in those varieties that have been checked and examined in their country of origin, and with respect to which there is an authorized body that preserves the purity of the variety.

19.  Upon registration of a protected variety, the right of its breeders is considered intellectual property, similar to a patent (CA 2909/98 North Fodder Ltd. v. Hazera (1939) Ltd. [2], at p. 656). Upon registration, the breeder acquires a proprietary right in the variety, which gives him the power to prevent another person from utilizing, without his consent, or unlawfully, the variety in respect of which the right had been registered.

Section 36 of the Law states as follows:

            36.  (a) Subject to the provisions of this Chapter and of Chapter Seven, utilization of a registered variety requires authorization obtained from the holder of a breeder’ right to that variety.

                   (b) The holder of the breeders’ right may prevent any other person from utilizingwithout his authorization or unlawfully – the variety in respect of which the right is registered (hereafter: protected variety); an aforesaid utilization constitutes infringement.

       (Emphases added – H.M.)

This provision is similar in essence to sec. 49 of the Patents Law, 5727-1967 (hereinafter, the Patents Law), which states that the owner of a patent is entitled “to prevent any other person from utilizing without his authorization or unlawfully the invention in respect of which the patent was granted…”.

20.  In the definitions section of the Law (sec. 1), “utilization,” for the purposes of a variety, is defined as:

       (1)        its cultivation or propagation;

       (2)        its preparation for propagation;

       (3)        an offer for sale;

   (4)            its sale, export, import or marketing in any other manner;

   (5)            its maintenance for purposes of one of the acts enumerated in this definition;

   (6)            other acts, determined by the Minister with approval by the Knesset Economics Committee

21.  Section 65 of the Law regulates the relief that may be granted in cases of infringement of breeders’ rights. The rule is that “in an action for infringement, the plaintiff is entitled to relief by way of injunction and by way of compensation” (sec. 65(a) of the Law; emphasis added – H.M.).

Within the bounds of the expression “relief by way of injunction” as stated in sec. 65 of the Law, the relief of an injunction is naturally included. This is so primarily in view of the provision of sec. 36(b) of the Law which states, as aforesaid, that “[t]he holder of the breeders’ right may prevent any other person from utilizing—without his authorization or unlawfully—the variety in respect of which the right is registered (hereinafter, “protected variety”); an aforesaid utilization constitutes infringement.”

Section 65 of the Law also states that in determining compensation, the court shall take the defendant’s act of infringement into account, as well as the plaintiff’s status as a consequence of that act, and it may also take into account, inter alia, the direct damage caused to the plaintiff, the extent of the infringement, the profits derived by the infringer from the act of infringement, and reasonable royalties the infringer would have been obliged to pay had he been licensed to utilize the breeders’ right to the extent of the infringement (sec. 65(b) of the Law). The Law further states that where an infringement is committed after the plaintiff has given prior notice to the infringer, the court may also order the infringer to pay punitive damages, as long as the amount does not exceed the amount of compensation determined by the court under sub-sec. (b) of sec. 65 of the Law (see sec. 65(c) of the Law). In addition to the above relief, the Law provides that where compensation is claimed, the court may order the defendant to report the extent of the infringement (sec. 65(d) of the Law).

It should be noted that these provisions, too, parallel the provisions of the Patents Law dealing with infringement (cf. secs. 178-187 of the Patents Law).

To complete the picture I will add that under the provisions of the Law, a deliberate infringement of a registered breeders’ right (even during the period between submission of an application for registration and the actual registration), non-fulfillment of obligations imposed by virtue of the Law, or disclosure of information from the sessions of the Breeders’ Rights Committee that were held in camera, all amount to a criminal offence (secs. 82-84 of the Law).

Alongside the above provisions of the Law granting the holder of the breeders’ right broad proprietary protection, which is intended to encourage the development of new varieties of plants, there is also a natural reluctance to create monopolies in the market. Therefore, as against the broad proprietary protection, the Law imposes constraints on the breeder’s rights that are designed, inter alia, to create a balance between the interest of the breeder in protecting the variety he has bred, and the public interest in protecting the freedom of occupation and competition, to assure the existence of a free market of plant varieties (which includes, in addition to flowers, vegetables, fruits, medicinal plants and more), and to advance the interest of consumers in reducing prices and in improving the quality of the product (cf. CA 2600/90 Elite, Israel Chocolate and Sweets Factory Co. Ltd. v. Serange [3], at 804). These constraints find expression, inter alia, in limiting the period in which the breeders’ right is valid, in imposing a duty to publish the details of the variety in public, in allowing for revocation of the right in a registered variety when certain conditions are fulfilled (sec. 29-30 of the Law), and in imposing restrictions on the registration of names of varieties (secs. 31-35 of the Law).

In addition, the Law allows for certain utilizations of the registered variety, even without the consent of the holder of the breeders’ right. For example, every person may utilize propagating material of the registered variety for the purpose of conducting experiments for the development of a new variety (sec. 37(1) of the Law), and may utilize a registered variety for the purpose of research, science or laboratory tests, and also for any act performed privately and not for commercial purposes (sec. 37(2) of the Law).

The Law also recognizes the possibility of granting a compulsory license (i.e., a license to utilize the protected plant even without the consent of the holder of the breeders’ right) to a person who is interested in utilizing the registered variety for the purpose of production of a medicinal remedy (sec. 40 of the Law), or in cases of abuse of the right in a way that compromises the public interest (sec. 41 of the Law).

Thus, together with granting a broad protection to the intellectual property, the Law grants relative protection to the public interest in the existence of freedom of occupation and competition (cf. LCA 6025/05 Merck & Co. Inc. v. Teva Pharmaceutical Industries Ltd. (19.5.2011)).

Section 36A of the Law – Exhaustion of Breeders’ Rights

23.  As part of this balance, sec. 36A was added to the Law in the 1996 Amendment. This section states as follows:

            Exhaustion of Breeders’ Right:

36A.    The right of a holder of a breeders’ right shall not apply to the utilization of a protected variety and of a variety essentially derived from it, if the variety was sold or otherwise marketed – by the holder of the breeders’ right or with his consent – in the territory of the State of Israel, unless the utilization involves one of the following –

                   (1)        repeated propagation of the variety;

                        (2)        export of propagating material or of harvested material of the variety, which makes it possible to propagate it in a country that does not protect varieties of the genus or species to which the protected variety belongs, except aforesaid export for purposes of consumption.

(Emphases added – H.M.)

This section was added prior to the vote on the government bill to amend the Law on its second and third readings (and it therefore does not appear in the bill), based on sec. 16 of the Convention, which states, inter alia, as follows:

Exhaustion of the Breeders’ Right

(1)        [Exhaustion of right] The breeder’s right shall not extend to acts concerning any material of the protected variety, or of a variety covered by the provisions of Article 14(5), which has been sold or otherwise marketed by the breeder or with his consent in the territory of the Contracting Party concerned, or any material derived from the said material, unless such acts

                             (i)    involve further propagation of the variety in question or

                             (ii)   involve an export of material of the variety, which enables the propagation of the variety, into a country which does not protect varieties of the plant genus or species to which the variety belongs, except where the exported material is for final consumption purposes.

(2)        [Meaning of “material”]          For the purposes of paragraph (1), “material” means, in relation to a variety,

                               (i)         propagating material of any kind,

                             (ii)   harvested material, including entire plants and parts of plants, and

                             (iii) any product made directly from the harvested material.

                   (3)        …

24.  Section 36A of the Law limits the application of the breeders’ right – and consequently, the power of the holder of the right to take steps to prevent utilization of the registered variety – in cases in which the protected variety is sold, or otherwise marketed, by the holder of the breeders’ right, or with his consent, in the territory of the State of Israel, unless the utilization involves one of the uses mentioned in subsecs. (1) and (2) of the said section.

Similar provisions can be found, with slight variations, in the laws of other developed countries that are members of UPOV and are signatories to the Convention, such as Australia, England, Ireland, Germany, Denmark and others (the laws of the members of the Union are published, , on the Union’s website, at www.upov.int/upovlex/en).

In enacting sec. 36A, the legislator entrenched the doctrine of exhaustion of rights (or first sale doctrine) in the Breeders’ Rights Law; this was a doctrine developed in case law on other forms of intellectual property, such as patents, trademarks, and copyright (for a review of the sources of the first sale doctrine and its development in copyright law, and for a discussion of the implications of restricting the “first sale doctrine” by means of a licensing regime, see: Niva Elkin-Koren, “Copyright in Competition – Restriction on Downstream Distribution in Users License Agreements” (Heb.) 2 Din Udvarim 485, 513-515 (hereinafter: Elkin-Koren), and see also in a similar context, my opinion in CA 4630/06 Sheffer v. Tarbut La’am (1995) Ltd. [5]; regarding the application of the doctrine in patent law, see: HC 5379/90 Bristol-Meyers Squibb Co. v. Ministry of Health  [6]; and regarding trademarks, see: CA 471/70 R. Geigy S.A. v. Pazchim Ltd. [7]).

25.  The first sale doctrine generally restricts the right of the intellectual property owner to control what others do with the product or good to which the intellectual property rights attach, after it has been sold by the holder of the right or with his consent. The rights are limited in the that the owner of the intellectual property does not have the right to prevent personal use of the object to which  the intellectual property right attaches, or to restrict future transactions involving the property and its transfer to a third party (see and cf.: CA 326/00 Holon Municipality v. NMC Music Ltd. [8]). In a similar vein it was held that after a manufacturer has sold his merchandise, he cannot, by virtue of reputation, continue to control the channels of distribution (LCA 371/89 Leibowitz v. A. et Eliahu Ltd. [9]).

At the same time, as a rule, the first sale doctrine does not have the effect of exhausting the right of the owner of the intellectual property to prevent others from producing, without his permission, additional “copies” of the product, or of the protected goods (unless this was done within the bounds of the “permitted utilization” that is exempt from the requirement of obtaining permission – and in relation to our material, inter alia, as part of utilization of a registered variety “for any act performed privately and not for commercial purposes” (see: sec. 37(2) of the Law)). On this matter an analogy may be drawn from the case law in the United States with respect to exhaustion of the right of the holder of a patent in plant seeds (under US law, “breeders’ rights” are also protected by means of patent law). Recently (13.5.2013), the US Supreme Court ruled unanimously, in the matter of Bowman v. Monsanto Co et al. [44], on an issue similar to that before us, stating as follows (per Justice E. Kagan):

The doctrine of patent exhaustion limits a patentee’s right to control what others can do with an article embodying or containing an invention. Under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item.” (…) and by “exhaust[ing] the [patentee’s] monopoly” in that item, the sale confers on the purchaser, or any subsequent owner, “the right to use [or] sell” the thing as he sees fit (…). We have explained the basis for the doctrine as follows: “[The purpose of the patent law is fulfilled with respect to any particular article when the patentee has received his reward … by the sale of the article”; once that “purpose is realized the patent law affords no basis for restraining the use and enjoyment of the thing sold.” (…) Consistent with that rationale, the doctrine restricts a patentee’s rights only as to the “particular article” sold …; it leaves untouched the patentee’s ability to prevent a buyer from making new copies of the patented item. “[T]he purchaser of the [patented] machine … does not acquire any right to construct another machine either for his own use or to be vended to another.” (…) Rather, “a second creation” of the patented item “call[s] the monopoly, conferred by the patent grant, into play for a second time.” (…) That is because the patent holder has “received his reward” only for the actual article sold, and not for subsequent recreations of it. (…). If the purchaser of that article could make and sell endless copies the patent would effectively protect the invention for just a single sale… (Bowman v. Monsanto [44], at pp. 4-5).

The economic logic underlying the doctrine of exhaustion and its restriction is, therefore, clear. The purpose of the legal protection of intellectual property is to ensure that the creator who invents or breeds, or who invested in the production of the item that is the object of the intellectual property right, will, for a limited period, be awarded market exclusivity, which will allow him to pay off his investment and gain reasonable profit. The need to create a legal monopoly of this type stems from the fact that the products, objects of the intellectual property rights (creations, inventions, plant varieties that were bred and so forth) are usually in the nature of public goods (i.e., products that many can make use of at the same time, without utilization by one person affecting the utilization made by another or detracting from his enjoyment) that are relatively cheap to copy. In the absence of broad legal protection, competitors may distribute copies of the “protected” product at a price close to the marginal cost of producing the copy, and the person who invested in the costs of production, invention, or breeding will find it difficult (or will be completely unable) to sell copies of his creation, the invention that he invented, or the variety that he bred, at a price that reflects his investment in the production, development, or breeding, as well as reasonable profit. The concern is that thereby the incentives for investing in the creation of works, the development of inventions, or the breeding of new plant varieties will be negatively impacted (see and cf.: Elkin-Koren, at p. 488). In this lies the appropriate balance between the interests of the owner of the intellectual property right in a creation, and the public interest in deriving benefit from those items to which intellectual property rights attach. Similar reasoning was expressed in the syllabus of Bowman v. Monsanto [44], as follows:

By planting and harvesting Monsanto’s patented seeds, Bowman made additional copies of Monsanto’s patented invention, and his conduct thus falls outside the protections of patent exhaustion. Were this otherwise, Monsanto’s patent would provide scant benefit. After Monsanto sold its first seed, other seed companies could produce the patented seed to compete with Monsanto, and farmers would need to buy seed only once.

26.  Thus, along with applying the exhaustion of rights doctrine as specified at the beginning of sec. 36A of the Law—the meaning of which is, as stated, that after the first sale of a seedling of the registered variety by the holder of the breeders’ right or with his consent, within the territory of the State of Israel, the breeder has exhausted his rights in that seedling—the Law (following the provisions of the Convention) prescribed two reservations, upon fulfillment of each of which the breeder “regains” the array of rights conferred upon him by the Law, defined in the term “utilization” in sec. 1. The first reservation (which is the one relevant here) relates to utilization that involves repeated propagation of the variety (sec. 36A(1) of the Law); the second reservation concerns the export of propagating material, or of harvested material of the variety, which makes it possible to propagate that variety in a country that does not protect varieties of the genus or species to which the protected variety belongs, except export as aforesaid for “private” purposes of consumption (sec. 36A(2) of the Law).

27.  As a natural consequence of the combination of the provisions of the Law discussed above with other relevant provisions of the Law, the legal situation that emerges is as follows:

All “utilization,” in the broad sense of this term in sec. 1 of the Law, of a registered variety, without the permission of the holder of the breeders’ right, or without permission having been given under the Law (for example: within the bounds of the permitted utilizations by virtue of  sec. 37 of the Law, such as utilization “for any act performed privately and not for commercial purposes” (sec. 37(2) of the Law) – constitutes an infringement on  the breeders’ right, which confers upon the breeder the right to prevent the infringer from continuing to utilize the protected variety by means of an injunction (alongside additional measures of relief). The sale or marketing in any other way of an item of the protected variety by the holder of the breeders’ right or with his consent in the territory of the State of Israel exhausts the breeder’s right with respect to that item; he cannot take the steps consigned to him in the Law against a person who utilizes the registered variety, unless the utilization involves the repeated propagation of the protected variety (or prohibited export as stated in sec. 36A(2) of the Law), in which case the power and rights of the holder of the breeders’ right are restored to him, and he is entitled to take measures afforded to him by the Law against a person who utilizes the registered variety in these ways without his permission or unlawfully, thereby infringing on his proprietary right, and to receive the full relief that the Law grants to the holder of the right in the case of infringement, including an injunction.

28.  The practical significance of the above provisions is that from the time the seedling of a protected variety is sold or otherwise marketed in Israel by the holder of the breeders’ right or with his consent, said holder will have no claim against a person who utilizes the protected variety by way of cultivation, sale, import, export, or marketing in any other manner of the seedling, or by way of maintaining it for the purpose of one of the said acts, as long as these acts do not involve repeated propagation of the variety or the importing of propagating material or harvested material of the variety that allows for its propagation in a country that does not protect varieties of the genus to which the protected variety belongs, except for purposes of consumption, as stated in sec. 36A(2) of the Law.

On the other hand, repeated propagation of a protected variety—for commercial purposes—as well as cultivation, offer for sale, or sale, export, import, or marketing by any other means, or maintaining – for the purpose of performing any of these acts – the seedlings of the protected variety which were created by way of repeated propagation (or of products of the protected variety, the product that was derived from them, or the product that they produced, such as their flowers, their fruits etc., as will be elucidated below), amount to an infringement on the breeders’ right (unless explicitly permitted, and the conditions of the permission are met). Such infringement engenders entitlement to relief that will prevent the continuation of the infringement in these ways, even if the product of the protected variety was initially sold or otherwise marketed in the territory of the State of Israel by the holder of the breeders’ right or with his consent.

It should be stressed that exhaustion of rights following the first sale of the item of the variety was intended, inter alia, to prevent the breeder from attributing an “infringement” to the “end users” who “utilize” the protected variety for their own use, as long as no “repeated propagation” for commercial purposes is involved. Accordingly, a person who has lawfully acquired seedlings of the protected varieties from the holder of the breeders’ right, or from his authorized agent, is entitled to possess them, to cultivate them, or to trade in them per se. The seedling, from the time of its purchase, is the property of the purchaser, who in principle, and subject to the reservations specified in the terms of purchase of the seedlings, or in the license that he was granted, is entitled to utilize it as he wishes, without the prior permission of the holder of the breeders’ right. Section 36A of the Law also allows the grower to utilize the products of the protected variety, for the purpose of producing a crop from the seedling and selling what he produces, in the first period of sale (or in the period that was set in the terms of purchase of the seedling, in an agreement between the parties, or in the license granted to the grower), and even to export the produce for the purpose of consumption (sec. 36A(2) (end) of the Law), without him (or another purchaser of the produce) being in violation of the Breeders’ Rights Law. At the same time, the grower who purchased seedlings of the protected variety may not “produce” new seedlings from them for commercial purposes by way of “repeated propagation” without the permission of the holder of the breeders’ right (see, in a similar context, the prohibition on “copying” prescribed in the Copyright Law, 2199-2007 (hereinafter: the Copyright Law). This is also the natural conclusion in view of the other provisions of the Breeders’ Rights Law. For example, sec. 37(1) of the Law in fact allows for the utilization of propagating material of the registered variety for the purpose of experimentation towards the development of a new variety, but at the same time it states that “no person shall utilize the propagating material of a registered variety repeatedly, without permission from the holder of a breeders’ right, for the commercial production of another variety.” In a similar vein, sec. 37(2) of the Law states that every person is entitled, without the consent of the holder of the breeders’ right, to utilize a registered variety, inter alia, for “any act performed privately and not for commercial purposes” (cf. in a similar context: sec. 48 of the Copyright Law, which states that the sale or rental, including offering or displaying for sale or rental, or the possession for a commercial purpose; or distribution on a commercial scale; or the exhibiting to the public in a commercial manner, or the importing into Israel not for personal use of an infringing copy under the Law, done knowingly by a person, constitutes infringement of a person’s copyright in the creation).

29.  In view of the above, the District Court was correct in holding that after the item of the registered variety had been sold once with the consent of the breeder, there was no longer a requirement, under the Law, for the consent of the breeder to the further “utilization” of the variety, for example, by way of cultivation, sale, marketing of the seedling, or of the seedlings that were purchased, or of the flowers produced from them, unless the “utilization” involves “reproduction” of the protected variety and the creation of additional seedlings from it. At the same time, the Court was not sufficiently precise regarding the legislative provision that for the purpose of such propagation and for the purpose of any “utilization” (that is not for purely private use) that involves the repeated propagation of the variety – the consent of the holder of the breeders’ right must be obtained anew, and regarding the ramifications of not obtaining such consent.

30.  From all of the above it emerges that in order to succeed in his action and to receive injunctive relief, the holder of the registered breeders’ right in a protected variety, an item of which has been sold, or marketed in another way, by him, or with his consent, in the territory of the State of Israel, must prove that the defendant is utilizing – within the meaning of the term in sec. 1 of the Law – the registered variety, for a purpose not included as one of the permitted purposes in secs. 36 and 37 of the Law, and is doing so without the breeder’s permission, in a way that “involves repeated propagation” of the variety (or in a manner described in sec. 36A(2) of the Law). Except here, several additional issues may arise, on four levels:

(a)   What constitutes “utilization involving repeated use of the variety”? Should this term be interpreted narrowly so as to refer only to the actual repeated propagation per se, as the respondents argue, or should the interpretation be broad, such that this term includes every act in connection with the repeated propagation that is performed on the variety, including; for example, maintenance of the seedlings that were propagated, their cultivation, and the sale of the yielded product .

(b)   Considering that the items of the registered variety were initially sold or marketed with the consent of the holder of the right in Israel, how should the holder’s consent be obtained for “utilization that involves repeated propagation of the variety”? Should this permission be given in advance and expressly, or is it sufficient that there be implied permission evident from the conduct of the parties, even retroactively? Is self-reporting about utilization by way of repeated propagation sufficient, or must the grower allow a representative on behalf of the holder of the breeders’ right to determine for himself the extent of the repeated propagation? Is it sufficient that royalties for utilization by way of repeated propagation are paid, and that they are received by the holder of the breeders’ right, in order to “legalize” the repeated propagation? And does the holder of the breeders’ right have the power to prevent the grower who purchased the variety from him (or from his authorized agent) from utilizing the registered varieties that he bred, once the breeder lost faith in the grower in view of a controversy as to the extent of the utilization reported by the grower and the royalties that he paid for it?

(c)   Naturally arising from the answers to the questions posed in subsections (a) and (b) above is the question of the scope of the injunction to which the holder of the breeders’ right in the items of the registered variety that were sold or marketed with his consent within the State of Israel is entitled in the case of infringement on his right to utilization involving repeated propagation of the variety for commercial purposes. Will the injunction extend in this case to all “utilization,” within the meaning of this term in sec. 1 of the Law, or every seedling of the registered variety, as the appellants contend? In other words, following the infringement, is the holder of the breeders’ right entitled to prevent the infringer from cultivating and marketing seedlings and flowers of the registered varieties even if these are not the product of repeated propagation, or are not maintained by the grower for the purpose of repeated propagation (see the sweeping formulation of the requested injunction – para. 2 above); alternatively, as the respondents contend, is the holder of the breeders’ right entitled to prevent only the act of repeated propagation of the variety; or might the answer lie somewhere in between these two approaches?

(d)   As part of the discussion on these issues, an answer is also required to the question of whether “public” considerations such as considerations of “equity,” “good faith,” “fairness,” “reasonableness,” “proportionality,” “justice,” “balance of convenience,” and so forth must be taken into account when the court grants injunctive relief to a person whose registered breeders’ right has been infringed upon, or whether granting such relief is obligatory (“automatically”) when it is proved that the registered breeders’ right has been infringed on?

I shall now proceed to a discussion of these questions.

What is “Utilization Involving Repeated Propagation of the Variety”?

31.  Regarding the first question posed in para. 30(a) above, it is clear that the bounds of the expression “utilization involving repeated propagation of the variety” that was added to the Law in the 1996 Amendment, with the aim of broadening the breeders’ right, include the repeated propagation” itself (and even the respondents do not appear to dispute this), as well as the sale and marketing in any way (including export and import) of seedlings that were “created” by way of repeated propagation. The Tel Aviv District Court (per Judge U. Shtrousman) has so held over twenty years ago (prior to the addition of sec. 36A to the Law in the 1996 Amendment) in CF (Tel Aviv) 1377/92 Hazera (1939) Ltd. v. Southern Agricultural Produce Ltd. [40]. In that case, a temporary injunction was requested until the principal action is decided. The District Court stated as follows:

Just as the holder of a patent may prohibit an imitation of the patent, so too is the holder of a breeders’ right permitted to prevent an “imitation” of the variety – one which is produced by utilizing the seeds of the variety after they have matured for the purpose of planting the new generation of that same variety. The defendant is permitted to purchase the wheat crop of the “Ariel” variety prior to the harvest, in the year of the harvest or thereafter, but it is not permitted to derive from the wheat group eligible for that purpose seeds of the variety protected under the law, nor to market them. The prohibition on “imitation” of the variety, i.e., the prohibition on involvement in the propagation of the variety without the consent of the holder of the breeders’ right, is the protection that is offered by the legislator to the holder of the right in order to encourage breeding of varieties and investment in the experimentation required for that purpose, similarly to the protection afforded to the inventor of a patent so that his invention will not be utilized by others without his consent.

A similar approach was adopted by this Court in CA 2909/98 Northern Feed Ltd. v. Hazera (1939) Ltd. [10], which held as follows:

Under the circumstances of this case, there is no dispute that the Northern Company utilized, in its actions, the varieties in respect of which the right had been registered. Under sec. 36(a) of the Law the holder of the breeders’ right is entitled to prevent any person from utilizing, without his permission or unlawfully, the variety with respect to which the right has been registered. The provision adds that unlawful utilization will constitute an infringement (at p. 656, para. 8).

And also:

…There is no substantive logic in restricting the term [propagating material – H.M.] to breeders’ seeds, since such interpretation would greatly limit the scope of the protection afforded to the breeder. The result would be that a person who utilized the later generations of the variety would in no way be considered as infringing on the breeder’s right. Such a result is inconceivable… (ibid., at pp. 662-3, para. 22).

And just recently, the US Supreme Court ruled in Bowman v. Monsanto [44], in circumstances similar to those of our case, stating as follows (pp. 1-4):

The question in this case is whether a farmer who buys patented seeds may reproduce them through planting and harvesting without the patent holder’s permission. We hold that he may not … Monsanto sells, and allows other companies to sell, Roundup Ready soybean seeds to growers who assent to a special licensing agreement … That agreement permits a grower to plant the purchased seeds in one (and only one) season. He can then consume the resulting crop or sell it as a commodity, usually to a grain elevator or agricultural processor … But under the agreement the farmer may not save any of the harvested soybeans for replanting, nor may he supply them to anyone else for that purpose … the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission (either express or implied). And that is precisely what Bowman did …

As part of its ruling, the US Supreme Court dismissed Bowman’s argument concerning the application of the doctrine of exhaustion of rights in the circumstances of the case. It also dismissed Bowman’s argument whereby his act constituted standard utilization that farmers and growers make of seeds. Neither was the argument that this was a case of “self-propagation” of the seeds accepted (for similar case law related to the doctrine of exhaustion, which too was entrenched in the Australian Breeders’ Right Law, following the amendment of the Convention in 1991, see Cultivaust v. Grain Pool [46]).

32.  Moreover, in my view, the expression “utilization involving repeated propagation” of the protected variety contains within its bounds not only propagation per se  (as the respondents would have it), but also any utilization (within the definition of this term in sec. 1 of the Law) of the protected variety and of its “harvested material” (such as its flowers, its fruits, etc.) that were obtained as a result of its utilization, without the permission of the breeder, by way of repeated propagation. In other words, cultivation (for commercial purposes) too, as well as the sale, offer for sale, export and import, or marketing in any other way of plants of a registered variety, which were “produced” by way of repeated propagation without the breeder’s consent, as well as the yield of these, such as the flowers of those seedlings, their fruits etc., amount to “utilization involving repeated propagation of the variety” that constitutes an infringement on the breeders’ right. Thus, the law applying to the fruit/ flower is the same as that applying to the plant.

Moreover, given the definition of the term “utilization” in sec. 1 of the Law (which was amended in the 1996 Amendment too), the “preparation for propagation” and the maintenance of the variety for the purpose of repeated propagation (for commercial purposes), also fall within the bounds of the expression “utilization involving repeated propagation of the variety” that amounts to an infringement on the breeders’ right.

This broad interpretation is mandated by the express language of sec. 36A of the Law, which excludes from the “protection” of sec. 36A not only utilization of the variety by way of repeated propagation, but also any utilization that involves the said repeated propagation.

This interpretation is also consistent with the purpose of the 1996 Amendment, which was intended to expand the protection of the breeders’ right, and with the international obligations of the State of Israel, by virtue of the provisions of art. 16 of the Convention, whereby –

The breeder’s right shall not extend to acts concerning any material of the protected variety, or of a variety covered by the provisions of Article 14(5), which has been sold or otherwise marketed by the breeder or with his consent in the territory of the Contracting Party concerned, or any material derived from the said material, unless such acts involve further propagation of the variety in question …

(Regarding using the Convention as an interpretive reference for the Breeders’ Rights Law, see: Northern Feed Ltd. v. Hazera (1939) Ltd. [10]).

The proposed interpretation is also consistent with the provisions of sec. 36(c) of the Law, which too was added in the 1996 Amendment, and which states:

The right of a holder of a breeders’ right shall also extend to harvested material, including entire plants and parts of plants, which were obtained by the unauthorized use of propagating material of the protected variety, unless the holder of a breeders’ right was given a fair chance to realize his rights in respect of the propagating material. (Emphasis added – H.M.).

From this provision it emerges that the legislator sought to expand the scope of protection of the breeders’ right and to apply it to all parts of the plant, including its fruit, which is not intended for cultivation or propagation (see the definition of “harvested material” in sec. 1 of the Law), including the flower that grows from the plant, which was obtained by unauthorized use of propagating material from the protected variety.

Further support for the proposed interpretation may be found in the provisions of sec. 63 of the Law, which states: “Where a product of a registered variety is lawfully forfeited, its utilization shall not constitute infringement, unless it is the product of repeated cultivation [only].” In other words, where the legislator wished to exclude “repeated cultivation only” from the bounds of protection, he did so expressly. Indeed, we can presume that the legislator, in his inclusion in sec. 36A of the clause: “unless the utilization involves... repeated propagation,” has intended to expand and to include in the involvement the array of acts that would be deemed prohibited utilization of the variety that is sold, or otherwise marketed, in Israel by the holder of the right or with his consent. In so doing, the legislator made explicit his position (following the provisions of the Convention) whereby not only is repeated propagation per se prohibited, but also all utilization of the variety that is involved in repeated propagation, i.e. connected with it or derives from it.

33.  It should be stressed that in accordance with the proposed interpretation, not “all contact with the registered varieties,” such as sniffing the flowers in the shop, will be considered an infringement on the breeders’ right – as the respondents are trying to argue, even if only as a figure of speech (see: para. 30 of the respondents’ summations). Not only is “sniffing the flowers in the shop” not included in the bounds of the term “utilization,” within the meaning of sec. 1 of the Law, but sniffing is not normally “involved” in the repeated propagation of the variety. In any case, in accordance with the ending of sec. 37(2) of the Law, “any act performed privately and not for commercial purposes” is permitted, even without the consent of the holder of the breeders’ right.

At the same time, there appears to be no dispute that repeated propagation for commercial purposes and utilization of the products of the repeated propagation for such purposes does fall within the bounds of the reservation to the application of the exhaustion doctrine, as stated in sec. 36A(1) of the Law. The ramifications of the interpretation proposed by the respondents, whereby the consent of the holder of the breeders’ right is not required for the performance of acts with the protected variety other than repeated propagation itself (such as sale, export, and import of the products of the protected variety that resulted from the repeated propagation), and that these acts do not amount to an infringement on the breeders’ rights, are unacceptable.

Indeed, in my opinion, the appellants’ argument to the effect that if the repeated propagation is “contaminated” under the provisions of sec. 36A(1) of the Law, then the “fruits” of the repeated propagation are also “contaminated,” is sound, and a person who utilizes the protected variety in this way should not be allowed to benefit from these fruits. The rationale behind this is simple: a person who purchased the seedling of a protected plant and utilizes it for commercial purposes by means of repeated propagation without the consent of the owner of the breeders’ right, is unlawfully enriched at the expense of the breeder. The breeder priced the seedling and the royalties paid to him for utilization of the protected variety according to the assumption that the seedling would “live” for one life span. Accordingly, one must say that with the first sale of the seedling in Israel, the holder of the breeders’ right exhausted his right only assuming that the seedling, too, “exhausted” its “life span” at the end of the period in respect of which consideration was received for utilization. “Repeated propagation” or “cloning” of the registered variety are, at times, simple acts, which have a very low marginal cost. This is particularly so when the variety is fertilized by free pollination. In a situation in which “repeated propagation” of the seedling is conducted for commercial purposes, the consideration that was paid for purchase of the seedling no longer reflects the scope of the utilization permit that the holder of the breeders’ right intended to grant the purchaser of the seedling. Hence, the arrangement that supposedly affords protection to the holder of the breeders’ right solely for utilization of the variety during the first period of growth of the seedling, undermines the purpose of the Law. Therefore, it is clear that in the situation described above, there is no justification to reduce the opportunity given to the breeder to realize his property right to its full extent and force (cf. Bowman v. Monsanto [42]).

I shall now proceed to discuss the questions posed in para. 30(c) above, namely: what is the extent of the injunctive relief to which the holder of a breeders’ right is entitled, as a rule, under the circumstances of sec. 36A(1) of the Law?

Injunctive Relief to which the Holder of a Breeders’ Right is Entitled to and its Scope under the Circumstances of sec. 36A(1) of the Law:

34.  The breeders’ right is, as we have said, one of the intellectual property rights that is recognized by law (similar to the rights recognized by patent law, copyright law, trademark law, and designs law). These rights are rights in rem, which apply to defined utilizations of intellectual property for a limited period. They grant their holders, as stated, a monopolistic right to enjoy the said intellectual property, to make use of it, and to permit various uses of it for a limited period. Accordingly, as a rule, every potential user must obtain a license from the holder of the rights in order to utilize the product that is the object of the intellectual property (except for permitted uses), and the holder of the right can, as a rule, prevent use that is made of his right – without a license – by means of an injunction (see: Elkin-Koren, at pp. 487-488, note 4).

The entitlement of the holder of the registered breeders’ right to receive relief by way of an injunction that will prevent another from utilizing the variety that he bred without his permission, or unlawfully, clearly reflects that nature of the breeders’ right as a proprietary right, for one of the basic components of a property right is its power of prevention and the legal ability to exclude others from using the object that bears the right (see and cf.: Hanoch Dagan, “The Right to the Fruits of the Infringement: Autonomy of Judicial Law-Making” (Heb.) 20 Iyunei Mishpat (1997) 601, 636.)

Injunctive relief is therefore – as a rule – the primary relief that is afforded by the Breeders’ Rights Law to the holder of the right, for infringement on a registered breeders’ right. This emerges from integrating the provisions of secs. 36(b) and 65(a) of the Law (cf. sec. 62 of the Law, which provides that “An action for infringement shall not be filed before the breeders’ right has been registered…”).

This is also evident from a combined reading of art. 30 of the Convention – to which Israel is a signatory –  whereby: “each contracting party shall adopt all measures necessary for the implementation of this Convention… [including] appropriate legal remedies for the effective enforcement of breeders’ rights,”  together with the Explanatory Notes on the Enforcement of Breeders’ Rights Under the UPOV Convention, which contain (in art. (a) of the Second Chapter) an “open list” of the legal means which the states signatories to the Convention must ensure are in place for the purpose of civil proceedings in actions for infringement on registered breeders’ rights, primarily –

(1)   provisional measures, pending the outcome of a civil action, to prevent or stop an infringement of the breeder’s right, and/or to preserve evidence (…);

(2)   measures to allow a civil action to prohibit the committing, or continuation of the committing, of an infringement of the breeder’s right;

(3)   …

(Emphases added – H.M.)

Thus, injunctive relief is the “first and foremost” relief to which the holder of the breeders’ right is entitled when there has been an infringement on his property right. This approach is obvious in light of the provisions in the Law and the Convention. It is consistent with the position taken by this Court as expressed in case law in relation to the role of an injunction in cases of infringement on other abstract intellectual property rights, such as a patent, in view of the status and the force of property rights in our law. See, for example, this Court’s decision in LCA 6141/02 ACUM v. Galei Zahal [11] (per Justice D. Dorner):

A creator has a property right in his creation, and this right, which is entrenched in sec. 3 of Basic Law: Human Dignity and Liberty, is, as is known, a basic right in our law. It is in the nature of this right, subject to the reservations in the law and to agreements to which the holder of the right is party, that it grants its holder the ability to do with his property as he pleases, and this includes making it available for use by another under the conditions that the holder of the right determines, or to deny such use if it is made contrary to the wishes of the holder of the right. A person’s argument that he is permitted to use another person’s property without his permission, merely because the latter demands a price that seems exorbitant to the former, has no merit.

From here we derive that the first and foremost relief for infringement on copyright is to allow the holder of the right to prevent such infringement, by way of a petition for an injunction. This relief is immediate, and it should be granted as soon as the creator is able to prove that his right has been infringed upon. Monetary compensation is not an alternative to injunctive relief, and in the absence of  consent on the part of the holder of the right, it cannot replace such relief. On the contrary, compensation for the harm caused by the infringement will usually be complementary to the injunctive relief. (Emphasis added – H.M.).

The Breeders’ Rights Law is of the same ilk as the Patents Law and the Copyright Law, and as such there would seem to be no difficulty in applying the above words, mutatis mutandis, to this Law as well.

36.  From what has been said we learn that in accordance with the provisions of the Law discussed above, the holder of a breeders’ right whose right has been infringed upon by way of utilization involving repeated propagation of the variety for commercial purposes, without his consent, is entitled, as a rule, to relief by way of an order that will prevent the infringer from continuing to utilize the protected variety (within the meaning of secs. 36(b) and 1 of the Law), even if the item of the protected variety was initially sold, or otherwise marketed in Israel, by him, or with his consent.

37.  The Law grants the primary right to perform the act of repeated propagation to the holder of the breeders’ right. A person other than the breeder is, as a rule, prohibited from utilizing the protected variety by way of repeated propagation without receiving the permission of the breeder to do so (unless it was done within the bounds of the permitted utilizations in sec. 37 of the Law). The interest that the Breeders’ Rights Law seeks to protect is the breeder’s interest – to allow him to reap the fruit of his toil and to prevent a situation in which “one person sows and another – with no toil on his part – reaps.”  The breeder has a legitimate expectation of receiving recompense for “repeated utilization” of the variety that he bred, when this is done by others for commercial purposes. Repeated utilization of the protected variety by others, and certainly for commercial purposes – without the permission of the breeder – by way of repeated propagation, and deriving a benefit from the “fruits” (or flowers) of the repeated propagation, is equivalent to trespassing on the property right granted to the breeder. This “trespass,” which compromises the property of the breeder as well as the public interest in encouraging investment in the breeding of new plant varieties, can justify “distancing” the utilizer (without permission, or unlawfully) from the variety that has been bred (on the approach whereby the infringement on a patent is fundamentally a tortious act in the category of trespass, see, e.g., CA 1636/98 Rav Bariah v. Habshush [12], at 349). On this matter, the Talmud states (Bava Batra 21b): “[Other fisherman] must distance [their] fishing nets from the fish as far as the fish swims.” Rashi explains: “…because [the fisherman] was familiar with the lair [of the fish] and laid bait as far as the fish swims, he is sure that he will catch the fish, and that the profit is his, and the other person comes and harms him…”.  In other words, because the profit from catching the fish is due to the fisherman who spread his net in the place and laid the bait, this profit is considered to be already in his possession to a certain extent – another person should not be allowed to enter that same territory and detract from the profit that the first fisherman is expecting to make, even if he was not out of pocket, for: “why should that other traffick [sic] with his fellow’s cow?!” (Mishnah Bava Metzia 3:2). (For a discussion and elaboration of the various aspects of the above talmudic passage, see the opinion of my colleague, Justice E. Rubinstein, in CA 9191/03 V&S Vin Sprit Aktiebolag v. Absolute Shoes Ltd. [13], at 889, and Joshua Liberman, Commercial Competition in the Halakhah (1989) pp. 84 note 8, 109-110).

At the same time, since sec. 36A of the Law, which deals with “exhaustion of the breeders’ right,” is concerned with the non-applicability of the breeders’ right, the holder of a breeders’ right whose right was infringed on in the circumstances of sec. 36A(1) (or in the circumstances of sec. 36A(2)) cannot prevent a person who purchased the protected variety lawfully, in Israel, from utilizing it in a manner that does not involve conducting the prohibited acts defined in these subsections. This is due to the scope of the relief to which the holder of the right is entitled, which is derived from the scope of the right vested in him. Since sec. 36A of the Law defines the bounds of the breeders’ right in a case in which the protected variety was sold or marketed by the breeder or with his consent in Israel, and allows the holder of the right to realize his right only in relation to utilization that involves the prohibited acts enumerated in subsecs. (1) and (2) of the section, then clearly the scope of the relief to which the holder of the right is entitled in these circumstances is also subject to the boundaries set in the section. The relief, therefore, is of the same scope as the right, and no greater.

This conclusion is consistent with the approach taken in the laws of intellectual property – including the Breeders’ Rights Law – which grant the owner of the intellectual property a monopoly with respect to his property in the market of the creation, invention, or bred variety, which means that he has the power to prevent others from using, without his permission or unlawfully, the intellectual property that belongs to him; its intention was not, however, to assure the owner a monopolistic position in any market for commodities (see and cf.: David Gilo, “Contracts Restraining Competition and Contracts of a Monopolist”, in Daniel Friedmann and Nili Cohen (eds.), Contracts Vol. 3 (Heb.) (2003) 635, 675).  Issuing a sweeping injunction that applies to all utilization, in any manner whatsoever, of the registered variety that was bred by the holder of the breeders’ right, in the case of an infringement of secs. 36A(1) and (2), when this extends beyond the circumstances and the outcomes of the infringement, means granting a monopoly to the breeder in the market for that product. A “monopoly” of this type oversteps the bounds of the right that remained in the hands of the breeder after its exhaustion following a sale of the item of the protected variety in question, and oversteps the monopoly granted to the breeder in the Law, taking into account that the items of the variety are sold by him, or with his consent, in Israel (see and cf. also: Elkin-Koren, at pp. 487-488, 498). Therefore, the holder of the breeders’ right whose right has been infringed upon by way of utilization involving repeated propagation of the variety is not entitled to receive, by virtue of the Law, an injunction that would prevent a person from maintaining, in his fields and under his control, plants (and their derivatives) of the protected variety which were purchased lawfully by him, and which were not “created” by way of repeated propagation and/or in relation to which no acts were done involving repeated propagation; neither is he entitled to prevent the sale of these, nor their marketing by other means. The holder of the breeders’ right is certainly not entitled, by virtue of the Breeders’ Rights Law, to relief that will prevent utilization involving repeated propagation (within the broad meaning of this term, as explained above) of varieties that are not registered, for the Law does not extend its protection to them.

Taking into account all the above, the answer to the question posed in para. 30(c) above adopts a solution in the middle ground. Injunctive relief in the circumstances of the application of sec. 36A(1) will not, on the one hand, cover only the act of repeated propagation itself (as the respondents contend), and on the other hand, it will not apply to the utilization of the variety that is in no way connected to the repeated propagation of other seedlings of the variety (as contended by the appellants). An injunction that is issued in the circumstances of sec. 36A(1) of the Law is capable of preventing only such utilization, for commercial purposes, that “involves the repeated propagation of the variety.” That, and any other interpretation would upset the balance that the legislator established in the Breeders’ Rights Law between the various interests being weighed.

38.  As a side note, and without making any ironclad determination, I will say that there are different views on the question of whether it is possible to grant the holder of the breeders’ right injunctive relief for an alleged infringement of a breeders’ right in non-protected varieties (i.e., when the breeders’ right in the varieties was not registered), or other than by virtue of the Breeders’ Rights Law (for example, by virtue of the Unjust Enrichment Law, 5739-1979). See, for example, per Judge Y. Zefet in OM 2949/98 Sayag v. Council for the Production and Marketing of Ornamental Plants [41]: “The argument that the breeder has no right in the variety that he bred is incorrect. The breeding of the variety confers upon the breeder the right that others will not become unjustly enriched at his expense, utilizing the physical and emotional toil and the means that were invested by him in the breeding of the variety… even without registration, is the right of the breeder to prevent harm to his property by way of utilization of propagating materials of the variety that was bred or their reproduction”; cf. the ruling in CA 2287/00 Shoham Machinery Ltd. v. Herer [14], where a permanent injunction was granted for the violation of an unregistered design, by virtue of the laws of unjust enrichment and the rules of fair competition, and see Brosh, at pp. 245-246. Yet, one cannot ignore the fact that the Breeders’ Rights Law contains an explicit provision , which states that “an action for infringement shall not be filed before the breeders’ right has been registered…” (sec. 62 of the Breeders’ Rights Law). This being the case, and as we said, without ruling definitively, it would appear that there is a difficulty in invoking remedies from unjust enrichment laws for the purpose of providing protection to a breeder whose right in the variety is not registered (cf. Merck & Co. Inc. v. Teva Pharmaceuticals [4]; Brosh, at pp. 385-386). Let us be clear: the above does not take a stand on the various general opinions expressed in LCA 5768/94 AShIR Imports and Distribution v. Forum Accessories and Consumer Goods Ltd. [15] on a similar matter and their possible applicability to our case. Moreover, since the action which is the subject of this appeal concerns protected varieties under the Breeders’ Rights Law only, we are not required to resolve this difficult question and it can await the appropriate moment.

I shall now proceed to discuss the other questions raised in paras. 30(b) and (d) above, relating to the concrete circumstances of the matter under discussion before us.

From the General to the Specific

39.  The appellants are Dutch corporations. The Netherlands is a member of the UPOV (and in fact was the first state of the developed states that legislated, in 1941, a law for the protection of breeders’ rights, to be followed by most European states). The appellants registered their rights in some of the gerbera plant varieties that had been bred by them in the Breeders’ Registry in Israel. Therefore, they are entitled to the rights granted to the holder of a registered breeders’ right under the Breeders’ Rights Law, in relation to those varieties in which their rights were registered.

The appellants market in Israel, through their agents and distributors, seedlings of protected varieties (as well as of unprotected varieties) that they bred. It should be mentioned that neither in this Court nor in the District Court did the parties raise the question of whether, in view of the provisions governing the effective date in the 1996 Amendment, sec. 36A of the Law applies to plant varieties bred by the appellants for which breeders’ rights had been registered prior to the effective date set in the Law. Both parties relied on sec. 36A of the Law, and argued – each according to its own approach – in its light. I will therefore assume, for the purposes of the present hearing, that the parties are not in disagreement as to the effective date of the provisions of sec. 36A of the Law in the circumstances of this case.

Did the Respondent Utilize the Registered Varieties in a Manner that Involves Repeated Propagation of the Variety?

40.  The answer to this question is, to my understanding, in the affirmative. According to the respondent’s admission, in 1999 he purchased (from an authorized agent of the appellants) 20,000 seedlings of registered and non-registered varieties in which the appellants hold the breeders’ rights, and ever since he has been propagating them by way of repeated propagation “until today” (see: Protocol 9.6.2005, p. 12, lines 30-31, and also: p. 13, lines 4-5; and see paras. 22 and 36 of the statement of defense; secs. 20 and 22 of respondent no. 1’s principal deposition; sec. 18 of respondents’ summations in the District Court). This admission of the respondent also expressed in the District Court’s complementary decision dated 25.10.2007 (see para. 4 of that decision). As is well known, “the admission of a litigant is like a thousand witnesses” (Bava Metzia  3b), and it is sufficient for the purpose of determining that the respondent utilized (for commercial purposes) registered varieties in which the appellants hold the rights, in a manner that involves repeated propagation of the variety (“repeated propagation” of a variety is definitely included in the expression “utilization that involves repeated propagation”); does not fall within the “exhaustion of the rights” of the appellants following the sale of items of the variety in Israel, and it amounts to an infringement on their breeders’ rights.

Alongside the above admission of the respondent whereby, since 1999 and “until today” (the date when he testified in court – June 2005), he has from time to time propagated seedlings independently, there is additional evidence in our case which not only attests to the utilization per se of the protected varieties by way of repeated propagation, but also provides an indication (even if neither precise nor unequivocal) of the scope of the utilization in this manner (although within an action for an injunction – as opposed to an action for compensation – this information is only of secondary value). I am referring to the self-reports submitted by the respondent, which refer – according to him – to “utilization by way of propagation only” (see sec. 36 of the statement of defense), and to the results of the count that was conducted in the respondent’s fields after the action was brought. Let us be precise: in my view, there was nothing to preventing us from relying on the findings of this count in order to rule on the action, and there is nothing preventing us from relying on ruling on this appeal.

The count was conducted, as we have said, following the consent of the respondents, which was given as part of the proceeding to set aside the judgment given against them ex parte. Naturally, there is no mention of this in the statement of claim; however, that is not sufficient to lead to the conclusion that from a substantive point of view, it is not part of the issues in dispute between the parties and thus, should not be relied on (as determined by the District Court). In the statement of claim, the appellants argued explicitly that the respondents refused to allow the appellants’ representative to conduct a count in their fields in order to determine the accuracy of the self-reports they submitted. The subsequent consent of the respondents to the count may possibly constitute a change of circumstances, but it most definitely is not a “change of the scope of the claim.” The forms recording the count were submitted to the District Court by the “counter,” who also submitted an affidavit and was examined on it. Both parties referred to the results of the count and its significance in their depositions, in their testimony in the District Court, and in their written summations. Under these circumstances, it cannot be said that there was any perversion of justice in relation to the respondents (who agreed, as stated, to the count being conducted) which would justify discounting the findings of the count due to a “change of the scope” (see and cf. LCA 9123/05 Admov Projects (89) Ltd. v. City State of the Alfo Group Ltd. [16], paras. 10-18).

It is reflected from the above that the respondent utilized unlawfully, by way of repeated propagation for commercial purposes, varieties in which the appellants hold the registered breeders’ right, and such utilization constitutes an infringement that entitles the holder of the right to injunctive relief. However, the respondent claimed that utilization of the varieties in this manner, too, was done with the permission of the appellants and their consent, and was therefore permissible. I shall now discuss this claim.

Was the Utilization of the Registered Varieties by way of Repeated Propagation Done with the Permission of the Appellants?

41.  According to the Law, utilization of a registered variety, similar to the “utilization” of other goods that carry abstract intellectual property rights, requires that permission be obtained from the holder of the breeders’ right (except in cases that amount to “permitted utilization” within the meaning of sec. 37 of the Law – which does not include our case). However, the Breeders’ Rights Law does not specify how the permission should be given. Consequently, various modes of granting permission have developed. The common mode is by means of granting a license by the holder of the breeders’ right or his representative. This license may assume the form of a written agreement, formulated jointly by the parties; this, as a rule, is the preferred form; or it may have the characteristics of a “standard contract” which is formulated by the holder of the breeders’ right or his representative and “attached” to the tax receipt for purchase of the varieties (similar to some software user licenses, for example). In the absence of any contrary provision in the Law, there is nothing, in my view, to prevent permission for utilization of a registered variety being given orally (even though this may give rise to disputes and evidentiary difficulties, and is therefore not recommended). Without establishing hard-and-fast rules, I personally believe that in suitable circumstances, permission can be deduced from the conduct of the parties. In view of the proprietary nature of the breeders’ right, the person who wishes to utilize the protected variety ought to be the one who is responsible for obtaining permission to do so from the holder of the rights, in advance and in writing, but I do not rule out the possibility that in certain circumstances, such permission may be given retroactively and in a less formal manner.

In the absence of any mention of this matter in the Breeders’ Rights Law, the validity of the said licenses (in their various possible forms) will be determined by the general laws applying to transactions of this sort (such as general contract law, laws governing standard contracts, consumer protection laws, antitrust laws), within which the breeder is entitled, in principle (and subject to the limitations of the general laws), to attach conditions to utilization of the variety that was bred by him (even if it is not registered) that are not necessarily within the ambit of the property right vested in him by virtue of the Law. Without ruling definitively on the matter, I will note that conditions of this type are likely to include, inter alia, the imposition of a duty to report utilization of the bred varieties (both registered and non-registered); a compulsory undertaking to pay royalties (including for the utilization of varieties that are not protected by the Law); and an (obligatory) undertaking to allow the breeder, or his representative, to establish for himself the scope of utilization by the grower – subject to these obligations being valid under the general law and taking into account that in attaching conditions of this type, the breeder may expose himself to claims under the Restrictive Trade Practices Law, for constraints such as these may sometimes be beyond the protection afforded to the breeder in the Breeders’ Rights Law (cf. Elkin-Koren, at p. 498). Violation of an obligation of the said type may therefore provide the breeder with a corresponding right to receive various forms of relief that are not granted to him under the Breeders’ Rights Law (see, e.g., CF (Magistrates Court Netanya) 3038/02 Michael v. Aviv Floral Packing House Ltd. [43]; Sayag v. Council for Ornamental Plants [39]). However, because the action that is the object of this appeal is concerned with the utilization of protected varieties, and because the sole relief that was initially sought was an injunction pursuant to sec. 65 of the Breeders’ Rights Law with respect to protected varieties, there is no need to delve into all the aspects and considerations related to these questions, and they can await further discussion at an appropriate time.

42.  Against the above background, it seems to me that the District Court was not sufficiently precise regarding the appellants’ arguments when it ruled as follows:

The plaintiffs’ cause of action was that their rights had been infringed upon in that the defendants’ self-reports were inaccurate (see sec. 15 of the statement of claim). The burden was on the plaintiff’s to prove this claim. In order to do so, the plaintiff had to prove that the self-report of the defendant in relation to the self-propagation is not a truthful report. For the purpose of this proof, a count ought to have been conducted in the defendants’ fields, and the results obtained should have been compared to the defendant’s self-report (para. 4 of the complementary decision).

The action brought to the District Court was, as stated, an action pursuant to the Law. Even if the respondent’s (incorrect, according to the appellants) self-reports formed the backdrop to the action, the cause of action was not the breach of the respondents’ obligation to report on the utilization, or to pay royalties in respect thereof, but rather their utilization of the registered varieties, for commercial purposes, in a manner involving repeated propagation of the varieties, without their permission.

To be precise: just as the grower does not have a duty – by virtue of the Law – to report on utilization involving repeated propagation of the variety that was lawfully (or in any manner) purchased by him, neither does the Law impose upon him a duty to pay royalties to the holder of the breeders’ right in respect of utilization of the variety that was bred by him. The Law does, indeed, refer to the matter of royalties in sec. 65(4), which states that in awarding compensation, the court may take into account, inter alia, “reasonable royalties, which the infringer would have had to pay, had he been given a license to utilize the breeders’ right to the extent of the infringement,” and in sec. 49(a), which authorizes the Breeders’ Rights Committee, within its meaning in the Law, to determine (in the absence of an agreement between the parties) whether an employee who has bred a variety in consequence of his service is entitled to consideration (to what extent and under what conditions); however, the Law contains no general duty to report and to pay royalties to the holder of the breeders’ right with respect to utilization of the registered variety.

A different statutory arrangement can be found, for example, in the Danish law, which permits utilization of protected varieties “…only on the terms and conditions, including payment of an appropriate royalty, specified by the holder”; and see also sec. 9 of the English Plant Varieties Act 1997, which obligates a farmer who wishes to utilize, for self-consumption, “harvested material” that he derived from repeated propagation of a protected variety, to pay royalties for the utilization. The section is formulated as follows:

 “Farm saved seed”

(1) Subject to subsection (2) below, plant breeders’ rights shall not extend to the use by a farmer for propagating purposes in the field, on his own holding, of the product of the harvest which he has obtained by planting on his own holding propagating material of the protected variety; or a variety which is essentially derived from the protected variety.

(2) Subsection (1) above only applies if the material is of a variety which is of a species or group specified for the purposes of this subsection by order made by the Ministers.

(3) If the farmer’s use of material is excepted from plant breeders’ rights by subsection (1) above, he shall, at the time of the use, become liable to pay the holder of the rights equitable remuneration, which shall be sensibly lower than the amount charged for the protection of propagating material of the same variety in the same area with the holder’s authority. (Emphasis added – H.M.)

For a review of royalty arrangements similar to those of the Danish law in connection with other intellectual property resources, such as works of art, in French Law and in German law (which was adopted in 2001 in the European Directive too) see: Elkin-Koren, at pp. 525-526; it is noteworthy that a similar arrangement to that of sec. 9 of the English law can be found in sec. 32 of the Israeli Copyright Law, which states, inter alia, as follows:

32(a)           Despite the provisions of section 11, reproduction of a musical work in a sound recording is permitted, provided the following conditions are met, even without the consent of the copyright owner:

                             (1)   The musical work had been previously recorded, with the consent of the copyright owner, in a sound recording that was published for commercial purposes (in this section – the former sound recording);

                               (2) …

   (3)   The person who makes the copy has so informed the copyright owner prior to the making of the copy;

   (4)   The person making the copy has paid equitable royalties as agreed with the owner of the copyright; and in the absence of agreement – as decided by the Court;

   (5)   The copies are neither used, nor intended for use in commercial advertising.

43.  As stated above, we do not find a similar provision in the Breeders’ Rights Law. The Breeders’ Rights Law contains no arrangement whereby the very act of reporting to the breeder on utilization by way of repeated propagation of items of the registered varieties that were purchased lawfully by the grower, and on the payment of royalties for their utilization, can “repair” the breach and grant the “utilizer” protection or immunity from being sued for infringement on the breeder’s right, where the Law, or the holder of the right, explicitly forbade the grower to utilize the varieties in the said circumstances. This is especially so when there is a dispute between the parties as to the amount of royalties that are to be paid for utilization of the variety. In this context, I would point out that the respondent’s argument that they are entitled to utilize the protected varieties that were bred by the appellants, even without paying in full the royalties that were demanded by the appellants’ representative, is also unacceptable. It has already been ruled that: “a person’s claim that he is permitted to utilize another person’s property without his consent, simply because the latter demands for such utilization a price that seems to the person to be exorbitant – will not be heard” (per Justice D. Dorner, ACUM  v. Galei Zahal [11]). As a side point, I will mention that I am not required to decide on the question – which may well arise in such circumstances – of whether, in a situation in which the continued utilization of the varieties constitutes an infringement, the infringer is entitled to reimbursement of the royalties that he paid for utilization of the varieties (certain credit is nevertheless due to the respondent for the fact that in August 2004, after the action was brought, he paid the appellants royalties in the amount of NIS 142,000, which the appellants claim does not constitute the full sum due to them for the respondent’s utilization), and this question too may be left pending for the moment.

Thus, in the absence of regulation in the Breeders’ Rights Law of the subject of reports by growers concerning their utilization by way of repeated propagation of the products of seedlings of protected varieties purchased lawfully, and of payment of royalties for the utilization of the varieties in this manner, a practice developed in this area of self-reporting, based on trust placed in the growers, alongside the counting of the seedlings in the fields, as described in para. 3 above. The grower’s signature on the forms recording the count conducted in his fields is deemed a declaration concerning the accuracy of the report and an undertaking on his part to pay royalties for utilization of the varieties, in accordance with the number of seedlings counted (during the hearing in this Court, it was explained that today, these issues are regulated explicitly in the license agreements between the breeders or their representatives and the growers). An expression of this practice may be found in the case before us in the “purchase agreement” for the seedlings (“Terms for the Order of Gerbera Seedlings – Herman Crystal Ltd.” – ExA/2): based on section 4 of this agreement, the respondent sought to argue that his utilization of the varieties by way of self-propagation, was done with permission. The following appeared in that document:

            4.         Seedlings that are the object of the order are intended for self-cultivation only; self-propagation is permitted in a vegetative manner only and for the use of the grower only in his fields and on his holdings only; sale of the seedlings or their transfer to another, whether before propagation or thereafter, is prohibited;

                   …

            11.       Should the grower decide to retain the seedlings that he purchased by virtue of this order for an additional year of cultivation (but not exceeding two years) and in the same fields in which he cultivated them in the previous year of cultivation, he shall inform the Company accordingly… otherwise, these seedlings will be considered to be new seedlings in all respects;

            12.       The grower undertakes to allow representatives of the Company and the holders of the breeders’ rights in the varieties to enter, by virtue of advance notice of at least 48 hours, any fields held by him for the purpose of checking the seedlings and of ascertaining the fulfillment of his obligations pursuant to this Order and according to the Breeders’ Rights Law and any other law;

The Agreement further stipulates, in sec. 7:

            7.         A grower who does not pay the price of the seedling or the royalty or who infringes another of his obligations pursuant to this Order shall be prevented from utilizing the seedlings or their flowers in any manner whatsoever (including by way of their marketing and/or export); without detracting from the above, the grower hereby agrees that in said case, an injunction prohibiting said utilization be issued against him.

                   (Emphases added – H.M.)

We see that while the respondent sought support in the above document for his claim that his repeated propagation of the products of the seedlings from the protected varieties was done with the permission of the breeders (i.e., in accordance with the terms of the license), an examination of the provisions of the purchase agreement leads, in my view, to precisely the opposite conclusion. In my opinion, sec. 4 of the agreement indeed allows “self-propagation,” but it does so with an additional proviso – that it be “for the use of the grower only.” Thus, repeated propagation of the variety by the grower for commercial purposes and utilization of its products by way of marketing, sale, export, and import is impermissible without a license and in accordance with its terms. It seems to me that the respondent had good reason for raising his argument in this context in the District Court only half-heartedly, and later (in his cross-examination) even trying to distance himself from the purchase agreement, claiming that he had not seen it, and denying that he was aware of its provisions (see: Protocol p. 11, lines 9-17).

I should mention that my concern here is not with the interpretation of the purchase agreement, nor with the question (that may be asked) of whether the practice that was adopted in this area amounts to a binding “custom” (for extensive discussion in a related context, see: CF (Merkaz-Lod) 1549-08-07 Maariv Modi’in Publishing Ltd. v. Businessnet Ltd. [42] and the references there); what I said above on the matter is, in a certain sense, above what is required, for the appellants made it clear that their action is pursuant to the Breeders’ Rights Law and not to the purchase agreement. As such, no great importance should be attached to the question of whether or not the respondent in fact infringed his obligations under the said agreement (although it does seem that such an infringement occurred). It was not the question of the accuracy of the self-reports submitted by the respondent that was the basis for the action that is the object of this appeal, nor even the question of whether the respondent refused to allow the count to be conducted in the fields he controlled, as the appellants claim, or whether the blame for the count not being conducted lies with the appellants, as the respondent claims. As a side note, I will point out that in my view, the respondent’s attachment of a condition to the conduct of a count on his holdings is equivalent to a refusal that amounts to a breach of his obligation under the terms of purchase of the seedlings, or according to the practice at the time – and as such, it was sufficient in order to create in the respondent, at least, an “awareness of obligation” in relation to the possible outcomes of his conduct.

At the same time, in view of the findings of the District Court, it should be explained that from the moment that the respondent himself attempted to rely on a solitary (and partial) section of the agreement, there was no longer, in general, anything to prevent the appellants from rebutting his argument, in his cross-examination, based on the contents of the purchase agreement in its entirety. Neither were the appellants estopped from relying in their summations upon the terms of the said agreement that are not “helpful” to the respondent – to put it mildly – without this being considered as “broadening the scope of the claim” (see in this context Admov Projects (89) Ltd. v. City State of the Alfo Group Ltd. [16], and see Joel Sussman, Civil Procedure (7th ed., 1995) 139, 155), and cf. CA 11900/05 Alumot Holon Ltd. v. Lehem Hai Ltd. [17]). It is also noteworthy in this context that even if the appellants are not a direct party to the purchase agreement (which is, in fact, a secondary license for the utilization of the plants), it was signed with an “agent” of the appellants (or of any one of them) within the meaning of Agency Law, 5725-1965, and its provisions were designed to protect, inter alia, the breeders as holders of the breeders’ right in the varieties (see, e.g., sec. 12 of the agreement). We therefore seem to be talking about a “contract in favor of a third party,” which is subject to sec. 34 of the Contracts (General Part) Law, 5733-1973, whereby: “an obligation assumed by a person in a contract in favor of a person who is not a party to the contract (hereinafter: beneficiary) confers upon the beneficiary the right to demand fulfillment of the obligation, if the intention to confer that right on him is apparent from the contract.”

Let us now return to the question posed above, in the title of this section.

44.  The argument presented by the respondent, that he was permitted (by virtue of the purchase agreement) to utilize the seedlings (for commercial purposes) by way of repeated propagation, (an argument that was presented, as we have said, without support, and was refuted by the document itself), the appellants presented a letter that they had sent (through the Council) to the respondents, dated 20.2.2000, in which they notified the respondents that they –

[D]o not permit… utilization of their gerbera varieties, and they will not renew any agreement or license, if such existed… and this includes, inter alia: cultivation, propagation, sale, offer for sale of their varieties… (Emphasis added – H.M.)

In this notification, the appellants clearly state their position that they did not grant their agreement or permission in utilizing the varieties by the respondent. It is true that this letter (that was sent on behalf of the appellants) cannot necessarily be considered proof of utilization of the varieties without permission in the period prior to it being sent; however, it most certainly does attest to the absence of permission on the part of the appellants for utilization of the varieties by the respondent from the time that it was sent to the respondents and thereafter. The respondent admitted that he had indeed received the above letter from the Council (section 34 of the principal deposition); that being the case, he is estopped from arguing that he was not aware that the appellants were prohibiting him from utilizing, at least, the protected varieties in which they were the holders of the rights.

45.  Even though in fact, I am not required to deal with the question of when and under what conditions (if at all) a holder of a breeders’ right in a registered variety is permitted to revoke, or not renew, a license he gave, I will – to remove any doubt – make a few comments on this matter:

(a)   Since the breeder has a property right in a registered variety that he bred, and this right has a constitutional status in our legal system in light of sec. 3 of Basic Law: Human Dignity and Liberty, it is in the nature of this right, subject to the reservations in the Law (e.g., the compulsory license – see: secs. 40-41 of the Law, and cf. sec. 117 of the Patents Law) and the agreements to which the holder of the right is a party, to confer upon its holder, in general, the ability to do with his property as he sees fit, and this includes making it available for the use of another under the conditions set by the holder of the right, or to deny such use, if it is made against the wishes of the holder of the right (see and cf.: per Justice D. Dorner in ACUM v. Galei Zahal [11]).

(b)   The clear expression of a property right, according to the classic approach, is that the owner of the right is entitled to act vis-à-vis his property with “owner’s arbitrariness.” This concept is reflected in the words of Justice M. Cheshin in LCA 112/93 Tzudler v. Yosef [18]:

…A property right expresses, as a matter of principle, the right of a person to do, or not to do, as he pleases with his property; all, of course, subject to the reservations set by the binding law… The classic property right rejects, on principle, the element of reasonableness: the classic property right expresses arbitrariness of ownership, and reasonableness is the enemy of arbitrariness….

However, the “owner’s arbitrariness” which the individual can exercise in the area of private law is no longer, in our times, the same “arbitrariness” as it was in the past (see and cf. regarding public law: HC 1993/03 Movement for Quality Government in Israel v. Prime Minister [19], at 899). Today, there would seem to be no dispute that the holder of a property – including intellectual property –is subject to the principle of good faith in exercising his right, a principle that extends to all areas of law and applies within the bounds of every law (see: per (then) Justice A. Barak in LCA 6339/97 Rocker v. Salomon [20], at 299; and see Miguel Deutch, Property,Vol. 1, 321 (2003) (Hebrew)). Indeed, in ACUM v. Galei Zahal [11], Justice Dorner discussed the fact that the exercise of copyright, too, is subject to the principle of good faith. Justice Dorner stated:

However, it is clear that the owner of the copyright has a duty to use his right in good faith, and he may not, incidental to this use, harm the works of others, or the principle of free competition. Hence, in suitable circumstances, inappropriate use of copyright may lead to a narrowing of the protection afforded by the law to the owner of the right or even to its negation. (….) (Emphases added – H.M.)

(c)   Consonant with the broad application of the principle of good faith in our legal system, every legal act (including unilateral legal acts) must be done in good faith. This being the case, exercising the power of the holder of a breeders’ right to revoke the license in a protected variety that he bred, as well as use of the power to sue that is granted to him under the Law, must be done in an accepted manner and in good faith (see and cf.: Rocker v. Salomon [20], paras. 3-5 per Justice A. Barak; and also A. Barak, Agency Law vol. 1, 105-106 (1996) (Hebrew)).

(d)   The varieties of bred plants and the intellectual ownership of them are not a natural phenomenon but rather the result of human thought, development and breeding (cf.: per M. Cheshin in AShIR Imports and Distribution v. Forum Accessories and Consumer Goods Ltd. [15], at p. 340). The property right that is granted to the holder of a breeders’ right in registered plant varieties was designed, inter alia, to give expression to the personality of the breeder. The bred variety bears not only the DNA of the organisms from which it was created, but also the “genes” of the breeder. The bred variety is in the image of the breeder and also carries with it, as it were, the breeder’s “personality.” Beyond the economic interest, the holder of the breeders’ right has, therefore, a “personal” interest too in the variety that he has bred. The law is particularly interested in protecting such interests. However, the “principle of good faith” states that preservation of the person’s own interest must be fair and take into consideration the justified expectations and warranted reliances of the other party. In this context, therefore, one must take into account, inter alia, that “The scope of good faith is determined on the basis of the nature of the relations between the owner of the property and the ‘other.’ Harm done by a person with whom there is a one-time interaction (such as a casual trespasser) is not the same as harm done by a person with whom there is a continuous relationship…” (cf.: Rocker v. Salomon [20], paras. 7-8, per President A. Barak).

(e)   In the present case, the respondent is indeed not someone who had no previous interactions with the breeder, and decided to utilize the protected variety without the breeder’s permission. For years, commercial ties had existed between the appellants-breeders and the respondent-grower, and both parties profited (as mentioned, until 1999 royalties were paid to the appellants from the export earnings of the flowers cultivated by the respondent and marketed by the Council – this is beyond dispute). It is reasonable to assume that the respondent relied on what had been the parties’ practice over the years, developed his business, and invested resources on the basis of the expectation that he will be permitted to continue to cultivate and sell the appellants’ varieties (which were marketed by them, or with their consent, in Israel). The trouble is that this expectation is legitimate as long as the acts of the grower were performed within the boundaries of the permission given to him and within the boundaries of the law, i.e., as long as his acts involved no utilization without permission, or unlawfully, of the protected variety, nor any infringement of the terms of the agreement or the license to use the variety, and as long as necessary cooperation existed between the breeder and the grower to maintain their symbiotic relationship. Once a reasonable doubt arose that the respondent was exploiting (in both senses) the license he had been given, contrary to its terms and contrary to the law, and when cooperation between the parties ceased (and here, it makes no difference, in my view, who was “to blame”), and the breeders lost their faith in the grower, once again, in my view, there is nothing in the principle of good faith to negate the ability of the breeder to notify the grower that he will not renew the license, or permit, if such existed, for reasons of “consideration of justified expectations and due reliance of the other party.” In such circumstances, the expectations of the grower are no longer justified and the alleged reliance is unwarranted.

(f)   The situation described here is similar in certain ways (mutatis mutandis, of course) to the agreement between a manufacturer, or supplier, and a marketer – in the broad sense of these terms. Regarding relationships of this type it has been ruled that the need for mutual trust requires honoring the will of the “manufacturer” in terminating the relationship, even when the contract has not set a termination date (subject to notice being given a reasonable time before the date of termination), for it is impossible to secure a relationship of trust by force (see, e.g., CA 2850/99 Ben Hamu v. Tenne Noga Ltd. [21], at 858-860; CA 442/85 Zohar v. Travenol Laboratories [22], at 681-682; Leibowitz v. A. et Eliahu Ltd. [9], at 324; CA 9046/96 Ben Barukh v. Tnuva [23], at 632-633). What was ruled in relation to the right of distribution (which is, in principle, a contractual right) applies to a registered breeders’ right (which is a proprietary right) with even greater force, a fortiori, and particularly in relation to the case at hand, in which it was not even argued that a direct agreement had been made between the parties allowing the respondent to utilize, with no limit, the protected varieties (and note: from the material submitted to us it emerges that the period of the license for cultivating the varieties was restricted to one more year of cultivation beyond the first year, but in any case “not more than two years” – see section 11 of the terms of purchase of the seedlings (PE/2)).

At the same time, just as the grower expected to continue utilizing the protected varieties subject to legal constraints, so too is the breeder entitled to forbid the breeder to continue utilizing the varieties in which he is holder of the registered breeders’ right, all subject to the parameters of the right granted to him by law, and in our case, within the bounds set in sec. 36A of the Law (see: para. 37 above) but no further.

46.  The question that must be answered in these circumstances is: did the respondent continue to utilize the protected varieties (for commercial purposes) in a manner that involves repeated propagation of the variety, even after notification from the appellants? So doing would certainly amount to an “infringement” that entitles the appellants to relief under the Breeders’ Rights Law. From the material submitted to this Court it is apparent that this question must be answered in the affirmative.

This emerges first and foremost from the admission of the respondent himself. When the respondent was asked under cross-examination (on 9.6.2005): “what do you do since ’99, from where do you get the seedlings for the production of gerbera?”; he responded: “what I purchased during those years I propagate until today with those varieties” (Protocol p. 12, line 32). In other words, on his own admission, the respondent continued to utilize the protected varieties by way of repeated propagation, even after the appellants notified him, at the beginning of the year 2000, that they forbid him to utilize the protected varieties in any manner whatsoever.

Moreover, this is also evident from the “self-report” that the respondent submitted in relation to the 2000/2001 growing season, which relates to his method for “cultivation by way of propagation only.”

Furthermore, from another perspective. In my view, just as it is possible to deduce the element of “reproduction” in copyright law when the defendant had access to the plaintiff’s work, and when there is such a degree of similarity between the works that it is unreasonable to assume that it is a matter of coincidence only (see, e.g., CA 10242/08 Muzafi v. Kabali [24]), it is also possible, as I see it, to deduce the existence of repeated propagation of a variety when the defendant had access to the variety and when no reasonable explanation is offered for the gap between the number of “derived” seedlings that were found to be in his possession (and in our case, in his fields) and the number of seedlings that were purchased lawfully by him, according to his own report.

In the present matter, the respondent could not adequately explain the gap between the number of seedlings that he purchased, in 1999 (approx. 20,000 seedlings of registered and non-registered varieties), and the enormous number of seedlings of the protected varieties (approx. 180,000) that were found in the fields under his control in the count conducted in 2002. It should be pointed out that despite the fact that the count included both registered and non-registered varieties, it is relatively simple to extract the data concerning the number of seedlings of the protected varieties which were found in the respondent’s fields at the time of the count, by means of the registration in the Breeders’ Rights Registry (that was attached to the statement of claim). The findings of the said count constitute sufficient evidence that in the 1999/2000 and 2000/2001 growing seasons, the respondent utilized products that were derived from the seedlings of the protected varieties in a manner that involved repeated propagation of the variety, without the appellants’ permission (even though this does not prove, unequivocally, the extent of the utilization). In this context it will be mentioned that there was no dispute that it is usually possible to derive products from an original seedling of the protected variety for a period of two years.

And note: whereas the burden of persuasion to prove the claim (to the extent required in civil procedure, i.e., balance of probabilities) lies with the appellants, the burden of producing the evidence is dynamic, and may shift from one litigant to another in the course of the judicial proceedings (see, in this regard, the words of my colleague, Justice E. Arbel, in CA 78/04 Hamagen Insurance Co. Ltd. v. Gershon  [25]; CA 6160/99 Druckman v. Laniado Hospital [26], at p.124). From the moment that the respondent admitted (in 2005) that since purchasing approximately 20,000 seedlings in 1999, he propagates them by way of repeated propagation “until today,” the burden of proving that this propagation is not done with respect to the registered varieties, or if it is, it is done with the permission of the appellants, shifts to the shoulders of the respondent (cf. sec. 62A of the Law which deals with “transfer of burden of proof” in a claim of a holder of a right in a protected variety against the owner of a variety which is claimed to be primarily a derived variety). The respondent has not fulfilled this burden, and has not provided a convincing explanation for the gap between the number of plants that he purchased, as he contends, and the number of seedlings found on his farmlands in the count conducted after the appellants notified him that they forbid him to continue utilizing the protected varieties that they bred.

This is therefore sufficient for the purpose of a determination that the respondent infringed on the breeders’ right of the appellants in the registered varieties by way of repeated propagation and all that is involved, irrespective of the question of whether his self-reports were accurate or not, and also separate from the question of whether he paid the full royalties for utilization of the protected varieties.

Interim Summary

47.  We see from all the above that in the period relevant to this action, the respondent utilized (within the meaning of this term in the Breeders’ Rights Law), for commercial purposes, products of the seedlings from the protected varieties that were bred by the appellants, without their consent and unlawfully, in a manner that involved repeated propagation. This utilization by the respondent is not covered by the protection of “exhaustion” anchored in sec. 36A of the Law, and it constitutes an infringement on the monopolistic right to utilize the protected varieties granted to the appellants by the provisions of the Breeders’ Rights Law. From integrating the provisions of secs. 35(b) and 65(a) of the Law it emerges that by virtue of the prerogative granted to the holder of a property right in the protected varieties, the appellants are entitled to prevent the respondent, by means of an order, from utilizing the protected variety for commercial purposes in a manner that involves its repeated propagation. However, the appellants do not have the power to prohibit the respondent from utilizing in any other manner (which does not involve repeated propagation) the items of the varieties that they bred and that were sold or otherwise marketed with their consent in Israel, for such a prohibition does not fall within the bounds of the exercise of the breeders’ right; rather, it extends beyond the limits of the monopoly that is granted to the holder of the breeders’ right by the Law (cf. Elkin-Koren, at p. 498).

Notwithstanding the above conclusion, the question remains: under the circumstances of the case, is it warranted to restrict the right of the appellants to relief to which they are apparently entitled by virtue of the provisions of the Law (the extent of which is, as aforesaid, more limited than the extent of the relief they requested), or even to negate it, for “public” or other reasons? I shall now discuss this question.

Under the Circumstances of this Case, is the Restriction or Negation of Injunctive Relief Warranted by Considerations of “Equity”

48.  The source of the injunction is historically rooted in the English laws of equity, and in the English tradition it constitutes equitable relief which the Court has discretion on whether to grant, in accordance with various considerations, including the impact that granting (or not granting) may have on public and other interests. Such additional considerations which traditionally must be taken into account include: the “balance of convenience” between the parties, the existence of alternatives to the injunction, whether irreparable harm, which cannot be compensated monetarily, will be caused to the plaintiff if the relief is not granted, and the good faith of the party requesting the relief in submitting the petition.

An expression of the adoption of this English tradition can be found in U.S. Law. Thus, for example, in a context related to our matter, sec. 283 of the U.S. Patents Law explicitly subjects the discretion of the court, in deciding whether to grant an injunction in patent cases, to the principles of equity. Section 283 states as follows:

The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent on such terms as the court deems reasonable.

In view of this provision, it was ruled in the leading decision rendered by the U.S. Supreme Court in 2006 in the matter of eBay Inc. v. MercExchange [45] that granting an injunction in an action for breach of patent is not automatic, and in any case a court hearing a case of this type must weigh, inter alia, considerations found in the laws of equity. The Court ruled, inter alia, as follows:

­­­­­According to well-established principles of equity, a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. (…).

In the above cited case, the U.S. Supreme Court found that the above considerations had not been weighed by the lower courts that had heard the case, and it therefore remanded the case back to the trial court.

49.  The Israeli legislator, however, chose to travel a different path. The English tradition, which subjects the discretion of the court to the principles of equity in granting injunctive relief, was adopted here in particular in relation to the exercise of authority in granting temporary injunctive relief (see reg. 362(b) of the Civil Procedure Regulations, 1984); the exercise of general authority in granting relief, insofar as “it sees fit in the circumstances of the matter” (see: sec. 75 of the Courts Law [Consolidated Version], 5744-1984); and the exercise of authority in granting relief by way of orders in tort law. Section 74 of the Civil Wrongs Ordinance [New Version] provides as follows: “The court shall not grant an injunction where it believes the injury or damage caused to the plaintiff is minor and estimable in monetary terms, that the plaintiff can be adequately compensated by such payment, and that the grant of such injunction is oppressive to the defendant, but it may award damages ” (see also: Izhak Englard, Aharon Barak and Mishael Cheshin, Tort Law – General Theory of Torts (1977) 595 (Hebrew); Mishael Cheshin, Chattels in Tort Law (1971) 24, 143 (Hebrew)). However, a request for a temporary injunction and the terms for granting an injunction in tort law are one thing, and an action for a permanent injunction for infringement on a property right according to an explicit statutory provision is something entirely different.

In the Patents Law and the Breeders’ Rights Law, the Israeli legislator did not impose reservations similar to those described above regarding the authority of the court to grant relief by way of orders in the case of infringement (see: sec. 183(a) of the Patents Law; sec. 65(a) of the Breeders’ Rights Law). On the contrary: sec. 36(b) of the Breeders’ Rights Law seems to say that “[t]he holder of a breeders’ right may prevent any other person from utilizing – without his authorization or unlawfully – the variety in respect of which the right is registered…”, without this right being subject to any reservations except those set in the Law itself.

Indeed, in accordance with the practice of this Court, in an action based on a proven property right whose holder is found, after the evidence and pleadings have been heard, entitled to the benefit therefrom, normally (subject to those “rare, exceptional” cases, and as long as the action is not trivial), when the exercise of discretion is warranted only for the purpose of tying the hands of the holder of the right when he tries to prevent another from unlawfully infringing on his right – no great weight should be attributed to considerations whose historical source lies in the English laws of equity (see, e.g., CA 5240/92 Halamish v. Ashraz [27] IsrSc 47(1) 45, 50); Rocker v. Salomon [20]; ACUM v. Galei Zahal [11]).

50.  Nevertheless, it is noteworthy that in recent years, another trend has also been developing here, which seeks to make an exception to the property right, including intellectual property right, in cases of “arbitrariness” on the part of the holder, or due to “public” considerations. An expression of this may be found in sec. 53 of the Copyright Law, which states: “in an action for copyright infringement the claimant shall be entitled to injunctive relief, unless the court finds that there are reasons which justify not doing so.”

The legal literature in sec. 53 of the Copyright Law mentions several types of considerations that may justify withholding injunctive relief:

The first type relates to situations in which the intervention of the court is required to resolve a market failure, and when there are high transaction costs that prevent utilization of the works;

The second type relates to the promotion of free competition and the constriction of anti-competitive conduct by the holder of the right;

The third type relates to the balance between the interest of protection of the works and that of utilization of the works and increasing their accessibility to the public (see: Orit Fischman Afori, “Judicial Discretion in Granting Injunctive Relief: The Quiet Revolution” in Creating Rights – Readings in the Copyright Law (2009) 529, 530 (Hebrew)).

This approach contends that the court, by virtue of antitrust laws or of the doctrine of “abuse of a right,” can use its power to deny injunctive relief, if it deems this necessary in order to promote competition, or where there has been anti-competitive conduct on the part of the holder of the rights (Fishman Afori, at pp. 551-552). Accordingly, it has been suggested “to regard the rule that allows for the negation of injunctive relief as a type of general compulsory license created by the court, which is applied ad hoc and for justified reasons” (Fishman Afori, id.). A similar approach was expressed, as we have said, by Justice Dorner in ACUM v. Galei Zahal [11], even prior to the enactment of the Copyright Law in 2007.

51.  Patent law is indeed different from copyright law, and they both differ from the laws of breeders’ rights; nevertheless, these are all systems belonging to the same “family.” One cannot, therefore, rule out the possibility that these regimes will each, with due caution, affect the other, while taking into account the existing differences between them (see: the words of my colleague, Deputy President, Justice E. Rivlin in CA 5977/70 The Hebrew University of Jerusalem v. Schocken Publishing House Ltd. [28], at para. 18). It is the accepted rule in our legal system that in interpreting a law and applying it, we must strive for “statutory harmony” (Justice Y. Susmann in CrA 108/66 “Dan” Cooperative Society for Public Transport v. Attorney General [29], 261). With respect to the justification for viewing intellectual property as an entirety, and drawing an analogy from one area to another regarding the said laws, see also per Y. Turkel, CA 3400/03 Rubinstein v. Ein Tal 1983 Ltd. [30], end of para. 11). However, an analogy of this type must be drawn with caution, and only insofar as the language of the law permits.

Thus, even though I do not believe that within the parameters of sec. 65(a) of the Breeders’ Rights Law as presently formulated, a court deciding on an application for an injunction is bound to weigh considerations of the type mentioned, nevertheless, since the respondents raised such arguments before this Court, I will discuss them below.

52.  It will be recalled that according to the respondents, under the circumstances of this case, there is no justification for granting the appellants the relief that they seek, for a number of reasons:

(a)   Bringing an action for an injunction, as opposed to a monetary claim, or an action for mandamus obligating the respondents to allow the appellants’ representative to enter the fields and count the seedlings, was tainted by lack of good faith and amounted to abuse of the breeders’ right; in this context, the respondents refer mainly to the statements of the appellants’ representative in his cross-examination, who, in response to the question, “Is it true that if [the plaintiff] would have paid all the royalties, including for the non-registered varieties, there would have been no problem?” answered, “…If he would have allowed [me] to count and check that that is true, there would have been no problem…” (Protocol 9.6.05, at p. 8, lines 17-19).

(b)   The appellants did not prove that not granting the relief would cause them monetary damage; granting the requested relief, however, may bring about the financial ruin of the respondents;

(c)   Through the Council, the appellants hold approximately 75% of the protected varieties, and they therefore constitute a monopoly; this being the case, their demand that the respondents desist from the cultivation, marketing, sale, export, etc. of the products of the protected varieties amounts to a violation of sec. 29 of the Restrictive Trade Practices Law.

I will discuss these arguments in the above order.

53.  In view of the case law and the principles discussed above, I am of the opinion that where the infringement on the breeders’ right has been proven (as in our case), denial of the relief established in the Law – which is intended to prevent the continuation of the harm to the property right of the holder of the breeders’ right – on the basis of the doctrine of “abuse of a right” is possible only in extremely rare, exceptional cases, in which the absence of good faith on the part of the claimant and the abuse of his right are so extreme and substantial as to constitute intolerable mistreatment of the defendant. This would be the case, for example, when there is absolutely minimal (de minimis) harm to the right (cf. Justice Y. Turkel in CA 3901/96 Raanana Municipal Council for Planning and Construction v. Horowitz [31], at 929), or when the requested relief is not included in the range of reliefs that the claimant is entitled to receive.

The case before us is not one of those exceptional, extreme cases. Indeed, one may be uncomfortable with the fact that the appellants chose to bring an action against the respondents for injunctive relief when it may have been possible to settle for other legal remedies that may have been considered less harmful. The admission by the appellants’ representative to the effect that if the royalties for use of the non-protected varieties had been paid, “there would not have been a problem,” also gives rise to a feeling of discomfort. In addition, in the circumstances of this case, there is also something disturbing in the fact that the appellants, for whom the breeders’ right constitutes their basic livelihood, requested comprehensive relief which extends beyond the relief to which sec. 36A of the Law entitles them (as explained above). Nevertheless, I do not think that one can say that the appellants’ insistence on relief in the form of an order preventing the continued violation of their property right (which was proven, even if only from the admission of the respondent), which is included in the “range of reliefs” to which the appellants are entitled by law, amounts to abuse of their right.

Even were I to assume that the economic damage incurred by the appellants due to the infringement on their right by the respondent is not particularly substantial or difficult for them (and as proof, in their claim the appellants did not request the remedy of monetary compensation, nor did they deposit the undertaking and the financial guarantee (which was relatively low) that was set as a condition for the enforcement of the temporary injunction issued by the District Court at their request), it cannot be said that the harm was “de minimis.” The intellectual property right in the bred plant varieties is, as stated, a resource that is perceived as reflecting the “self” to a great extent, for the bred variety also contains expression of the “personality” of the breeder. Anyone who wishes to utilize the protected bred variety for commercial purposes is, as a rule, required to receive permission from the holder of the breeders’ right in the protected variety. In cases of this sort, preference should be accorded to “strong” relief that reflects the interest of control on the part of the holder of the right (cf.: Shoham v. Herer [14]). Injunctive relief is “first and foremost” amongst the reliefs that the Breeders’ Rights Law grants to the holder of the right in the case of a violation. Monetary compensation is not necessarily an alternative to injunctive relief (inter alia because it cannot provide compensation for the harm to the “self” of the breeder), and in the absence of an agreement on the part of the holder of the right, it cannot replace this relief (cf. per Justice Dorner in Acum v. Galei Zahal [11]). “Not only is there no mistreatment of the defendant in granting an injunction to prevent a recurrence of the violation in the future, but this is the most common and most effective remedy” (CA 715/68 Fru-Fru Biscuits v. Frumin [32], dealing with an action for an injunction for the violation of a trademark which also constituted misrepresentation (at p. 49, para. 4)). Moreover, bringing an action for injunctive relief soon after the holder of the right becomes aware of the infringement may, in certain circumstances, be in keeping with the duty imposed on the holder of the right to minimize his damage (as well as the “damage” of the infringer).

This level of considerations must include the “degree of wrongfulness attached to taking the resource” (cf. Shoham Machinery Ltd. v. Herer [14]). The respondent, it is true, did not “steal” the seedlings; rather, he purchased them initially from the appellants’ representatives. However, he cannot pretend to be innocent. The respondent was certainly aware of the appellants’ desire to control the extent of utilization of the protected varieties and to make a profit from them through royalties (whether for utilization of the seedlings purchased by way of licensed repeated propagation or for the sale of additional seedlings). The respondent was also aware that utilization of the varieties by way of repeated propagation, without the permission of the appellants, constituted a violation of the latters’ rights in a manner that put him, at least, at risk of an action for injunctive relief being brought against him (to which he agreed in advance): see the terms of the purchase agreement for the seedlings, on which the respondent himself sought to rely. In this last context, I will point out that I cannot accept the respondent’s claim that he is not familiar with the terms of the said agreement. The respondent signed the tax receipt for the purchase of the seedlings (to which the agreement is appended), and in so doing, confirmed that he had read the terms of the order. As is known, a person’s signature on a document attests to the fact that he read the document, agreed to its contents, was aware of the significance and the consequences of his signature, and cannot, therefore, dissociate himself from it (see, e.g., CA 1319/06 Shellac v. Tene Noga (Marketing) 1981 Ltd. [33] and the references cited there). Moreover, the circumstances of our case evince a systematic violation of the breeders’ right in the protected varieties, which was done for commercial purposes, with a clear awareness of the meaning of this violation, and not from any error or negligence. Accordingly, this case is not a matter of an “innocent infringer,” but of a person who deliberately “appropriated” a right that vests exclusively in the breeder (cf. Rocker v. Salomon [20], per President A. Barak, at para. 20).

54.  Regarding the respondents’ arguments on the “balance of economic convenience”: this consideration is not amongst those which the court must weigh in granting an injunction that will prevent the continued infringement on a property right, for in the said action, the plaintiff is not required to prove that he suffered real financial loss due to the infringement of his right (see per (then) Justice M. Shamgar in CA 44/76 Ata Textile Co. Ltd. v. Schwartz [34]). The injunctive relief is designed to protect the control of the owner of the intellectual property over the resource. This relief is what grants the property right its power vis-à-vis the whole world, by preventing use of the product in the absence of an agreement (see: Shoham Machinery Ltd. v. Herer [14]). Granting recognition to considerations of “balance of convenience” in the context of an action for injunctive relief for the infringement on an intellectual property right undermines the purpose of property rights. Taking into account considerations of this sort in the context of such an action has the potential to negate the proprietary nature of the right and to weaken the entitlement to receive the relief of an injunction by virtue of the Law.

55.  Under the circumstances of the case, neither is there room for entertaining the respondents’ argument presented in para. 52(c) above,  because the Council is not a party to the present proceeding (nor was it a party to the proceeding before the District Court); moreover, this is a factual argument that requires proof.

Nevertheless, I found the argument that the appellants’ demand to receive a sweeping injunction that would apply to all utilization irrespective of the protected varieties, and not only utilization involving repeated propagation of the variety, seems to constitute an attempt to create a type of “restrictive trade practice,” which disproportionately harms the freedom of occupation of the respondent and the principle of free competition, to be compelling. As a rule, granting an injunction for an infringement on a breeders’ right in a protected variety does not amount to a “restrictive trade practice” within the meaning of the Breeders’ Rights Law. See, for example, sec. 3(2) of the Restrictive Trade Practices Law, which states that “(2) an arrangement involving restraints, all of which relate to the right to use of any of the following assets: patents, designs, trademarks, copyrights, performers’ rights or developers’ rights… shall not be deemed restrictive arrangements.” However, as I explained above, under the circumstances of the case, when we are situated in the “domain” of sec. 36A of the Law, the comprehensive injunction that was requested – for all utilization, in any manner whatsoever – goes beyond the bounds of the “monopoly” that was granted to the breeder by virtue of the Law. Moreover, one must also consider that items of the protected variety were sold by the breeder or with his consent in Israel (sec. 36A of the Law). Granting an injunction in the broad format requested is not, therefore, justified in the circumstances of the case, inter alia, for reasons connected with antitrust law (see and cf: Elkin-Koren, at pp. 487-488, 498).

At the same time, one cannot overlook the fact that the respondent utilized the protected varieties without permission, in a manner that allowed him to enjoy a business advantage over his competitors and to make a direct profit from his infringing activity. Under these circumstances, granting an injunction, the scope of which is derived from the scope of the existing right of the appellants in accordance with the provisions of the Law, sends out a deterrent message and serves the interest of preserving the rules of competition (cf. Shoham Machinery Ltd. v. Herer [14]). Granting the prohibitory injunction in a format that is more restricted than that requested is, therefore, consistent with the purpose of the Law and with the international obligations of the State of Israel under the Convention.

56.  To summarize all the above: I have reached the conclusion that in the circumstances of the case, negating the right of the appellants to be granted an injunction, the scope of which is derived from the scope of the right vested in them under sec. 36A of the Law, would not be justified.

Against whom should the injunction be granted? Should it be against respondent no. 1 alone, who bears direct responsibility for infringing on the appellants’ rights (in that he utilized, by himself, the protected varieties, for commercial purposes, in a manner that involves their repeated propagation, without their permission), or should it be against his father, respondent no. 2, who is the owner of the agricultural land on which the infringement took place? This is the question I will now discuss.

Liability of Respondent no. 2

57.  In my opinion, respondent no. 2 bears liability for the infringement on the rights of the appellants, due, inter alia, to the doctrine of contributory infringement that applies in the Israeli law of patents (see: Rav Bariah v. Habshush [12], para. 31 per Justice I. Englard), and the application of which was recently recognized in the law of copyright too (see: Hebrew University of Jerusalem v. Schocken [28], and FH 5004/11 Schocken Publishing House Ltd. v. Hebrew University of Jerusalem [35]).

58.  In Schocken Publishing House Ltd. v. Hebrew University of Jerusalem [35], the Court ruled that the liability of the “contributory infringer” (to the infringement of copyright) can be recognized, subject to the existence of three cumulative conditions, which are as follows:

The first condition is the actual existence of a direct infringement; the second is the contributory-infringer’s knowledge of the direct infringement that had been perpetrated; the third is the existence of a significant, substantial and real contribution to the perpetration of the infringement (ibid., para. 23).

Regarding the second condition, it was ruled that “[p]otential knowledge regarding the perpetration of the infringement does not suffice. Yet, it is not necessary for the contributory-infringer to have had specific knowledge about every infringing copy; his knowledge regarding the existence of the infringing activity is sufficient” (ibid., para. 25).

And regarding the third condition, the Court ruled: “The emphasis in this context is on the effective control of the intermediary on the existence of direct infringement, and on his ability to prevent its occurrence by simple and reasonable means” (ibid., para. 26).

59.  In view of the proximity of the laws of breeders’ rights to the laws of patents and the other laws of abstract intellectual property, including the laws of copyright, and in the absence of any other provision in the Law that negates the possibility of doing so, I am of the opinion that there is no difficulty in applying the said doctrine here, under the conditions established in Schocken Publishing House Ltd. v. Hebrew University of Jerusalem [35], to the laws of breeders’ rights too.

Application of the doctrine of contributory infringement in the above case ([35]) led to dismissal of the action against the Hebrew University. It was ruled that infringement on the plaintiff’s copyright did, indeed, occur within the campus of the University, but the latter’s contribution to the perpetration of the infringement manifested itself only in the fact that it did not prevent the infringement on the right, or did not take active steps to stop the infringement that took place within its grounds, by the students studying there. In these circumstances it was ruled that it is doubtful that the University had the effective ability to control the actions of the students and to actually prevent the perpetration of the infringement within its campus.

The circumstances of the present case are different. The infringement took place within the agricultural fields of which respondent no. 2 – the father of respondent no. 1 – was the owner. The direct infringement was perpetrated by his son. Respondent no. 2 admitted in his deposition that he allowed his son to cultivate the farmlands in order to make a living, i.e., he put the land at the disposal of the son in order for the son to cultivate plant varieties there and market them. These are growers who make use of their lands for the purpose of commerce, and in particular for the cultivation and sale of the varieties that were bred by the appellants. The appellants’ letter of 20.2.2000 is also addressed to respondent no. 2, and he did not claim that he did not receive the letter, or that he was not aware of it. Under these circumstances, respondent no. 2 was aware of the violation that was perpetrated on the farmlands of which he was the owner. It cannot be said that respondent no. 2 had no effective ability to control the actions of his son on the holding that he made available to him. As opposed to the University’s case, in this case it is unacceptable, in my opinion, to argue that imposing a duty of oversight on the father in a way that would enable him to prevent his son from perpetrating infringements on the land that he owns would impose too heavy a cost on him. 

Furthermore, obliging the owner of agricultural lands to take reasonable steps in order to prevent the infringement of breeders’ rights on lands he owns and controls (and particularly in a situation of a father and son) can also be grounded, as I see it, in the general law of torts. Usually, the landowner is under a duty of care vis-à-vis those who were injured by activity that took place on his land, on the basis of the assumption that the owner of the property is able to minimize the risks on his land, which he oversees and supervises. Within the bounds of this duty of care it seems possible to include the obligation of the owner of agricultural land, on whose land varieties of plants and flowers are cultivated, to take reasonable steps to prevent an infringement on breeders’ rights in those varieties, particularly in the case of cultivation for the purpose of commerce. Imposing such an obligation is particularly justified after the owner of the agricultural land becomes aware of an infringement that is being perpetrated on his property (see and cf.: per Justice N. Hendel in CA 9183/09 Football Association Premier League Ltd. v. A. [36]).

Conclusion

61.  If my opinion is accepted, I would propose to my colleagues that we accept the appeal, and that we issue a permanent injunction against respondents 1 and 2 and order them to desist from all utilization involving repeated propagation of the protected varieties of which the appellants are the holders of the registered breeders’ right, for commercial purposes, without the permission of the appellants. The practical ramifications of this outcome are as follows:

(a)   The judgment of the District Court will be set aside, and together with it, the obligation to pay court costs and attorney’s fees that were imposed on the appellants. The sum that was paid by the appellants pursuant to the judgment of the District Court, insofar as it was paid, will be returned to them, with interest and linkage differentials from the date when it was paid to the respondents until the date of actual payment to the appellants.

(b)   The respondents must desist, as of now, from “repeated propagation” of the protected gerbera varieties in which the appellants hold the registered breeders’ right, for commercial purposes, without the permission of the appellants; similarly, the respondents are forbidden to cultivate, prepare, and/or maintain – for the purpose of repeated propagation for commercial purposes – the protected gerbera varieties in which the appellants hold the registered breeders’ right, without the permission of the appellants. The above will apply until the end of the period of the registered breeders’ right.

(c)   In addition, it is forbidden for the respondents: to offer for sale, sell, export, import, or otherwise market, and to maintain for the purpose of one of these activities, without the permission of the appellants, the seedlings of the protected gerbera varieties in which the appellants hold the breeders’ right, and any of their “harvested material” or “propagating material”  (within the definition of these terms in the Law), including the flowers of these seedlings – which were “produced” by the respondents by means of repeated propagation from the time that the action was brought until today, and all this until the expiration of the period of the appellants’ registered breeders’ right.

(d)   To remove any doubt, let me clarify that in view of sec. 36A, as well as the other provisions of the Law, this order does not apply to any utilization that does not involve repeated propagation of the protected varieties in which the appellants hold the breeders’ right, that were acquired by the respondents, in any manner, from the appellants’ representatives, or with the consent of the appellants, within the territory of the State of Israel. This means that the respondents are permitted to acquire new seedlings from the protected varieties that are sold, or otherwise marketed by the appellants, or with their agreement, in the territory of the State of Israel, and to utilize them (within the meaning of this term in the Law) in accordance with and subject to the provisions of the Law and the terms of use in them, as shall be defined by the appellants or their representatives, or as shall be agreed directly between the parties.

62.  I propose to leave pending the question of whether the appellants will be entitled (if at all) to sue the respondents for any compensation for the past, in view of the determinations in this judgment, in particular given the fact that they refrained from claiming that relief initially and did not even act to fulfill the conditions of the temporary injunction that they were granted (and all this alongside the fact that the respondents continued to pay certain royalties to the appellants). Moreover, it would seem that an overall compromise, even retroactively, in view of the principles that were elucidated in this decision, would be warranted, notwithstanding the permanent injunction, in the spirit of what the parties discussed at the outset and in view of the recent developments, , including additional matters that require a solution and the changes that occurred in the meantime.

63.  In addition, I would propose to my colleagues that the respondents bear the appellants’ costs in this proceeding in the amount of NIS 40,000.

 

Justice S. Joubran

I concur.

 

Justice E. Rubinstein

1.    I concur in the comprehensive opinion of my colleague, Justice Melcer. Unlike the patently “Israeli” areas, here we are dealing with a clearly international matter, which has its foundations primarily in an international convention: the International Convention for the Protection of New Varieties of Plants of 1962, which Israel has a duty to uphold in accordance with its international obligations; this Convention underlies the enactment of the Plant Breeders’ Rights Law, 1973, and its amendment in 1991 is the backdrop of Amendment no. 2 of 1996 to the Law, whereby sec. 36A was added. The purpose of the Amendment was, as noted by my colleague (para. 24), to achieve a balance between the property right of the breeders, who in certain circumstances are entitled to an injunction under sec. 36A, and the public interest in not allowing an expansion beyond the exhaustion of the right that the breeder sold, except in cases of repeated propagation or the export of propagation material for the purpose of propagation. In such instances, especially, looking to comparative law for assistance – as my colleague has done – is warranted.

2.    Let us recall that the balance here is not a matter of “give them a finger and they will take the whole hand.” It does not permit anarchy. Underlying the Law is the property – in this case, intellectual property – right, which has constitutional protection in the State of Israel under sec. 3 of Basic Law: Human Dignity and Liberty. Therefore, restriction of the utilization by the breeder of his property as a function of sec. 36A is subject to the obligation of good faith, and in that regard intellectual property is no different than any other area of civil law (see secs. 39 and 61(b) of the Contracts (General Part) Law, 1973). The monopoly granted to the owner of the intellectual property has constraints, but it may not be abused. I personally am of the opinion that this Court must deal strictly with those who abuse the constraints that the legislator placed on the rights of the owner of the intellectual property. We are dealing with a balance, one that was established in order to serve the interests of the general public of consumers, but when this balance is upset, the property right arises in full force. We are dealing with money, and the temptation is great to benefit from the anarchy or from the grey area; the Court will not be the vehicle for so doing; no person should benefit from that “for which thou hast not labored, neither madest it grow” (Jonah 4:10). “Homo homini homo est” said President Barak a fair while ago in Rocker v. Salomon [20], at p. 279, and if this (minimal) condition is not met, and we are faced with a “business full of trickery” as counsel for the appellants told us, and it is clear that the problem arises due to the difficulty in establishing the facts – the Court will grant the relief to the person whose property is damaged: see para. 45 of my colleague’s opinion.

3.    The clearest indication in the said context of overstepping the boundaries is the matter of the count. If a person has nothing to hide – and when it is not an intimate matter involving internal privacy but rather a commercial dispute – there is no reason to refuse the count; in our case, however, a legal proceeding was necessary in order to conduct the count and examine whether there had been unlawful repeated propagation and an infringement.

4.    Several years ago, this Court heard the case of FH 4465/98 Tivol v. Cheg-Hayyam [37], and prior to that, the case preceding it: CA 6222/97 Tivol v. State of Israel [38]. At that time, I served as the Attorney General, and I remember that my intuitive principled stand was initially the same as that of Justice Turkel, i.e., that weight must be attributed to the values of fairness and integrity; however, I was persuaded by my colleagues in the State Attorney’s Department and the Attorney General’s Department that the interest of competition must prevail in that case, in view of the balance at that time; this was the position we presented, and it was accepted by the majority of the court, with Justice Turkel dissenting, although some of the justices stated that they agreed with his value-based approach. I raise this now as a kind of “debt of honor,” while saying again, as did my colleague, Justice Melcer: the laws of intellectual property are like any other area of civil law, to which the laws of good faith apply, and the court must be aware of them. And let us recall: “If the creator produces something which is of value to another, then the creator is morally deserving of reward for the utility that has been derived from this value…” (Orit Fischman Afori, The Derivative Work in the Law of Copyright (2005) 74 (Hebrew)). For the approach of Jewish law to unfair commercial competition, see V&S Vin Sprit Aktiebolag v. Absolute Shoes Ltd. [13], at pp. 888-889.

e.     Finally, I am aware of the questions that may arise in the area of preservation of intellectual property rights; there will be those who emphasize the property and the right of ownership (and as stated, this is a fundamental right), and others will stress the element of users’ rights. The considerations either way are discussed at length in Authoring Rights: Readings in the Israeli Copyright Law (M. Birnhack & G. Pessach eds., 2009), an extensive discussion of this is beyond the scope of our case; however, all seem to admit, or ought to admit, that everything is subject to good faith and fairness, and “fair use” – as in the caption of sec. 19 of the Copyright Law, 2007 – plain and simple. For approaches in US law, see, inter alia, Robert Cooter and Aaron Edlin, “Overtaking”, in The American Illness: Essays on the Rule of Law (G.H. Buckley (ed.), 2013) 472, 477-481. One way or another, where – as in our case – it is not the tension between property and another public interest, but rather the tension between the property of one person and the wide pockets of the other that the scales are weighing, the answer is clear to me: the side that will prevail is that of property. This is not like the case in which Steve Jobs (the founder of Apple) complained to Bill Gates (of Microsoft) about an alleged infringement: “It is as if you broke into my house and stole my television,” and Gates answered: “Well, Steve … I think it’s more like we both had this rich neighbor named Xerox and I broke into his house to steal the TV set and found out that you had already stolen it” (Cooter and Edlin, “Overtaking”, at p. 478); nothing further need be said.

Salomon v. Yaasin

Case/docket number: 
CA 563/11
Date Decided: 
Monday, August 27, 2012
Decision Type: 
Appellate
Abstract: 

 

The Appellant is a corporation operating in the field of sporting goods, clothing and shoes, and holds trademarks in many countries around the world. Three of its trademarks are registered in Israel and they include a logo of three parallel and diagonal stripes that appears on the side of sneakers, comfortable shoes, athletic shoes and shoes for daily wear. The Respondent imports shoes into the Palestinian Authority. In 2005, the Respondent imported sneakers from a factory located in China. As per his order, the shoes were marked with four diagonal stripes and labeled with the name “SYDNEY”, which appeared in three different spots on the shoes. The shipment of these shoes arrived at the Ashdod Port, and the Appellant was notified by the Department of Customs and VAT that the shipment would be held because, from the appearance of the shoes, the Respondent seemed to have violated the Appellant’s intellectual property rights. Officers of the Department of Customs and VAT gave the Appellant’s lawyer the Respondent’s information and a sample shoe, against the deposit of a bank guarantee. The Appellant believed the appearance of the shoes is indeed sufficiently similar to the shoes it manufactures as to be misleading and that the shoes infringe its trademark. The Respondent, for his part, argues that the shoes he imported did not infringe the Appellant’s registered trademark, but in order to reach an agreement with the Appellant, he proposed to make a certain change to the shoes’ design. The Appellant rejected the proposal, and therefore the Department of Customs continued to hold the shipment. The Appellant filed suit against the Respondent in the District Court for trademark infringement, passing off, harm to reputation, and unjust enrichment. The claims were rejected, and hence this appeal.

 

The Supreme Court rejected the appeal (and in terms of the unjust enrichment cause of action – in a majority) ruling that:

 

Justice Hayut –

 

Infringement of a trademark: A trademark is intended to assist the consumer to distinguish between products made by competing manufacturers. Therefore, to be eligible for registration, the product must be of “distinctive character”. Such distinctive character may be inherent distinctiveness or acquired distinctiveness. There is no dispute that the Appellant’s trademark – three diagonal stripes identically wide and spread out on the side of the shoe – is currently absolutely associated with the Appellant corporation all around the world and constitutes a distinct sign for identifying its shoes. Therefore, it seems that there is no question regarding the existence of acquired distinctiveness for this mark. However, and as the lower court held, the inherent distinctiveness of the product is weak.

 

The weakness of its inherent distinctiveness influences the scope of the protection the mark ought to be given. The fact that the mark has acquired a highly strong distinctive meaning warrants maximum protection. However, its weak acquired distinctiveness warrants protection that is generally limited only to the trademark itself and to extremely similar designs. In other words, allowing the Appellant to additionally monopolize two or four stripes (or any other number of stripes), is problematic as we thus exclude a stripes design from the public domain and prohibit other manufacturers from using this design for their shoes. This is not to say that the Appellant’s investment in advertizing and marketing has not led to the stripe design being popular and desirable, but this cannot lead to a conclusion that any use of stripes by a competitor is prohibited use.

 

Section 1 of the Trademark Ordinance stipulates that an “infringement” is, among others, the use of a registered trademark or a similar mark, for the purpose of goods or related goods for whom the trademark had been registered, by someone who is not entitled to do so. The section does not detail the extent of similarity required between the marks for the use to constitute an infringement. However, the case law found that in this context the test in section 9(11) of the Ordinance – which sets the method of examining the mark for the purposes of registration, and that a mark is sufficiently similar to a registered trademark as to be misleading is ineligible for registration – should apply. Therefore, when concerning the use of a similar mark (as opposed to the use of an identical mark) the party claiming infringement must show that the other mark resembles its mark as to mislead the public. The acceptable test for examining the existence of a misleading similarity is a triple test that includes the sight and sound test, the type of product and consumers test, and the circumstances test.

 

While applying these tests, one must remember that the marks as a whole must be compared, rather than specific parts of them, and that the examination must focus on the existence of a misleading similarity between the marks themselves. In our case, however, it is impossible to examine the marks completely separately from the goods upon which they appear. First, even if the consumer does not have the two products in their hands and compares the marks’ details, we cannot assume that the consumer disconnects the marks from the shoes themselves and examines them separately from the shoes. Second, the rule that the marks themselves should be compared was established in cases concerning verbal, rather than visual, marks. This distinction is important because complete separation between a visual trademark from the product upon which it appears, particularly when the mark may be interpreted as a decorative element, is an artificial and problematic separation. The application of the infringement tests must fit the unique circumstances of the case. Considering the circumstances here, it seems the shoe must be examined in its entirety.

 

In the current case, the parties agree that the Respondent’s shoes are the same type of product for which the Appellant’s trademark was registered – sneakers – or sadly the same category of goods, that is the same commercial family. It is also agreed that the shoes do not carry the same design as the registered trademark, and thus this is not an attempt at counterfeiting goods. We should examine the similarity between the marks and decide whether indeed this similarity is misleading. Applying the sub tests, while accounting for normative findings regarding the scope of protection appropriate for the mark, lead to a conclusion that the Respondent’s shoes do not cause concern for misleading the public and therefore do not infringe the Appellant’s trademark.

 

Passing off: This tort has two elements, which the party claiming the tort (plaintiff) must prove: reputation acquired through goods or services this party offers, and concern for misleading the public to believe that the goods offered by the defendant offers actually belongs to the plaintiff. There is no disputing the Appellant and its trademarks’ reputation in the field of sports shoes in Israel and around the world. Therefore, the first element is met and we must focus on the second – the concern for misleading. In order to explore the existence of this element we must examine the entirety of the defendant’s actions and conduct. This examination does not lead to a different conclusion than that which we have reached about the lack of concern for misleading in terms of the trademark. This is because the Respondent’s actions, such as attaching to the shoes a label spelling out the name “SYDNEY” in capital letters or packaging the product in a box also clearly marked with that same name, further reduce the concern from misleading. It seems in this case there is no concern for misleading the public.

 

Reputation dilution: The doctrine of reputation dilution does not require proving a concern for misleading consumers. However, it seems that the cases where it is appropriate to find a reputation dilution exists even in the absence of misleading, are extraordinary cases where the lack of misleading was a result, for instance, of the product belonging to an entirely different category of products. In any event, even when proving misleading is unnecessary for claiming reputation dilution, this does not negate the requirement to show erosion and distorting the reputation acquired by the registered trademark because of the use made of the other mark. When we are concerned with marks on products in the same category, and in the absence of misleading similarity between the products or the marks that are largely differentiated, the claim that the reputation of the trademark’s owner would be diluted should seemingly be rejected. In this case, in light of our finding that it was not proven that the average consumer would be misled to think that the Respondent’s shoes were made by the Appellant, there is no concern that the consumer would indeed link the quality of the Respondent’s shoes to the Appellant, and in any event the cause of action of dilution does not exist.

 

Unjust enrichment: It seems that the rule that possibly derives from the A.S.I.R case was fully reflected in Justice Strasberg-Cohen’s opinion that the individual’s interest that a creative work they produced and invested time, effort, thought, talent and resources into, is principally worthy of protection within the law of unjust enrichment, and this interest should not a-priori be excluded merely because it is not a cognizable right under intellectual property law. Still, it was decided that the scope and application of unjust enrichment law depends on the extent that the existing law is comprehensive in that it excludes the application of external law; that a requirement for finding in favor of the claim is that enrichment is not “by a lawful right”, that is that the copy or forfeiture consist of an “additional element” of negative value; that there must not be double remedies or compensation; and that when necessary a variety of remedies – which include restraining orders – may be granted under unjust enrichment law, though they are not detailed explicitly in statute.

 

The Appellant holds a registered trademark and it essentially established its suit in terms of infringing this trademark. The issue is whether, where a court found that the intellectual property law elements that warrant protecting the holder of a trademark do not exist, and the court additionally found that under the circumstances there was no passing off, a plaintiff may be permitted to raise claims regarding unjust enrichment as an alternative cause of action. The majority justices in A.S.I.R. chose not to decide the issue of whether a plaintiff may simultaneously and alternatively file claims under intellectual property law and under unjust enrichment law. In other matters that came before this Court after that decision, the Court found that once the plaintiff failed to show the infringement of a registered trademark and the plaintiff is no longer entitled to protections of property under this “cognizable right”, there is no room to grant remedies under the alternative unjust enrichment claim.

 

Even where we assume, for discussion’s sake, that rejecting the claim of infringing a registered trademark does not negate at all an alternative cause of action under unjust enrichment, it seems there is no dispute that this rejection carries significant weight in examining the existence of the four elements of the alternative claim, particularly in terms of finding against misleading. In this case, the Respondent used the mark of four stripes on the side of the shoe, as well as – and this is most important – the labeling of the word “SYDNEY”. Under these circumstances we must emphasize this case’s distinction from A.S.I.R., where there was a perfect replica of the product through reverse engineering. There, it was also a product that resulted from invention and development (as opposed to the use of the stripes design element, which has weak distinctiveness.)

 

Justice Rubinstein joins the opinion by Justice Hayut. At the core of his opinion sits Justice Hayut’s premise that, insofar as the weak distinctiveness of the trademark is concerned, and her estimate that one would be hard pressed to argue that had the Appellant not chosen this mark, the shoes would not have been manufactured with stripes on the side. Thus even though Justice Rubinstein cannot say that the Respondent’s choice to use stripes was meaningless. In this context, recall Justice Netanyhu’s opinion in Kalil, that though Kalil’s registered trademarks (stripes on samples used for identification) are limited to three stripes, but a monopoly over any and every number of stripes would prevent many others from using stripes because of the restriction on the number of possible stripes as dictated by the width of the side. We must exercise caution when attaching absolute exclusive use in this context, the type of exclusivity that might, inadvertently, harm the delicate balance between protecting intellectual property and protecting freedom of occupation and freedom of competition.

 

As for the issue of unjust enrichment (and having read the opinion by Deputy President, Justice Rivlin): the A.S.I.R precedent is relevant where the extent of intellectual property law is too limited, not substantively but for lack of registration, and thus some protection is provided under unjust enrichment law. However, is the Court granting “quasi-intellectual property” protection where intellectual property law was examined and found not to have been violated, as in this case? Normatively, at heart Justice Rubinstein would follow the President, but he remains uncertain as to whether the unjust enrichment claim could supplement intellectual property law where it does not apply for internal, substantive reasons, rather than merely external procedural ones.

 

Deputy President Rivlin joins Justice Hayut’s position regarding the trademark infringement claim, but had his position prevailed, he would have found in favor of the petitioner in terms of the unjust enrichment claim. In A.S.I.R. the Court decided that generally there is no reason not to recognize an unjust enrichment cause of action where the law of intellectual property applies as well. Under the rules set in that case, it is appropriate to recognize the cause of action in this case, too, both because trademark law does not exclude doing so in the issue at hand, and because the right under “the internal law” of unjust enrichment exists here.

 

One wishes to use a trademark that resembles a trademark registered to another, which undisputedly has acquired a significant and substantial reputation. The consumer prefers the product bearing the similar mark over the product bearing the registered trademark, due to the latter’s higher cost (among others, because of its reputation). In other words, the consumer is aware that the product purchased is a copy, and is interested in the product precisely because of this. The copying manufacturer and the consumer both benefit from this reality. This harms the manufacturer and the reputation it acquired. Currently, trademark law does not regulate this issue of copies that the consumer purchases with intent rather than by mistake.

 

And note – the lack of application of trademark infringement claims to obvious copies (that is, products that are clearly a copy, and that even the consumer is aware of their being a copy) does not reflect a decision toward a policy that the “market of copies” is desirable in the eyes of the legislature. At most, this is a gap in trademark law. Bear in mind also that this gap is a result of court-made jurisprudence. It seems the time has come that Israeli law granted remedies against copies, insofar that they are copies of a registered trademark with the sole purpose of benefiting from a reputation of another – another who had taken lawful steps to register the reputable trademark.

 

It seems there is no reason, in terms of intellectual property law, not to recognize an unjust enrichment cause of action as applied to copies of registered trademarks where there is no misleading similarity because the consumer is aware that the product is a copy. In the next step, we must examine whether the Appellant has a claim under unjust enrichment law per se. This claim has three elements: the first requirement is the existence of an enrichment, the second requirement is that the enriched party’s enrichment resulted from the enriching party, and the third condition is that the enrichment to the enriched party was not “through a lawful entitlement or right”.

 

In A.S.I.R. we decided that an enrichment that is not “through a lawful entitlement or right”, in that context, is an enrichment that carries an “additional element” of improper conduct. The majority’s position was that conduct that is in bad faith or constitutes unfair competition is sufficient for the purposes of an “additional element”. It seems that where one wishes to copy a registered trademark associated with a reputation that holds economic value, with the purpose to benefit from this reputation in selling its products, and where the original manufacturer invested resources and effort in developing the reputation associated with that trademark while the copying manufacturer benefits from it without having to invest similarly, this would be a case of unfair competition and bad faith.

 

The negative aspect of a perfect copy of a registered trademark continues also where the mark has been slightly, but insignificantly, modified. Such is the case at hand: the addition of a single stripe, while maintaining the registered trademark’s colors, the use of only one color for the stripes, using the stripes’ same direction and location on the shoe as well as the width of stripes and the width between them – amounts to a real similarity to the Appellant’s registered trademark and is in bad faith.

 

The existence of the two first elements is primarily a factual question. In the case at hand, the Respondent’s profits from selling the shoes (those for which he had the opportunity to do so) would have caused an enrichment. This enrichment was at the expense of the Appellant. The Respondent wished to benefit from the market that the Appellant developed and the reputation it created for its trademark. Therefore, when the conclusion is that the Appellant indeed has an unjust enrichment claim, the question of remedy arises. Had the Court taken the opinion of Justice Rivlin, he would have proposed a permanent injunction against the Respondent prohibiting him from marketing or distributing the shoes with their current design. This injunction would stand until one of the changes proposed by the Respondent was executed. 

Voting Justices: 
Primary Author
majority opinion
Author
concurrence
Author
dissent
Full text of the opinion: 

CA 563/11

ADIDAS SALOMON AG

 

v.

 

1.    Galal Yaasin

 

2.    State of Israel – Customs and V.A.T. Branch  - Formal

 

 

The Supreme Court Sitting as the Court of Civil Appeals

[15 February 2012]

 

Before Vice President (Ret) E. Rivlin, Justices E. Hayut, E. Rubinstein

 

Appeal of the judgment the Tel-Aviv Jaffa District Court of 13.12.2010 in CF 2177/05 handed down by Hon. Judge M. Agmon-Gonen.

 

Israeli Legislature Cited

Trademarks Ordinance, s.1

Commercial Torts Law 5759-1999, s. 1

Unjust Enrichment Law 5739-1979

 

 

Israel Supreme Court Cases Cited  

 [1]  LCA 5768/94 ASHIR  Import, Export and Distribution v. Forum for Fixtures and Consumption Products Ltd [1998] IsrSC 52 (4) 289.

[2]  (LCA 9307/10 Adidas Salomon A.G. v. Yaasin (not yet reported,21.12.2010).

[3]  C.A. 715/68 Pro-Pro Biscuit v Promine Ltd [1969], IsrSC 23 (2) 43.

[4]  CA 3559/02 Center for Toto Zahav Subscribors v. Council for Regulation of Gambling in Sport [2004] IsrSC 59 (1) 873.              

[5]  CA 9191/03 [2004] V & section Vin Spirt Aktiebolag v. Absolute Shoes, IsrSC 58 (6) 869

[6]  CA 18/86 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain, IsrSC 45 (3)  224

[7] CA 11487/03 August Storck v.  Alfa Intuit Food Products Ltd. (not reported, 23.3.2008);

[8]. CA 5792/99 Tikshoret Religious-Jewish Education Family (1997) Ltd "Family" Newspaper v. S.B.C Publication, Marketing and Sales Ltd - Mishpacha Tova Newspaper[2001] IsrSC 55 (3) 933. 

[9] CA 3581/05 Shehana'al Mat'ima Ltd v. ADIDAS-SALOMON (not reported – 7.7.2005).

[10]  LCA  3217/07 Brill Footwear Industries Ltd v.  ADIDAS SALOMON A.G. (not reported, 16.8.2007).

[11] HCJ 144/85 Kalil Non-Metallic Steel Industries  Ltd. v. Registrar for Patents and Designs and Trademarks[1988] IsrSC 42 (1) 309.

[12]    LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [2003] IsrSC 57 (2) 438, 450 (2003), IsrSC 57 (2) 438,

[13]  C.A. 9070 Tali Dadon Yifrach v. A.T. Snap Ltd  (not yet reported, 12.3.2012).

[14]  CA 261/64 Pro-Pro Biscuit v. Promine Ltd [1964] IsrSC 18 (3) 275.

[15] CA 4116/06 Gateway Inc. v. Pascul Advanced Technology Ltd  (not reported, 20.6.2007) 

[16] CA 10959 Tea Board India v. Delta Lingerie, S.A. OF Cachan (not reported, 7.12.2006).

[17] CA 8441/04 Unilever P v Segev (not reported, 23.8.2006)

[18] LCA 2960/91 Wizzotzky Tea and Co. (Israel) Ltd v. Matok (not reported, 16.1.1992).

[19]  LCA 6658/09 Moltilock ltd v. Rav Bariah(08) (not  yet reported, 12.1.2010).

[20] LCA 1400/97 Picanti Food Industries  (Israel) Ltd v. Osem Food Industries Ltd [199]] IsrSC 51 (1) 310.

[21] CA 8981/04 Avi Malka - Avazei Hazahav Restaurant v. Avazei Shechunat HaTikva (1997) Restaurant Management Ltd (not reported, 27.9.2006).

[22] 210/65 Iggud Bank Ltd v. Agudat Yisrael Bank Ltd [1965] IsrSC 19 (2) 673.

[23] CA 3975/10  Phillip MORRIS PRODUCTS S.A נ' AKISIONERNO DROUJESTVO (not yet reported 21.10.2011)

[24] CA 6181/96 Kardi v. Bacardi and Company Limited [24], IsrSC 52 (3) at p. 276.

[25] LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alfa Intuit Food Products Ltd  (2005) IsrSC 59 (4) 461.

[26] 6025/05 Merck and consideration. Inc v, Teva Ta’asiot v. Teva Pharmaceutical Industries Ltd (not yet reported, 19.5.2011).

[27] (CA 945/06 General Mills Inc. v. Meshubah Food Industries Ltd (not yet reported, 1.10.2009)

[28] LCA 371/89 Leibovitz v. Etti Eliyahu Ltd [1990] IsrSC 44 (2) 309.

[29]  CA 588/87 Cohen v. Zvi Shemesh [1991] IsrSC 45 (5) 297.

[30]  FHC 10901/08 Beizman Investments Ltd v. Mishkan Bank Hapoalim Mortgages Ltd (not yet reported 17.7.2011)

[31] CA 2287/00 Shoham Machines and Dies Ltd v. Shmuel Harar (not reported, 5.12.2005)

[32] see CA 347/90 Soda Gal Ltd v Spielman [1993] IsrSC 47 (3) 450.

 

For the appellant — Adv. Eitan Shaulski; Adv. Inbal Nabot-Eizenthal.

For the respondent — Adv. Israel Sadeh; Adv. Amir Freedman

 

JUDGMENT

Justice E. Hayut

       This is an appeal against the decision of the Tel-Aviv Jaffa District Court (Hon. Judge M. Agmon – Gonen) of 13 December 2010 which dismissed the action filed by the Appellant against Respondent 1 for a violation of trademark, passing off, damage to good will, and unjust enrichment.

Factual Background

The Appellant, ADIDAS-SALOMON A.G. (hereinafter: Adidas or the Appellant) is a company engaged in sport products, footwear and clothing and the owner of a trade symbol registered in numerous states around the world, including Israel. Adidas owns three trademarks in Israel that are relevant to this appeal: Trademark No. 45237, Trademark No. 33479 and Trademark No. 118277, all of them in category 25, consisting of three parallel diagonal stripes on the sides of sports shoes, simple comfortable shoes, athletic shoes and every day shoes (hereinafter – “Three Stripes Ossiman trademark”).

Respondent 1, Mr. Galal Yaasin (hereinafter: the Respondent) deals in the importing of shoes to the area of the Palestinian Authority.  In 2005 the Respondent imported sports shoes from a factory in China and  per his order the shoes featured four stripes with the name “SYDNEY” embossed on them in three different places (hereinafter: the shoes, or the Respondent’s shoes). The consignment of shoes arrived in the Ashdod port and at the end of August 2005 a notification was sent to Adidas by Respondent  2 – the Customs and V.A.T. Authority (hereinafter: the Customs Authority) stating that it was delaying the consignment because according to the appearance of the shoes, the Respondent was prima facie infringing its intellectual property rights.  As against the deposit of a bank guarantee the Authority personnel gave the Adidas attorney the details of the Respondent and one sample shoe from the consignment (in his cross examination the Respondent confirmed that the shoe is representative of the other shoes in the same consignment).  Adidas was of the opinion the appearance of the shoes was similar to the extent of being misleading to the shoes that it produced, and that it therefore constitutes an infringement of its trademark. The Respondent on the other hand, claimed that the shoes he had imported did not infringe the registered trademark of Adidas, but for the sake of compromise he proposed to Adidas to make a certain change in the design of the shoe so that a fifth stripe or the mark X would be added to the four stripes, and that this addition would be made at in the precincts of the port.

Adidas rejected the Respondent’s proposals, and the Authority therefore continued to delay the shoes in its storerooms. Moreover, on 4 September 2005 Adidas filed an action against the Respondent in the Tel-Aviv Jaffa District Court, petitioning for a permanent injunction that would prohibit the Respondent from making any use of the shoes that without authorization featured its trademark or a mark that was similar to it, including upon shoes featuring four parallel, diagonal marks on the sides. In addition, Adidas petitioned for an order to destroy the Respondent’s shoes and for a remedy of damages, and for a detailed accounting regarding the actions and transactions that had been done in relation to these shoes and similar products. It bears mention that in the wake of the application filed by the Customs Authority concerning the matter, the parties agreed that the storage costs and the responsibility and cost of destroying, to the extent that the court gave an order to that effect, would be born by Adidas or by the Respondent, in accordance with the results of the action, and the Customs Authority was also added as a formal respondent to these proceedings.

The Decision of the Trial Court

2.    On 13 December 2010 the Trial Court rejected the action and ordered the Customs Authority to release the shoes from its storerooms and to deliver them to the Respondent, and that the latter would be permitted to sell them. The court likewise ordered Adidas to bear all of the costs occasioned by the delaying of the shoes and their storage in the storerooms of the Customs Authority.

First, the Trial Court considered the analytical basis and the purposes of trademarks law, as well as their development over the years. The court ruled that the principal purpose of these laws was the prevention of unfair competition that stems from the misleading of consumers with respect to the source of the product they had chosen to purchase. Accordingly, in the absence of any misleading, it could not be ruled that there had been an infringement of a trademark.

In the case at hand, the Trial Court rejected Adidas principled claim that the mere use of an emblem comprising four diagonal stripes, even though the shoes did not feature any other sign or elements that resembled those of Adidas or an embossment mentioning its name, constitutes an infringement of the three stripes trademark. In this context the court ruled that the decision on whether there was a “confusing resemblance” was a normative (and not an empiric) decision, and its purpose was to  identify cases which posed a threat to fair competition and an attempt to benefit from the good will of others.  In our examination of whether there is a "confusing resemblance" as stated, between the Adidas trademark and the design of the Respondent's shoes, the Court applied the "three way test" established in case law in this context: the test of appearance and phonetic sound, the test of the class of merchandise and circle of customers, and the test of the remaining circumstances.  For purposes of the application of the first test, of appearance and sound, the Court examined in shoes in its entirety and determined that in view of the embossment of the name "SYDNEY" on three different places on the shoe, and given the use of four stripes (and not three) there was no fear in the current case of the misleading of the consumer public.  In this context the court rejected Adidas' claim that the comparison should only be between the "signs" that appear on the shoe and that the shoe should not be related to as a whole. In applying the second secondary test that relates to the class of merchandise and of clients, the Court gave consideration to the class and brand of the product, and ruled that since Adidas shoes are marketed as an expensive brand name whereas the Respondent's shoes are sold at a minimal price in the markets, there is no danger of confusing between the products on the consumers’ part. The Court further ruled that the fact that the three stripes sign is so well known and identified with Adidas removes any concern that consumers will make a connection between it and a shoe with a different number of stripes. As such, the Court ruled that a person who purchased the Respondent's shoes at all events had no intention of purchasing an Adidas shoe and even had he wanted to purchase a shoe resembling that of Adidas, this in itself attests to the fact that there was no misleading.   The Court further ruled that there were no grounds for protecting the proprietary and commercial interest of the owner of the trademark - Adidas- at the expense of the freedom of occupation of the principal business competitors, in the absence of any attempt to benefit from Adidas good will and in the absence of misleading.  This is especially so given that even if the business of the Respondent disturbs the Adidas business; it constitutes regular business competition and not unfair competition.  Accordingly, the Trial Court ruled that there had been no infringement and emphasized that for as long as the consumer is not deceived with respect to the product that he is purchasing there are no grounds for the limitation of his freedom of choice and his freedom of expression, while extending the protection of trademarks, and in its own words: 

'The public should be allowed the choice of purchasing a cheaper product, even though, or perhaps even because of the fact that there is certain similarity between it and the brand name product, provided that it is not deceived regarding the origin or the class of the product that he is buying”

3.         The Trial Court further rejected the Appellant's claims that the importing of the shoes constitutes the civil tort of passing off, in accordance with section 1 (a) of the Commercial Torts Law, 5759 (hereinafter - Commercial Torts Law). The Court noted that the tort of passing off has two foundations: good will, and the reasonable concern about misleading, and that it is intended to prevent unfair competition.  The Court further ruled that it is undisputed that Adidas has extensive good will in the area of sports footwear in Israel and around the world, and that accordingly the question to be examined in our case is whether there are reasonable grounds for the fear of misleading consumers.  The Court answered this question in the negative, pointing out that the tests for whether there is a “confusing resemblance” as far as it concerns passing off, are identical to the tests applicable in this context to the infringement of trademark.  However, whereas with respect to the infringement of trademark the examination relates to whether there is deceptive resemblance between the marks, regarding the tort of passing off, the question is whether the person’s actions in their entirety caused misleading in relation to the origin of the product.  In the case at hand, it was ruled that there is no fear of misleading regarding the origin of the product even in accordance with the tests applicable to the tort of passing off and the Appellant’s claims in this respect were likewise rejected.

The Court further rejected the alternative claims of the Adidas to the effect that the Respondent, in attempting to benefit from its own good will had become unjustly enriched at its expense, even were it to be ruled that he did not infringe the trademark registered in its possession. Regarding this, the court ruled that in LCA 5768/94 ASHIR  Import, Export and Distribution v. Forum for Fixtures and Consumption Products Ltd [1]  at p. 289 (hereinafter: ASHIR ) did establish a narrow opening for establishing the grounds of unjust enrichment in cases in which there was no infringement of the laws of intellectual property, but noted that the rule did not apply in this case, because even within the framework of unjust enrichment there must be an examination of the conflicting values in the concrete case. In that context the court’s view was that the use of the four stripes mark does not harm Adidas and the Respondent’s acts are not irregular, outrageous or such as give rise to unfair competition. The Court further noted that under the circumstances it was actually the filing of an action by Adidas that was outrageous, and that expanding the protection granted to Adidas under the grounds of unjust enrichment would damage competition and have a “chilling effect” upon manufacturers and merchants.

Finally, the Trial Court rejected Adidas’ claims concerning theft and the dilution of good will. In this context, the Court ruled that the Respondent had not made any unfair use of Adidas’ reputation, and that the central reason for the use of the four stripes could be the “creation of a market for designer sports shoes for a population that lacks the means of buying brand name sports shoes”. The Court noted that there was no tort of unfair exploitation of good will and hence any remedy under those grounds could only be given by force of unjust enrichment, and regarding that grounds that the Court had already concluded that Adidas cannot claim it. The Court further ruled that there can only be dilution of good will when there was use of a registered trademark other than in a field of the same “description” (within the meaning s.1 of the Commercial Trademarks Ordinance [New Version], and since it is undisputed that the Respondent did not use the registered trademark (three stripes) or that he used a name or another recognized feature of Adidas, then this grounds too was not proved.

It was for all of these reasons that the District Court concluded that no proof had been brought for misleading and unfair competition on the Respondent’s part, or an attempt on his part to benefit from Adidas’ good will. The Court further held that given the aforementioned situation, whatever is not considered to be included in the trademark should remain within the class of a public asset, and in its own words:

‘In order to ensure a competitive market with products from the entire range of prices and qualities, those with brand-names and without brand-names, in order to prevent harm to consumers that stems from costs related to trademarks and from the chilling effect as it touches upon manufacturers and small tradesmen, and in order to ensure the public assets, protection should be given by way of the trademarks law in accordance with their original purposes, which is the prevention of unfair competition, No protection in excess thereof should be given’

Accordingly, the Court dismissed the claim, and ruled that the shoes were to be released from the storerooms of the Customs Authority and that the Respondent should receive the shoes and be allowed to sell them “and in doing so to maintain a market of designer, non-brand name sports shoes, at a price payable by all of its consumers”. The Court further ruled that Adidas would bear the costs stemming from the delay and the storage of the shoes and it was also ordered to pay for the Respondent’s costs and legal expenses, for the sum of NIS 85,000 + V.A.T. 

4.  Adidas refuses to accept this result, and hence the appeal.

Notably, before filing the appeal, Adidas filed an application to stay the execution of the decision, arguing that the release of the shoes from the Customs Authority storerooms would irreversibly impair the right of appeal granted to it by the decision. The Court initially refused to rule on the application, inter alia in view of Adidas’ failure to pay the court costs imposed upon it under the ruling, and against that background, Adidas filed an application for leave to appeal to this Court (LCA 9307/10 Adidas Salomon A.G. v. Yaasin [2]. On 21.12.2010 the Court ruled (Justice Hendel) that the execution of the decision would be temporarily stayed until the Trial Court’s decision on the application to stay execution, and he further added an order to pay the legal costs to the respondent (it bears note that the payments were not finally paid by Adidas until 9 January 3022, and only after additional decisions that the Trial Court was forced to give regarding the matter). On 2 February 2011 the Trial Court ruled on the application for a stay of execution, ordering the attorney for Adidas to receive the shoes in trust, and that Adidas alone should bear the storage costs, including with respect to the period in which they were stored in the Customs storerooms, but that this sum would be returned to it by the Respondent should it win the appeal.

The Claims of the Parties

       5.         Adidas claims that the Trial Court failed to apply the rules determined by this Court with respect to the manner of examining an infringement of a trademark and passing off, and that its examination in this respect was novel and mistaken. It further claims that the decision of the Trial Court has far reaching implications for the trademarks law in Israel and that it creates uncertainty with respect to the scope of rights vesting in owners of such a mark.  Adidas maintains that contrary to the ruling of the Trial Court, the comparison should be drawn between the registered trademark and the mark appearing on the allegedly infringing mark, and not the overall appearance of the products on which the marks appear, in accordance with the initial impression that they evoke. Its claim is that the Trial Court applied these tests mistakenly when comparing its own trademark with the overall appearance of the respondent’s shoes, and it stresses that as distinct from its determination, the marks should be compared separately from the product.  Adidas claims that application of the current test - that was determined as the central test in this context and which stresses the test of appearance and phonetic tone - leaves no room for doubt that the infringing mark is confusingly similar to its own mark and it claims that in the past courts in the world and in Israel have ruled in that vein. Adidas further rules that the Trial Court conducted a particularly specific comparison between the products, placing one next to the other, and accordingly ruled that there was no confusing similarity based on the fact that the respondents’ shoes had four stripes and not three. According to its approach the sample of the Respondent’s shoes contains the Adidas trademark in its entirety with the addition of one stripe and that infringing mark should have been viewed in that manner, given that the consumer does not “count stripes” but rather will identify any number of diagonal stripes on the side of the shoe with its own shoes. Adidas further claims that the Trial Court applied the test of the class of clients in a mistaken manner and that its ruling that there is a distinction between the public that purchases Adidas shoes and the public that purchases the Respondent’s shoes is unfounded and mistaken.

Adidas further claims that the Trial Court ignored the proprietary protection conferred by the Trademarks Ordinance and in case law to a registered trademark against the use of marks resembling a registered mark. As such, it claims, preventing the use of a four stripe mark is not a matter of policy or of an extension of a vested protection, as determined by the Trial Court, but rather a simple application of the statutorily determined protection. Adidas stresses that it is not attempting to entirely prevent any marking of shoe products with a stripe, but rather their marking with stripes, number and style that are confusingly similar to its own trademark.  Likewise it claims that its trademark does not consist of a simple geometric shape, being rather a combination of marks, of which an exact copy was made by the Respondent, but with the addition of one more stripe, and as such these are not weak marks that merit less protection. In this context Adidas stresses that even a mark which the consumer is liable to view as a variation of an existing trademark, infringes a protected trademark.

6. In addition, Adidas claims that the Trial Court erred in its examination of the tort of passing off.   It argues that the examination should be of the overall appearance of the products, with emphasis on the faulty memory of the client, as distinct from making an exact comparison. It adds that insofar as the tort of passing off confers broad protection, it suffices if the consumer is liable to think that there is some kind of connection between the product and Adidas, or that no justified reason was given for the use of a design that resembles a trademark, in order to establish the concern for misleading required for the proving of this tort. Furthermore, Adidas alleged unjust enrichment on the part of the Respondent stressing that as opposed to the decision of the Trial Court, the acts of the Respondent are outrageous and constitute unfair competition.

With respect to stealing and dilution of good will, Adidas claims that the Court erred in ruling that the Respondent did not attempt to build itself on the basis of its good will despite its additional holding which acknowledged the possibility of the shoes having been designed in a manner that would make them somewhat similar to its own shoes. The Appellant especially emphasizes that the Trial Court’s holding to the effect that the purchasers of the Respondent’s shoes “would be able experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes” demonstrates that this is case of exploitation of good will, impairing and dilution of good will, and it claims that the marketing of shoes that provide an experience of Adidas shoes is illegitimate.  Furthermore, Adidas claims that the Respondent’s shoes were marked with four stripes purely out of economic considerations, and that the Respondent knows that the consumer’s eyes would be attracted to shoes that resemble the general appearance of its own shoes, without investing in advertising.  Adidas also claims that there are also grounds for dilution of good will, because it suffices that there was use of a trademark or a mark similar to it in order to establish grounds, without having to prove the foundation of misleading, Finally, Adidas claims that it was denied the right to present its claims in the Trial Court because the latter devoted considerable parts of its judgment to issues that were not even raised by the parties and in respect of which no claims had been made, while establishing factual findings for which no evidence had been presented and in areas that were not in purview of its judicial knowledge.

7.    The Respondent, on the other hand, affirms the decision of the Trial Court and argues that the decision is based on a firm factual foundation and upon   reasoned and detailed legal analysis that leaves no grounds for intervention. The Respondent claims that Adidas did not present any evidence for the alleged fear of misleading, and argues that there is no justification for interfering with the Court’s ruling that no grounds can be laid for similarity between the footwear imported by the Respondent and Adidas shoes.  The Respondent adds that it was proven in the Trial Court that one can easily find footwear of other companies which feature varying numbers of stripes and accordingly it cannot be argued that he attempted to benefit from the goodwill of Adidas or that a reasonable consumer would mistakenly think that he was actually marketing Adidas footwear. The Respondent claims that Adidas widespread fame and its three stripe mark does indeed it confer it with an absolute protection of that mark, but it is precisely for that reason that no consumer would think that the Respondent’s footwear was produced by Adidas. This is especially so given that the footwear is sold in shops or stands located in the markets of the Palestinian Authority and not in the shops that sell Adidas footwear, and also in view of the numerous visual differences, such as the commercial name “SYDNEY”, and the element of the four stripes.  The Respondent further   argues that the claim that the mark should be compared directly against another mark for purposes of examining the question of the trademark infringement is only correct for purposes of registration of the mark in a registration record and not when the mark appears on a product, where the mark should not be removed from its context. Furthermore, the Respondent claims that the four stripe mark is not confusingly similar to the three stripe mark, even if when directly comparing one mark to another, especially due to the extensive advertising of the three stripe sign, as stated. 

The Respondent further claims, affirming the Trial Court’s decision, that absent the fear of unfair competition or an attempt to benefit from the goodwill of Adidas, he cannot be said to have infringed its trademark, and he emphasizes that Adidas only has a proprietary right with respect to a three stripe mark, and that the protection conferred to this mark should not be extended.  Furthermore, the Respondent claims that Adidas is attempting to attain a monopoly over the actual use of stripes. In this context he notes that given that our concern is with a decorative mark, it is a “weak mark” with a limited protective scope and which does not cover the use of a different number of stripes.  Furthermore, the Respondent claims that Adidas’s claim concerning passing off should likewise be rejected, arguing that the according to the Court's factual finding there was not, nor could there be any mistake concerning the identity and the origin of the footwear that he was attempting to market, and that there is no confusing similarity between a mark consisting of three stripes and a mark consisting of four stripes. The Respondent further claimed that the Adidas claim regarding stealing or dilution of goodwill should likewise be rejected and in this context he stresses that his footwear intentionally distinguishes itself from any other footwear by way of his trade name “SYDNEY” which appears on the shoe itself in three places, as well as on the box in which the shoe is sold. Moreover, the Respondent claims that as opposed to Adidas's claim, it acted in absolute good faith, and hence its claim regarding unjust enrichment should likewise be rejected.

Deliberation

8.    The central question for our deliberation is whether the registered trademark of Adidas - the three stripes mark – was infringed in this case, by reason of use of an embossment of four stripes on the sides of the footwear that the Respondent seeks to market, and whether in this context his act establishes actionable grounds under any of the laws intended to protect Adidas’ intellectual property.  By way of introduction I will say that like the Trial Court, I too am of the opinion that the Respondent’s shoes do not infringe the three stripes mark and that the action should likewise be rejected with respect to the other grounds argued for by Adidas. All the same, I do not think that the reasons of the Trial Court should be endorsed and in what follows I will explain the reasons for my conclusion. 

 

 

Trademark

 

The principal legislative arrangements relevant for our purposes and treating the issue of trademarks are unified in the Trademarks Ordinance,  s.1 of which defines the following terms:

 

      “mark” means letters, numerals, words, figures, or other signs, or the combination thereof, whether two dimensional or three dimensional;

“trademark”  means a mark used, or intended to be used by a person in relation to the goods he manufactures or trades;

“registered trademark” means a trademark registered in the Register of Trademarks under the provisions of this Ordinance, and which is a national trademark or an international trademark registered in Israel;

The institution of trademarks originated in the need to distinguish between the products of one trader and those of his competitor, and in this context, to protect the interests of both the trader and the consumer. The trader enjoys the protection of his good will and reduces the fear that the consumer will confuse his product with that of another trader.  The consumer will have an easier time in identifying the particular products that he wishes to purchase and is protected from misleading with respect to the source of the goods. To attain these goals, s.46 of the Ordinance confers the proprietor of the registered trademark “the right to exclusive use” to use the mark in every matter relating to the good in respect of which his mark is registered” (see C.A. 715/68 Pro-Pro Biscuit v Promine Ltd [3] (hereinafter: (Pro - Pro ) at p. 48; CA 3559/02 Center for Toto Zahav Subscribors v. Council for Regulation of Gambling in Sport [4] (hereinafter – Toto ruling) at p. 888 .

The law of the trademarks and the protection it provides to the owner of a registered trademark is one branch of a broader field of law – the laws of intellectual property – that confer protection to an intellectual product that may be of economic value. It is similarly important to mention that the right to intellectual property, like any other property right, is one of the "privileged" rights enjoying constitutional protection in the law and Basic Law: Human Liberty and Dignity instructs as not to violate it (s.3 of the Law).  However, the protection of intellectual property, by its very nature clashes with another constitutional right – the freedom of occupation and the right to free competition deriving therefrom.  (see CA 9191/03 V & S Vin Spirt Aktiebolag v. Absolute Shoes [5] at p. 877 (hereinafter: the Absolute ruling). Similarly, granting a broad monopoly to the owner of intellectual property to makes exclusive use of his property may impede the existence of a free and varied market of products which assists in the development of the economy and commercial life. In sketching the borders of the protection of a trademark, an effort must be made, to strive wherever possible to strike a balance between the protection required for the registered trademark and the “abrogation” of any other mark, irrespective of the level of resemblance between them, from the public realm.

The Unique Nature of the Three Stripes Mark

9.    As mentioned, the trademark is intended to aid the consumer in distinguishing between the products of one merchant and those of competing merchants.  To that effect, in order for it to be eligible for registration, it must have a "distinctive nature".  In other words, it must be ascertained that the mark does in fact enable the desirable differentiation from the goods of the mark owner of the mark and the goods of his competitors (regarding the requirement of a distinctive nature see s. 8 of the Ordinance). The distinctive nature may consist of the inherently distinctive nature of the product from the time of its creation. In most cases, the concern in this context is with marks that are the product of imagination and as such are unique, original, or non-foreseeable, and bearing no natural connection to the type of product which  it marks, so that the connection between the mark and the product is arbitrary. An example of this is the arbitrary use of the mark "Apple" as the mark of the computer company. However, even in cases in which the mark does not possess any inherently distinctive character the mark may also acquire secondary significance by dint of its extensive use, so that the consumer public will associate it with goods from a particular source. This is known as a mark with an acquired distinctive nature (this distinctive nature was also defined by case law in other contexts as "secondary" as opposed to "principal" meaning.  See CA 18/85 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain [6] at pp. 234-235  (hereinafter - Venice) ;  CA 11487/03 August Storck v.  Alfa Intuit Food Products Ltd [7]. par.8 (hereinafter - Alfa  Intuit).  As for the distinctive nature of names, see CA 5792/99 Tikshoret Religious-Jewish Education Family (1997) Ltd "Family" Newspaper v. S.B.C Publication, Marketing and Sales Ltd - Mishpacha Tova Newspaper [8] at pp. 943-946  (hereinafter - Family ). Thus for example, the marks of Office Depot or General are marks with an inherently weak distinctive nature because they are descriptive signs that are neither arbitrary nor imaginative and their connection to the cars manufacturer or the shop selling office products is a natural one.  Even so, over the years these marks acquired a distinctive character to the extent that today that there is almost not a single consumer in the world who would come across then and not connect them to those particular companies (on the distinction between inherent distinctive nature  and acquired distinctive nature see also in the  Alfa Intuit [7] matter, para. 8). Even more precisely, the acquired  meaning supplements the inherent meaning of the mark and does not replace it, and their combination establishes the extent of the protection given to the trademark against its infringement (see  Amir Friedman, Trademarks - Law, Case Law, and Comparative Law, 211, 214) (third edition, 2010) (hereinafter:  Friedman).

10.  The acquired distinctive character attests to the demand and the popularity of the merchandise and to the good will that it accumulated from the day of its "birth" as a result of marketing and advertising efforts made by and on behalf of the patent owner.  For our purposes it is undisputable that the Adidas trademark - three diagonal stripes of identical breadths and spaces between them on the side of the shoe - is today absolutely identified with the company all over the world and constitutes a distinctive sign by which its footwear is identified.  Accordingly, there is no question of whether this trademark has an acquired distinctive character. However, in my view the decision is not as simple regarding the inherent distinctive nature of the mark.  This mark, which Adidas chose as one of the trademarks that identifies it with its products, consists as mentioned, of three stripes but  for a person not previously familiar with it might be viewed exclusively as one of the shoe’s design components (as distinct from a trademark).  It seems difficult to claim that if not for Adidas’s choice of this mark, no other shoes would have been manufactured with stripes on their sides (compare to the trademarks identified with the competing footwear companies such as "Reebok", "Nike", "Puma" and others. A comparison should also be made to the Patent Registrar Decision No. 129015 Nike v. Shai Mecher Sachar (1996) (26.8.2008)). Accordingly, I accept the Trial Court's decision according to which the inherent nature of the three stripe mark is weak (regarding the appropriate scope of protection in a request to register a three dimensional trademark with aesthetic value, compare to Alfa Intuit  [7], paras, 10 - 12.

It bears mention in this context that this is not the first time  that Adidas has filed a claim in Israel for an alleged infringement of the three stripe mark, following the use of a similar mark, two or four stripes (see CA 3581/05 Shehana'al Mat'ima v. ADIDAS-SALOMON [9] (hereinafter -Shehana'al Mat'ima); LCA  3217/07 Brill Footwear Industries Ltd v.  ADIDAS SALOMON A.G. [10] (hereinafter – Brill) and in the District Courts see e.g. Civ.App (District, Tel-Aviv) 15544/05 ADIDAS SALOMON v. Sh.I. Klipp Import and Trade Ltd. Proceedings in these  cases all ended without any decision on the merits)  (See also C.A (District - Tel-Aviv - Jaffa) 2326/07 ADIDAS SALOMON v. Gentom Shoes Ltd,  in which Adidas’s claim was accepted following the Defendant's failure to submit evidence on its behalf). In other states too Adidas filed suits concerning the infringement of its three stripe trademark, in view of manufacturers' use of two or four stripes on their products and a quick search shows that dozens of suits have been brought in courts at various levels all over the world. A large portion of Adidas’s claims all over the world ended without a decision on the merits, similar to those in Israel, but in the proceedings that were decided on the merits, Adidas' position  was for the most part accepted (see for example, in the decision of the District Court in Oregon, U.S. (No. CV 01 – 1665-KL) Adidas America, Inc. v. Payless ShoeSource, Inc and also adidas-Salomon A.G. v. Target   Corp.,228F Supp. 2d 1192 (D. Or. 2002) as well as the decision in Corp and the decision of the Court of Appeal in Athens, Greece, Decision Number 5749/2009 Adidas Salomon A.G. v. Alysida A.E.B.E . On the other hand, see the references in the matter of Shehan'al Mat'ima [8[ para. 3. But see also  in  the decision of the High Court in Capetown South Africa,: adidas A.G. v. Pepkor Retail Ltd (1 A11 SA 636 (WCC) (5 December 2011);  the decisions of the -European Court of Justice: adidas-Salomon AG V. Fitnessworld Trading LTD., Case C-408/01 (23 October 2003); adidas AG v. Marca Mode CV, Case C-102/07 (10 April 2008).   All the same, it is important to remember that that each case is different and hence any attempt to draw analogy should be done with the requisite caution. 

11.  The weak nature of the inherent distinctive character of the three stripe mark affects the scope of the protection that it should be awarded.  On the one hand, the fact that the three stripe mark has, as noted, attained a powerful distinguishing nature points to the need for maximum protection (see s. 46A of the Ordinance which relates to “well known trademark” and see and compare to the matter of Absolute [5] which relates to the scope of protection for such a mark). However, the weakness of the inherent distinctive nature justifies protection that will be limited to the trademark itself and to its derivates that are particularly similar to it. In other words, granting a monopoly to Adidas to two stripes and to four stripes (or, naturally, to any different number of stripes) would be problematic because it would mean the removing the designing of stripes from the public realm and would prevent other manufacturers from using this kind of design for their footwear. Our intention is not that Adidas' investment in advertising and in marketing did not create a situation in which the design of stripes became popular and in demand, but one cannot infer from that fact that any use of stripes by an Adidas competitor is a prohibited use (compare to HCJ 144/85 Kalil Non-Metallic Steel Industries  Ltd. v. Registrar for Patents and Designs and Trademarks [11],  

Having considered the nature of trademarks in general, and having examined the nature of the trademark forming the subject of the appeal specifically and the appropriate scope of protection deriving therefrom, we will proceed to examine whether the trademark of ADIDAS was actually infringed.

Infringement of a Trademark

"infringement means the use by a person not entitled thereto

 (1)  of a registered trademark or of a mark resembling such a trademark in relation to goods in respect of which the trademark is registered or to goods of the same description .... (addition added).

     12.  Section 1 does not explain the nature of the similarity between the marks required for it to be regarded as an infringement of a registered trademark. However, case law has noted on more than on occasion that in this context the test to be applied is the one appearing in s. 11 (9) of the Ordinance that sets forth the manner of examining the mark for purposes of its registration, and according to which a mark "identical with .....or so resembling such a mark as to be calculated to deceive" is not eligible for registration.  The consideration of two factors are at work here: protection of the public from misleading and protection of individual title and his acquired goodwill (see e.g. LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [12] (hereinafter - Ta'am Teva). Accordingly, where it concerns use made of a similar mark as opposed to a use made of an identical trademark, a plaintiff claiming infringement must prove that one mark resembles the other to a degree that may confuse the public, and the examination in that context   relates to "people with regular common sense, who conduct themselves with reasonable caution"). (See Ta'am Teva[12], at p. 450). The requirement for resemblance between the two products is at a threshold that exceeds that of a "connection" alone (compare to s. 46 A(b) of the Ordinance and the matter of Absolute [5], at p. 885).  It has already been held that the act of copying as such does not necessarily attest to the intention to mislead clients and that even the intention to mislead does not does not dictate the conclusion that there is a fear of actual misleading (see C.A. 9070 Tali Dadon Yifrach v. A.T. Snap Ltd [13] para. 11which concerns the tort of passing off). 

The accepted test for the existing of a confusing resemblance is the "three part test" which was discussed by the Trial Court, consisting of the test of visual and phonetic similarity; the test of the type of customer and class of goods; and test of the other relevant circumstances (see CA 261/64 Pro-Pro Biscuit v. Promine Ltd [14], at p. 278). The manner of implementing these tests in each case is not a function of uniform standards and is influenced by the distinctive character of the registered mark and the appropriate degree of protection it merits (see CA 4116/06 Gateway Inc. v. Pascul Advanced Technology Ltd [15] para.16). The weight to be given to each of the tests is similarly not uniform, changing in accordance with the circumstances (see CA 10959 Tea Board India v. Delta Lingerie, S.A. OF Cachan [16] (hereinafter:  Tea Board).  It bears note that along with the three part test, there cases in which case law also applies the "common sense test" particularly when it is necessary to examine whether the trademarks have a shared ideological message (see CA 8441/04 Unilever P v Segev [17] at para. 9 (hereinafter Unilever ); Ta'am Teva [12] at p. 453 and Tea Board [16] at para. 10).  It further bears mention that in most of the cases involving the determination of confusing similarity the trial court has no particular advantage over the appellant forum because the appellant instances, in general has at its disposal the same tools as the clarifying instance (see LCA 2960/91 Wizzotzky Tea and Co. (Israel) Ltd v. Matok [18].

13.  In our case, both parties agree that the Respondents' shoes are the same kind of goods in respect of which the Adidas trademark was registered- sports shoes, or at least they are goods of the same description, in other words, from the same "commercial family" (for elaboration on the meaning of the word "description" in the Ordinance, see Toto [4] at pp. 894-895). Furthermore, all are agreed that in our case the issue does not concern footwear designed with a mark that is identical to a registered trademark. As such, there has been no attempt at the forging of shoes and hence there must be an examination of the similarity between the shoes, and a determination on whether there is indeed a "confusing resemblance" between them. As mentioned, the acquired distinctive character even when particularly powerful as in the case before us, does not obviate the need for an inherently distinctive character. As such, even if the strong distinctive nature acquired by the three stripes compensates to a certain extent for its weak inherent nature, given that the consumer public today is aware of the connection between the trademark and Adidas, one cannot ignore the weakness of the inherent distinctive nature when applying the three  part test.

14.   At the stage of applying these tests, it should be remembered that the comparison must be between the trademarks in their entirety and not between specific parts thereof  (See Ta'am VaTeva [12] , at p. 451; LCA 6658/09 Moltilock Ltd v. Rav Bariah [19] at para. 8 (hereinafter: Moltilock), and the examination should focus on the existence of a confusing resemblance between the trademarks themselves, as opposed, for example, to the tort of passing off, in which all of the particular acts of the infringer are examined (see LCA 1400/97 Picanti Food Industries  (Israel) Ltd v. Osem Food Industries Ltd [20] at p. 313 (hereinafter: Picanti). Hence it was held., for example, that when verifying the infringement of a registered trademark, "lesser weight should be ascribed, or in certain cases no weight at all, to the degree of resemblance in the appearance of the goods or their packaging” (the case of Teva Ta'am [12] pp. 450 - 451). In the case at hand, however, it seems that one cannot examine the trademarks - the three stripe sign of Adidas as opposed to the four stripe sign of the Respondent -  in absolute isolation from the goods on which they appear.  First, even if the consumer doesn't stand with both products in his hand, making a comparison between them in all their details, it cannot be presumed that he disassociates the marks from the shoes themselves  and examines the marks in isolation from the shoes  (for a similar approach in American law, see for example, Filipino Yellow Pages, Inc. v. Asian Journal Publications, Inc., 198 F.3d 1143, 1150 (9th Cir. 1999); ; Goto.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1206 (9th Cir. 2000)Entrepreneur Media, Inc., v. Smith, 279 F.3d 1135, 1144 (9th Cir.2002). Second,  the rule whereby the comparison should be restricted to the marks themselves was articulated in decisions that were concerned with verbal and not visual signs, such as in the case before us,  (see also CA 8981/04 Avi Malka - Avazei Hazahav Restaurant v. Avazei Shechunat HaTikva (1997) Restaurant Management Ltd [21], para. 28  (hereinafter - Avazei).  This distinction is important since whereas it is easier and even more reasonable to separate phonetic trademarks from the product they  mark, especially where it concerns phonetic marks used for purposes of advertising and marketing the product (for example the mark of "bamba" that was used in Picanti [20]), the absolute severance of the visual trademark from the product upon which it is imprinted, especially when it can be construed as decorative element, as in the case before us, is both an artificial and a problematic severance.   Accordingly, the manner of applying these tests must be adjusted to the unique circumstances of the case at hand, and having consideration for the circumstances of this case, it seems that even though "the entirety of the defendant's acts" are not to be examined, as is the case with the tort of passing off, the shoe itself must be examined in its entirety.

I will preface by saying that it has not escaped me that in applications for leave to appeal on decisions for temporary relief (in the cases of Shehana'al Mat'ima [9] and Brill [10]his Court (Justice A. Grunis, as per his former title) accepted the prima facie conclusions of the hearing forum regarding the similarity to the point of confusion between shoes with four parallel stripes and the shoes of Adidas, following a comparison of the two marks conducted in isolation from the shoes on which these signs appeared. However, as the Trial Court noted, those decisions were given in applications for temporary relief and at that stage, as opposed to our case, the court was only required to be convinced of the existence of a prima facie similarity, without conducting, in the framework of those proceedings, a thorough hearing  of the various claims of the parties. And at all events, given the reasons I mentioned above, my view is that in our case the trademarks should be examined together with the shoes on which they appear and not in detachment therefrom, as was the case in the intermediary proceedings mentioned above.

15.  The required examination will be conducted, as mentioned, in accordance with the three sub-tests that I referred to above, that were determined for purposes of locating a confusing similarity

       (a)          The test of appearance and sound.  This is the most central of the three sub-tests (see Ta’am Teva [11] at p. 451 and at this stage of the examination the appearance and the sound – when relevant – of the two marks should be examined in order to determine the degree of similarity between them.  In this test the emphasis is on the initial impression gained from a comparison of the marks, having consideration for the fact that the average consumer’s memory is not perfect.

Apart from the clear difference between the Respondent’s shoes and Adidas shoes, which stems from the fact that the Respondent’s shoes feature four and not three stripes, the comparison also indicates other clear and blatant differences. The name “SYDNEY” appears on Respondent’s shoes in two prominent places – at the back of the shoe and on its tongue.  In addition, the name “SYDNEY” appears on the inner tongue of the shoe, and this name bears no similarity, neither in design nor in sound to the name Adidas or to any trademark registered in its name. To a large extent this removes the concern of misleading the consumer public, as correctly held by the Trial Court (see and compare to CF (DIS-Tel-Aviv) 2554/01 Buffalo Boots v. Naalei Loxie 2000 Import and Marketing Ltd,  at  para. 3 (b) (hereinafter – Buffalo). 

    (b) Test of the type of customer and class of goods. This test is concerned with the influence of the class of goods on the danger of confusing consumers.  Regarding the test of the class of goods, it has been held in the past that where it concerns expensive products or particularly important services, it may  reasonably be presumed that the consumers would conduct a more thorough scrutiny prior to executing the transaction which would lessen the chances of confusion (see Ta’am Teva[12] at p.453; CA 210/65 Iggud Bank Ltd v. Agudat Yisrael Bank Ltd,[22]at p. 676. The test of the type of customers examines two complementary matters. The first is whether the same type of customer would take an interest in both of the products; and the second is how the particular characteristics of the relevant type of client influence the chances of confusion. Hence for example it was held that where there is a difference between the prices of the products, but the difference is not great, it will not lead to the conclusion that each one of the products has its own distinct circle of clients in a manner that prevents the chance of confusion, especially insofar as the allegedly infringing product is only slightly cheaper than the second product, in which case it may reasonably be presumed that the client will prefer to pay the lower price without enquiring into the nature of this price (see: CA 3975/10 Philip Morris Products v. Akisionerno Droujestvo [23]para. 8)

A comparison of the two categories of merchandise in this case shows that indeed both cases concern sports shoes, but belonging to entirely different price categories (the difference in prices being significant). Adidas shoes are marketed as a successful brand at prices ranging between medium to high in select sports shops all over the country, whereas the Respondents’ shoes are intended for marketing at low prices and primarily in the stands at the markets, as determined by the Trial Court in its ruling. I find no reason for interfering with these factual determinations, and this difference in the price and the manner of marketing, in my eyes, significantly reduces the danger of confusion among clients, not because the Adidas consumer is a “specific consumer” but rather because it is unlikely that a consumer seeking to purchase a simple, cheap shoe would mistakenly think that the shoes sold at a low price in the market are Adidas shoes. On the other hand, it may be presumed that the consumer seeking to purchase high quality shoes from a reputed company and who is prepared to pay a price accordingly, would examine the shoe before buying it.

(c) The Test of the Remaining Circumstances.  This test accompanies the previous tests and takes the specific circumstances of the case into account, to the extent that they were not examined in the framework of the two previous tests (see Ta’am Teva[12]  at p. 453. In this case no special circumstances were presented which might have been relevant.

16. The conclusion flowing from application of the aforementioned tests, having consideration for the preliminary normative determinations with regard to the appropriate scope of protection for the triple stripe mark, is that the Respondent’s shoes do not give rise to the fear of deceiving the public and as such do not infringe the Adidas trademark. To be even more precise, our ruling that there is not fear of misleading does not mean that there is no similarity between the shoes of the Respondent and the shoes of Adidas (compare to Yifrach [13], but rather that as a matter of the policy to be applied in this case the similarity is of a kind that does not constitute an infringement of the trademark,

Passing of

17,  The tort of passing off in s. 1 of the Commercial Torts Law, states as follows:

(a)        A dealer shall not cause the asset he sells or the service he offers to be mistaken for the asset or service of another dealer or related to another dealer.                                                            

       The tort of passing off has two foundations, the proof of which rests with the party claiming the commission of the tort against him. The good will that he has acquired in the asset or the service that he offers, and the fear of misleading the public into thinking that the asset being offered by defendant belongs to the plaintiff (see Avazi [21], para. 12, Mishpaha [8] p. 942; Venice [6] at pp. 232 – 233). The requirement for the simultaneous proof of both foundations balances the trader's proprietary interest with other interests such as freedom of occupation of competing manufacturers and the desire to encourage free competition and to prevent the creation of a monopoly that is harmful to the market.   Regarding this it has been held that “misleading concerning an asset or service in respect of which the  plaintiff has not proved that he acquired good will in respect thereof does not come within the purview of the tort of passing off…. similarly, an imitation of an asset with good will where it was not proven that there was a chance of confusion, is likewise not within the purview of the tort (Yifrah [13], para. 8). Notably, despite the similarity between the tests for establishing an infringement of a trademark and those for the tort of passing off, this does not dictate an identical result in all  cases. Occasionally the ruling must be that a trademark was infringed but that the tort of passing off was not proven. For example, when a manufacturer uses a mark that is identical to a registered trademark, but where there are other features of the product that distinguish it from the products of the trademark owner (see Buffalo [ ]).  And vice versa too - occasionally the entirety of the manufacturer's acts lead to the conclusion that he committed the tort of passing off, even if he did not infringe the registered trademark relating to that matter.

18.  There is no dispute over Adidas' reputation and its trademarks in the areas of sport shoes in Israel and around the world. In our case the first foundation exists and the focus must be on the second foundation of the tort, the fear of misleading. In examining the existence of this foundation with respect to the tort of passing off, as mentioned, there must an examination of the entirety of the defendant's actions and conduct. This examination does not yield a conclusion that differs from our conclusion regarding the absence of any fear of confusion in relation to the trademark. The reason for this is that the Respondent's actions in our case further reduce the fear of confusion, including the attachment of a label to the shoe, featuring the name "SYDNEY" in large letters, and the packaging of the product in a box on which that name also appears quite clearly. It therefore seems that under these circumstances there is no fear of confusion. The matter of Yifrah [13], which was handed down recently, concerned a perfect replica of a product that was sold cheaply alongside the original product, and it was held that it does not establish grounds under the tort of passing off because a label was attached bearing a different name, the products were presented separately in the shop and when the sellers were asked about the price difference they explained that it was an imitation (paras. 11- 12). In that case the good will the was proven was actually far weaker than that of Adidas, but on the other hand the circumstances of the case were more extreme given that unlike the case at hand, the similarity of the products was absolute (see also in the Buffalo [  ]case, where it was held that almost identical shoes at a lower price and with another trade name does not deceive the public and the plaintiff does not have any grounds under passing off. Accordingly, I accept the conclusion of the Trial Court according to which in the case before us it has not been proved that the Respondent committed the tort of passing off against Adidas.

Dilution of Good Will

19.  As noted by the Trial Court, the doctrine of dilution of good will is relevant to a situation  in which:

"A powerful trademark is used without the consent of its owner and without creating confusion, leading to the erosion and blurring of the unique, quality image that the mark conveyed to its clients.... the erosion of the image of the mark among the consumer public also diminishes the commercial value of the trademark, in wake of the decrease of its selling capacity (or power)" (Yaakov and Hana Kalderon Commercial Imitations in Israel 189 (1996). On the adoption of the doctrine according to this definition, see CA 6181/96 Kardi v. Bacardi and Company Limited [24],.

This description indicates that the doctrine of dilution of good will does not require proof of the fear of misleading consumers. However, it seems to me that the cases in which it may be appropriate to determine a dilution of good will even when no misleading is proved are the exceptional cases in which the absence of confusion was the result of the fact that the product is of an entirely different description (as was the case when this doctrine was applied for the first time in Eastman Photographic Materials Co. v. John Griffith Cycle Corp 15 R.P.C. 105 (Eng. 1898), (hereinafter - Kodak), and at all events, this doctrine should not be applied as a default option for every case in which confusion of consumers was not proved  - as in the case before us.

As mentioned, the doctrine has its source in the  Kodak case, where it was held that when a bicycle company uses the name of  the Kodak photography company it does not confuse the consumers but does dilute the company's good will (see also in the matter of Tea Board [16]). The conclusion is that the doctrine seeks to protect the positive good will and image attaching to a well known trademark and provides a quasi proprietary protection to the good will itself against unlawful attempts of traders to build themselves up on the good will of the mark owner by creating a misrepresentation of having supposedly acquired a license, authorization, sponsorship, promotion or any other connection between the product with the good will and their own product (Friedman, p. 121- 127). Indeed, as claimed by Adidas and as mentioned above, to establish grounds based on dilution of good will it is not necessary to prove confusion. However, this does not obviate the need to prove the erosion and blurring of the good will acquired by the registered mark as a result of  the use of the other mark, by reason of creating some kind of link between the allegedly infringing product and the product of the party claiming damage. This conception also receives expression in section 46A (b) of the Ordinance, which establishes the unique use of “well known” trademark which is a registered trademark, also for products not of the same description. Concededly, the section does not require proof of confusion and suffices with use that "may indicate a connection between the goods" alone, but it makes this protection contingent upon it being proved that the "owner of the registered mark may be harmed as a result of the said use" (see regarding this the application of the doctrine in the matter of Absolute [5] pp. 878-879, 887). On the other hand, where our concern is with the use of a mark for products of the same description and to the extent that there is no confusing similarity between the products or  the marks and there is a distinction between them, it would seem that it cannot be claimed the mark owner’s good will, will be diluted (see Civ. App. (District - T.A) 35447/99 Super Farm  v. Blue Square Network [  ] where it was held that there was a likelihood of confusion, and further on it was held that there was a dilution of goodwill, and see also in Unilever [17] at para. 24). In our case, in view of the holding that it was not proven that the average consumer would be confused into thinking that the Respondent's shoes were manufactured by Adidas, there is no likelihood that the consumer would link the quality of the Respondent's shoes to the Adidas company, and by extension, there are no grounds for the claim of dilution. It bears note that in the absence of the likelihood of confusion, there is  likewise no grounds for Adidas' claim regarding the theft of its good will or harm to it (see LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alfa Intuit Food Products Ltd [25] at  p 466 (hereinafter  Prefetti).

 Unjust Enrichment

20      The leading decision on the issue of the relations between the laws of intellectual property and unjust enrichment is the decision in the matter of ASHIR [1].  That case concerned three instances in which the respondents had not registered a patent or sample for the disputed product.  Likewise, the Trial Court rejected the claims made by those respondents concerning the tort of passing off, and the common question in the appeal forum was whether under those circumstances there were grounds for granting the respondents relief in accordance with the Unjust Enrichment  Law, 5739-1979 (hereinafter - Unjust Enrichment Law). In two of the three cases considered in the ASHIR [1] matter it was decided unanimously to overrule the decisions of the district court and the remedies given by it on the grounds of unjust enrichment, and in the third case the court decided, by majority, to reject the appeal and to leave intact the decision rendered by the district court. The path taken by the four majority justices (Justice T. Strasbourg-Cohen, President A. Barak, Justice T.Or and Justice Y. Zamir) in reaching their conclusion was not uniform, but it seems that the rule deriving from the  ASHIR [1] case received exhaustive expression in the ruling of Justice T. Strasbourg-Cohen, who stated that “the individual’s interest in the non-copying of a work that he created and in which he invested his time, his energy, his thoughts and his resources is in principle worthy of protection within the framework of the laws of unjust enrichment and the application of such an interest cannot be ruled out a priori just because it is not an “established right” under the laws of intellectual property” (ibid, at p. 417).  All the same, in the ASHIR [1]  case it was held that applicatory scope of the laws of unjust enrichment was dependent upon the question of the extent to which the specific law that applied constitutes a comprehensive arrangement that negates the intervention of any law external to it; that the condition for grounds under the Unjust Enrichment Law is that the enrichment of the beneficiary be “by unlawful cause”. In other words, that the copying or imitation must be supplemented by another foundation of a negative nature; and that prior to awarding compensation by force of the laws of unjust enrichment, it must be ascertained that there is no double compensation, and that by force of unjust enrichment it is possible to grant, when necessary, remedies that also include injunctions, despite the fact that these remedies are not mentioned in the Unjust Enrichment Law (ASHIR [1], at pp. 337, 363-365, 417, 486; LCA 6025/05 Merck and consideration. Inc v, Teva Ta’asiot v. Teva Pharmaceutical Industries Ltd [26] para. 30)(hereinafter;  Merck  case)). As mentioned in one of the three cases heard in ASHIR [1] (LCA 5614/95) the majority view was that the respondents indeed had grounds for claim under the Unjust Enrichment Law, given that the applicants in that case had executed a “complete imitation” of the product by way of “Reverse Engineering” and given that the respondents had invested a protracted effort in the development of the product, which was not a simple, standard product.

21. The current case differs in a number of aspects. First, Adidas owns a registered trademark and its action is based primarily on the infringement of that trademark, notwithstanding that in addition to that ground it also raised other grounds, including passing off and unjust enrichment. The question which arises is whether in a case in which it was held that the foundations that confer protection to the owner of a mark under the laws of intellectual property were not established,  and where it was further established that under the circumstances there were no grounds for the tort of passing off, the plaintiff should be allowed to raise alternative grounds of unjust enrichment. The majority judges chose to leave open the question of whether in a case in which the plaintiff was entitled to sue on the basis of intellectual property he should also have he option of suing simultaneously or alternatively on the basis of unjust enrichment (see ibid [1]  at pp. 418, and 455). In other cases that came before this Court after the handing down of the ASHIR [1] ruling, the court opined that where the plaintiff had failed to prove the infringement of a registered trademark and not being entitled to proprietary protection in the form of an “institutionalized right”, he should not be given a remedy under an alternative grounds in reliance on the Unjust Enrichment Law, and in the words of the court in the Absolute [5]   case “In the case of  registered trademark, the appellants were able to take the high road of the laws of intellectual property, whereas in that decision ASHIR [1], there were no registered rights of intellectual property, Once the high road had not been successful,  the side roads too would not be successful “ (ibid [4], p. 888; see also Prefetti [25], at p,466; Friedman, 1989 -1090; Miguel Deutch, Commercial Torts and Trade Secrets pp. 50 – 51 (2002). However, even if we assumed for argument’s sake that the dismissal of the claim concerning the infringement of a trademark does not ipso facto preclude the alternative grounds of unjust enrichment, it seems indisputable that such a dismissal should carry significant weight in determining whether there are foundations for the alternative grounds, especially in view of the holding concerning the absence of misleading. In our case the Respondent used the sign of four stripes on the sided of the shoe (as distinct from the three stripes of Adidas), and, most importantly, the word SYDNEY was embossment in two prominent places in the shoe, as well as in the inner sole). In my view these data make this case significantly different from the case considered in ASHIR [1] which concerned, as mentioned, a “complete imitation” of the product, by way of “Reverse Engineering” and a product comprising development and invention, (as opposed to the use of the element of the stripes, which as mentioned,  is weak in terms of inherent distinction).

This Court reached a similar conclusion in rejecting a claim of unjust enrichment (even in the absence of claims concerning the infringement of intellectual property laws, apart from the tort of passing off) in another case in which it did not find that there had been a “complete imitation” of the Apropo snack. In that regard the court stated further that:

‘[G]ranting protection against partial copying of the product may spread the protective umbrella of the laws of unjust enrichment over a large number of cases. Hence, for example, acceptance of the appellant’s position could lead to an almost blanket prohibition on the use of a hollow cone in the designing of snacks. Protection of this kind involves a grave impingement on the freedom of competition and this carries significance in the balancing of the considerations (CA 945/06 General Mills Inc. v. Meshubah Food Industries Ltd [26], para. 20

For all of the reasons set forth above, my view is that Adidas’s claims regarding unjust enrichment were rightly dismissed.

22.  After writing my opinion, I read the opinion of my colleague, the Deputy President (Ret.) E. Rivlin, and notwithstanding my argument with his conclusion on the matter of unjust enrichment, I wish to note that I too do not concur with the District Court’s approach to the effect that it is a “legitimate goal” to enable a person lacking sufficient means to “experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes”  However, as opposed to my colleague I think that our case does not concern the giving of such an experience, by reason of the significant differences between the shoes, chief among them being the specification of the word “SYDNEY” in no less than three places on the shoe.

Final Word

23.  In view of which I propose to my colleagues to dismiss the appeal and to order Adidas to give the Respondent the shoes that he imported, and which are in its possession. For the removal of all doubt, it will be clarified that Adidas will bear all of the costs involved in the storage of the shoes in Customs, and in its own possession, as per the decision of the Trial Court and its decision in the application for a stay of the execution of the decision. Likewise, I propose to my colleagues to obligate Adidas to pay to the Respondent attorneys fees in the appeal for the sum of NIS 25000.  The suggested sum of expenses has taken into account the significant sums of expenses that were already awarded against Adidas in the Trial Court.

 

JUSTICE

 

Justice E. Rubinstein

            A.                    After consideration, I concur with the decision of my colleague Justice Hayut. I confess, that I consented after some hesitation, which also found expression in the hearing before us, and having read the decisions of Justice (former title) Grunis in LCA 3217/07 Brill  v. Adidas [ 10  and his decision in LCA 3581/05 Shehana'al Mat'ima v. ADIDAS-SALOMON [9] (not reported).  At a first blush, the shoe produced by Respondent 1 may remind one of the Appellant’s shoes in accordance with a comparison of the pictures in the file. This is the case even without having consideration for the decisions of courts around the world with respect to the Appellant’s trademark. Furthermore, in the matter of Shehana'al Mat'ima [9], Justice Grunis stated that “when examining the existence of a resemblance for purposes infringement of a registered trademark, the comparison must be conducted between the registered mark and the mark alleged to be infringing, and not between the products on which the mark appears” (para. 3).

B.    However, at the end of the day I accept my colleague’s approach, that in our case “one cannot examine the trademarks…. in absolute detachment from the goods on which they appear” (para. 14). However, it would not be amiss to mention (further to the comments of my colleague (ibid), that even the decision in Ta’am Teva [12], which is relied upon in the decision in Shehana'al Mat'ima [9], deals with a phonetic trademark, regarding which there is almost no escape from examining it in detachment from the product to which it relates.

C. In examining the shoe itself, from close up, even though as stated it may be reminiscent of the Appellant’s shoes, it seems doubtful whether anyone would mistakenly think that he was actually holding an “Adidas” shoe, even though it bears a connection of some kind to the Appellant. Indeed, our concern is with stripes, but both on the surface of the shoe in the back and on its tongue, there appears the inscription of “SYDNEY” and inside it too. Furthermore, the price of the shoe is not in the same categories of that of the Appellant’s shoes, and they are evidently intended for a different public, even without giving consideration to broader societal observations, which, with all due respect, I do not agree with in their current form, and which emerged from the decision of the Trial Court.  Against this background, the use of the four stripes pattern would not cause clients coming to buy the shoe, upon taking a second look at the shoe as it is, to mistakenly think that it was one of the Appellant’s shoes (and hence it does not answer the requirement of passing off). There would seem to be no reason for thinking that these clients would think that the Respondent’s shoes, even though featuring stripes, are connected to Appellant (and hence there is no dilution of good will), in as much as the word SYDNEY is embossed on them.

D.   My approach is also based on my colleague’s point of departure with respect to the weak inherent character of the trademark, and her assessment, which I accept, that “It seems difficult to claim that had Adidas not chosen this mark, that no other shoes would have been manufactured with stripes on their sides” (para. 10). This is my position even though I cannot but mention that my assumption is that the respondent did not chose the stripes in vein. In this context one should remember that words of Justice Nethanyahu in the Kalil[11] case:

The registered marks of Kalil (ibid – the stripes on the samples that serve for identification – E.R) are indeed limited to three stripes, but a monopoly on any particular number of stripes would prevent many others from using stripes because of the restriction on the possible number of stripes dictated by the breadth of the profile” (HCJ 144/85 Kalil No-Steal Metals Ltd v. Registrar of Patents and Samples and Trademarks [11] at p. 323)

       This is the rule even though the metal stripes industries is not the same as stripes on shoes in terms of their frequency and their visibility. Examples of stripes on pieces of clothing are at least as old as the Bible, “Now Israel loved Joseph more than all his children, because he was the son of his old age; and he made him a coat of many stripes” (Genesis 37:3. The same is true of Tamar the daughter of David, who, as the practice for daughters of kings, wore a striped coat (11 Samuel 13, 18). Extreme care is therefore required in conferring absolute exclusivity in this context, which may, unintentionally disrupt the delicate balance between the protection of intellectual property and the protection of freedom of occupation and free competition (see my comments in the matter of CA 9191/03 V & section Vin Spirt Aktiebolag v. Absolute Shoes [5]  , at  pp, 877, 884)

E.  After all this, we received the judgment of my colleague, the Deputy President (Ret) Justice E. Rivlin, in which he seeks, in a manner which, undeniably, possesses a certain charm, to broaden the protection in the field of trademarks, by enlisting the grounds of unjust enrichment. In his view, there should be a broadening of the rule determined in ASHIR [1], according to which in a case in which the rules of intellectual property do not apply given the absence of registration, it should be possible to recognize the grounds of unjust enrichment. According to my colleague, in our case the consumer is purchasing an imitation those benefits from the good will of the manufacturer – Adidas, for a cheap price, and the imitator (Respondent 1) benefits from the manufacturer’s efforts without giving consideration. My colleague’s view is that this subject is not adequately regulated in the trademarks law, and a remedy should therefore be granted against the imitation of a registered trade mark. and contrary to the view of the Trial Court enabling the cheap purchase of shoes “that are somewhat reminiscent of Adidas shoes” should not be regarded as a legitimate goal. As mentioned, I am not a partner to the societal conceptions to the extent that they work at Adidas’s expense. However, I am doubtful as to whether the ASHIR [1] rule can be of assistance in the case at hand. The rule is intended for cases in which the laws of intellectual property are inadequate, not because matters of substance but rather because of the absence of registration, and hence a certain protection is offered based on the laws of unjust enrichment. The question however is whether the law provides a protection to a quasi-intellectual property for cases in which the laws of intellectual property were indeed examined, but not infringed, as in the case before us, and where it was unanimously decided that Adidas does not have trademark protection, notwithstanding its registered mark?  In the ASHIR [1]case the imitation was complete and the question was whether the laws of unjust enrichment should apply. However, this did not happen in the case before us. On the level of the desirable law, my heart is with my colleague, the Deputy President. But is this the existing law?  Indeed, the case is not similar to the aforementioned ruling in Absolute [5], which concerned the differentiation between shoes and vodka, whereas our case concerns the difference between one shoe and another. However, my colleague seeks to construct a protection for cases in which the law gives no protection, and in this sense differs from the ASHIR [1] rule, and even, so it would seem, from the minority opinion in that case. Summing up, I am not certain that the grounds of unjust enrichment can supplement the laws of intellectual property in cases in which they do not apply by reason of an internal, substantive reason, and not just because of an external procedural one, such as the absence of registration,  as was the case ASHIR [1]. Even if the notion that my colleague has attempted to develop was commendable on its merits, and even were we to adopt the path of my colleague, is it sufficient to "assume" that Adidas was harmed by the "enrichment".  Perhaps such a case would be governed by what is referred to in Jewish law as "He benefits and he does not lose" (Talmud Bavli, Bava Kamma, 20a). Isn't there a need for a firmer evidentiary basis, showing that the person who purchases a cheaper product of the Respondent would have purchased “Adidas” shoes had he not come across  the Respondent's shoes, or that the good will built up by Adidas is what caused the consumer to buy the Respondent's shoes, even though one look at the name "SYDNEY" suffices to make it clear that that it is not the same shoe.  And at all events, the question is whether, in order to come within the purview of the ASHIR  [1] rule, it is sufficient to prove – assuming that it was actually proved - that the association with the Appellant's shoes is what caught the eye of the consumer.  I am not certain that this is the case. Indeed the question of the slippery slope may arise here, but at the end of the day the solution provided in the domain of trademarks is generally expected to provide the answer, without locking the door upon future development of the law in accordance with the circumstances.

 

JUDGE

 

Deputy President (Ret) E. Rivlin

1.    I have read the judgment of my colleague Justice E. Hayut in depth, and while I share her position regarding the grounds of the infringement of trademark, were my opinion to be heard, we would accept the appeal with respect to the grounds of unjust enrichment.

2.    Trademark law has a dual objective: On the one hand, protection of the consumer against a mistake in the identification and purchase of a product that differs from his original intention; and on the other hand, protection of the manufacturer’s good will and title in the trademark (see for example, LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [12] at p. 450). It bears emphasis that the protection of the manufacturer’s property does not just consist of the indirect protection granted to him by the very fact that the consumer seeking to purchase his goods will be able to identify them. The protection of the manufacturer’s interest in the trademark is also a direct one, stemming from its being an independent purpose of the law (and not just a means of protecting the consumer). This direct protection finds expression, for example, in the fact that misleading is not a necessary foundation of the infringement. For example, an infringement under s. 1 (1) of the Trademarks Ordinance [New Version] 5732-1972 is defined as follows:

"infringement means the use by a person not entitled thereto -

(1)  of a registered trademark or of a mark resembling such a trademark in relation to goods in respect of which the trademark is registered or to goods of the same description .... (addition added).

In other words, when use is made of a mark that is identical to a registered trademark (for purposes of goods defined in the aforementioned s. 1 (1)) an infringement occurs even if the infringing use does not mislead the consumers. For example - were shoes to be sold with a trademark identical to the Appellant’s registered trademark, we would not even consider the question of whether there was a danger of misleading potential consumers,  even in the absence of such a danger, i.e. where the consumer had received precise information regarding the identity of the manufacturer on the packaging,  It may be presumed that if the trademark rule was intended exclusively for the protection of the consumers, then the element of misleading would be required as one of the foundations of the grounds of action. In fact, in certain cases protection is given to a trademark even in the absence of misleading, and in such a case the grounds serves primarily for protection of the manufacturer’s title and his goodwill.  In this way, inter alia, the grounds of trademark infringement is distinguished from the tort of passing off. Whereas misleading is one of foundations of the tort of passing off, in the framework of the grounds of trademark infringement, misleading is only relevant for purposes of determining what constitutes a “mark resembling" a registered trademark.   

3.    The examination of the existence of the danger of misleading both in the framework of the grounds of infringement of trademarks and in the framework of the tort of passing off, is done by way the "three part test" expounded upon at length by my colleague, Justice Hayut.   Even so, it was held in the past that the subject to be examined for each of these grounds is different. In the framework of the tort of passing off, the misleading is examined in relation to the entirety of the defendant's acts, whereas with respect to the ground of trademark infringement, the subject of the examination is the marks themselves (see Ta'am Teva [12], at p. 450).  My colleague, Justice E. Hayut opined that in the case before us, the marks should not examined in isolation from the shoes on which they appear, also having consideration for fact that the law according to which the comparison should be between the marks themselves, was formulated in the framework of decisions that concerned phonetic trademarks as opposed to visual ones. I concur with this position, and in fact it flows naturally from the nature of the "three part test". Two of the secondary tests included therein are the test of the "type of customer and class of goods"; and test of the "other relevant circumstances". These tests, as indicated by their names, instruct us to examine the circumstances accompanying the use of the mark. For example, in the matter of Ta'am Teva [12] it was written that:

'Is the phonetic resemblance sufficient to satisfy the requirement of resemblance specified in the definition of "infringement"? This depends on the individual circumstances of each particular case, and the degree of concern about misleading and confusion among the consumers notwithstanding the different appearance of the marks... For this purpose consideration should be given to the methods of marketing, and advertising of the products for  which the trademarks are intended. In this context there must also be an examination of the possible results of the confusion (ibid pp. 455- 456).

       The additional circumstances to be examined are for example: the costs of the products: capacity for discernment on the part of potential customers; and the degree of overlap between the circles of customers for both products.  Indeed, the types of circumstances to be taken into account in the framework of the "three part test" are numerous, a factor which may also be derived from the very existence of a secondary test referred to as "all the other circumstances of the matter").   In practice, this leads to a situation in which within  the framework of the infringement of trademark too, just like in the tort of passing off, the assessment relates to the defendants' conduct in the broad sense, and is not limited to the comparison of the marks themselves (even though the comparison between them continues to be a relevant consideration). It is difficult to say that the entire complex of circumstances is relevant but that the general appearance of the product upon which the mark appears cannot be taken into account. The appearance of the product on which the mark is embedded is certainly closer to the "mark itself " and more influential upon the way it is perceived than, for example, the price of the product or the manner in which it is marketed.  Naturally, the weight attaching to the appearance of the product will change from case to case, and there are cases - for sample in Ta’am Teva [12] in which its importance is minor. All the same, one cannot rule out having reference to general appearance of the product in cases in which such attention is inevitable, such as in the case before us. Accordingly, I concur with the conclusion of my colleague, that in the case before us the marks should not be examined in isolation from the shoes upon which they appear and that the "three way test" leads to the conclusion that there is no confusing similarity (in terms of consumers) between the Respondent's shoes and the registered trademark of the Appellant, and it cannot sue on the grounds of trademark infringement.

4.    Matters differ however with respect to the grounds of unjust enrichment, for which the Appellant has grounds.

In the decision in LCA 5768/94 - ASHIR [1] it was held that there is no impediment in principle to recognition of the grounds of unjust enrichment (which will be hereinafter be referred to for the sake of brevity as: enrichment) in a case in which the laws of intellectual property are also applicable.  In accordance with the criteria outlined there, recognition of these grounds is possible in our case both because the law of trademarks does not establish a negative arrangement in this particular subject and because a right arises under the “internal law” of enrichment.

5.    The matter before us is this. A person wishes to use a mark that resembles (in the regular sense of the word )the registered trademark of another person, in respect of whom it is not disputed that he acquired extensive and significant goodwill.  The consumer prefers the resemblant product over the product that carries the registered trademark. because of the high price of the latter (inter alia due to the good will that he has acquired). In other words: The consumer is aware of the fact that the product that he is purchasing is a copy, and precisely because of that he prefers this product. The imitator and the consumer both benefit from this situation. The imitator benefits from the advantage of selling a product that resembles a well known product in demand and with a brand name, while benefitting from the good will built up by the manufacturer by the investment of effort and resources.  The consumer benefits from an experience that closely resembles that of purchasing a well known product that is in demand, without having to pay a high price for it.  In such a case harm is caused to the manufacturer and to the good will that he created for himself. This harm may take various forms: The imitator enjoys the investment made by the manufacturer in the development and the advertising of the brand-name (one of its expressions being the registered trade mark); the consumers (or at least some of them) would not have been interested in the copy and would not have derived the same amount of pleasure from it were it not for the efforts invested by the manufacturer in the promotion of the original product, but at the same time they pay no consideration to the manufacturer. Presumably at least some of the consumers would have been prepared to purchase the original product for a high price had they not had the possibility of purchasing an imitation at a cheapened price. And finally, the existence of an "imitations market" may, in some of the cases, harm the prestige of the original product and the commercial value of the registered trademark.

6.    Trademarks law today does not regulate this subject -  of imitations purchased by the consumer intentionally and not mistakenly – insofar as it protects against  harm suffered jointly by the manufacturer and the consumer, and not just against harm suffered by the manufacturer, and which the consumer is a party to.   Even more precisely, this is not the regular case in which there are no grounds for trademark infringement given that the resemblance between the products does not reach the level of "confusing similarity". One could argue that indeed there is a confusing similarity, but not with respect to the consumer but rather with respect to third parties who perceive the consumer as having purchased the original product.  The non-applicability of the grounds of trademark infringement in relation to cases of "classic" imitation (in other words products that are clearly an imitation, where even the consumer is aware of their being an imitation) does not reflect a policy decision in accordance with which the "imitations market" is desirable in the legislator’s eyes.   Were this the case it is clear that a complete imitation as well of a trademark would be permitted, provided that it did not involve the misleading of the consumer (this situation can transpire when "external circumstances" such as packaging, price and manner of marketing, indicate that it is an imitation). Our concern is therefore, at the very most, with a lacuna in the law of trademarks. It should further be remembered that this lacuna is the product of the formulation of the law by the courts, who applied the "three part test" for defining an infringement of a trademark by way of a "similar" mark, and it is not necessarily dictated by the language of the law.  The formulation of the law in this manner was not intended in the first place for protection against the "imitations market". Hence for example, the following words were written in relation to this context already about twenty years ago.

'the imitation of a product by another, as such, is not prohibited in Israel for as long as it does not constitute the offense of passing off, or is not contrary to the statutory provisions that protect intellectual property, such as the laws of copyright, trademarks, patents and designs, or any other law.

A separate question is whether the imitation of a product is desirable.... regardless of our position on that question, for as long as the plaintiff has not proved that he has a legal right  that allows him to prevent the copying of his product by another person, this court will not offer him any remedy (comments of Deputy President M. Elon, in CA 18/86 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain [6 ] at pp. 253-254 ) .

I think that the time has come, following the establishment of the law in the ASHIR [1] case, for the Israeli law to offer a remedy against imitation, at least where it concerns the imitation of a registered trademark, the entire purpose of which is to benefit from the good will of another, when the latter even took the trouble to legally register the trademark that is bearer of good will. I am not a partner to the approach expressed by the District Court, according to which it is a "legitimate goal" to enable one who cannot afford it to purchase Adidas shoes and to  “be able experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes". This goal is totally illegitimate. The experience of wearing Adidas shoes has no independent value or social benefit other than the value conferred to it by Adidas, and accordingly I do not think that the existence of an imitations market is a positive phenomenon.  It will be clarified that there can be no doubt regarding the tremendous value of competition in the footwear market, so that potential consumers are offered a variety of shoes of a variety of qualities and prices. However, free competition can exist without the abuse of another's person's good will.

7.    It further bears mention that the comments made in C.A. 9191/03 V &S v. Absolute  [5] and which were cited by my colleague in para. 21 of her opinion, do not lead to a different conclusion. In that case the owners of the registered trademark named "absolute" (a category of alcoholic drinks - Vodka and a category of bar-restaurant services) attempted to prevent a network of shoe stores from using the name "absolute shoes".  Their suit was dismissed, primarily due to the fact that the word "absolute" is a descriptive, dictionary word, the use of which cannot be excessively restricted, and its confusion potential when combined with a word from a totally different realm from that of beverages, is particularly low. Accordingly, in that case there were substantive policy considerations that negated the protection of the laws of intellectual property and hence it was not an appropriate case for applying the enrichment laws.  It cannot be argued that the laws of intellectual property did not regulate the subject of using descriptive terms, whether in framework of the same category or other categories, and in that sense "the appellants were able to take the high road of the laws of intellectual property" which if not successful - then "the side road too would not be successful" (ibid at p. 888). The matter before us, on the other hand, has not been substantively regulated in the framework of the laws of intellectual property, and hence it cannot be said that the high road of the laws of intellectual property was open to the Appellants before us.

To sum up: In terms of the laws of intellectual property there is no impediment to the recognition of a grounds of claim based on enrichment in relation to the imitation of a registered trademark regarding which there is no "confusing similarity" insofar as the consumer is aware of its being an imitation.

8.    The next stage is the examination of whether the Appellant has grounds for claim under the laws of enrichment themselves. It is known that this ground has three foundations: the first condition is the existence of enrichment; the second condition is that the enrichment came to the beneficiary from the benefactor; and the third condition is that the enrichment was received by the beneficiary "without legal cause" (see LCA 371/89 Leibovitz v. Etti Eliyahu Ltd  [28] (hereinafter Leibovitz) at p. 321; CA 588/87 Cohen v. Zvi Shemesh [29] at p. 320; FHC 10901/08 Beizman Investments Ltd v. Mishkan Bank Hapoalim Mortgages Ltd [30] para. 34 of Justice  Naor's decision. In the matter of ASHIR [1] it was held that enrichment “without legal cause” for our purposes means enrichment which has "an additional foundation" of inappropriate conduct.  The majority judges were disputed regarding the essence of this foundation but still,  the majority opinion was  that conduct in bad faith or unfair competition would constitute “an additional foundation”  and there were those who were even prepared to suffice with a lower threshold. For a review of the various positions, see ASHIR[1] , at p. 431 (the judgment of Justice Strasbourg-Cohen), at pp. 450, 473-480 (judgment of President A. Barak), at p. 488 (judgment of Justice T.Or), at p. 493 (judgment of Justice Y. Zamir) and p. 499 – 500 judgment of the Deputy President S. Levin).  In CA 2287/11 Shoham Machines and Dies Ltd v. Shmuel Hadar [31] (hereinafter = Hadar)I dwelt on the more specific criteria that had crystallized in relation to the subject considered in ASHIR [1], which concerned the imitation and design of a product that was not registered as a patent or design.  Where a person attempts to copy a trademark that enjoys good will with economic value, with the aim of benefitting from that good will in order to sell his products, following the original manufacturer’s investment of resources and effort in the development of his good will in that mark, while the imitator benefits from them without having been compelled to invest a similar effort – it becomes unfair competition, and in bad faith. I find it difficult to locate a real difference between use of the  trade mark that is actually registered,  regarding which it was explicitly declared that it is an imitation (so that the owner of the registered trademark will merit protection) and the use of a trademark which is highly similar to it, while declaring that it is an imitation (in which case the owner of the registered mark will not be protected by the  trademark rule). The negative element of a complete imitation of a trademark continues to exist even where a minor change was made in that mark).

This is the case before us. The addition of one stripe,  retaining the colors of the registered trademark and using only one color for the stripes, while placing them in the same direction, in the same location on the surface of the shoes and with an identical breadth and distance between them – all amount to a substantial and bad faith resemblance to the registered trademark of the Appellant.  And in fact, the District Court also held that purchasing the Respondent’s shoes serve the consumers’ goal of having “the experience” of wearing shoes similar to those of the Appellant. The shoes in their current form were clearly designed so that they would resemble the Adidas shoes of the Appellant in order to enhance their attractiveness in the eyes of consumers.

9.    The existence of the first two foundations is essentially a question of fact, which must be proved in each and every case. In the case before us the Respondent’s profits from the sale of the shoes (had he been given the opportunity to do so) would have generated enrichment. This enrichment would have been “at the expense” of the Appellant, because presumably the sales of shoes resembling Adidas shoes would be higher than the sales of shoes that are not similar to any known brand. Likewise, it may be presumed that at least some of the consumers of the Respondent’s shoes would have purchased original Adidas shoes had they not had the possibility of purchasing a cheap imitation. The case is similar to the case discussed in the matter of Leibovitz [29], concerning the adjudication of an action brought by a pens distributor against someone who imported the same pens in “parallel import”. In that case it was held that the first two foundations of the grounds of unjust enrichment were satisfied (even though the third foundation was not satisfied):

‘In the circumstances of this case, it may prima facie be presumed that the appellant received a benefit that came to him from the respondents. The benefit consisted of the profits derived by the appellant from the sales of the products under discussion here. By these sales the appellant benefitted from the market created by the respondents for the said products. In that sense, the respondents were the source of the benefit and it can be argued that it “came” from them (see Leibovitz [29], at p. 321).

This is also applicable to the case before us, in which the Respondent is attempting to benefit from the market developed by the Appellant and the good will created for its trademark.

10.  Having reached the conclusion that the Appellant can make a claim on the grounds of unjust enrichment, the question arises regarding the relief to which he is entitled in that framework. It is known that the court has the authority to grant  injunctive relief in the framework of the grounds of unjust enrichment (see CA 347/90 Soda Gal Ltd v Spielman [32], IsrSC 47 (3) at p. 479; ASHIR[1] at p. 484; Harar [31] para. 27 of decision).  In the case before us, the Respondent suggested that the Adidas make certain changes in the shoes by adding a fifth stripe, or adding an X sign on the four stripes.   The introduction of such a change would diminish the resemblance between the mark on the shoe and the trademark of the Appellant. Accordingly, were my opinion to be accepted I would propose the issuing of a permanent injunction that would prohibit the Respondent from marketing or distributing the shoes in dispute, in their current design.  This order will remain in place until one of the changes suggested by the Respondent is done, in which case the shoes will be given to the Respondents. As mentioned, the parties agreed that the storage costs would be imposed upon one of the parties according to the results of the suit, and so, in accordance with my position, it would be proper for these to be imposed on the Respondent. Under these circumstances I would also recommend not making an order for expenses.

                                                                                                       Deputy President (Ret)

It was decided in accordance with the decision of Justice E. Hayut.

Handed down this day, 9th Elul  5772 (27.8.2012)

 

 

Full opinion: 

ACUM v. EMI

Case/docket number: 
CA 5365/11
Date Decided: 
Tuesday, September 3, 2013
Decision Type: 
Appellate
Abstract: 

[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.] 

 

In 2004 the Director-General of the Antitrust Authority determined that the activity of ACUM (a corporation that operates to manage its members’ copyrights in musical works in Israel) constitutes a monopoly on managing copyright over musical works. In 2011 the Antitrust Tribunal (“the Tribunal”) approved the activity of ACUM as a cartel, subject to a series of requirements (“the permanent requirements”), which would be in force for five years starting from the date of their approval. The disputes at the center of the appeals related to the requirement that at least a third of ACUM’s board of directors consist of external directors (the ACUM appeal) and the requirement regarding the exclusion of rights in a work from management by ACUM. It was argued that the mechanism was overly narrow, as consent of all joint owners of a work is necessary for exclusion, or for segmentation under the four specific categories that permit partial exclusion of the rights (the EMI Israel appeal).

 

The Supreme Court (opinion written by Justice D. Barak-Erez, Justice Z. Zylbertal and Justice E. Rubinstein concurring) dismissed both appeals on the following grounds –

 

The requirements for ACUM’s operation should balance the authors’ property rights in their works with the public interest in a market free of monopolistic effects, a unique interest when in the context of a market of works, which inherently must be accessible to the public (albeit for payment). The analysis focused on two issues: the requirement to appoint public directors and the scope of the rights exclusion mechanism. Both should be examined from the unique perspective that combines the purpose of copyright law with that of antitrust law, considering the balance that both fields of law must achieve between individual property rights and economic interests, on the one hand, and the general public interest, on the other hand.

 

Regarding the requirement that at least a third of appointed members to the board of directors be external public directors (the practical meaning of which was the appointment of a total of four such directors), ACUM failed in its challenges to both the requirement itself and the number of external directors it was obligated to appoint.

 

The appointment of public directors is one of the mechanisms that facilitates supervising a company’s conduct and that of its directors and controlling shareholders. It helps deal with the various representative problems associated with its activity. Their appointment also adds a professional dimension to the company that would increase its adequate management; the appointment of public directors to ACUM’s board is consistent with the purpose of the cartel’s approval. Although ACUM is not a public company, it effectively manages a resource that has clear public aspects, and in fact those aspects of ACUM’s activity are the basis for the cartel's approval. At the same time ACUM’s monopolistic characteristics and its status as a cartel in the copyright of musical works per se grant it a public dimension. The requirement to appoint public directors to provide another layer of supervision over ACUM’s activity is therefore warranted by and inherent to the rationale of the cartel’s approval from the point of view of protecting both authors and users. The Court added that making the cartel’s approval subject to the appointment of public directors, even when a public corporation in the ordinary sense is not involved, has already been done in the past, for example with respect to the recycling corporation. Moreover, the public directors might represent cross-group interests that carry broader considerations as to the general interest of artists as a whole, rather than representing the interest of certain artists groups, which may conflict. Moreover, without laying down rigid rules, there is prima facie basis for the argument that the importance of a public director is in fact greater in a corporation like ACUM, which is not led by a clear control group and has diverse ownership.

 

In fact, ACUM itself also acknowledged the advantages of appointing public directors, and the updated language in its articles of incorporation now requires the appointment of two public directors. The basic aspect of the dispute, which had to a certain extent become one of extent and degree, had thereby been somewhat resolved. In this respect, the Court believed that the proportion of directors that was fixed – one third of the total members of the board – was not excessive or unreasonable, considering the character of ACUM as a corporation with diverse ownership and especially in light of the concern for abuse that always exists regarding a cartel.

 

Under the circumstances, there is no need to rule on whether ACUM should be regarded as a hybrid entity, and in any event a complete discussion of the criteria for recognizing an entity as such is unnecessary.  However, it is not superfluous to note that ACUM’s activity does fit many of the factors mentioned in case law as indicative of a hybrid entity. Those factors, even if insufficient to categorize ACUM as a hybrid entity in the ordinary sense of the term, do shed further light on the basic justification of the Director-General’s requirement. Although the appointment of public directors is not ordinarily considered one of a hybrid entity’s duties, the fact that ACUM is an entity that owes important duties to the public can serve as a factor in how the Director-General of the Antitrust Authority exercises power when subjecting a cartel to requirements.

 

Two questions were at the root of the dispute regarding the requirements about the rights exclusion mechanism. First, whether the requirement for consent by all joint owners of a work in order to exclude it from ACUM’s catalog is justified or whether that power should be held individually by each of the artists; and secondly, how delicate and precise should the “segmentation” mechanism be in the scope of the exclusion ability, in light of distinctions between a work’s different types of use.

 

As a point of departure it can be assumed that works of the type that ACUM manages are often ones to which several artists share the rights. Conditioning exclusion upon the consent of all rights owners will undoubtedly burden the individual artist who seeks to exclude her own work. However, this is not an undue burden considering the purpose of the permanent permit.

 

The most important tool available to ACUM in the collective management of the rights is the grant of a sweeping license, known as a “blanket license,” which permits the licensee to use ACUM’s entire catalog. From the perspective of transaction costs, the advantages of a blanket license are the primary reason for ACUM’s activity, despite the conflicts with antitrust law. Given the typical ownership structure of a musical work, an exclusion ability that is not conditional upon the consent of other owners effectively means that a single author, regardless of their role in creating the work, may exclude the entire work from ACUM’s blanket license system.  Thus, a user who wishes to make lawful use of the work would have to negotiate with the excluding author in addition to acquiring the blanket license from ACUM.  Such a state of affairs would greatly limit the benefit the cartel provides the user public to the point that it is doubtful whether the cartel is indeed “in the public interest” in terms of section 9 of the Antitrust Law. Furthermore, accepting that consent by all joint owners of the work is not necessary in order to exclude it might also allow for some of the artists’ opportunistic exploitation of the exclusion, creating “extortion” or “free-riding” problems.

 

Ultimately, even in the narrow exclusion regime joint artists can contractually regulate the scope of the work’s exclusion from collective management in advance. Indeed, the narrow exclusion regime merely provides the default for the inclusion of a joint work in ACUM’s catalog. Insofar as the authors wish to regulate decision-making differently in managing joint works, they are at liberty to do so. Presumably such an arrangement, which would be made in a timely manner and before any of the parties is in a position to potentially exploit or become a free rider, would help to limit the coordination challenges in obtaining consent for excluding joint work, as detailed by EMI Israel and Anana. Therefore, the default prescribed – that in the absence of agreement to the contrary between owners of rights in a joint work, all of their consent is necessary in order to exclude it from management by ACUM – is a proper one.

 

Finally, the Court considered the rights exclusion mechanism that enables artists to exclude their rights in some – rather than all – uses but only in one of four specific alternatives – “exclusion packages” that make limited “segmentation” possible according to types of use. The dispute between the parties revolved around the precision of the necessary segmentation. While the current segmentation mechanism essentially distinguishes between audio and audio-visual uses, EMI Israel (supported by Anana) also wished to distinguish between use in “old media” – like television and radio – and use in “new media” – like Internet and cellular phone services.

 

Here, the Court held that the exclusion mechanism approved by the Tribunal should be upheld, subject to the question of excluding “new media” – on conditions and restraints – being comprehensively reviewed during the cartel approval’s renewal proceeding.

 

The distinction between “new” media and “old” media raises fundamental and practical difficulties. The issue is a developing one and more experience and study are necessary to achieve a proper balance. The world of communications is characterized by constant, rapid technological development. In light of this reality the distinction between “old media” and “new media” is not a binary dichotomy, nor is it permanent or stable.

 

Reviewing the implications of excluding “new media” shows that there is not necessarily any justification for completely prohibiting excluding works from “new media” uses. Nevertheless, there are clear indicators that the same applies only to a limited exclusion mechanism, which focuses on certain types of “new media” uses and strives to minimize harm to users. Such exclusion mechanisms cannot be based merely on the technological distinction between “old media” and “new media” and allow a sweeping exclusion of all uses of the latter, as EMI Israel and Anana propose. In any event, examining the possibility of another “new media” exclusion category and fashioning the boundaries of that category should be done with care after studying interested parties’ positions about the issue and all the relevant facts. As mentioned, this is a matter that the Antitrust Tribunal ought to consider when the extension of the cartel’s approval comes before it. This position is also supported by a factor that concerns the temporary nature of the approval – for only five years. At the end of that period (two years of which have already elapsed), the Tribunal will reconsider approving the cartel, at which time it can also reconsider the extent of the exclusion mechanism’s “segmentation,” in light of the five years’ experience gained with a “narrow” exclusion mechanism. International experience could also enrich the set of information available to the Tribunal.

 

In conclusion, the Court dismissed the appeals, deciding not to intervene in the requirements attached to the cartel’s approval. Currently, the requirements for the permanent permit, including those challenged in the appeals, are all necessary to dispel the concerns naturally raised by a cartel concerning the collective management of copyright. These conditions are necessary to ensure that the cartel’s benefit to the public does indeed exceed the harm perceived from it. At the same time, the possibility remains that the proper balance between the rights of authors and the general public interest might in the future dictate a result different from that reached by the Tribunal in terms of integrating the distinction between different types of “new media” and “old media” in the rights exclusion mechanism.

Voting Justices: 
Primary Author
majority opinion
majority opinion
Author
concurrence
Full text of the opinion: 

In the Supreme Court

Sitting As a Court of Civil Appeals

CA 5365/11

CA 5489/11

 

Before:

His Honor, Justice E. Rubinstein

His Honor, Justice Z. Zylbertal

Her Honor, Justice D. Barak-Erez

 

 

 

 

The Appellant in CA 5365/11 and the Ninth Respondent in CA 5489/11:

 

ACUM – The Association of Composers

 

 

v.

 

 

The Appellant in CA 5489/11 and the Ninth Respondent in CA 5365/11:

 

EMI Music Publishing Ltd

 

 

v.

 

 

The Respondents:

1. The Director-General of the Antitrust Authority

 

2. The Association of Restaurants in Israel

 

3. Partner Communications Company

 

4. The Association of Function Hall & Garden Owners

 

5. Golden Channels

 

6. Matav Cable Communication Systems

 

7. Tevel Israel International Communications

 

8. Anana Ltd

 

9. EMI Music Publishing Ltd

       

 

Appeals against the judgment of the Antitrust Tribunal in Jerusalem on June 2, 2011 in AC 513/04 by Her Honor Judge N. Ben-Or

 

Date of Session:

Nisan 3, 5773 (March 14, 2013)

 

 

On behalf of the Appellant in CA 5365/11 and the Ninth Respondent in CA 5489/11:

Adv. Uri Sorek, Adv. Assaf Neuman

 

 

On behalf of the Appellant in CA 5489/11 and the Ninth Respondent in CA 5365/11:

Adv. Michelle Keynes

 

 

 

 

 

On behalf of the First Respondent:

Adv. Uri Schwartz, Adv. Yael Sheinin, Adv. Elad Mekdasi

 

 

On behalf of the Third Respondent:

Adv. Eyal Sagi, Adv. Amir Vang

 

 

On behalf of the Fourth to Seventh Respondents:

Exempt from appearance and representation

 

 

On behalf of the Eighth Respondent:

Adv. Ronit Amir-Yaniv, Adv. Ido Hitman

 

 

 

JUDGMENT

 

Justice D. Barak-Erez

 

1.         Which principles should guide the activity of ACUM with regard to the management of copyright in musical works in Israel? This question has been presented to us in full force against the background of the finding by the Director-General of the Antitrust Authority that ACUM’s activity creates a cartel, in order to review the conditions prescribed for the approval of the cartel in a way that will balance the rights of authors with the general interest of works being used in public.

 

Background and Previous Proceedings

 

2.         “The Association of Composers, Authors and Publishers,” known as ACUM, is a corporation that operates in order to manage the copyright of its members – lyricists, composers, arrangers, translators, and others – in Israel. ACUM members transfer their rights in their works to it, whilst ACUM acts on their behalf in order to license the use of those works in consideration for royalties that it collects for its members. Ordinarily, the licenses that ACUM grants are sweeping licenses ("blanket licenses") that permit licensees to make use of the whole repertoire of works managed by ACUM (mainly by making them accessible to the public in various ways). In addition, ACUM is bound by agreements with foreign copyright collective management entities (hereinafter "affiliates"), by virtue of which it administers in Israel the rights that are managed by the affiliates abroad.

 

3.         On April 30, 2004 the Director-General of the Antitrust Authority (hereinafter "the Director-General") published a ruling pursuant to section 34(a)(1) of the Antitrust Law, 5748-1988 (hereinafter "the Antitrust Law" or "the Law") according to which ACUM’s activity involves the creation of cartels (both between ACUM members and between ACUM and the affiliates) and a declaration under section 26(a) of the Law that ACUM’s activity as a cartel creates a monopoly in the market of managing copyright in musical works (or more precisely, with regard to management of  broadcasting, public performance, copying, recording, and synchronization rights in those works). The decision was made by the then Director-General, Mr. Dror Strom. However, it also reflects the position of the officers who have succeeded him, Ms. Ronit Kan and currently, Prof. David Gilo, as detailed below. Reference to the position of the Antitrust Authority will henceforth be made without specifically referring to those successors, using the general title – the Director-General.

 

4.         At that stage, ACUM instigated legal proceedings before the Antitrust Tribunal (hereinafter "the Tribunal") – an appeal against the determination of the Director-General that its activity involves cartels (AT 512/04) or, alternatively, an application for the approval of a cartel in accordance with sections 7 and 9 of the Antitrust Law, on the grounds that the cartel's approval is necessary in the public interest (AT 513/04). Both proceedings were heard together. Subsequently, to ACUM’s request, the appeal it filed was withdrawn, leaving only its application for approval of the cartel. The Director-General did not oppose the cartel's approval considering the public importance involved in ACUM's activity, as explained below, but the Tribunal was moved to set conditions to the approval so as to protect not only the public interest but also the individual rights of authors.

 

5.         To make its continued activity possible until completion of the litigation, ACUM filed a request for a provisional permit for operation of the cartel. The Tribunal granted the request and on December 28, 2004 it granted a provisional permit for ACUM’s activity subject to certain conditions (hereinafter "the Provisional Permit"). As detailed below, those conditions regulated, inter alia, situations in which authors could exclude rights in certain works from ACUM’s management so that those authors, rather than ACUM, would themselves deal with granting licenses to exercise those rights (hereinafter "the Exclusion Mechanism"). Over the years the Provisional Permit was extended from time to time based on of the Director-General’s recommendation, various amendments and modifications introduced to its terms. The last of those provisional permits (before the Tribunal's judgment), granted on February 24, 2009, introduced several significant changes, including making the Exclusion Mechanism "tougher," as detailed below.

 

6.         In addition to the position of the Director-General, oppositions to the cartel's approval were filed to the Tribunal by several other entities, including the Association of Function Hall & Garden Owners, Partner Communications Company (hereinafter "Partner"), the Association of Restaurants in Israel, and several cable companies – Golden Channels, Matav and Tevel (hereinafter "the cable companies") (whose activity has since been consolidated).

 

7.         At a later stage, an application to join the proceedings was made by two publishers that represent authors, the publishers themselves being members of ACUM – Anana Ltd (hereinafter "Anana") and EMI Music Publishing (Israel) Ltd (hereinafter "EMI Israel"). Those applications, like the time when they were made, were explained by the changes that had been made to the Provisional Permit’s conditions on February 24, 2009 as regards the Exclusion Mechanism. On December 1, 2009, the Tribunal partially allowed the applicants to join the proceedings in the sense that it permitted each of the two applicants to file a brief document with reference to the conditions that were acceptable to them and to make summations without extending the existing factual basis of the discussion.

 

8.         In its decision of January 25, 2009, the Tribunal stated that by consent of the parties it would rule based on the parties’ summations and supplemental oral arguments, without hearing evidence. The decision further stated that all of the parties agreed to ACUM's approval as a cartel, and took issue merely with regard to the terms of that approval. Consequently, the conditions of the Provisional Permit of February 24, 2009 (hereinafter "the Provisional Conditions") would serve as point of reference for the parties' positions. Accordingly, each of the parties filed its reservations regarding the Provisional Conditions in such manner that enabled the Tribunal to decide which of the conditions would be adopted as is within the permanent conditions, and which would be modified.

 

9.         On June 2, 2011 the Tribunal approved ACUM’s activity as a cartel, subject to a series of conditions (hereinafter "the Permanent Conditions"), which would remain in force for five years from the date of their approval. The Tribunal stated that the basic premise for reviewing the parties' arguments with regard to the conditions was that the anticipated benefit from the cartel substantially exceeded the damage likely to be caused by it, as required by section 10 of the Antitrust Law. In this context, it was explained that ACUM’s activity benefited not only its members – copyright owners (hereinafter "the authors") but also the general public who uses the works it manages (hereinafter "the users"): on the one hand, the sweeping licenses permit the users to make use of the whole repertoire of works that ACUM holds, thereby sparing the public from having to locate the owners of various rights and to negotiate individually with each of them; on the other hand, the sweeping licenses also benefit the authors since they streamline (and, to a great extent, enable) collection of royalties and enforcement of their rights.

 

10.       Since all parties agreed on principle to the approval of the cartel, the Tribunal hearing focused on the nature of the conditions to which the approval should be subject in order to dispel concern as to its abuse with regard to authors or users. The point of departure for the hearing was, as aforesaid, the Provisional Conditions, some of which were agreed upon by all parties, whilst others were in dispute. The disputes on which the appeal before us focuses pertain to the conditions prescribing the extent of the duty owed by ACUM to appoint external directors and the extent of ACUM members’ ability to exclude their rights from its management, as detailed below.

 

11.       Other controversies, including those concerning the definition of acts that would be construed as an abuse of ACUM's position and the way in which ACUM should act in taking legal action against users, were ultimately not considered by us since only few of the arguments concerning them were raised within the written appeal, while the arguments before us did not in fact concentrate on them.

 

12.       The appointment of external directors – the position of the Director-General was that a condition should be added to the Permanent Conditions to the effect that ACUM should appoint external directors in a proportion of no less than one third of the total members of its board and those directors would be responsible for the internal plan to enforce antitrust law that ACUM is obliged to implement (in accordance with section 10 of the Provisional Conditions). ACUM objected to this requirement, on the grounds, inter alia, that it is not a public company where the appointment of external directors is necessary in order to protect minority rights, and in any event ACUM's articles of association ensure due representation for each category of its members, and even guarantee numerical balance between the categories.

 

13.       The Tribunal accepted the Director-General's position on this matter, noting that a corporation for the collective management of copyright naturally raises concern as to the abuse of power against the authors themselves. Appointing a substantial number of external directors and entrusting them with the internal enforcement plan, it was held, would help deal with that concern, especially considering the fact that the corporation's members are dispersed and lack management expertise. The Tribunal also attributed importance to the fact that from ACUM's position in the proceedings it appeared that ACUM itself acknowledged the need to appoint external directors and was willing to do so even before the Tribunal’s judgment in order to reinforce the "managerial, professional, economic character of ACUM's board of directors".

 

14.       The extent of ACUM members’ ability to exclude rights from ACUM’s management – the Provisional Permit that ACUM had originally obtained (in 2004) included, in section 2.3 of the Provisional Conditions, a mechanism permitting a member to give notice "at any time, of his desire to assume all or any of the copyright with regard to any of his works, with regard to all users or specific categories of users," such that the works included in the notice would cease to be part of ACUM's repertoire, and copyright ownership would revert to the notifying member (hereinafter "the broad exclusion mechanism"). Underlying this mechanism was the concept that a “liberal” option to exclude any right in a work, even specifically, would intensify competition and increase the authors' power against ACUM. Later on, based on the experience accrued from the implementation of this arrangement, the Antitrust Authority reached the conclusion that the broad exclusion mechanism was not yielding the anticipated results with regard to enhancing market competition, and in contrast was aggravating the concern for abuse of the exclusion ability. For example, it turned out, according to the Director-General, that the broad exclusion mechanism that enabled interested authors, inter alia, to exclude from ACUM's management merely the use of "new media" (such as mobile phones and the Internet) and to leave it with the power to grant sweeping licenses for broadcasting rights only in "traditional media" (like television and radio), might undermine the justification for ACUM's existence as a corporation whose purpose is to reduce the substantial transaction costs involved in individually contracting with each of the authors. Accordingly, in 2009 the exclusion mechanism in section 2.3 of the Provisional Conditions was limited in two ways: first, the Provisional Conditions provided that an exclusion notice could only be given with the consent of all joint authors in a collective work whose exclusion was sought (for example, the lyricist, the composer of the music, and the arranger); second, it was provided that partial exclusion, namely exclusion of some of the uses of the work, could only be done in accordance with four "exclusion baskets" concerning different categories of use (hereinafter "the narrow exclusion mechanism"): presentation of the work in an audio format (for example radio broadcasting); its presentation in an audio-visual format (for example in a television program); copying the work; and recording it. The narrow exclusion mechanism therefore did not permit the author to exclude the work in various formats at his discretion, as specifically chosen by him (for example, excluding the work's use only with regard to mobile phones).

 

15.       The Director-General's position, joined by ACUM, Partner, and the cable companies on this issue, was that the narrow exclusion mechanism should be included in the Permanent Conditions. In contrast, EMI Israel and Anana believed that the broad exclusion mechanism should be adopted with regard to both aspects that distinguish it from the narrow exclusion mechanism and they challenged both the requirement for unanimous consent of all authors of a joint work and the restriction of exclusion according to "exclusion baskets."

 

16.       EMI Israel pleaded that the narrow exclusion mechanism improperly infringed on the constitutional property rights of the authors it represented, both because the predefined "exclusion baskets" limit the prerogative of the right’s owner to permit or prohibit certain uses of his work, and because the vast majority of musical works managed by ACUM are jointly owned by several authors. Under these circumstances, it was argued, making the exclusion conditional upon the consent of the other owners in fact negates the ability of a given author to permit or prohibit the use of his work. EMI Israel further asserted that adopting the narrow exclusion mechanism would compromise the competition among ACUM's members in the sense that only large corporations would be able to afford managing rights outside of ACUM, while individual authors would not be able to bear the financial and logistical burden it involves.

 

17.       Anana pleaded that adopting the narrow exclusion mechanism would lead to infringement on its reliance interest, given the fact that, relying upon the wording of the broad exclusion mechanism, it had already excluded works it managed from ACUM's repertoire with regard to the use of "new media" that it would now have to restore. In addition, it made a series of arguments concerning the restrictions set forth in the narrow exclusion mechanism – a lack of distinction between authors whose contribution to a joint work was significant and authors whose contribution was negligible (who nevertheless obtain a de facto veto right to exclude the work); impairing the ability of authors to maximize their profits; as well as infringing on the moral aspect of the author’s right (in the sense that an author who wishes to preclude the use of his work for religious, image-related, or moral reasons would find it difficult to do so under the narrow exclusion regime). Anana further contended that making the exclusion conditional upon the consent of all joint authors effectively makes it a dead letter since joint authors would frustrate any attempt to reach the necessary agreements.

 

18.       The Tribunal held that the approval should be made conditional upon a narrow exclusion mechanism and in that respect it adopted the position of ACUM and the Director-General (joined by Partner and the cable companies). The Tribunal explained that such exclusion mechanism provided an appropriate answer to the necessary balance between enhancing market competition and protecting the individual author's proprietary right. The Tribunal went on to state that a corporation for the collective management of copyright is in any event not intended to enable its members to realize their rights in full. On the contrary, such arrangement is based upon a waiver of complete and total freedom with regard to the works in consideration for reducing the cost of managing and enforcing copyrights. EMI Israel and Anana, the Tribunal held, were in fact seeking to enjoy the benefits of belonging to a cartel without bearing the costs. The Tribunal further explained that copyright grants an author a monopoly that may harm the general public, a concern which is intensified when authors are incorporated in a cartel. Therefore, there is no reason to avoid subjecting the cartel's approval to conditions that restrict the individual author's proprietary right in his work.

 

19.       As aforesaid, the Tribunal ultimately approved ACUM's activity as a cartel, subject to a series of conditions, including those mentioned above. The two appeals before us – the appeal by ACUM and the appeal by EMI Israel – were filed against its said judgment – as detailed below.

 

The Appeals

                       

20.       ACUM's appeal (CA 5365/11) concerns, as aforesaid, only one aspect of the Tribunal's judgment – the condition regarding the duty to appoint external directors. Its arguments in this respect are directed both against the basic obligation to appoint external directors and against their number.

 

21.       EMI Israel’s appeal (CA 5489/11) originally revolved around several of the other conditions to which the Tribunal made the permanent permit subject, but at the hearing before us EMI Israel concentrated its arguments on the details of the condition regulating the rights exclusion mechanism. It should be noted that Anana, which did not appeal the Tribunal’s judgment, appeared at the hearing as a respondent and in that capacity it presented arguments in support of EMI Israel's basic position.

 

22.       Generally, EMI Israel believes that the narrow exclusion mechanism impairs the protection of the authors' rights and reinforces ACUM's monopoly. More specifically, EMI Israel pleads that implementing the narrow exclusion mechanism would lead to infringement on authors' proprietary rights and would impair the possibility of creating a competitive copyright market. According to EMI Israel, the protection of copyright necessitates both recognition of the power of each author to implement the exclusion mechanism with regard to a work he helped create, even without obtaining the other authors’ consent, as well as authors’ right to exclude their works outside of the "exclusion baskets" that necessitate "crude" and imprecise choices that do not express important distinctions, primarily the distinction between "old" media (like radio and television) and "new" media (such as mobile phones).

 

23.       On the other hand, the Director-General believes that both appeals should be dismissed. He supports the Tribunal’s judgment and emphasizes that the conditions it approved are required in order to protect authors and users against the monopolistic power of ACUM and in order to protect the public interest involved in the use of the works.

 

Our Ruling

 

24.       Having reviewed the parties' arguments we have reached the conclusion that both appeals should be dismissed. We are convinced that, at the moment, the Permanent Conditions, including the conditions against which the appeals have been addressed, are all necessary in order to dispel the concerns raised inherently by a cartel related to the collective management of copyright. These conditions are necessary in order to ensure that the cartel’s benefit to the public will exceed the perceived damage from it. Indeed, as detailed below, reviewing the parties' arguments has made it clear that the distinction between "new" and "old" media within the exclusion mechanism is an evolving issue, the regulation of which should be monitored. However, as noted, the approval and its conditions have been set for a period of five years, of which two have already passed (as the conditions relating to the narrow exclusion mechanism were approved by the Tribunal in June 2011). At the end of that period, it will be possible to revisit the conditions and the way they are being implemented in order to make decisions towards the future. In that sense, our ruling reflects the facts presented in the proceedings, including the experience accumulated in the Israeli market and its existing uses of copyright.

 

The Normative Framework: Between Copyright Law and Antitrust Law

 

25.       Two normative frameworks frame our discussion: copyright law – as a framework that seeks, inter alia, to balance the author's rights in his work and the public interest to enjoy the fruit of the work for the benefit of all, in order to promote culture and knowledge; and antitrust law – which recognizes, inter alia, the possibility of approving a cartel, subject to conditions aimed at protecting the public from the abuse of monopolistic power. Copyright law is currently governed by a relatively new statute – the Copyright Law, 5768-2007 (hereinafter "the Copyright Law"), which replaced the relevant British Mandate statute, while the issues concerning the activity of cartels are regulated by the Antitrust Law.

 

26.       The activity of ACUM should be evaluated and examined according to these two perspectives. As mentioned in the introduction to our judgment, ACUM was established for the collective management of copyright in musical works. From the perspective of copyright, that management should be for the benefit of authors and in the name of protecting their rights, but without neglecting the public's ability to enjoy the works; from the perspective of antitrust law, that management, which constitutes a cartel and monopoly, should be for the benefit of the public and should ensure that public access to the works is not unreasonably denied. More specifically, in order to comply with the provisions of sections 9 and 10 of the Antitrust Law with regard to the approval of a cartel, it has to be ensured that the benefit to the public from such collective management substantially exceeds the damages that it might cause to all or some of the public.

 

27.       In many ways, the controversies that have arisen before us pinpoint once again the dilemmas that underlie copyright law. Recognition of copyright is aimed at encouraging the creation and dissemination of expression but also at balancing this benefit against the costs of limiting access to protected works (cf: Guy Pesach, The Theoretical Basis for the Recognition of Copyright, 31 Mishpatim 359, 410 (2001)). In the words of Vice President (retired) S. Levin:

 

            "In Anglo-American law the basic justification for these laws is perceived as the desire to provide an incentive to the author in order to achieve maximum access to the work by the public at large. This is the heritage of Israeli copyright law" (CA 326/00 Holon Municipality v. NMC Music Ltd, PD 47(3) 658, 671 (2003)).

 

Copyright Management Corporations: ACUM as a Test Case

 

28.       The case before us should be examined not only in light of the general principles of copyright law, on the one hand, and antitrust law, on the other hand, but also in light of the experience accumulated from copyright management through corporations established for such purpose. ACUM is a local corporation that was established back in pre-state Israel (see: Michael Birnhack, Colonial Copyright: Intellectual Property in Mandate Palestine 185-186 (2012)). Nevertheless, more broadly speaking it is merely one of many examples of corporations known as "copyright collection societies" or collective management organizations" (hereinafter "collective management corporations"). Such corporations operate in many countries and thereby provide an answer to a genuine need of authors who cannot routinely manage the grant of licenses to use their works, collect royalties, and enforce copyright law on those who infringe their rights. These corporations manage the rights of many authors collectively and thereby contribute to reducing the costs of negotiating with users and reducing enforcement costs. At the same time, the mechanism of collective management also benefits the public who uses the works because it allows bringing these works to the public on a regular basis. The collective management corporation typically offers users "a blanket license" in relation to the corporation's whole repertoire, thereby saving them the need to negotiate individually with each of the authors of works included in the repertoire. Such users are for the most part broadcasting stations owners, producers, hall owners, and others, through whom the works are made accessible to the public at large (see: Ariel Katz, Monopoly and Competition in the Collective Management of Public Performing Rights, 2 Din Ve'Devarim 551 (2006); Guy Pesach, Associations for the Collective Management of Rights – Another Look at Effectiveness and Fairness, 2 Din Ve'Devarim 621 (2006) (hereinafter "Pesach"); Walter Arthur Copinger, Copinger on Copyright, pp 1790-1794 (16th ed., 2011) (hereinafter "Copinger")).

 

29.       Alongside recognizing the fact that collective management corporations are a well-known and widespread phenomenon, the concern that accompanies their activity is also acknowledged. Collective management of copyright involves a significant challenge from the perspective of antitrust law, considering the fact that it has centralized characteristics and therefore raises the concerns involved in the creation of a cartel, including the concern of acquiring and abusing monopolistic market power, either by demanding high royalties or in other ways. Against those disadvantages, we usually weigh the necessity of such activity for effectively managing copyright and it is therefore common to regard collective management corporations as "natural monopolies" (and, to a certain extent, something of a necessary evil) and to allow them to operate subject to supervisory mechanisms and regulation (see: Ariel Katz, The Potential Demise of Another Natural Monopoly: Rethinking the Collective Administration of Performing Rights, 1 J. Comp. L. & Econ. 541, 544-548, 551-553 (2005) (hereinafter "Katz"); Copinger, pp 1798-1800). It is along these lines that the activity of the two major collective management corporations in the U.S. – the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc (BMI) – is regulated by special judicial orders ("consent decrees") as part of antitrust law. These orders, whose conditions are revised from time to time, place collective management corporations under a host of constraints in order to ensure their compliance with the competition criteria set forth in antitrust law (for a discussion of the supervisory mechanisms of collective management corporations in the U.S., see: Stanley M. Besen, An Economic Analysis of Copyright Collectives, 78 Va. L. Rev. 383 (1992).) Similarly, collective management corporations that operate in Europe are under supervision, subject to the antitrust law of the European Union (see: Lucie Gaibault & Stef Van Gompe, Collective Management in the European Union, in Collective Management of Copyright and Related Rights 135 (2nd edition, Daniel Gervias ed. 2010); Copinger, pp 1801-1808).

 

The Conditions in Dispute: Public Directors and the Exclusion Mechanism

 

30.       As already mentioned, the controversy before us does not concern the basic authority for ACUM’s operation as a cartel but rather the conditions that have been prescribed for its activity, or, more precisely, two of these conditions. In that sense, the discussion is based on the accepted notion, explained above, which views collective management corporations as something of a "natural monopoly," the existence of which is essential but their activity necessitates supervision and restraint in order to protect the public from the potential negative effects of substantial market power being accumulated by a single entity. The conditions for ACUM’s operation should therefore express the balance between the proprietary right of authors and the public interest in a market free of monopolistic influences, which acquires a unique aspect with regard to the market of creative works that naturally need to be accessible to the public (albeit for a fee).

 

31.       Ultimately, the hearing in this case revolved around two matters: the requirement to appoint directors, and the scope of the rights exclusion mechanism. Both of these need to be examined from the unique point of view that combines the purposes of copyright law with those of antitrust law, paying attention to the balance that both those sets of laws seek to achieve between individual proprietary rights and economic interests, on the one hand, and the public interest, on the other hand.

 

The Appointment of Public Directors: Between the Public Interest and the Interest of the Rights Owners

 

32.       The first condition that was prescribed for the approval of the cartel was to appoint public directors who will constitute a third of the total number of board members (which in practice means appointing four such directors). As aforesaid, ACUM has objected to this condition both in principle and in practice.

 

33.       In principle, ACUM asserted that it is not a public company and therefore there is no justification to enforce on it a supervisory mechanism appropriate to public companies. In this context, it was further asserted that its board of directors includes a delicate balance between all the sectors ACUM represents, which in itself ensures protection of the public interest (article 30.2 of ACUM's current articles of association provides that the company's board of directors shall consist of nine members that include two lyricists, a writer, two easy listening composers, one composer of concert music, one publisher, and two external directors). ACUM also noted that its corporate governance is dispersed and therefore does not raise an "agency problem" of the type with which the mechanism of external directors is designed to deal. ACUM also asserted that in any event it has in place adequate mechanisms to resolve potential disputes and conflicts of interest, including an internal arbitration mechanism as well as the Permanent Conditions that prohibit ACUM from discriminating between its members. According to ACUM, the appointment of public directors would "dilute" the authors' control over their property rights. In practice, ACUM further noted the costs involved in the appointment of the requisite number of public directors, which lead ACUM to be willing to appoint no more than two public directors.

 

34.       According to the Director-General, the need to appoint public directors stems from two factors: first, it will help ensure that ACUM serves the interests of all its member authors, taking into account the interests of individual authors rather than only the group interests of certain categories of authors. Second, the appointments will ensure that at least some of the directors have professional skills in the area of corporate management.

 

35.       With regard to the proportion of public directors on the board, the Director-General's position is that the requirement that no less than a third of the board would be comprised of external directors is justified, since the need for external directors is specifically greater under ACUM’s circumstances, where the corporate structure is dispersed and lacks a distinct controlling shareholder. In this respect the Director-General went on to explain that, in his opinion, ACUM's members need even more protection than "ordinary" shareholders, considering the fact that their livelihood depends on the corporation and they cannot sell their shares to "realize their profits."

 

36.       Having reviewed all this, we have reached the overall conclusion that ACUM's case in this respect should be dismissed.

 

37.       The appointment of public directors – that is, directors who are not employees or shareholders of the company – is one mechanism which allows supervising the behavior of the company, its managers, and its controlling shareholders and helps dispel the various agency problems involved in its activity (see: Irit Haviv-Segal, Company Law, 429, 438 (2007) (hereinafter "Haviv-Segal")). It can be said that the essential contribution of the public director lies in the "external dimension" that he brings to the board's work – as someone who reviews matters referred to the board from a broad, objective, and balanced perspective that also takes into account the public implications of its activity. The provisions of section 240(a1)(1) of the Companies Law, 5759-1999 (hereinafter "the Companies Law"), according to which a public director shall have professional skills or accounting and financial expertise, ensure that his appointment will add a professional dimension to the company that will contribute to its satisfactory management (see: Joseph Gross, The New Companies Law, 386-387 (Fourth Edition, 2007) (hereinafter "Gross")).

 

38.       The mechanism of appointing public directors is typically operated in the context of the activity of public companies – section 239 of the Companies Law requires a public company to appoint at least two public directors, whilst sections 114 and 115(a) of that Law require a public company's board of directors to appoint an audit committee from amongst its members, on which all the public directors shall serve. In addition, there are laws that impose a duty to appoint public directors to serve on the board of certain corporations whose shares are not held by the public, but whose activity has other public importance. Thus, for example, a mutual fund must appoint at least five directors to serve on its board and the proportion of public directors is the same as required of a public company (see: section 16(a) of the Joint Investments Trust Law, 5754-1994); while an insurance company, as defined in the Control of Financial Services (Insurance) Law, 5741-1981, must appoint public directors who will constitute a third of the total members of its board (see: section 2(1) of the Control of Financial Services (Insurance) (Board of Directors and Its Committees) Regulations, 5767-2007). In addition, the board of directors of a company that manages provident funds is required to appoint an investment committee for each fund it manages, the majority of committee members being qualified to serve as public directors (see: section 11(a) of the Control of Financial Services (Provident Funds) Law, 5765-2005).

 

39.       Having reviewed the case, we are satisfied that the condition concerning the appointment of public directors to serve on ACUM's board is consistent with the purpose underlying the approval of the cartel. Although ACUM is not a public company, it does essentially manage a resource that has clear public aspects. From the point of view of the authors, ACUM provides an essential service, without which it would be difficult for them to produce financial benefit from their works. In many ways, that is also the case from the point of view of the public at large: the protected works belong to the authors (and to whoever has acquired rights in them) but it is important that they are used in such a way that will also benefit the general public. Indeed, these public aspects of ACUM's activity underlie its approval as a cartel. At the same time, ACUM's monopolistic characteristics and its status as a cartel in the domain of musical copyright grant it a public dimension in and of themselves. The requirement to appoint external directors to provide a further layer of supervision over ACUM's activity is therefore called for and inherent to the rationale of the cartel's approval in order to protect both authors and users. It should be noted that making the approval of a cartel conditional upon the appointment of external directors, even when the corporation in question is not a public corporation in the ordinary sense, is not unprecedented. Thus, for example, the approval as a cartel of the recycling corporation that was established as a joint venture of manufacturers and importers of soft drinks in Israel was made subject to a similar condition (see section 4 of the Conditions for the Operation of the Recycling Corporation, as approved in AT (J'lem) 4445/01 Shufersal Ltd v. The Director-General of the Antitrust Authority (November 5, 2001)). The same applies to the approval as cartels of two other collective management corporations: the Israeli Federation of Independent Record Producers Ltd. (hereinafter "PIL") (see section 11.3 of the Conditions for the Operation of the Israeli Federation of Independent Record Producers Ltd., as approved in AT (J'lem) 3574/00 The Israeli Federation of Independent Record Producers Ltd. v. The Director-General of the Antitrust Authority (April 29, 2004)), and the Israeli Federation for Records and Cassettes (hereinafter "IFPI") (see: section 13.3 of the Conditions for the Operation of the Israeli Federation for Records and Cassettes Ltd, as approved in AC (J'lem) 705/07 The Israeli Federation for Records and Cassettes Ltd. v. The Director-General of the Antitrust Authority (February 3, 2011).

 

40.       With regard to authors' protection, there appears to be grounds to the argument concerning the importance of protecting the common interests of ACUM's members, regardless of the “category” to which they belong. Public directors can express "cross-category" interests that concern the benefit of authors generally in their relationship with ACUM, as opposed to the benefit of particular categories of authors. Moreover, without laying out hard and fast rules, it can be said that there is prima facie grounds to the assertion that the importance of the public director institution is in fact greater in a corporation characterized by dispersed ownership, in the absence of controlling shareholders, as is the case with ACUM. The agency problem in companies of this type is characterized by interest gaps between management and shareholders (as opposed to interest gaps between the controlling shareholder and minority shareholders, which are typical of companies that have controlling shareholders). Some view the appointment of public directors as a central mechanism for dealing with such gaps (see Haviv-Segal, pp 438-439). Clear expression of this distinction can be found in the First Schedule to the Companies Law, which contains suggested provisions for the corporate governance of public companies. Paragraph 1 of the Schedule prescribes the recommended percentage of independent directors, distinguishing between companies that do and do not have controlling shareholders. With regard to the latter, the Schedule provides that a majority of the directors should be independent, whilst in the former it provides that it is sufficient for a third of the directors to be independent.

 

41.       Furthermore, even assuming that the present structure of ACUM's board of directors faithfully represents its member authors, that structure does not prima facie guarantee that the protection of authors will also take into account the public interest more broadly. Indeed, a public director's fiduciary duty to the company is no different than that of an ordinary director, in the sense that he too must act for the benefit of the company (see: Gross, p. 406; cf: CA 610/94 Buchbinder v. The Official Receiver, para. 43 (May 11, 2003)). However, the public director will presumably represent a broader, more objective point of view, cognizant of the public implications of the corporation's activity.

 

42.       Moreover, as already explained, the appointment of public directors also has great importance as regards guaranteeing a minimum number of directors with professional managerial skills. In fact, ACUM itself acknowledged the professional advantages of appointing public directors even before the Tribunal's judgment was handed off and the revised version of ACUM's articles of association now require the appointment of two such directors. The fundamental aspect of this controversy has thus somewhat eroded and it has become a matter of extent and degree. We believe that the proportion of directors set forth in the Permanent Conditions – a third of the board members – is not excessive or unreasonable, considering ACUM’s character as a corporation whose ownership is dispersed and especially given the lingering concern of abusing monopolistic power.

 

43.       This discussion, which is "internal" and concentrates on corporate and antitrust law, can be supplemented by an "external" discussion, based on the significance that entities with public aspects have from the perspective of public law. According to this Court's case law, a private corporation whose activity has clear public aspects might be regarded as a "hybrid" entity, which places it under additional duties over and above those it is subject to in accordance with private law. Care must be taken not to overextend the category of hybrid entities in order to avoid eroding the significance of acknowledging a public status and blurring the lines between the public and private spheres. Moreover, under the current circumstances, there is no need to rule on whether ACUM should be regarded as a hybrid entity and a complete discussion of the criteria for the recognition of an entity as hybrid is unnecessary. However, it should be noted that ACUM's activity does entail many of the criteria mentioned in previous case law as characterizing a hybrid entity. Thus, for example, in HCJ 731/86 Micro Daf v. Israel Electric Corporation Ltd PD 41(2) 449 (1987) (hereinafter "Micro Daf"), where the question of hybrid entities was discussed for the first time – in the context of the Electric Corporation's activity – the factors taken into account were the monopolistic aspect of the corporation's activity, the nature of the resource it manages, and the fact that statutory powers have been entrusted to it. These factors were not considered an "exhaustive list" and since then entities which lacked those characteristics, at least to the same extent, have also been recognized as hybrid (see: CA 294/91 Jerusalem Community Hevra Kadisha Burial Society v. Kastenbaum PD 46(2) 464 (1992)). For further discussion, see: Daphne Barak-Erez, Administrative Law vol. 3 - Economic Administrative Law 463-492 (2013)). With regard to ACUM, the monopolistic aspect of its activity is beyond dispute. In Israel, although there are other collective management corporations, including the abovementioned PIL and IFPI, the product they supply – licenses for the broadcasting and public playing of sound recordings – does not substitute the product ACUM supplies. As the Director-General stated in his declaration, ACUM has no direct competitors in its relevant market and although formally nothing stops authors from managing their works themselves, few of them find such course of action practical or worthwhile, so that in fact the vast majority of works for which royalties are paid in Israel are under the management of ACUM. The same applies to the implications that the resource managed by ACUM has on the general public. Although the licenses that ACUM offers are acquired by a relatively small category of users, those licenses feature the right to play the works in public (or make them otherwise available to the public). Hence, they have a very significant effect on public access to the works. In other words, the public aspect of ACUM's activity also derives from the fact that the product it supplies is not in fact the musical works themselves but rather the collective management mechanism, which facilitates (and to a great extent enables) playing those works in public and therefore constitutes a product of clear public importance. Finally, although ACUM does not exercise statutory powers, its approval as a cartel entrusts it with power that derives from a statutory decision established in the Antitrust Law. These characteristics, even if they are insufficient to define ACUM as a hybrid entity in the ordinary sense of the term (and, as aforesaid, we have no need to rule on this issue), do support the basic justification for the Director-General's requirement under the current circumstances. Indeed, the appointment of public directors is ordinarily not imposed on a hybrid entity. However, the fact that ACUM constitutes an entity that owes important duties to the public can serve as a factor in the Director-General's decision to subject a cartel to conditions.

 

The Rights Exclusion Mechanism

 

44.       The other condition at the center of the litigation before us concerns, as aforesaid, the rights exclusion mechanism. Underlying the controversy were two questions: first, is the requirement for the consent of all joint authors of a work in order to exclude it from ACUM's repertoire justified or should that power be held by each of the authors individually? Second, how delicate and precise should the "segmentation" mechanism be with regard to the exclusion ability, as regards the distinction between different types of uses? We shall clarify those questions below.

 

The Rights Exclusion Mechanism: the Consent of All Authors or a Personal Right?

 

45.       The requirement that the exclusion of the work should be conditional upon the agreement of all its authors prima facie imposes a constraint on the right of each of the authors to control the rewards of his work. For that reason it has been criticized by EMI Israel and Anana. In contrast, the position of the Director-General and ACUM is that making the exclusion conditional upon the consent of the other authors is essential to protect both users and authors. The main argument regarding the protection of users relates to the concern that a "liberal" exclusion mechanism that would give an independent exclusion right to each author would impair ACUM's ability to offer sweeping licenses and thereby undermine the basic justification for its existence from the perspective of public interest. With regard to the protection of authors, it is asserted that the ability to exclude rights without the agreement of the other authors would encourage abuse of that power by "powerful" authors at the expense of the other authors of the work. ACUM explained that if each author of a joint work could exclude his rights from ACUM’s repertoire without the agreement of the other authors, it would grant veto power to that author to prevent works from being used by those to whom other authors wish to grant permission. ACUM also emphasized that where the rights in a work are vested in several authors veto power will forever be involved and the remaining question is only which veto power is least damaging: that of an author wishing to prevent the work's exclusion and leave it with ACUM's repertoire, or that of the excluding author to prevent any use of a work contrary to the position of the other authors. According to ACUM, the former is infinitely preferable. Having reviewed the case, we have reached the overall conclusion that we accept the position of the Director-General and ACUM in this respect.

 

46.       We accept as a starting point for our discussion the (reasonable) assumption that the rights in the type of works that ACUM manages are often shared by several authors. This can be illustrated by the typical case of a song. According to copyright law, every song is made up of several independent works, the rights in each of which are vested in different authors – the words of the song are a literary work owned by the lyricist; the music is a musical work owned by the composer. Moreover, there are also cases in which several composers or lyricists collaborate in the process of creating a work and in such cases the circle of rights owners expands even further. Considering this situation, it is easy to understand EMI Israel and Anana's grievances: making the exclusion power conditional upon the agreement of all authors undoubtedly burdens the individual author who seeks to exclude his work. However, this does not suffice. The question before us is whether this burden is justified, considering the purpose of the permanent permit – and our answer to that question is in the affirmative.

 

47.       In order to discuss this question it is necessary to return to the original reasons that led to managing rights through a corporation like ACUM. The most important tool available to ACUM for the collective management of rights is the grant of a sweeping license known as a "blanket license," the advantages of which in terms of transaction costs constitute the basic reason that legitimates ACUM's activity, despite difficulties in terms of antitrust law. Extending the ability to exclude rights from ACUM's management will naturally impair its ability to offer blanket licenses and thereby reduce the public benefit from its operation as a cartel. Over-extending that possibility will impair the public benefit from ACUM’s activity to such extent that it will no longer be the case necessarily that the benefit substantially exceeds the potential damages to the public interest from the cartel's operation. Having considered matters, we are satisfied that the grant of a personal "exclusion right" to each author would amount to such over-extension. Considering the typical ownership structure of musical works, an exclusion mechanism that is not conditional upon the agreement of the other authors effectively means granting authority to a single author, regardless of his part in the work, to exclude the work as a whole from ACUM's blanket license regime. Thus, a user who wishes to make lawful use of the work would have to negotiate with the excluding author in addition to acquiring the sweeping license from ACUM. Such a state of affairs would greatly limit the benefit of the cartel for users to the point of raising doubts as to whether the cartel is indeed "in the public interest," as required by section 9 of the Antitrust Law whenever a cartel is approved.

 

48.       Furthermore – accepting the position whereby the consent of all the authors of a joint work is unnecessary to exclude it would also raise difficulties for the relationship between the authors themselves as it may enable some of the authors – usually the more "powerful" ones – to exploit their exclusion power at the expense of the other authors. This may occur in situations where the user has already acquired most of the rights to use the work by means of a blanket license and merely needs to "supplement" the excluded right. This may give rise to phenomena of "extortion" and "free-riding," so that the remaining owner of the right will demand exceptionally high license fees for his share. We have already discussed the problem of such a state of affairs from the user's point of view. However, in truth, the problem also exists from the perspective of the excluding author making excess profit at the expense of the other authors. This difficulty is intensified in light of the fact that the ability to exclude rights from ACUM's management – given the complexity involved in negotiating with users individually – would essentially be of benefit to powerful rights owners, like large publishers, as opposed to individual, independent authors.

 

49.       It should be noted that we have so far used the expression "joint authorship" in order to describe all the cases in which the rights in a particular song are shared by several authors, although in fact it is prima facie possible to distinguish between two models of joint authorship. One model, of "joint authorship in indefinite shares," relates to two or more authors who collaborated in such way that it is impossible to distinguish the share of each of them in the finished work. In such a case, the work is considered a "joint work" according to section 1 of the Copyright Law. The other model, of "joint authorship in definite shares," involves a finished product, like a song, which is made up of several units, each of which was created by a different author and is a protected work in itself (for example the words of the song, which were written by one author, constitute a literary work; while the music, which was composed by another author, constitutes a musical work). The authors in such a case are not regarded as joint authors according to the Copyright Law, despite the fact that their relationship is substantively founded upon sharing. It is interesting to note that the American copyright law does distinguish between works where the shares of the various authors are inseparable and works where the shares of the various authors are interdependent. Nevertheless, both situations are considered "joint work" (see: Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 6.4 (2002) (hereinafter "Nimmer"). In any event, for the purpose of the present discussion concerning the ability of authors to exclude rights from ACUM’s management we need not consider this distinction. In both cases, splitting the licensing authority would place practical obstacles for using the joint work.

 

50.       In fact, the controversy before us derives not only from the different interests that the various parties represent but also from the fact that the Copyright Law does not expressly regulate the issues to which joint authorship gives rise (see: Michael Birnhack, A Cultural Reading: the Law and the Creative Field, Authoring Rights: Readings in Copyright Law 83, 105-106 (Michael Birnhack & Guy Pesach, Editors, 2009) (hereinafter "Birnhack"); Gilad Wexelman, Corporate Creation and Cooperative Creation, Authoring Rights: Readings in Copyright Law, 167, 177-178 (2009) (hereinafter "Wexelman"). Cf  Margaret Chon, New Wine Bursting from Old Bottles, Collaborative Internet Art, Joint Works and Entrepreneurship, 75 Or. L. Rev. 257 (1996)). In fact, the only arrangement the Law establishes with regard to joint works (as defined in section 1) relates to the period of protection of the work, which is measured according to the age of the surviving joint author, plus 70 years (section 39 of the Copyright Law).

 

51.       Additionally, reference to comparative law does not yield an unequivocal answer, considering the numerous potential approaches to this issue. Thus, for example, subject to certain restrictions, the law in the U.S. vests each of the joint authors with an independent right to permit use of their work even without the consent of the other authors, provided that they are paid their proportional share of the profit produced from the work (see: Nimmer § 6.10; Russ VerSteeg, Intent, Originality, Creativity and Joint Authorship 68 Brooklyn L. Rev. 123, 149-150 (2002)). In contrast, according to the approach prevailing in English law, the agreement of all authors is necessary in order to permit use (see: Copyright, Design and Patents Act 1988, section 173(2). See also: Copinger, p 334.) For the purpose of the ruling before us, we must be cognizant of the fact that the variety of existing approaches regarding copyright management of joint works attests not only to the great complexity of the matter but also to the fact that recognizing authors' proprietary rights does not inherently dictate a particular result.

 

52.       Since there is no specific regulation of the issue of jointly owned copyright within the Copyright Law, we may turn to legislation in other contexts concerning the joint ownership of property rights. Detailed regulation of this sort exists regarding the joint ownership of land in sections 27 to 36 of the Land Law, 5729-1969 (hereinafter "the Land Law"). According to section 9(e) of the Movable Property Law, 5731-1971 (hereinafter "the Movable Property Law"), arrangements concerning joint ownership of land essentially apply to movable property too, "save as may be otherwise provided in a co-ownership agreement." By virtue of section 13(a) of the Movable Property Law, such arrangements also apply to joint ownership of "rights." Nevertheless, reference to the Land Law with regard to the legal regime governing joint authorship should be made with care. As Prof. Michael Birnhack has noted:

 

            "Even if a model of joint authorship is prescribed, the socio-legal institution can be designed in various ways, ranging from management based on the decisions of all owners, through consent-based management, to each author having freedom of use. Selecting the appropriate point on this range should be influenced by an understanding of the law concerning the creative process and the reciprocal relationship between joint authors, between each of them and the work, or anywhere else where the work and its significance are formed" (Birnhack, p 106).

 

Similarly, Dr. Gilad Wexelman has also written:

 

            "A joint work raises problems of a different type, when compared with the joint ownership of tangible resources and applying the doctrines that exist regarding joint ownership of tangible resources to joint authorship is therefore improper and inappropriate. These doctrines do not provide the necessary solutions for joint authorship. The inference deriving from this is that it is appropriate to adopt a broader, different conception of the joint authorship process, rather than a conception influenced by the private property model" (Wexelman, p 178).

 

53.       One way or the other, before we seek to draw an analogy based on the arrangements relating to joint ownership of land, it is important to emphasize that we need not consider the legal regime that governs the relationship between joint authors as an independent issue. The question of joint authorship should be analyzed in the case before us merely in the particular context of a joint work's management by a collective management corporation like ACUM – which naturally goes beyond the default rules that apply to joint authorship. In any case, under the circumstances,  reference to the existing legal arrangements regarding the management of joint rights should serve merely as a framework and a starting point for the discussion.

 

54.       The arrangement prescribed in the Land Law concerning joint ownership is based on a concept of management by majority decisions, except for matters that go beyond ordinary management and use, in which unanimous agreement is required. In this respect, section 30 of the Land Law provides:

 

            (a)       The owner of a majority of the shares in any joint property may determine all matters relating to the ordinary management and use of the property.

 

            (b)       A joint owner who considers himself aggrieved by a determination under subsection (a) may apply to the Court for directions and the Court shall decide as seems just and expedient under the circumstances of the case.

 

            (c)       Any matter outside the scope of ordinary management and use requires the consent of all the joint owners.

 

55.       The joint owners of a land can agree upon a different method for the management of their rights but, as provided in section 29 of the Land Law, this is the arrangement that applies "unless otherwise provided in a joint ownership agreement" (subsection (c)) (see also: CA 810/82 Zol Bo Ltd. v. Zeida PD 37(4) 737 (1983); CA 663/87 Nathan v. Greener PD 45(1) 104 (1990)).

 

56.       At the same time, section 31(a)(1) of the Land Law provides that each joint owner may, without the consent of the other joint owners, make reasonable use of the joint property, provided that he does not prevent another joint owner from conducting such use. In other words, none of the joint owners of land may stop his fellow owners from using the property, so long as it applies to reasonable use.

 

57.       What can be learned from these arrangements for the case in question? Applying the arrangement prescribed in section 30, mutatis mutandis, leads to the conclusion that the requirement of a "unanimous" decision is appropriate insofar as management or use out of the ordinary is involved. It can therefore be argued that the management of copyright through an entity like ACUM is the ordinary, accepted method worldwide for the management of individual authors' rights, and departing from that arrangement therefore constitutes an "extraordinary" decision outside the ordinary realm of rights management. It should therefore be made unanimously, exactly as provided by the conditions that have been approved.

 

58.       Indeed, as stated above, the considerations relevant to joint ownership of land are not necessarily apt with respect to joint authorship. Thus, for example, the arrangement contained in the Land Law can be seen as "hostile" to a state of joint ownership, recognizing that joint ownership of land may burden its efficient management. Section 37 of the Land Law therefore provides that "each joint owner of immovable property is entitled at any time to demand the dissolution of the joint ownership." Yet, joint authorship is not a "pathological" condition. On the contrary, the process of authorship frequently involves collaboration – either direct or indirect – between several authors and dissolving the joint authorship should not be regarded as socially desirable. It is also likely to be more difficult to appraise the value of the work for the purchase of one of the joint authors' shares than severing the joint ownership of land. Consequently, as already mentioned, the analogy from the Land Law should be drawn with all due care. However, even taking into account the difference between joint ownership of land and joint authorship, it does appear that the requirement of unanimous consent for the exclusion mechanism is proper. Particularly because joint authorship is a "natural" condition and typical of many works, it is appropriate to be apprehensive about an exclusion mechanism that is based on each of the authors having an individual right of action, reinforcing the status of strong authors and burdening public access to the works, as explained below.

 

59.       Examining the rule with regard to the reasonable use of jointly owned land also leads, prima facie, to a similar conclusion. By drawing an analogy based on section 31(a)(1) of the Land Law it can be inferred that leaving the work under the management of ACUM constitutes reasonable use, considering the fact that it is the typical, widespread method for the collection of royalties. According to this logic, there appears no justification for adopting an exclusion mechanism that enables a joint author, who so desires, to prevent his fellow author from making reasonable use of the work, by excluding it from the collectively managed repertoire.

 

60.       It should be noted that this Court has previously considered the question of collaboration between joint authors, in CA 1567/99 Sivan v. Sheffer PD 57(2) 913 (2003) (hereinafter "Sivan"). Under the circumstances of that case, we recognized the right of each of the joint authors to terminate a contract that had been made in connection with the use of the rights when the contract was breached. Can it therefore be inferred that it would be proper in the current case to permit each of the joint authors to individually decide on exclusion? Despite the apparent similarity between the situations, in fact they are quite different and the conclusion should therefore be different too. In Sivan the issue was the rescission of a contract due to its breach and ipso facto it was possible to rely on the principle that whosever right has been infringed on is not required to forgive the infringement. This result is supported by considerations deriving from the law of obligations and in particular from the issue of multiple creditors. In contrast, in the case at hand, the question is posed for the purpose of delineating the ordinary rules of management, in the absence of any alleged breach. The relevant considerations are thus different, and so is the result that they dictate. Indeed, in Sivan the Court has made a clear distinction between these two questions. In fact, it noted that it was not ruling on the question of unilateral exercise of copyright in a joint work, which is more similar to the present case, and it went on to state that section 31(a)(1) of the Land Law prima facie makes it possible to adopt a flexible approach in such cases (Sivan p 942).

 

61.       Taking a broader view, it appears that the position presented to us by EMI Israel and Anana does not give proper weight to the effect of high transaction costs and free-riding in the management of multiple ownership resources, a phenomenon referred to as "the tragedy of the anti-commons" alongside the better-known term "the tragedy of the common property" or "the tragedy of the commons" (see generally: Michael Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 Harv L. Rev 621 (1998); James Buchanan & Yong J. Yoon, Symmetric Tragedies: Commons and Anticommons, 43 J. L. & Econ. 1 (2000)). Indeed, the narrow exclusion mechanism that the Tribunal approved appears more suitable for dealing with these phenomena. In connection with joint authorship, “the tragedy of the anti-commons” is manifested in sub-optimal use of the work as a result of uncoordinated behavior by its owners. In a legal regime where a license to use a particular work necessitates the agreement of all its owners, each of the owners might act to maximize his own profits by claiming a high fee for agreeing to its use, without considering the negative externality that such behavior for the other owners. Ultimately many users will find it difficult to meet the overall price required of them and the work will be used to a lesser extent, thus harming both the joint authors and the public, whose access to the work has been limited. It is common to believe that the solution to this problem is one of the major advantages embodied in the activity of collective management corporations (see: Katz, p 561; Francesco Parisi & Ben Depoorter, The Market for Intellectual Property: the Case of Complementary Oligopoly in The Economics of Copyright 162, 168-169, Wendy J. Gordon & Richard Watt eds. 2003 (hereinafter "Parisi & Depoorter")). Since dealing with the market failings associated with joint authorship is one advantage that justifies the monopolistic activity of corporations like ACUM, great importance is attributed to the design of an exclusion mechanism that will not frustrate that advantage by vesting veto power in each joint author who wishes to preclude use of a joint work.

 

62.       Ultimately, even under the narrow exclusion regime joint authors can agree in advance, contractually, on the scope of their understandings with regard to the work's exclusion from collective management. In fact, the narrow exclusion regime merely provides the default with regard to the inclusion of a joint work in the repertoire managed by ACUM. Insofar as the authors wish to agree on a different decision-making mechanism with respect to the management of joint works, they are at liberty to do so. Presumably such an arrangement, made before any of the parties is in a position for extortion or "free-riding," will help limit the coordination difficulties asserted by EMI Israel and Anana with regard to obtaining the consents necessary for the exclusion of a joint work. In view of the aforesaid, the default mechanism prescribed – according to which in the absence of an agreement between the joint authors to the contrary, the consent of all authors is necessary to exclude the work from management by ACUM – is appropriate.

 

The Rights Exclusion Mechanism: the Degree of Segmentation and the Distinction between New and Old Media

 

63.       As mentioned above, the arguments by EMI Israel and Anana also revolved around the fact that the "exclusion packages" defined in the Permanent Conditions do not distinguish between uses for the purpose of "old media" and uses for the purpose of "new media." In this respect Anana reiterated the case that it made before the Tribunal concerning the impairment of authors' ability to exhaust the full financial potential embodied in their works by excluding the works from management by ACUM solely with regard to "new media," and concerning the damage caused to Anana itself, having prima facie relied upon the previous exclusion mechanism in excluding rights that it will now have to restore to ACUM’s management.

 

64.       In contrast, the Director-General and ACUM argued before us that categorizing the necessary permissions according to types of media will allow ACUM members to abuse their power against users by forcing them to purchase specific uses (for example using the work on a cellular platform) in addition to the general fee for the license awarded through ACUM. In addition, ACUM mentioned that the adoption of a "liberal" exclusion regime enabling a precise "segmentation" of the excluded uses of any work would involve a significant logistic and financial burden on its ability to manage copyright of its repertoire.

 

65.       Deciding between the conflicting positions in this respect has proven to be more complex than the parties' arguments revealed. In truth, as we explain below, both positions are extreme and fail to fully address the difficulties they entail. Consequently, at present, we believe that the exclusion mechanism approved by the Tribunal should be upheld, provided that the question of excluding "new media" – subject to conditions and constraints – will be comprehensively reviewed towards the renewal of the cartel’s approval. We shall explain our said position.

 

66.       The present exclusion mechanism, as expressed in section 2.3 of the Permanent Conditions, enables an author to exclude his rights completely, in respect of all their potential uses. Moreover, the mechanism allows excluding the rights in respect of some of the uses, yet solely in accordance with one of four alternatives – "the exclusion packages" that stand at the center of the discussion. Because of their importance, we shall lay them out in full below:           

 

            "2.3.1  Excluding the rights for audiovisual broadcasting, including synchronization and recording for the purposes of such broadcasting, and including the provision of interactive and/or on demand services and any similar service, including by television, Internet, telephony or mobile phone.

 

            2.3.2   Excluding the broadcasting rights by means of audio, including recording for the purposes of such broadcasting, and including the provision of interactive and/or on demand services and any similar service, including by television, Internet, telephony or mobile phone.

 

2.3.3   Excluding the right of copying. For the avoidance of doubt, it is clarified that excluding the right of copying does not include the right of copying for broadcasting purposes.

 

2.3.4   Excluding the right of imprinting and/or recording. For the avoidance of doubt, it is clarified that excluding the right of imprinting and/or recording does not include the right of imprinting and/or recording for broadcasting purposes".

 

67.       The alternatives at the center of the present controversy are the first and the second (and to a limited extent also the fourth, insofar as the exercise of the right of copying is aimed at integrating a musical work in the soundtrack of an audiovisual work). These alternatives deal with uses that make the work available to the general public – its broadcasting on television or radio, making it accessible by means of "streaming" technology, which enables viewing or listening to content through the Internet without copying it to the user's computer, and the like. The main distinction that the exclusion mechanism makes in this context is between presenting the work by audiovisual means and presenting it by audio only. Thus, for example, given the present situation, an author can be represented by ACUM for the purpose of playing songs on the radio but not for using them in the format of television content.

 

68.       Presumably, maximum protection of the author's rights and his financial interests should have enabled every author to make specific exclusion decisions as much as possible – even with reference to a specific work in a particular use. Along these lines, ACUM's present exclusion mechanism permits, as aforesaid, limited "segmentation" by types of use. However, it has been argued before us that this does not suffice. The dispute revolved around the degree of precision required by segmentation. While the present segmentation mechanism essentially distinguishes between audio and audiovisual uses, EMI Israel (supported by Anana) also wishes to distinguish between "old media" – like television and radio – and "new media" – such as the Internet and cellular phone services. This position was presented to us as warranted by technological progress and the launching of new channels to use works, as well as the protection of the author's prerogative to manage the works he owns. However, as we explain below, this position raises fundamental and practical difficulties and thus cannot be adopted in the format in which it was presented.

 

69.       It should be stated that the question of excluding "new media" should first be considered in light of the two perspectives that fashion the discussion as a whole – that of copyright law and that of antitrust law. However, in this context, it is important to bear in mind another point of view which relates to the interface between law and technology and focuses on the adaptation of the legal framework to technological developments as well as its implications to future technological development, for better or worse (see and compare: Dotan Oliar, The Copyright-Innovation Trade-Off: Property Rules, Liability Rules and Intentional Infliction of Harm, 64 Stan. L. Rev. 951 (2012)).

 

70.       At the outset, we should consider the fact that the ability to exclude "new media" that EMI Israel seeks to adopt relies primarily on a technological distinction between "old" and "new" communication platforms. This distinction is replete with difficulties. The world of communications is characterized by constant, rapid technological development. More importantly, the technological aspect of this area is characterized by a phenomenon sometimes called "technology collapse": with the development of technology the walls that separate various media platforms gradually collapse and different types of technology "collapse" into each other, creating new interfaces. Thus, for example, a movie that is distributed through the Internet is also available for viewing on a smartphone, while traditional radio stations also broadcast songs and programs by streaming technology over the Internet. Given this technological reality, the distinction between "old media" and "new media" is not dichotomous, nor is it permanent or stable. In fact, EMI Israel and Anana did not even explain how these categories should be defined in their view, and settled for giving clear-cut examples (such as using a song as a ringtone), which were insufficient to delineate the boundaries of the distinction. Their case therefore left many practical questions unanswered. For example, no explanation was given as to whether the transmission of television broadcasts through the Internet to be viewed on smartphones would, according to the proposed approach, require a license for "new media" or "old media" or in any event how would this example be classified to one category or the other. The rapid, constant development of new communication technology guarantees that questions of this type will not remain theoretical. In this context, we should note the interesting case of the American company MobiTV, which at the beginning of the 21st century developed technology that enabled receiving satellite or cable broadcasts and viewing them on mobile phones. A dispute (which gave rise to several legal proceedings) arose between MobiTV and ASCAP, one of the two largest collective management corporations in the U.S. The dispute concerned the purchase of a blanket license necessary to legitimate the transmissions, as a result, among other things, of MobiTV's objection to being charged a "new media" rate even though the content it offered its customers was the same as broadcast by traditional means (although ultimately the judgment did not rule on this question directly. See: United States v. ASCAP, 712 F. Supp. 2d 206 (SDNY 2010)). With regard to the controversy relating to the classification of MobiTV's services as "new media," see also its preliminary response in the legal proceeding it initiated (Applicant Mobitv, Inc's Pre-Trial Memorandum at 25, United States v. ASCAP, 712 F. Supp. 2d 206 (SDNY 2010)).

 

71.       Insofar as the distinction between "new media" and "old media" is intended to extend to situations in which the content of radio and television programs is transmitted through the Internet to computer screens or by cellular phone services to mobile phone screens, adopting this distinction is likely to have a "chilling effect" on the use of the works in "old media" too. This is because users would presumably refrain in advance from integrating excluded works in productions intended for "old media," if only given their concern of future marketing constraints in "new media." Thus, for example, when a television program is produced, certain songs might not be included in it – as a cautionary measure – so as not to impair the possibility of broadcasting the program over the Internet too. Such indirect implications are not always clear "in real time" to an author who wishes to exclude his work, but recognizing them might also be weighed against the distinction proposed by EMI Israel and Anana.

 

72.       Another aspect to be considered is the likely implications of the exclusion mechanism on cyberspace users. In their arguments before us EMI Israel and Anana concentrated on institutional and corporate users, such as large communications companies, thereby presenting only a partial perspective on the matter in dispute. However, the exclusion mechanism they sought to adopt is not intended to apply only to such users. In fact, a sweeping exclusion of "new media" uses is likely to lead, without distinction, to difficulties for small website operators, including, for example, Internet radio operators, for which the ability to contract with collective management corporations constitutes a lawful, practical way for making regular use of a wide variety of works (and indeed some believe that the activity of collective management corporations is of especial importance for authorized use of musical works over the Internet. See, for example: Daniel Gervais, The Landscape of Collective Management Schemes 34 COLUM. J. L. & ARTS 591, 601 (2011) (hereinafter "Gervais, Landscape"). For a discussion of the importance of collectively managing works in a digital environment, see also: Recommendation 2005/737/EC on collective cross-border management of copyright and related right for legitimate online music services [2005] OJ L276/54 (hereinafter "the 2005 EC recommendation"); Proposal for a Directive of the European Parliament and of the Council on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online uses in the internal market (July 11, 2012) (hereinafter "the 2012 proposed directive"). See also Copinger, pp 1816-1826).

 

73.       The effects of the requirement to distinguish the use of new technologies on making works accessible to the public should also be considered in view of past experience in similar contexts. Thus, for example, in New York Times Co. v. Tasini 533 US 483 (2001) (hereinafter "Tasini"), the US Supreme Court considered whether a newspaper (the New York Times) could upload articles by freelance writes to a computer database. After lengthy litigation, the US Supreme Court accepted the position of the writers who argued that the license previously given to the newspaper was merely for the purpose of printed publication, as opposed to electronic media. Following the judgment the newspaper had to acquire permission from the writers to publish their articles in the database. Yet, since the newspaper believed that taking such action would not be financially viable, the result in practice was the removal of the articles from the database, thereby denying public access to them. We do not need to go into the merits of the judicial ruling in Tasini insofar as it relates to the understandings between the newspaper and its writers at the relevant times. In fact, the ruling in Tasini is not directly relevant to the technological aspects of the publication format and is instead focused on whether uploading the articles to a general computerized database (of numerous articles from various newspapers and journals) could be construed as a newspaper publication (indeed, in another case of similar circumstances the Supreme Court of Canada held that a newspaper could copy articles published in its printed edition to digital CDs containing articles of that newspaper alone. See: Robertson v. Thomson Corp. 2006 SCC 43 (2006)). Nevertheless, the results of this case embody an important lesson. Taking the broader view it teaches us that an arrangement that does not take into account the dynamic nature of uses might prove to burden and damage the public interest. Taking a forward-looking view, it appears that experience teaches us that it is difficult to base licenses for use on a distinction between technologies as this might subsequently frustrate broad access to cultural assets (see also: Francesco Parisi & Catherine Sevcenko, Lessons from the Anticommons: The Economics of New York Times Co. v. Tasini, 90 Ky. L. J. 295 (2001-2002)).

 

74.       What is the experience of other legal systems regarding the exclusion of "new media"? On the face of it, this is an important question, considering the fact that the challenges of technology in the area of copyright are by no means unique to Israel. However, for the reasons detailed below, the benefit of a comparative study has proven limited at the present stage of developments in the area.

 

75.       Truth be told, reference to legal developments in Europe and the U.S. shows that the exclusion of "new media" is often recognized as possible. Presumably, this reinforces the position of EMI Israel and Anana. However, studying matters in depth indicates that this experience has limited application to the case before us, because, among other reasons, the issue under consideration here is still in the early stages of formulation, trial, and controversy in other systems too.

 

76.       The two major collective management corporations in the U.S. – BMI and ASCAP – recently permitted two of their members (including global EMI) to exclude the rights owned by them from collective management for the purpose of certain aspects of the works' use in "new media" (as detailed on their websites – http://www.bmi.com and http://www.ascap.com). Yet, it is important to note that the ability to do so is embodied in the decisions of the corporations themselves rather than the result of external regulation. Moreover, the American rights management corporations operate in a different way than ACUM in the sense that they manage only one type of rights – public performance rights, which concern the permission to perform the work in public, to broadcast it, or to make it available to the public (but not the permission to copy the works or integrate them in audiovisual productions). That is, the starting point for the exclusion is a market of rights that is more "split" than the market in which users and authors operate in Israel. This background is likely to influence the factors relating to the desirable exclusion mechanism. Subsequently, it should be noted that reference to the exclusion of "new media" from administration by collective management corporations in the U.S. is not made in "all or nothing" terms, and in fact includes certain restrictions. For example, BMI's most up to date announcement on the matter (as published on its website) has clarified that the ability to exclude "new media" is aimed at cases where the work's use necessitates more than one type of license, while ASCAP has emphasized in addition that exclusion is possible with regard to making works accessible to the public exclusively through "new media," and does not apply to users that are broadcasters. Finally, and this is a major point, it cannot be ignored that some of the decisions on these matters are very recent (for example, BMI's announcement, of February 11, 2013, was published long after the litigation between the parties before the Tribunal had ended). It is therefore difficult to draw inferences from other legal systems' sustainable experience in this area. In fact, it can be said that at this stage the secondary effects of the "shock waves" that the new reforms have created for users have not yet been fully clarified, although the existence of such "shock waves" is already apparent. For example, we may point to a new development – lawsuits brought by users against management corporations to reduce the fee charged for a "blanket license," since "the blanket" no longer covers "new media" too (for instance, the claim brought against ASCAP by a large Internet radio company called Pandora at the end of 2012, which is still pending. For reports in the media about the case, see, for example: Don Jeffrey, Pandora Media Sues ASCAP Seeking Lower Songwriter Fees (November 6, 2012, available at http://www.bloomberg.com/news/2012-11-05/pandora-media-sues-ascap-seekin... Ed Christman, Pandora Files Motion to Keep Low Publishing Rates (June 20, 2013) available at http://www.billboard.com/ biz/articles/news/digital-and-mobile/1567890/pandora-files-motion-to-keep-low-publi-shing-rates).

 

77.       In principle, European law permits a rights owner to join a collective management corporation even when he seeks to reserve the use of the rights on the Internet or through CDs (see: Commission Decision of August 6, 2002 in case COMP/C2/37.219 Banghalter/Homem Christo (Daft Punk) v. SACEM. See also: section 5(3) of the 2005 Commission recommendation and the 2012 proposed directive, mentioned above). Nevertheless, it is important to bear in mind that this arrangement is also the result of factors irrelevant to Israeli reality, primarily the desire to reach a standard, coordinated pan-European regulation where there are multiple collective management corporations.

 

78.       Another factor that should be mentioned parenthetically involves the broader context in which the exclusion mechanism is embodied, with regard to the acceptance of the Conditions towards authors' freedom of action and freedom of choice. In this context, for example, it is significant that the Permanent Conditions ensure the right of each of ACUM’s members to contract with users individually and to offer them individual licenses to use certain works alongside the management of those works by ACUM, without excluding them from its repertoire (section 2.4 of the Permanent Conditions). This is similar to the U.S. practice and different from the norm in Europe, where most collective management corporations require exclusivity from their members in respect of all rights in their work (see: Gervais, Landscape, p 598). Indeed, it is possible that this course of action will not be frequently used and it is likely to be significant mainly from the perspective of users who do not require blanket licenses but rather individual licenses for certain works. However, from a more general perspective, this mechanism creates something of a balancing effect on ACUM's coercive power (see also and compare: Parisi & Deporter, pp 170-172).

 

79.       More generally, it can be said that EMI Israel and Anana’s requirement to allow a sweeping exclusion of "new media" uses was based on the assumption that they are entitled to enjoy the fruits of the cartel while realizing the financial potential embodied in the works they manage to its fullest. That is a mistake. Indeed, once ACUM's activity was recognized as a cartel, which raises concern of abuse of monopolistic power against the public, it can no longer be said that ACUM members are entitled to fully exercise their proprietary rights while enjoying the benefits of the cartel. Although the cartel has been approved, its approval was made subject to conditions. Those conditions bear a price that ACUM and its member authors must pay in order to balance the excess benefits such membership confers and to ensure that the public is protected against the concerns involved in the cartel's activity. In fact, what we have previously stated regarding the exclusion of a work without the consent of all joint authors is also appropriate with regard to the issue of segmentation – the adoption of a segmentation mechanism that enables the exclusion of works based on a technological distinction between new and old media, without reservation, might reduce the benefit that ACUM’s activity yields for the public to such extent that may undermine the justification of its approval as a cartel.

 

80.       We can therefore sum up and say that even if the ability to exclude "new media" uses should not be outright dismissed, EMI Israel and Anana have at present failed to lay a substantial foundation for the considerations and details of the exclusion mechanism they wish to adopt, regarding, inter alia, the ability of such a mechanism to provide an answer to the concerns indicated above. For that reason, we cannot accept their position. We should parenthetically emphasize that we have not ignored the possibility that the ability of an author to manage his works independently in the realm of "new media" might prove to be significant for some authors, including "small" or independent ones. The Internet is a flexible technological platform that is far more accessible to private agents than traditional media. It allows direct, convenient, and relatively easy communication between the rights owner and the individual user and thereby yields more direct patterns of consumption, sometimes dramatically reducing transaction costs and thus enabling "small" authors to profit from their works without the assistance of collective management mechanisms (see: Casey Rae-Hunter, Better Mousetraps: Licensing, Access and Innovation in the New Music Marketplace, Journal of Business & Technology Law 7(1) 35, 39 (2012)). However, this is merely one of many considerations and it has not been argued before us. Thus, for example, in contrast, the ability to exclude "new media" might actually be damaging to small authors in particular given the "dilution" it would generate in the value of blanket licenses. Consequently, as a general rule and as already mentioned, the question of "new media" should be revisited comprehensively as part of the cartel's re-approval at the end of the five-year period allotted to it. This is based on the understanding that one cannot rule out in advance the possibility that a delineated and limited format of "new media" exclusion (insofar as such a format is proposed in the future) might enable interested authors greater independence in the management of their works, without impairing the interests of the public at large, to an extent that will undermine the reasons underlying the cartel's approval.

 

81.       In other words, the precise definition of the "exclusion category" sought in respect of "new media" is likely to have a decisive impact on whether the overall exclusion mechanism yields a balanced result. An important, albeit not the only, aspect of this definition relates to the phenomena of "technology collapse" and "content leakage" that we have already considered. As previously mentioned, a sweeping, generalized definition of "new media" regarding the exclusion ability would yield uncertainty in respect of the scope of the excluded uses, might lead to many users being charged double fees (not only by ACUM but also by authors themselves), and would create a "chilling effect" from the users’ perspective, as they might refrain from including an excluded work in productions intended for "old media" based on their concern that new media marketing will be limited in future. In contrast, a narrower definition of excludable uses, particularly a definition that focuses on uses designated for new media (for example the production of a ringtone based on an existing tune) would help reduce the awkwardness that numerous exclusion possibilities yield, moderate the negative effects of "content leakage" between different technological platforms from the users’ perspective, and reduce the damage caused to their financial interests. In this context, we may add that part of the negative experience accumulated from the operation of the broad exclusion mechanism (in the scope of the Provisional Conditions for ACUM’s activity before their 2009 amendment) resulted from the fact that it granted complete flexibility with regard to the exclusion format and did not consider the significance of the term "new media" nor did it regulate the boundaries of the exclusion options related to it.

 

82.       To complete the picture it should be noted that the issue of excluding rights in "new media" from collective management as part of a cartel's approval in Israel has not arisen for the first time in ACUM’s case. As already mentioned, the Tribunal had authorized in the past the activity of two other collective management corporations that were also considered a cartel – PIL and IFPI. In both cases the conditions for the approval regulate the corporation members’ ability to exclude rights from collective management in accordance with a predetermined "exclusion basket," and include several categories concerning various Internet and mobile phone uses (see: section 3.3 of the conditions for the operation of IFPI and section 2.2 of the conditions for the operation of PIL). Recognition of this is prima facie relevant to the discussion. However, we should consider the fact that both those entities deal with the management of producers rights (the owners of sound recordings), an area which is not identical to the area in which ACUM operates (management of composers, songwriters, and arrangers rights). We expected the parties before us to refer to this comparison – one way or the other – but they failed to do so. Each of them clung to the position of "all or nothing" and sided, respectively, either with a complete exclusion of "new media" or an absolute negation of the ability to exclude new media uses. Thus, the option of excluding "new media" and the conditions for it were not fully addressed.

 

83.       What emerges from all the aforementioned is this: reviewing the implications of excluding "new media" shows that it is not necessarily justified to completely negate the option to exclude works for the purposes of "new media." Nevertheless, there are clear indications that this applies only to a limited exclusion mechanism, which concentrates on certain types of "new media" uses and strives to minimize the harm caused to users. Such an exclusion mechanism cannot be based merely on a technological distinction between "old media" and "new media" which allows a sweeping exclusion of all uses of the latter type – as proposed by EMI Israel and Anana. In any event, examining the possibility of another exclusion category concerning "new media" and fashioning the boundaries of that category should be done with care after studying the positions of all interested parties and all the relevant facts. As aforesaid, this matter is for the Tribunal to consider when the extension of the cartel's approval arises. Our position is also supported by the temporary nature of the approval – for only five years. At the end of that period (two years of which have already passed), the Tribunal will revisit the approval of the cartel, at which time it can also reconsider the scope of the exclusion mechanism's "segmentation," on the basis of five years’ experience with the operation of a "narrow" exclusion mechanism. That experience will join with lessons already learned from the operation of an unlimited exclusion mechanism (as part of the Provisional Conditions) and will help the Tribunal evaluate the possibility of adopting a balanced, intermediate alternative that will permit the exclusion of limited uses for the purposes of "new media," without undermining ACUM’s purpose as a collective management corporation. Presumably, by the time the Tribunal considers the extension of the cartel's approval, international experience on this issue will also be established which will enrich the set of facts before the Tribunal.

 

84.       To sum up, our opinion is that the conditions for the permanent approval should be left as they are for the time being, including the issue of excluding works for the purposes of "new media," based on the assumption that the Tribunal will be able to revisit this issue when the current conditions expire. It should be emphasized that this does not express any substantive holding regarding the result to which the Tribunal should reach on this or any other issue, beyond the general statement that the possibility of permitting a limited, well-defined exclusion of "new media" uses should not be ruled out. On the basis of the up-to-date facts laid out before it, the Tribunal will presumably reach a correct decision regarding the proper and most effective way to do so, insofar as it deems fit to follow such path.

 

Conclusion

 

85.       The appeals before us revolved around ACUM’s activity, yet they necessitated a broad discussion with regard to the collective management of copyright, considering not only the complexity of jointly owned works that derive from the talents of several authors but also the complexity of the variety of uses in a constantly changing technological world. At the present time we have reached the overall view that according to the facts before us we should not intervene in the conditions attached to the cartel's approval – from the perspective of balancing the proprietary rights of all authors against the public interest of accessibility to works that are part of the general cultural repertoire and it is therefore important to avoid placing substantial barriers to their use. We have not ruled out the possibility that in future the proper balance between authors’ rights and the public interest might dictate a different result with respect to integrating the distinction between different types of "new media" and "old media" in the rights exclusion mechanism. To a great extent, this issue represents the challenge of collectively managing rights in the modern era with its changing technological and business environment, where the practice of collective management is more essential than ever but also raises more serious difficulties and complexities than ever. The answer to these challenges (both with regard to "the segmentation mechanism" and with regard to other matters discussed before us) lies in a delicate, changing balance between the relevant interests. As we have mentioned, this balance might be affected by changes in technological platforms and business practices, by studying new information, and by lessons derived from ACUM’s activity in Israel and the operation of collective management corporations worldwide.

 

86.       In conclusion, I would suggest to my fellow justices to dismiss both appeals. ACUM would bear the Director-General's costs in the amount of NIS 20,000. EMI Israel would bear the Director-General's costs in the amount of NIS 40,000 and Partner's costs in the amount of NIS 10,000.

Justice Z. Zylbertal

 

I concur.

 

Justice E. Rubinstein

 

A.        I concur with the comprehensive opinion of my colleague, Justice Barak-Erez.

 

B.        Without wishing to gild the lily, I would like to add brief remarks. We are dealing with ACUM, a special entity established in 1936, during the British Mandate, to protect the rights of authors and artists in their intellectual property and it is as though it has always been a fundamental Israeli institution. Indeed, perhaps if we could start over today it would have been possible to think of other ways of organization for this purpose, not necessarily a private company, but such is the situation we are facing, in which we are called upon to have our say. However, even given the current situation, the challenges of dealing with the rights of those in need of ACUM’s services are ever-changing, especially with the dynamic technology, and it is not without reason that my colleague qualified the second part of her opinion with regard to the exclusion mechanism, by looking to the future.

 

C.        With regard to public directors, the Tribunal was indeed right in its decision. In my opinion, the more the better, provided that these directors do their work faithfully as agents of the public and it is to be hoped that this is the norm, in which case the financial expense involved is justified. Regarding their duties, see Prof. J. Gross, Directors and Officers in the Era of Corporate Governance (Second Edition, 2011) Chapter I, p 1 et seq and the references there; and see also Amendment No. 8 to the Companies Law (2008) with regard to the possibility of appointing independent directors; I. Bahat, Companies, 12th edition, 5771-2011, 386. My colleague described in detail the circumstances of this case but also added notes drawn from general public law, namely when a particular entity appears to be hybrid, and as derived from this analysis – the fact that ACUM is similar to that model in view of its duties to the public, without deeming it necessary to rule that it is indeed a hybrid entity. I myself would tend to say that we are indeed dealing with a hybrid entity, whether we take a relatively narrow view of it, through the eyes of its direct beneficiaries, or a broader view of the general population of users; see also my comments in ALAA 1106/04 Haifa Local Planning and Building Committee v. The Electric Corporation (2006), paras. C and D.

 

D.        The author A. Harel in his work Hybrid Entities – Private Entities in Administrative Law (5768) enumerates (pp 118-125) criteria for analyzing the hybrid nature of an entity, including a vital public function, providing a service to the public, not-for-profit activity, a monopoly, the concentration of great power that might be abused, and functional public funding. When dealing with a monopoly, as in the case before us, although ACUM is incorporated as a private company, it is painted in bold colors of hybridity, in particular considering the narrow choice given to individuals (ibid, 115). Indeed, in a rapidly changing world of varied technological possibilities for using works, the interest of authors and artists, as well as the general public, is one of fairness towards everyone; see also D. Barak-Erez, Citizen, Subject, Consumer and Government in a Changing Country (2012), 119, 121, who characterizes an entity as hybrid, when, inter alia, it serves as an actual substitute for government involvement. In the case before us, as implied above, the matter could have presumably been dealt with through a regulatory framework and this component justifies, in my view, a thorough discussion of the issue of public representatives. Indeed, before us is a private company, yet this is merely its framework and shell while its content is significantly broader; even the name attests to its belonging to the public realm – the Association of Composers, Authors and Publishers. ACUM's articles of association (as last approved on July 21, 2013 according to its website) include external directors and the controversy consists merely of their number. According to its website, ACUM presently has approximately 7,500 author members; don’t they deserve extensive protection against a potential clash of interests between various groups within the company?

 

E.         Now a few words on the role of external directors, which is the current legal term, or public directors; as we know, the Companies Law, 5759-1999 refers to an external director (article five, sections 239 et seq) but the literature uses this expression interchangeably with public director, as it was termed in the Companies Ordinance (section 96(b)(c)). Indeed, according to the learned author J. Gross (Directors and Officers in the Era of Corporate Governance (2011) 92), the external director "does not represent the regulator or the general public. He owes a fiduciary duty to the company and to it alone and he only has to bear the interest of the company in mind"; and see also Dr. O. Haviv-Segal, Company Law (2007) 438. However, even if this narrow definition is correct in principle, without going into a comprehensive discussion, the current case involves a special instance of a "private-non-private" company, which does not strive to maximize its profits. In this context, see by analogy the statement by Haviv-Segal, ibid, about the external director’s function in restraining "opportunistic behavior" by a controlling shareholder or management: "in this respect the external director can be regarded as the representative of the public shareholders on the company's board of directors." We should also mention (Gross, p 93) that the external director "brings with him knowledge, experience, and objective judgment and might balance the various views within the company, especially when the board of directors is made up of several cohesive groups"; he is "removed from the shareholders' personal interests… can express objective opinions in cases where differences have arisen between various groups in the company and balance the different interests in the company…". By analogy, this statement is presumably consistent with the present case, despite ACUM's "private" corporate framework. Therefore, the external directors have a particularly important role from the broad, overall perspective of the interests of ACUM's members generally as well as the public at large; see also Hadara Bar-Mor, Corporate Law III (5769-2009) 307-309. Thus, we should not intervene in the ruling of the Tribunal on this matter.

 

Regarding my colleague's remarks concerning the rights exclusion mechanism and old and new media, what can be inferred from them is a lesson in complexity and arbiter humility. We are dealing with money and maximizing authors’ benefit but the question is whether the baby won’t be thrown out with the bathwater. My colleague pointed out the difficulties and her conclusion is that more experience and study is necessary in order to reach a proper balance (see para. 82). My sense is that this appears difficult and challenging; the technological means are constantly changing before our very eyes, along with their implications to the issue before us, and hence solutions are likely to be short-lived. The regulator, the Director-General of the Antitrust Authority, has an extremely important role in this respect since the Tribunal has only what its eyes can see, while the Director-General is equipped with available monitoring tools. Finally, this summer I have had the opportunity to serve as a "secondary partner" in three intellectual property decisions. Their common denominator is the complexity caused by time, complexity of different types, technological and economic. Studying the fascinating collection CopyrightReadings in Copyright Law (M. Birnhack & G. Pesach, 5769-2009) reveals a variety of insights that will concern us a great deal in the future. Apart from the need to plough through the specific material, the constant changes, perhaps more than in any other area of civil law, also place the courts, and equally so – the regulatory entities, under weighty responsibility. The tension between property and competition, and between the long, short and medium term, poses real challenges. The professionalism of the regulators – be it the Patent Office or, as aforesaid, the Director-General of the Antitrust Authority – helps courts in making their rulings but does not relieve them of their responsibility. In these matters comparative law may also be useful. The bottom line is that this judgment ought to be a starting point for lessons to be learned; over, but not done.

 

Held as per the opinion of Justice D. Barak-Erez

 

September 3, 2013 (Elul 28, 5773)

Full opinion: 

Gottesman v. Vardi

Case/docket number: 
CA 1697/11
Date Decided: 
Wednesday, January 23, 2013
Decision Type: 
Appellate
Abstract: 

[This abstract is not part of the Court's opinion and is provided for the reader's convenience. It has been translated from a Hebrew version prepared by Nevo Press Ltd. and is used with its kind permission.]

 

The Second Appellant (hereinafter referred to as "Gottesman") is an architect who designed a unique dwelling (hereinafter referred to as "the house") for the Respondent (hereinafter referred to as "Vardi"). Gottesman asked to photograph the house in order to showcase it on his firm's website. Vardi refused. In addition, Gottesman published computer simulations of Vardi's house on the website without giving details that would identify the house owner. Vardi brought an action against Gottesman, pleading infringement of privacy. In his claim, Vardi referred to section 2(11) of the Law concerning "publishing any matter relating to a person's intimate life, including his sexual history, state of health or conduct in the private domain." The District Court allowed the claim and held that Vardi's privacy had been infringed as a result of the exposure of his house on the Internet and that Vardi's right of privacy superseded Gottesman's economic interest. A permanent injunction was therefore ordered restraining Gottesman and his firm from making any use of photographs or simulations showing Vardi's house. Hence the appeal.

 

The Supreme Court (per Justice U. Vogelman; Justice S. Joubran and Justice N. Sohlberg concurring) allowed the appeal partially on the following grounds –

 

The right of privacy is one of the most important human rights in Israel and since the Basic Law: Human Dignity and Liberty was passed, it is even vested with constitutional status. The prohibition of infringing privacy is currently embodied in the Protection of Privacy Law. Section 1 of the Law provides that "no person shall infringe the privacy of another without his consent." As has already been held, the definition of "privacy" is not simple. Section 2 of the Protection of Privacy Law prescribes what an infringement of privacy is. In his claim, Vardi referred to section 2(11) of the Law, which concerns "publishing any matter relating to a person's intimate life, including his sexual history, state of health or conduct in the private domain." The most relevant alternative herein is "publishing any matter relating to a person's intimate life" and also, to some extent, "publishing any matter relating to [a person's] conduct in the private domain."

 

The answer to the question of what is regarded as a matter relating to "a person's intimate life" is not simple, and the question is whether that expression also embraces publications relating to a person's home. A person's home is not one of those concrete matters that are mentioned in section 2(11) of the Protection of Privacy Law - "a person's state of health" and "his conduct in the private domain." Nevertheless, according to the Court, information concerning a person's home might, in certain situations, fall within the scope of "a person's intimate life." For the publication of information concerning a person's home to be construed as an infringement of privacy as defined in the Law, we must determine whether it is such as to cross that threshold of intimacy, after which it can be said that "a person's intimate life" has been infringed.

 

In the instant case, reviewing all the circumstances leads to the conclusion that publishing the simulations of the interior of Vardi's house does indeed involve infringement of "a person's intimate life." The interior of a person's home is one's castle, and one is entitled to be let alone in it. Inside a person's home one exercises one's right to privacy in the clearest form. A person therefore has a reasonable expectation that pictures of the interior of one's home will not be published at large without one's consent. In the instant case, studying the simulations of Vardi's home as published on the website shows that, despite the fact that they are computer simulations, the impression gained from them is very tangible. Although the simulations do show the house in a "sterile" condition, namely without Vardi's personal belongings appearing in them, the items of furniture in them are very similar indeed to the existing furniture; they expose "personal" spaces in the house, like the bedroom and bathroom; and they are such as to attest to Vardi's lifestyle and also demonstrate, in the words of the section, "his conduct in the private domain."

 

The simulations of the exterior of the home should be treated differently. Ordinarily, the front of a house is exposed to passersby. It is in the "public eye." Consequently, insofar as the front of a house is visible from the street, it is clear that showing its picture or simulation will not give rise to any infringement of privacy. The right of privacy does not extend to information that is already in the possession of the public. Therefore, when certain information is in any event in the public domain, the view that the right of privacy is not infringed is appropriate. Even if Vardi is correct in his plea that the simulations of the home's exterior show his house from angles that necessitate access to the grounds of the house, a photograph from "the public domain" is not involved. There is no question that portraying the front of a person's house in public does not give rise to an infringement similar in extent to that caused by displaying the interior of one's house. The front of a person's house does not have the same "intimacy" as characteristic of the intimate rooms of one's home. In that sense, the simulations of the home's exterior are not "information" that is sufficiently close to the nucleus of the interest protected by section 2(11) of the Law. In other words, publishing simulations of the home's exterior does not give rise to an infringement that might infringe "a person's intimate life."

 

The wording of section 2(11) of the Protection of Privacy Law shows us that in order for the publication of a matter to constitute an infringement of privacy, it has to be established that the information published makes it possible to identify a person. That is to say that insofar as a reasonable person would be unable to connect the information published with a specific person there will not be an infringement of privacy. In that connection it was explained that it is not necessary for a person's name or picture to appear alongside the publication; it suffices for it to be possible by some means to connect the information with a specific person by "reverse engineering." Clearly, such "reverse engineering" is mainly likely to occur when the information published includes clear and unique characteristics.

 

In the case herein the Court reached the conclusion that although Vardi's name is not mentioned in the publication, the simulations' publication is likely to make it possible to identify him by other means in view of those unique characteristics relating to Vardi's house that distinguish it from other houses.

 

Even if the information published does indeed relate to "a person's intimate life." the Protection of Privacy Law requires it to be established that the infringement was not of "no real significance." In this connection, it has to be shown that the infringement of privacy was not committed as a "trivial act." In the instant case, the publication of the simulations is not "a trivial act." The simulations tangibly show the interior of Vardi's home and in that way enable the public at large to gain an impression of the home owner's lifestyle and manners. There is no doubt that when any clear picture of a person's home is made visible, and especially the intimate rooms, the publication is likely to give him an intense feeling of discomfort. Such being the case, bringing the lawsuit herein seems, on the face of it, to be in good faith, and it is certainly not a frivolous or vexatious claim. However, that is not the case with regard to the publication of simulations of the front of the house. Even if publication of simulations of the home's exterior might cause some infringement, it is minor and trivial, in respect of which there is no cause for the grant of relief.

 

Another element necessary for the award of relief on a cause of infringement of privacy is negation of the existence of the circumstances of one of the defenses prescribed in section 18 of the Law. Nevertheless, a party seeking shelter behind those defenses must show that he acted in good faith. Good faith is "like a gate and only if it is traversed will the circumstances in which the specific infringement of privacy was committed be examined." It is therefore necessary to prove that the person committing the infringement acted in the belief that the infringement was in the scope of the defenses prescribed by the Law. In order to prove good faith, the defendant or accused can have recourse to the presumption mentioned in section 20(a) of the Protection of Privacy Law – that the infringement of privacy was committed under any of the circumstances referred to in section 18(2) and that it did not exceed the limits reasonable under those circumstances.  Against that presumption that is available to the defendant or accused, the plaintiff or prosecutor can have recourse to the presumption mentioned in section 20(b) of the Law and establish that the publisher knew that he had exceeded the reasonable.

 

In this case, Gottesman relied on two defenses – those prescribed in sections 18(2)(a) and (c). As regards the defense prescribed in section 18(2)(a) of the Law, since Vardi made it perfectly clear to Gottesman that he strongly objected to publication without the latter signing the undertaking, it is difficult to conceive that the infringement was committed without Gottesman knowing "that an infringement of privacy might occur," as required by the section. It is therefore clear that the plea in respect of the defense under that section cannot be upheld. As regards the defence under section 18(2)(c), relating to an infringement committed in defense of "a legitimate personal interest" of the infringer, the section necessitates a balance be struck between the right of privacy and other conflicting values, and the expression "legitimate personal interest" should be construed "by striking a balance between the desire to protect the interest of the injured party and safeguard his privacy, on the one hand, and the contrary interests of the infringer, on the other hand."  In the instant case, on the artistic-creative level, one can understand Gottesman's desire to expose Vardi's house to the public, a work that is unquestionably of unique quality and size. In addition, there is nothing wrong with Gottesman's desire to publicize his work for economic reasons as well, because displaying the work might certainly enable its author to establish goodwill and attract clients.  In the overall balance between the competing rights and interests, the Court reached the conclusion that it is inappropriate to apply the defense of section 18(2)(c) to publishing simulations of the interior of Vardi's house.

 

The Protection of Privacy Law provides that an infringement of privacy will not occur where there is consent to the infringement (section 1). To be precise, consent is not cause that justifies an infringement of the rights of privacy. Consent itself is an inherent part of the right, so that if it is given, a right of action does not arise. Consent can be express or implied, but it is best to exercise extreme care in determining that consent to publication has been obtained. Along those lines it was held that from the fact that an individual agreed to disclose certain particulars to one person or several persons, it cannot be inferred that he is precluded from objecting to the publication of those particulars to the public at large. In the instant case, it appears that such consent was not consummated. No substance was found in the plea that Vardi's agreeing to the publication of other pictures of the house suggests that implied consent was also given to Gottesman. Actually, the fact that other publications were specifically made subject to signing an undertaking, which was ultimately not signed in the instant case, demonstrates the absence of consent herein.

 

From the aforegoing it emerges that publishing the simulations showing the front of the house does not give rise to an infringement of privacy and in any event not an infringement of real significance, as defined in section 6 of the Protection of Privacy Law. On the other hand, the simulations showing the interior of the house do infringe "his intimate life" and despite their anonymous publication, it is possible to connect them with the Respondent. It was also found that it is not an infringement "of no real significance," and the defenses prescribed in section 18(2) of the Protection of Privacy Law are inapplicable. Consequently, because the infringement of the Respondent's privacy was made without his consent to the publication, there is no alternative but to find that publication of the simulations of the interior of his home on the website cannot be permitted. The appeal is therefore allowed in part, to the effect that the injunction remains in force with respect to publishing simulations of the home's interior on the website. In other words, there is no bar to publishing simulations of the home's exterior on the site. In view of that result, the liability for costs at first instance was set aside and no order for costs was made in the instant proceedings.

 

Justice N. Sohlberg concurred in the aforegoing and added from Jewish law with regard to the distinction between the front of the house and its interior.

Voting Justices: 
Primary Author
majority opinion
majority opinion
Author
concurrence
Full text of the opinion: 

In the Supreme Court

Sitting As a Court of Civil Appeals

CA 1697/11

 

Before:

His Honor, Justice S. Joubran

His Honor, Justice U. Vogelman

His Honor, Justice N. Sohlberg

 

 

 

 

The Appellants:

 

1.  A. Gottesman Architecture Ltd

2.  Asaf Gottesman

 

 

v.

 

 

The Respondent:

Arie Vardi

     

 

Appeal against the judgment of the District Court of Tel Aviv-Jaffa (Her Honor Judge A. Baron) of January 17, 2011 in CF 1222/09

 

On behalf of the Appellants:

Adv. Hillel Ish-Shalom, Adv. Roy Kubovsky, Adv. Guy Lotem

 

 

On behalf of the Respondent:

Adv. Eran Presenti

JUDGMENT

Justice U. Vogelman

 

            An architect designed a unique house for a client and asked to photograph it in order to show it on his firm's website. The client refused. The architect published computer simulations of the client's house on the website, without giving details identifying the owner of the house. Does this case give rise to an infringement of privacy? That is the question that faces us.

 

The Main Facts and Proceedings

 

1.         The Second Appellant (hereinafter referred to as "Gottesman") is an architect who heads a firm of architects. At the beginning of the year 2000 the Respondent (hereinafter referred to as "Vardi") commissioned Gottesman's services for the latter to design his residence for him. The parties do not dispute the fact that the project was one of a kind and a house was ultimately built that was exceptional as regards its size, the type of materials used in its construction and its unique design. Despite the extensive scale of the project, no written agreement was ever made between Vardi and Gottesman, either with regard to the commissioning of the architectural work or concerning the possibility of documenting and photographing the building for Gottesman's purposes.

 

2.         Even before the construction was completed, Gottesman asked Vardi to photograph his house, as was his firm's practice. Vardi, for his part, made the photographs conditional upon Gottesman and the intended photographer signing a letter of commitment in respect of the photographs' use. According to the wording proposed by Vardi, Gottesman and the photographer would be obliged to apply to him in writing whenever they wanted to make use of the pictures and obtain his express consent. The two were also required to undertake to pay Vardi agreed damages without proof of loss for any breach of that undertaking: Gottesman - $500,000 and the photographer - $50,000 (hereinafter referred to as "the letter of commitment"). Gottesman asserted that the letter of commitment that Vardi proposed was a new requirement that was contrary to a previous understanding between the parties in respect of photographing the house. Vardi, on the other hand, expressed anger at the fact that Gottesman categorically denied the importance of protecting his privacy. No agreement was ultimately made between the parties and in the absence of any understanding, professional photographs of Vardi's house were not taken.

 

To complete the picture, it should be noted that at the relevant time photographs of Vardi's house were published in two places: firstly, pictures of the house exterior were published in a book that was printed in hundreds of copies, published by Apex Ltd (hereinafter referred to as "Apex"), which had installed windows and shutters in Vardi's house; secondly, pictures were published on the website of the carpenter who had done carpentry work in Vardi's house. Both Apex and the carpenter had signed a letter of commitment in favour of Vardi with regard to using pictures of his house in terms similar to those that Gottesman had been asked to sign.

 

3.         Since Gottesman had not been permitted to photograph Vardi's house he commissioned the services of a studio that specialised in the creation of computer simulations in order to create an artificial simulation of the architectural work in Vardi's house. Those simulations, which look very similar to actual photographs, were published on the website of Gottesman's firm (hereinafter referred to as "the website"). There were no details identifying the owner of the house or its address alongside the pictures. After Vardi discovered that the computer simulations had found their way onto the website, he filed a lawsuit in the Tel Aviv Magistrates Court against Gottesman and his firm, in which he applied for a permanent injunction restraining them from making any use of photographs or simulations showing his house. At the same time as bringing the action, a motion was also filed for the provisional relief of removing the simulations from the website. An order prohibiting publication of the existence of the legal proceedings, including any identifying detail in respect of any of the parties to the action, was also sought. On November 11, 2008, during a Magistrates Court hearing of the motion for provisional relief, the parties reached an understanding with regard to publicising Vardi's house on the website until the motion for provisional relief is heard on its merit. In that understanding it was provided that the simulations would be removed from the website and other pictures of the house, which had already been published in the Apex book with Vardi's consent, would be published instead (hereinafter referred to as "the procedural arrangement"). On September 24, 2008 the Court (Her Honour Judge Z. Agi) allowed the application for the award of an interim gag order. Nevertheless, the Court ordered the trial to be remitted to the Tel Aviv District Court because it was found that the relief sought in the action was within its residual jurisdiction since it was an application for a permanent mandatory order incapable of financial quantification. Both the procedural arrangement and the gag order remained in force during the trial of the action.

 

The Judgement of the Lower Court

 

4.         The District Court (Her Honour Judge A. Baron), to which the trial was remitted, allowed Vardi's claim and held that his privacy had been infringed as a result of the exposure of his home on the Internet. It was held that although the simulations did not include personal belongings or intimate items, they did make it possible to obtain an impression of the lifestyle in the house, the habits of its occupants and their financial position. On the other hand, the Court dismissed the plea that removing the simulations would infringe the freedom of occupation and intellectual property rights of Gottesman and his firm. Consequently, against the infringement of Vardi's privacy, the Court weighed the harm to the economic interest that Gottesman and his firm would sustain, if they could not use the simulations in order to attract potential clients. In balancing them, the Court held that Vardi's right of privacy outweighed Gottesman's economic interest. Alongside that, the Court held that Vardi had not expressly or impliedly agreed to publication of the pictures or simulations. It was found that even if there had been talk between the parties about publishing pictures of the house in some or other framework, no express agreement had been reached to take and publish photographs. It was also held that there was no implied agreement to publishing the pictures. Amongst other things, the Court declined to treat the working relationship between Gottesman and Vardi or the fact that Gottesman had designed and planned the house as implied consent to the use of the simulations. It was further held that Vardi's agreeing to allow Apex and the carpenter to make certain use of photographs did not constitute implied agreement to similar use by Gottesman. Finally, the Court stated that even had Vardi's agreement been obtained, the agreement was unenforceable by virtue of section 3 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970. A permanent injunction was therefore awarded restraining Gottesman and his firm from making any use of photographs or simulations showing Vardi's house, and the procedural arrangement that the parties had reached was annulled/rescinded. The sweeping gag order in the case was also removed and replaced by a mere prohibition of publishing the evidence.

 

The Parties' Arguments on Appeal

 

5.         In the appeal herein Gottesman and his firm reiterated their assertion that they should be permitted to publish the simulations on the website. At the outset, the Appellants dispute the lower court's finding that showing the computer simulations infringes "the privacy of a person's intimate life", within the meaning of the definition in section 2(11) of the Protection of Privacy Law, 5741-1981 (hereinafter referred to as "the Protection of Privacy Law" or "the Law"). Firstly, it was pleaded that showing the computer simulations of a house without specifying details identifying the owner cannot be construed as an infringement of privacy as defined in the Protection of Privacy Law. According to the Appellants, in order to prove an infringement of privacy as a result of the information published, it has to be shown that a link can be made between the information and a specific "person". In the instant case, it was argued, the computer simulations were shown in a "sterile" state, based on the planning position before the occupants entered the house and while making certain modifications. Alongside that, it was asserted that in any event there was no infringement of "the privacy of a person's intimate life" because the section relates to highly intimate information, such as a person's sexual proclivity or state of health. The same goes all the more so, according to the Appellants, in respect of the simulations that show the outside of the house and the spaces designated for hospitality. In the alternative, the Appellants plead that even if an infringement of privacy was caused, it did not give rise to a cause of action since it is a minor infringement "of no real significance", as defined in section 6 of the Protection of Privacy Law, because the simulations were published anonymously, without specifying personal details.

 

6.         Even if there was an infringement of Vardi's privacy, the Appellants plead that the defence of good faith applies in the circumstances prescribed in the Protection of Privacy Law. In particular, it was pleaded that the Appellants did not imagine that the publication would infringe Vardi's privacy and they are therefore entitled to the defence prescribed in section 18(2)(a) of the Law ("he did not know and need not have known that an infringement of privacy might occur"). It was further pleaded that the publication was intended to serve Gottesman's moral right to obtain fitting credit for his work, which he has by virtue of an architect's copyright in his work (section 4 of the Copyright Law, 5768-2007 (hereinafter referred to as "the Copyright Law")). According to the Appellants, this entitles them to the defence under section 18(2)(c) of the Protection of Privacy Law ("the infringement was committed in defence of a legitimate personal interest of the infringer") because, according to them, the moral right should enable the architect to publish computer simulations of his work.

 

7.         The Appellants further argue that it was inappropriate for the lower court to find that the element of "absence of consent" necessary to establish an infringement of privacy had been fulfilled. The Appellants first protest the finding that Vardi's consent was necessary in this context. Such consent, according to them, would only be necessary if Gottesman had sought to enter Vardi's house and photograph it in the private domain. However, they assert, it is unnecessary to obtain consent when involved is the use of the architectural plans and simulations created on the basis of them. Secondly, they argue, Vardi had originally agreed to the house being photographed and in any event his implied agreement to publishing the simulations could be inferred from the agreement that he had given to publish pictures of the house in the Apex book and on the carpenter's website, and also from the principle agreement to the procedural arrangement. Therefore, the Appellants maintained, Vardi's attempts to procure Gottesman's signature to the letter of commitment should be construed as an attempt contrary to a previous understanding between the parties. Such being the case, it should be held that Gottesman's refusal to sign the said document is irrelevant. Finally, the Appellants argue that it should be presumed that had Vardi wished to limit the use of the work, he would have done so from the outset in an express agreement.

 

8.         Vardi, for his part, endorses the lower court's ruling. According to him, publishing the simulations on the website constitutes an infringement of his and his family's privacy. According to Vardi, the fact that simulations, rather than actual pictures, were published on the website was aimed at circumventing the Protection of Privacy Law because the simulations show the house almost exactly as it really is and it is easy to link them with it. In view of that, Vardi seeks to adopt the District Court's finding that publishing the simulations on the website should be treated as publication of a matter relating to a person's "intimate life", as provided in section 2(11) of the Protection of Privacy Law and it therefore involves an infringement of privacy. According to Vardi, the Appellants cannot benefit from the defences prescribed in the Law: as regards the defence under section 18(2)(a) of the Law, which deals with the absence of knowledge of an infringement of privacy, it is asserted that Vardi emphasised to Gottesman that he jealously guards his privacy, and his attorney also demanded that the Appellants remove the pictures from the website immediately; as regards the defence under section 18(2)(c) of the Law, it was pleaded that the Appellants were not protecting a "legitimate personal interest" by publishing the simulations but merely sought to produce an economic gain. In any event, Vardi argued, the essential requirement of good faith to establish the said defences was not fulfilled in the present case because the Appellants had failed to remove the pictures at his request.

 

9.         Furthermore, according to Vardi, the case herein does not give rise to a clash between copyright law and protection of privacy law. An architect, according to Vardi, has no copyright in a house that was built but at most in the two-dimensional plans of the house and even those, it is argued, cannot be published by the architect without the client's consent. Consequently photographing the house and circulating the photographs, including by way of simulations, is not an inherent right of the architect. Even were copyright involved, Vardi asserts, it is an economic right which does not supersede the right to privacy. In this context, Vardi emphasizes that the lower court was not moved to award relief that would preclude the Appellants from showing the project to customers and in professional circles; instead an injunction restraining publication at large, on the Internet, or in a book or magazine, was sought. Such being the case, according to Vardi, the Appellants' freedom of occupation or copyright was not infringed. Finally, Vardi maintains that the plea of copyright infringement was merely made by Gottesman incidentally and in an unspecified manner at the trial in the lower court and it is therefore a prohibited "amendment of pleadings" on appeal.

 

10.       The parties also took issue with regard to the formation of consent to publish the simulations. Vardi asserts that his agreement to the publication of the simulations was not obtained. According to him, during the years of the relationship between the parties, his confidence in Gottesman had lessened and he had therefore chosen to ask for any understanding in respect of photographing his house and using the pictures to be put in writing. A written undertaking along those lines did not come about and, such being the case, according to Vardi, no agreement was consummated between the parties in respect of publication. In that connection Vardi rejects the Appellants' argument that agreement to publication could be inferred from the procedural arrangement that the parties reached or from the agreement that was given to the carpenter and Apex for publication. According to him, a person is entitled to control his privacy so that consent to waive privacy should be made knowingly and expressly.

 

The Procedural Progression

 

11.       On April 2, 2012 we had an appeal hearing in the presence of the parties before a bench headed by the (now retired) Deputy President, Justice E. Rivlin. At the hearing we believed that it would be best for the dispute between the parties to be resolved in mediation. The parties accepted our proposal and agreed to go to mediation. Unfortunately, the mediation did not prove successful and the parties notified us on July 27, 2012 that they had not reached an overall understanding. Prior thereto, in May 2012, the Deputy President retired and he was replaced by my colleague, Justice N. Solberg (as decided by the President, A. Grunis on August 13, 2012). In view of the change to the bench since the hearing, the parties were permitted to supplement summations in writing. The time for a ruling has now been reached.

 

Discussion and Ruling

 

The Right to Privacy

 

12.       The right to privacy is one of the most important human rights in Israel. It is one of the freedoms that mould the character of the regime in Israel as a democratic one (HCJ 6650/04 Jane Doe v. The Netanya Regional Rabbinical Court, para 8 (May 14, 2006) (hereinafter referred to as "Jane Doe")). Since the Basic Law: Human Dignity and Liberty was passed, it is even vested with constitutional status (section 7 of the Basic Law). Privacy enables a person to develop his selfhood and to determine the degree of society's involvement in his personal behaviour and acts. It is his "proprietary, personal and psychological castle" (Crim. App. 5026/97 Gilam v. State of Israel, para 9 (June 13, 1999) (hereinafter referred to as "Gilam")). The right to privacy therefore extends the line between the private and the public, between self and society. It draws a domain in which the individual is left to himself, to develop his "self", without the involvement of others (HCJ 2481/93 Dayan v. The Jerusalem District Commander, PD 45(2) 456, 471 (1994) (hereinafter referred to as "Dayan"). It "embodies the individual's interest not to be bothered by others in his intimate life" (CA 8825/03 Clalit Health Services v. The Ministry of Defence, para 21 (April 11, 2007)).

 

Infringement of Privacy – Section 2(11) of the Protection of Privacy Law

 

13.       The prohibition of infringing privacy is currently embodied in the Protection of Privacy Law. Section 1 of the Law provides that "no person shall infringe the privacy of another without his consent". As has already been held, the definition of "privacy" is not simple (HCJ 6824/07 Manna v. The Tax Authority, para 34 (December 20, 2010); CA 4963/07 Yediot Aharonot Ltd v. John Doe, para 9 (February 27, 2008) (hereinafter referred to as "Yediot Aharonot")). Section 2 of the Protection of Privacy Law prescribes what an infringement of privacy is. In his claim, Vardi referred to section 2(11) of the Law, which concerns "publishing any matter relating to a person's intimate life, including his sexual history, state of health or conduct in the private domain". Of the three alternatives mentioned in the section, the most relevant herein is "publishing any matter relating to a person's intimate life" and also, to some extent, "publishing any matter relating to [a person's] conduct in the private domain". In order to delineate the expression "any matter relating to a person's intimate life", two matters should be clarified: firstly, what is a matter relating to a person's "intimate life"; and secondly, whether the information published indeed makes it possible to identify a "person".

 

(a)       A Person's Intimate Life

 

14.       Firstly, as regards the expression "a person's intimate life": what can fall within that definition? "Intimate life" is also a vague expression, the boundaries of which are unclear (Eli Halm, Protection of Privacy Law, 148 (2003) (hereinafter referred to as "Halm")). It is therefore clear that the answer to the question as to what will be regarded as a matter relating to "a person's intimate life" is not plain and simple and that "like many expressions that we encounter in the law books and ordinary life, their interpretation depends on the context and the purpose for which the interpretation is needed (see and compare the opinion of Justice T. Strasburg-Cohen in CA 439/88, The Registrar of Databases v. Ventura, PD 48(3) 808, 835 (1994) (hereinafter referred to as "Ventura"); also compare the opinion of Justice G. Bach in the same case, p 821). In this respect I would mention that I do not accept the interpretation that a high threshold of intimacy needs to be crossed – for example matters relating to a person's sexual history – in order to establish infringement of "a person's intimate life". That interpretation, which Gottesman propounded, relies on the fact that section 2(11) provides that infringement of privacy is "publishing any matter relating to a person's intimate life, including his sexual history" (emphasis added – UV). However, studying the legislative history of the Protection of Privacy Law indicates that the ending, after the word "including", was added to the section merely to clarify that "a person's sexual history" is also a matter relating to his "intimate life" (see the Explanatory Notes on the Draft Protection of Privacy (Amendment No. 8) (Prohibition of Publishing a Matter of Sexual History) Law, 5766-2005). In that sense the addendum is merely to clarify and elucidate (see ALA 2985/96 Medalsi v. Goni PD 50(2) 81, 86 (1996). See also: Aharon  Barak, Legal Interpretation, Volume II, Legislative Interpretation 137-138 (1993)).

 

15.       Having said all that, the first issue to clarify is whether the phrase "a person's intimate life" also embraces publications concerning a person's home. A person's home is not one of those concrete matters that are mentioned in section 2(11) of the Protection of Privacy Law – "a person's state of health" and "his conduct in the private domain". Nevertheless, information relating to a person's home might certainly fall within the scope of "a person's intimate life". Indeed, a person's home gains a place of honour in the case law relating to privacy. Thus, for example, in Dayan, His Honour the Deputy President (as he then was) A. Barak held that:

 

            "The constitutional right to privacy extends, inter alia […] to a person's right to conduct the lifestyle that he wants in his own home, without interference from outside […] The right to privacy is therefore intended to ensure that a person will not be a prisoner in his own home and will not be forced to expose himself in his own home to interference that he does not want" (ibid, p 470; see also Jane Doe, para 10; Gilam, para 9).

 

Nevertheless, as I see it, these statements are not to be understood literally as relating merely to the physical aspect of the home. As President A. Grunis noted in respect of the statement cited above from Dayan, "it should be understood more broadly, metaphorically, along the lines of the expression coined by Warren & Brandeis, 'the right to be let alone'" (HCJ 8070/98 The Association for Civil Rights in Israel v. Ministry of the Interior PD 58(4) 842, 856 (2004); see also Yediot Aharonot, para 9). It should therefore be said that information relating to a person's home will not necessarily always be included in the scope of the matters concerning a "person's intimate life". For the publication of information relating to a person's home to be construed as an infringement of privacy, as defined in the Law, it is necessary to see whether it is such as to cross that threshold of intimacy, beyond which it may be said that "a person's intimate life" was infringed. In the instant case, reviewing all the circumstances leads to the conclusion that publishing the simulations of Vardi's house interior does indeed involve infringement of "a person's intimate life". The interior of a person's home is his castle and he is entitled to be let alone in it. Inside a person's home he exercises his right to privacy in the clearest form. A person therefore has a reasonable expectation that pictures of the interior of his home will not be published at large without his consent. In the instant case, studying the simulations of Vardi's home as published on the website shows that, despite the fact that they are computer simulations, the impression gained from them is very tangible. In this respect I accept the findings of the trial instance that "since the simulations show Vardi's house as it really is, it matters not whether they are the result of computer work or a camera" (p 13 of the lower court's judgement). And note, although the simulations do show the house in a "sterile" condition, namely without Vardi's personal belongings appearing in them, the items of furniture in them are very similar indeed to the existing furniture; they expose "personal" spaces in the house, like the bedroom and bathroom; and they are such as to attest to Vardi's lifestyle and also demonstrate, in the words of the section, "his conduct in the private domain".

 

16.       The simulations of the house exterior should be treated differently. Ordinarily, the front of a house is exposed to passers-by. It is in the "public eye". Consequently, insofar as the front of a house is visible from the street, it is clear that showing its picture or simulation will not give rise to any infringement of privacy (see also CF (J'lem District) 7236/05 Levin v. Ravid Stones, para 14 (May 15, 2006)). The right of privacy does not extend to information that is already in the possession of the public. Therefore, when certain information is in any event in the public domain, the view that the right of privacy is not howsoever infringed is appropriate. (For similar statements in American law, see Jackson v. Playboy Enterprises, Inc., 547 F. Supp. 10, 13 (S.D. Ohio 1983); Fry v. Ionia Sentinel-Standard, 101 Mich. App. 725, 731 300 N.W. 2d 687 (Mich. Ct. App. 1980); Reece v. Grissom, 154 Ga. App. 194, 196, 267 S.E.2d 839 (Ga. Ct. App. 1980).  See also David A. Elder, Privacy Torts 3-45, 3-44 (2002) (hereinafter referred to as "Elder"); James A. Henderson, Richard N. Pearson and John A. Siliciano, The Torts Process 930-31 (4th ed. 1994).)

 

17.       According to Vardi, a distinction should be made between the situation described above, in which the front of the house as visible from the street is shown, and the simulations published by Gottesman on the website. Vardi asserts that the simulations of the house exterior that Gottesman posted on the website of his firm show the house from an angle that necessitates access to the grounds of the house, from which passers-by cannot obtain an impression of it. In that sense, Vardi pleads, a photograph from "the public domain" is not involved. Even if Vardi is right in that plea, there is no question that portraying the front of a person's house in public does not give rise to an infringement similar in extent to that caused by displaying the interior of his house. Whilst the interior of a person's house is visible only to his invited guests, the front of his house is less "private". The front of a person's house does not have the same "intimacy" that is characteristic of the intimate rooms of his home. In that sense, the simulations of the house exterior are not "information" that is sufficiently close to the nucleus of the interest protected by section 2(11) of the Law. Hence, whilst the simulations that portray the internal spaces of the house might infringe "a person's intimate life", publishing simulations of the house exterior does not give rise to such an infringement.

 

(b)       "A Person's" – the Requirement of Identification

 

18.       The wording of section 2(11) of the Protection of Privacy Law shows us that in order for the publication of a matter to constitute an infringement of privacy, it has to be established that the information published makes it possible to identify a person. When can it be said that information published does indeed make it possible to identify a person so that an infringement of privacy does arise?  Essentially, it appears that the answer is that an infringement of privacy will not arise where the requirement of "identification" is not fulfilled, namely insofar as a reasonable person would be unable to connect the information published with a specific person. On this point I would immediately clarify, ex abundanti cautela, that we might in future come across cases in which it will be possible to consider making that requirement more flexible. Those will be the exceptions in which particularly sensitive information is published to the point that even if it cannot be connected with someone, the very publication will create in the one to whom the information relates a serious sense of his privacy's violation, so that its protection will be justified. We shall leave discussion of such matters for when they arise since that is not the case herein.

 

19.       In order to comprehend the nature of the identification requirement, recourse may be had, by way of analogy, to defamation law that we can use as an aid to interpretation and source of inspiration (see CA 723/74 Haaretz Newspaper Ltd v. The Israel Electric Corporation Ltd, PD 31(2) 281, 293 (1977); Dan Hay, The Protection of Privacy in Israel, 91-97 (2006) (hereinafter referred to as "Hay") and the references there). This is because in many senses an infringement of privacy is similar to the damage caused to reputation as a result of publishing defamatory information. Even before the enactment of the Defamation Law, 5725-1965 (hereinafter referred to as "The Defamation Law"), this Court insisted that in a claim on a cause of defamation it has to be established that the focus of the publication is a specific person. It was therefore held that the plaintiff on such a cause will be obstructed by the fact that he cannot be identified in the picture that was published (CA 68/56 Rabinowitz v. Mirlin PD 11 1224, 1226 (1957)). This requirement was intensified after the Defamation Law was enacted. Indeed, a question similar to that facing us was considered at length in the context of defamation law in CA 8345/08. Ben Nathan v Bachri (July 27, 2011) (hereinafter referred to as "Jenin Jenin "). In that case the Court considered the criteria whereby it could be held that defamation addressed at a group defames its members (ibid, para 18). The Court held in that case that "[…] For cause to arise to take proceedings in respect of the publication of defamation it has to be shown that it relates to an individual or certain individuals and when the proceedings are taken by the injured party, he must show that the statement relates to him" (ibid, para 32. Emphasis added – UV). What is important with respect to the instant case is that the inference was drawn, inter alia, from the fact that the section of the relevant statute (section 1 the Defamation Law) provides – as in the case herein – that the subject of the statement must be a "person" (ibid).

 

20.       By way of comparison, in American law a similar criterion is also accepted in respect of the infringement of privacy. According to the case law there, the requirement of identification has been recognised as an essential one that confronts anyone seeking to assert the infringement of his privacy. Such being the case, where the plaintiff's image or name was not used, the courts in the USA have held that in practice no infringement of privacy arises (see: Branson v Fawcett Publications, 124 F. Supp. 429, 431-32 (E.D. III 1954); Rawls v. Conde Nast Publications, Inc. 446 F. 2d 313, 318 (5th Cir. 1971) (hereinafter referred to as "Rawls"). See also: Elder, pp 3-40). Consequently, as regards publications such as a photo of a person's house, car, dog or more, that are made without mention of some or other person's name, it has been held that they do not constitute an infringement of privacy, even if subjectively a person feels that his privacy has been infringed (Rawls, ibid; Samuel H. Hofstadter and George Horowitz, The Right of Privacy, 44 (1964)).

 

21.       From the aforegoing it prima facie appears that it suffices for the information published to be shown anonymously in order to avoid the possibility of infringing privacy. However, in this respect it should be taken into account that even information that is shown anonymously might establish a connection with a specific person. In other words, even if the name of the person is not expressly mentioned alongside the information, it has to be ensured that he cannot be identified by other means, for example: if in the publication numerous identifying details are given from which it might be possible to deduce with whom the publication is dealing (see: Hay, p 115). If we treat the prohibition as merely the specification of a person's name, "it would make a mockery of the Law because it is enough to mention numerous identifying details in order to make it clear in many cases who is involved" (Zeev Segal, The Right of Privacy against the Right to Know, Iyunei Mishpat  IX 175, 190 (1983) (hereinafter referred to as "Segal)). As held in Jenin Jenin, "the requirement of identification is substantive, rather than technical. The question is not whether the name of a person is expressly mentioned in the statement published […] The requirement of identification will be fulfilled in those cases where what is published is attributable to the individual who asserts damage implied from the publication or as a result of extrinsic circumstances or a combination of the publication and the extrinsic circumstances" (ibid, para 34).

 

22.       In order to analyse whether it is possible to connect a person with particular information, a criterion of "de-anonymising" has been proposed in the literature. According to the criterion, if anyone has a key that will make reverse engineering possible, namely to attribute the information published to a particular person, then it can be said from the outset that the information is identifying (Michael Birnhack, Private Space – Privacy, Law & Technology, 191-193 (2010)). As aforesaid, it is therefore not necessary for a person's name or picture to appear alongside the publication; it suffices for it to be possible by some means to connect the information with a specific person by "reverse engineering". Clearly, such "reverse engineering" is mainly likely to occur when the information published includes clear and unique characteristics (cf: Motschenbacher v RJ Reynolds Tobacco Co., 498 F.2d 821, 827 (9th Cir. 1974)).

 

23.       In the instant case, is the requirement that the publication deal with a "person" fulfilled? To that end it is necessary to substantiate the conclusion that despite the anonymous publication of the simulations on the Gottesman website, they can be linked with Vardi. In the case herein we have reached the conclusion that although Vardi's name is not mentioned in the publication, the simulations' publication is likely to make it possible to identify him by other means in view of those unique characteristics relating to Vardi's house. As the lower court held, Vardi's house is a "project of a unique type". In this connection the lower court described Vardi's house as "spectacular and extraordinary as regards its size, the type of materials used in its construction, its unique design and also as regards the investment in each one of the architectural details that make it up". Gottesman himself attested to the project as a "one-off project" and in his appeal he described the house as "a spectacular, extravagant and extraordinary residence […] one of the largest houses in Israel and the largest designed by the Appellants". On the Gottesman website the unique design of the house is described as including the use of special materials like blue glass, unique metal, illuminated gardens and more. All these constitute distinctive construction characteristics that distinguish Vardi's house from others. These indicate that Vardi's house is unlike any other; it is an extraordinary, unique work of architecture. In view of that, it appears that recourse may be had to the simulations published on the Gottesman website for the purpose of that "reverse engineering" that will make it possible to deduce that the simulations shown on the website in fact simulate Vardi's house.

 

Section 6 of the Protection of Privacy Law –Infringement of No Real Significance

 

24.       Even if the information published does indeed relate to "a person's intimate life", the Protection of Privacy Law requires it to be established that the infringement was not of "no real significance" (section 6 of the Protection of Privacy Law). In this connection, it has to be shown that the infringement of privacy was not done as a "trivial act" because such an infringement vests no right to relief (The Association for Civil Rights, p 863). The intention of the section is to do away with vexatious lawsuits, in respect of which no reasonable person would take the trouble of going to court (cf section 4 of the Civil Wrongs Ordnance [New Version]; see also CF (TA Magistrates) 199509/02 Tzadik v. Haaretz Newspaper Publishing Ltd, para 10 (January 22, 2014); Hay, p 124).

 

25. In the instant case, the publication of the simulations is not "a trivial act". The simulations that appeared on the Gottesman website tangibly show the interior of Vardi's home and in that way enable the public at large to gain an impression of the home owner's lifestyle and manners. There is no doubt that when any clear image of a person's home is made visible, and especially his intimate rooms – the bedroom, bathroom etc. – the publication is likely to give him an intense feeling of discomfort. The nature of those rooms is that they are concealed from the eye, and usually from the eyes of invited guests as well. That is where a person expects more than anything that he will be secluded from the public eye. Such being the case, bringing the lawsuit herein seems to be in good faith on the face of it and it is certainly not a frivolous or vexatious claim. It is such as to express the deep sense of discomfort caused to Vardi by the publication – which to my mind also has objective foundation in the circumstances. However, that is not the case with regard to the publication of the simulations of the front of the house. As I mentioned above, in that connection I tend to believe that even if publication of the simulations of the house exterior might cause some infringement, it is minor and trivial, in respect of which there is no cause for the grant of relief.

 

Defences to a Plea of Privacy Infringement (Section 18 of the Law)

 

26.       Another element necessary for the award of relief on a cause of infringement of privacy is negation of the existence of the circumstances of one of the defences prescribed in section 18 of the Law. Those defences demonstrate that the Protection of Privacy Law does not make the right of privacy an "absolute" one (CA 1928/93 The Securities Authority v. Gibor Sabrina Textile Enterprises Ltd, PD 49(3) 177, 193 (1995)). The defences prescribed in the Law might therefore bar a civil claim or criminal proceedings in respect of the infringement of privacy. Nevertheless, a party seeking to shelter behind those defences must show that he acted in good faith. Good faith is "like a gate and only if it is traversed will the circumstances in which the specific infringement of privacy was committed be examined" (Gilam, para 8). It should be noted that the case law has interpreted this as a requirement of subjective good faith. It is therefore necessary to prove that the person committing the infringement acted in the belief that the infringement was in the scope of the defences prescribed by the Law (Jane Doe, para 24). In order to prove good faith, the defendant or accused can have recourse to the presumption mentioned in section 20(a) of the Protection of Privacy Law, according to which:

 

            "20.     (a)       Where the accused or defendant proves that he committed the infringement of privacy under any of the circumstances referred to in section 18(2) and that it did not exceed the limits reasonable under those circumstances, he shall be presumed to have committed it in good faith."

 

In this connection the court will review "the form, substance and extent of the publication in order to see whether the publisher has fulfilled his duty, for which the defence extends to him, or went beyond that and exceeded the 'limits reasonable' in connection with which the legislative norm was framed" (Segal, p 199).

 

Against that presumption that is available to the defendant or accused, the plaintiff or prosecutor can have recourse to the presumption mentioned in section 20(b) of the Law:

 

            "20.     (b)       The accused or defendant shall be presumed not to have committed the infringement of privacy in good faith if in committing it he knowingly went further than was reasonably necessary for the purposes of the matters protected by the section."

 

In this respect, proving that the publisher knew that he had exceeded the reasonable is equivalent to establishing the absence of the publisher's subjective good faith because it will demonstrate "his indifference to the consequence involving infringement more than  necessary to protect the value recognised by the Law" (Segal, ibid).

 

27.       In his appeal Gottesman relied on two defences – those prescribed in sections 18(2)(a) and (c), which provide as follows:

 

 

            "18.     In any criminal or civil proceedings for infringement of privacy, it shall be a good defence if one of the following is the case:

 

                        […]

 

                        (2)       the defendant or accused committed the infringement in good faith in any of the following circumstances:

 

                                    (a)       he did not know and need not have known that an infringement of privacy might occur;

 

                                    […]

 

                                    (c)       the infringement was committed in defence of a legitimate personal interest of the infringer;

 

                                    […]"

 

28.       We shall therefore review whether the infringing act was committed in one of the circumstances mentioned in section 18(2) – and in our case, the circumstances prescribed in section 18(2)(a) or 18(2)(c)            of the Law. As regards the defence prescribed in section 18(2)(a) of the Law, as the lower court held, before publication Vardi repeatedly emphasised to Gottesman that he jealously guarded his privacy and he was resolute in his refusal to publicise the house or parts of it. Consequently, from such time as Vardi made it perfectly clear to Gottesman that he strongly objected to publication without the latter signing the letter of commitment, it is difficult to conceive that the infringement was committed without Gottesman "knowing […] that an infringement of privacy might occur", as the section requires. Clearly, therefore, the plea with regard to the defence under that section cannot be upheld.

 

29.       We should now examine whether Gottesman has available the defence under section 18(2)(b), which concerns an infringement committed in order to protect a "legitimate personal interest" of the infringer. The section necessitates a balance to be made between the right of privacy and other conflicting values, and the expression "legitimate personal interest" should be construed "by making a balance between the desire to protect the interest of the injured party and safeguard his privacy, on the one hand and the contrary interests of the infringer, on the other hand" (Crim App 1132/96 Hatuha v. State of Israel, para 8 (January 20, 1998)). In the instant case, Gottesman and his firm have a twofold interest in publishing the simulations: both a creative interest and a business interest. It cannot be disputed that Gottesman has the moral right in his architectural work. Such being the case, he is entitled to the work being credited to him, namely to his work being identified with his name. This expresses recognition of the author's personality and the attempt to respect the personal connection between the author and his work (sections 45 and 46 of the Copyright Law; see also: Tony Greenman, The Moral Right – From Droit Moral to Moral Rights, Authoring Rights – Readings on the Copyright Law 439, 439-440 (Michael Birnhack & Guy Pesach, Editors, 2009)). The desire to safeguard the freedom of creative expression means that the transfer of an architect's economic rights in his work will not preclude his expressing himself in the same artistic style and motifs in other works (cf Sara Presenti, Copyright Law, vol. II (3rd edition, 2008)), and in the instant case, that the work can be exposed to other circles. Consequently, on the artistic-creative level, one can understand Gottesman's desire to expose to the public Vardi's house, a work that is unquestionably of unique quality and size. In addition, there is nothing wrong in Gottesman's desire to publicise his work for economic reasons as well because displaying the work might certainly enable its author to establish a reputation and attract clients. Nevertheless, as we have mentioned, in the scope of the defence under section 18(2)(c) a balance needs to be made between the infringement of Vardi's privacy and the legitimate personal interest of Gottesman. As mentioned above, as I see it, showing the interior of Vardi's home gives rise to a considerable infringement of his privacy. On the other hand, the harm to Gottesman's legitimate personal interest is limited. This is because Vardi's request was limited to precluding publication of the simulations on the website and, such being the case, there is nothing to stop Gottesman from making use of simulations for his business purposes, exposing them on a more limited scale, for example by showing them to clients in his office or to professional circles, a matter to which Vardi has himself agreed in writing (paragraph 23 of his summations). In this connection, certain weight should also be given to the fact that Gottesman could have given full expression to his interest in publishing the simulations by making an express agreement in such respect with Vardi in real time. To this should be added the fact – as explained above – that Gottesman can also show the simulations of the house exterior on the website. In the overall balance between the competing rights and interests, the outcome is therefore that it is inappropriate to apply the defence of section 18(2)(c) to publishing simulations of the interior of Vardi's house. Having found that publication of the simulations does not fall within one of the circumstances mentioned in section 18(2) of the Law, we have no need to consider the question of good faith or the application of the presumptions prescribed in section 20 of the Law.

 

Absence of Consent to Infringement of Privacy

 

30.       Having reached the conclusion that that there is an infringement, of real significance, of Vardi's privacy, in respect of which it cannot be said that it is covered by one of the defences prescribed in the Law, we must rule whether Vardi's consent was given to the publication discussed herein. The Protection of Privacy Law provides that an infringement of privacy will not occur where there is consent to the infringement (section 1). Such consent can be expressed or implied (section 3 of the Protection of Privacy Law; Jane Doe, para 20). The reason for that requirement is that "the right of privacy is to protect the individual, and as a rule society cannot protect an adult against his will" (Crim App 4463/93 Birav v. State of Israel, PD 49(5) 447, 458 (1996)). And note, consent is not cause to justify an infringement of the rights of privacy. Consent itself is an inherent part of the right so that if it is given, a right of action does not arise (Halm, p 41). Although consent for the purpose of infringement of privacy can be inferred from a series of cases and modes of behaviour (Hay, p 122), it is best to exercise extreme care in determining that consent to publication has been obtained. "Care should be taken not to apply the justifying force of consent to cases in which it is clear that there is no real consent and the use of the consent is therefore constructive and fictitious" (Ruth Gavison, Prohibiting Publication That Infringes Privacy, Human Rights in Israel – Collection of Articles in Honour of Haim H. Cohn, 177, 199 (1982)). It has been held along these lines that from the fact that an individual agreed to disclose certain particulars to one person or several persons, it cannot be inferred that he is precluded from objecting to the publication of those particulars to the public at large (Ventura, p 822); and that even the existence of a close relationship such as marriage does not per se indicate implied consent to one partner's infringement of the other's privacy (Jane Doe, para 20).

 

31.       From the general to the particular – in the instant case it appears that such consent was not obtained. I would mention at the outset that I do not accept Gottesman's claim that Vardi's consent to the publication was not necessary because all that was published were the simulations based on the architectural plans. Insofar as that publication causes an infringement of privacy, then it is subject to the principle that "no person shall infringe the privacy of another without his consent" (section 1 of the Protection of Privacy Law). In the instant case, it would appear that such consent was not consummated. As the lower court held, the relationship between Vardi and Gottesman was conducted on the basis of oral understandings, without the issue of consent to publication reaching exhaustive discussion between the parties. Vardi's requirement that photographs of his home could only be taken subject to signing the letter of commitment that he proposed therefore did not constitute a departure from a previous understanding between the parties but an unsuccessful attempt to reach an understanding. Since that agreement was not signed, express consent to publication was not obtained. Indeed, as aforesaid, the existence of consent can also be inferred. However, we have not found substance to the plea that Vardi's agreeing to the publication of other pictures of the house infers that implied consent was also given to Gottesman. Actually, the fact that other publications were specifically made subject to signing the said letter of commitment is such as to demonstrate the absence of consent in the instant case. Our conclusion is therefore that consent to the infringement of privacy was not obtained.

 

Conclusion

 

32.       In conclusion, we have found that publishing the simulations showing the front of Vardi's house does not give rise to an infringement of privacy and in any event not an infringement of real significance, as defined in section 6 of the Law. On the other hand, we have reached the conclusion that the simulations showing the interior of Vardi's house do infringe "his intimate life" and that despite their anonymous publication, it is possible to connect them with Vardi. It has also been found that it is not an infringement "of no real significance" and that the defences prescribed in section 18(2) of the Protection of Privacy Law are inapplicable. Because the infringement of Vardi's privacy was made without his consent to the publication, there is no alternative but to find that publication of the simulations of the interior of his home on the website cannot be permitted.

 

I therefore suggest to my colleagues to allow the appeal in part to the effect that the injunction remains in force in respect of publishing the simulations of the house interior on the website. The meaning of this is that there is no bar to simulations of the house exterior being published on the site. In view of that result, I suggest to my colleagues to set aside the liability for costs at first instance and make no order for costs in the current instance.

 

 

 

Justice S. Joubran

 

I concur.

 

 

 

Justice N. Sohlberg

 

I concur with the judgement of my colleague Justice U. Vogelman. The distinction that he made between the front of the house and the house interior, has deep roots in Jewish law. The Torah forbids a creditor to enter his fellow's home in order to collect his debt: "When you make a loan of any kind to your neighbor, do not go into his house to get what he is offering as a pledge.  Stay outside and let the man to whom you are making the loan bring the pledge out to you" (Deuteronomy 24:10-11). Although a lender and borrower, rather than strangers, are involved, the respect of privacy requires that the house not be entered; the homeowner brings the pledge outside. Despite the fact that the borrower has a debt to the lender and the lender's prima facie moral right to enter the borrower's house in order to take steps to secure repayment of the debt, the Torah prohibits entry to the borrower's house. The Torah did not make do with a moral provision but prescribed a legal right for the protection of privacy (see: N. Rakover, The Protection of Privacy (5766-2006) 265).

 

Jewish law protects a person's privacy not only by precluding admittance to the private domain but also by precluding "damage by sight" [hezek reiyah] from outside. As we know, Bilam sought to curse the Children of Israel when he saw them dwelling in the desert according to their tribes but he found himself blessing, instead of cursing, them and he said "How goodly are your tents, O Jacob, your dwelling places, O Israel" (Deuteronomy 24:5). This is interpreted by the Talmud as follows: "What did Bilam see? He saw that the openings of their tents did not exactly face each other, whereupon he exclaimed, worthy are these that the divine presence should rest upon them". That is to say that when Bilam saw that the tents of the Israelites were positioned so that their openings did not face each other and were directed in such a way as to ensure the privacy of everyone, he was filled with admiration and said: "How goodly are your tents, O Jacob, your dwelling places, O Israel!" (N. Rakover, ibid, pp 269-272). The Code of Jewish Law [The Shulchan Aruch] (Choshen Mishpat, 154:3) lays down the rule: "A person shall not open a window onto his neighbour's courtyard. And even one of the people who share the courtyard and has sought to open a window in his house onto the courtyard shall be restrained by his partner because he can see him from it. And if he has opened one, it shall be blocked. And if the people who share the courtyard with him have given him permission to open a window or door, he may, but he shall not open a door opposite a door or a window opposite a window and shall distance them from each other. And if it is to another courtyard, onto which he has been given permission to open a door or window, he should distance it from his neighbour's door or window until he cannot see in it at all". This is not the place for details of the Jewish law (see at length, Rakover, ibid) but merely for the principle of respecting a person's privacy. That is how God [HaKadosh Baruch Hu] acted when he called to Adam from the entrance to the Garden of Eden, from which we shall learn: "A person should never suddenly enter his neighbour's house. And every person shall learn the appropriate mode of behaviour [derech eretz] from God, who stood at the entrance to the Garden of Eden and called upon Adam, as it is said: "But the Lord God called to the man and said 'where are you'?" (Genesis 3:9; Derech Eretz Raba, Chapter 5).

 

We can therefore see the distinction between the interior and exterior back from ancient times. A few years ago I heard the lawsuit of a man and his wife who had built a rounded wall of unique design, made of basalt manufactured by Ravid Stones Ltd, at the front of their house. In order to promote its sales, the company published a photograph of the front of the house in the press, on the Internet and in a catalogue. The plaintiffs asserted infringement of their privacy, amongst other things. I stated there that the list of acts in section 2 of the Protection of Privacy Law, 5741-1981, that involve an infringement of privacy, does not contain "a prohibition against publishing the front of a person's home; and not without reason. A person's homeon the inside – is his castle. The front of it that faces outward is naturally exposed to the whole world. Any person passing by may savour the outer beauty of the house. A photograph of the front of the house from the public domain does not involve an infringement of privacy" (CF (J'lem) 7263/05 Levin v. Ravid Stones, para 14 (May 15, 2006)).

 

I therefore concur with my colleague's judgement, on the basis of its reasoning.

 

 

 

Held as stated in the opinion of Justice U. Vogelman.

 

January 23, 2013

 

 

 

 

Full opinion: 

FA Premier League v. Israel Sports Betting Council

Case/docket number: 
CA 8485/08
Date Decided: 
Monday, January 25, 2010
Decision Type: 
Appellate
Abstract: 

Facts: The appellants manage the professional football leagues in the United Kingdom, and regularly conduct an annual tournament among the teams in those leagues. As part of this activity, they organize and schedule matches, all of which are listed in schedules (fixture lists) that they publish. The respondent holds exclusive authority within Israel to arrange betting on sports events, and arranges such betting not only on matches played by Israeli teams, but also on matches that are a part of the appellants’ tournaments. For this purpose, the respondent lists the appellants’ matches on its betting forms, using the information about these matches that is included in the fixture lists.

 

The appellants filed an action against the respondent in the Tel Aviv District Court, claiming that its use of the information from the fixture lists constituted a copyright violation, or alternatively that the respondent’s use of such information gave rise to a claim of unjust enrichment. The District Court denied the claim, and this appeal followed.

 

Held: Both the old and new Israeli copyright statutes provide for copyright protection only for works that express originality. The case law has interpreted the originality requirement — as it applies to compilation works such as the appellants’ fixture lists — by establishing parallel tests, one referring to the level of the author’s investment in the work, and the other referring to the degree that the work reflects the author’s creativity. The latter test creates a requirement that not only is the author the “source of the work” but that he has also left an imprint of his spirit on the work. In this case, the investment test had been met, at least at the minimal level which is required. However, neither the selection of the information included in the list (i.e., all the matches in the tournaments) nor the design of its presentation (reflecting nothing other than the most logical arrangement of the basic information) could establish that the required minimal level of creativity was involved in the appellants’ preparation of the lists.

 

Furthermore, even if the respondent’s use of the fixture lists had amounted to the use of a protected work, there was no violation of the copyright here. The respondent used only some of the matches included in the lists, and only the information required for the purpose of preparing its betting forms.

 

Regarding the claim for unjust enrichment, such claims are allowed in cases involving uses of intellectual property that do not constitute a copyright violation, but only where the party which is alleged to have unjustly enriched itself has engaged in improper business practices, which is not the case here. 

Voting Justices: 
Primary Author
majority opinion
majority opinion
majority opinion
Full text of the opinion: 

CA 8485/08

1. FA Premier League Ltd

2. The Football League Ltd

3. The Scottish Premier League Ltd

4.  The Scottish Football League

5. Football DataCo Ltd

v.

The Israel Sports Betting Council

 

The Supreme Court sitting as the Court of Civil Appeals

[25 January 2010]

 

Before Justices M. Naor, S. Joubran, N. Hendel

 

Appeal of the judgment of the Tel-Aviv-Jaffa District Court (Judge Z. Brun) on 2 July 2008 in CC 1022/04.

 

Facts: The appellants manage the professional football leagues in the United Kingdom, and regularly conduct an annual tournament among the teams in those leagues. As part of this activity, they organize and schedule matches, all of which are listed in schedules (fixture lists) that they publish. The respondent holds exclusive authority within Israel to arrange betting on sports events, and arranges such betting not only on matches played by Israeli teams, but also on matches that are a part of the appellants’ tournaments. For this purpose, the respondent lists the appellants’ matches on its betting forms, using the information about these matches that is included in the fixture lists.

The appellants filed an action against the respondent in the Tel Aviv District Court, claiming that its use of the information from the fixture lists constituted a copyright violation, or alternatively that the respondent’s use of such information gave rise to a claim of unjust enrichment. The District Court denied the claim, and this appeal followed.

 

Held: Both the old and new Israeli copyright statutes provide for copyright protection only for works that express originality. The case law has interpreted the originality requirement — as it applies to compilation works such as the appellants’ fixture lists — by establishing parallel tests, one referring to the level of the author’s investment in the work, and the other referring to the degree that the work reflects the author’s creativity. The latter test creates a requirement that not only is the author the “source of the work” but that he has also left an imprint of his spirit on the work. In this case, the investment test had been met, at least at the minimal level which is required. However, neither the selection of the information included in the list (i.e., all the matches in the tournaments) nor the design of its presentation (reflecting nothing other than the most logical arrangement of the basic information) could establish that the required minimal level of creativity was involved in the appellants’ preparation of the lists.

Furthermore, even if the respondent’s use of the fixture lists had amounted to the use of a protected work, there was no violation of the copyright here. The respondent used only some of the matches included in the lists, and only the information required for the purpose of preparing its betting forms.

Regarding the claim for unjust enrichment, such claims are allowed in cases involving uses of intellectual property that do not constitute a copyright violation, but only where the party which is alleged to have unjustly enriched itself has engaged in improper business practices, which is not the case here.

 

Legislation Cited

Copyright Law, 5768-2007, ss. 1, 4(a)(1), 4(b), 11.

Copyright Act, 1911, ss. 1, 1(2), and 35.

Copyright Ordinance, 1924.

Regulation of Sports Betting Law, 5727-1967, ss. 1 and 11.

 

Israeli Supreme Court cases cited:

[1] ..... CA 528/73 Ettinger v. Almagor [1975] IsrSC 29(2) 116.

[2] ..... CA 513/89 Interlego A/S v. Exin-Lines Bros. S.A. [1994] IsrSC 48(4) 133.

[3] ..... CA 360/83 Struski Ltd v. Whitman Ice Cream Ltd [1985] IsrSC 40(3) 340.

[4] ..... CA 23/81 Hershko v. Urbach [1988] IsrSC 42(3) 749.

[5] ..... CA 3422/03 Krone AG v. Inbar Reinforced Plastic [2005] IsrSC 59(4) 365.

[6] ..... CA 2687/92 Geva v. Walt Disney Co. [1993] IsrSC 48(1) 251.

[7] ..... CA 2790/93 Eisenman v. Quimron [2000] IsrSC 54(3) 817.

[8] ..... CA 136/71 State of Israel v. Ahiman [1972] IsrSC 26(2) 259.

[9] ..... CA 559/69 Almagor v. Gudik [1970] IsrSC 24(1) 825.

[10] ... CA 19/81 Goldenberg v. Benet [1982] IsrSC 36(2) 813.

[11] ... CA 139/80 Harpaz v. Ahituv [1990] IsrSC 44(4) 16.

[12].... CA 8393/96 Mifal Hapayis v. The Roy Export Establishment Company [2000] IsrSC 44(1) 577.

[13] ... LCA 5768/94 A.S.I.R. Importing, Manufacturing and Distribution v. Forum Accessories and Consumer Products [198] IsrSC 52(4) 289.

[14] ... CA 2287/00 Shoham Machines and Dies Ltd v. Harar (2005) (unreported).

[15]     LCA 371/89 Leibowitz v. E. and J. Eliahu Ltd [1990] IsrSC 54(2) 309.

[16]     CA 9568/05 Shimoni v. “Moby” Birnbaum Ltd (2007) (unreported).

 

American cases cited:

[17] ... Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 U.S. 340 (1991).

[18]     Sony Corp. of America v. Universal City Studios, Inc., 417 U.S. 464 (1948).

 

English cases cited:

[19] ... Football League Ltd v. Littlewoods Pools Ltd [1959] 2 All E.R. 546.

 

Justice S. Joubran

1.    The questions to be decided here are whether the fixture lists of the British football leagues are entitled to copyright protection in Israel, or alternatively, whether the use of these fixtures without the consent of the Leagues constitutes unjust enrichment.

2.    Since the appellants are asking for future-oriented declaratory relief, the following discussion will relate both to the old legislative arrangement in the Copyright Act, 1911 (hereinafter: “the old Law”) and in the Copyright Ordinance, 1924 (hereinafter: “the Copyright Ordinance”), and the new arrangement in the Copyright Law, 5768-2007 (hereinafter: “the new Law”), which repealed the old Law.

Factual background

3.    Appellants 1–4 manage the British football leagues. Each year, the appellants conduct a multi-stage tournament, in the framework of which the teams in each league play against each other. Appellants 1–2 manage the English leagues, comprising 92 teams, and appellants 3–4 manage the Scottish leagues, comprising 42 teams. Appellant 5 — a company established for the purpose of exploiting the Leagues’ matches commercially — generates profits from the management of the leagues, primarily from the sale of tickets to matches and from broadcast rights for those matches.

4.    The organization of the tournament between the many teams in each league requires the investment of considerable resources and effort — a fact that is not disputed. Each year, after the task of scheduling the matches has been completed, each league publishes, in the media and on various internet sites, the annual fixture lists that include the order in which the football matches will be played, as well as the dates and venues of the matches (hereinafter: “the fixture lists”).

5.    The respondent is a statutory corporation, and it is the only entity authorized to arrange, in Israel, betting on sporting events. Among other things, the respondent arranges betting on British football matches, and for this purpose it makes use of the fixture lists. The names of the teams that are playing against each other appear alongside the date and time of each match on the forms used for betting on the match results.

6.    The appellants’ suit in the District Court focused primarily on the argument that the fixture lists constitute a protected literary work under Israeli law, and that the use made of these lists by the respondent for the purpose of betting therefore constitutes a copyright violation. Moreover, according to the appellants, this use was made in bad faith, and the profit generated by the betting therefore constitutes unjust enrichment at the expense of the appellants. 

The District Court

7.    On 2 July 2008, the Tel Aviv-Jaffa District Court (Judge Z. Brun) dismissed the appellants’ suit in a reasoned judgment. The District Court began by answering, in the negative, the question of whether the fixture lists are a protected “literary work”. The court noted that the element of originality is the main criterion among the considerations that are weighed with regard to the grant of copyright protection — in the sense that by themselves, effort, time or talent are not enough, no matter how substantial each of these are. Since in this case the selection of matches and their final arrangement in the fixture list lack any degree of originality, they do not meet the required threshold of originality.

8.    The District Court further held that the process of the creation of the fixture lists also lacks any minimal degree of creativity, since the order of the matches is set in accordance with functional considerations only, and no interest is served in limiting the use of information about these matches.

9.    The judgment also notes that the respondent does not make any use of the fixture lists themselves — including their design and the arrangement of the matches in these lists — but rather, uses only the data that appear in them. The respondent selects the details that it wants and classifies them according to its own criteria. Since there is no restriction on the use of the details of the matches, even were the fixture lists protected by copyright, the use that the respondent makes of the details of the matches would not constitute a violation of the appellants’ rights.

10.  The appellants’ arguments regarding unjust enrichment were also dismissed, on the grounds that the criteria for accepting this cause of action, such as the creation of unfair competition or a violation of the rules of commerce, are not fulfilled in this case. As the respondent is the only party in Israel that arranges betting on sporting events, there can be no competition between it and the football leagues. Moreover, the interest that betting on British football matches arouses allows the leagues to raise the prices of the broadcast rights and of league-related products, and in this way it indirectly helps to increase the appellants’ profits.

The arguments of the parties

11.  According to the appellants, the fixture lists are a protected literary work, and the District Court’s holding that the degree of originality is the main test for granting copyright protection should be rejected. They emphasize that the work’s originality is examined specifically at the stage of its formulation, and they believe that the process of creating and managing the fixture lists meets the required threshold. They also argue that the substantial effort that was invested in setting up the matches is a relevant criterion for determining whether the fixture lists enjoy copyright protection. Additionally, they argue that a high threshold for originality will not allow for the recognition of a copyright in functional works — such as tables and various compilations — that have already been recognized in Israel and in other states as being worthy of protection. According to the appellants, even if the only purpose of the fixture lists is the transmission of information regarding the tournaments, their status is not less than that of tourism guides, train schedules and television broadcast schedules, all of which have been recognized as protected works.

12.  Regarding the District Court’s determination that the main activity of the Leagues is directed at setting up the matches, and not at preparing the fixture lists as a goal per se, the appellants argue that this consideration is not relevant to the question of whether these lists should be protected by copyright.

13.  They also refer to the case law from England, where, they argue, similar fixture lists have been recognized as copyright-protected literary works. In circumstances similar to those before us, it has been held that a private company that arranged betting on the results of football matches based on these lists had violated the League’s copyright. They argue that various English and American decisions that have granted copyright protection to works of a similar nature, such as television broadcast schedules and a database of golf results, support the claim that the fixture lists are also covered by copyright protection.

14.  Further to these claims, the appellants believe that the respondent makes frequent use of a substantial and key portion of the fixture lists, by integrating the league matches — some of them particularly “attractive” matches — into their betting forms. Consequently, they argue, the respondent is violating their copyright.

15.  The appellants’ alternative argument deals with a claim of unjust enrichment. The respondent’s profits from the betting are, according to the appellants, produced in bad faith, and they are entitled to relief on the basis of an unjust enrichment claim, even if it has not been proven that any damage or injury has been caused to them. Even if the respondent holds an exclusive license in Israel for the arrangement of betting on sporting events, this would not necessarily signify that it is not required to pay any royalties whatsoever to the appellants as the organizers of the matches and of the lists.

16.  Counsel for the respondent agree with the judgment of the District Court. They argue that the fixture lists do not satisfy the originality requirement, since they consist of nothing other than a simple and sequential arrangement of the Leagues’ football matches. They refer to the private member’s bill currently before the Knesset, according to which commercial entities that make use of the names of teams for the purposes of gambling would be required to pay for such use to the associations and corporations that organize the matches. They argue that this bill makes it clear that until the statutory situation is changed, the respondent is not required to make payments of this type, and certainly not pursuant to the laws of copyright.

17.  Counsel for the respondent also note the importance of the distinction made by the District Court between the effort and labor invested in the organization of the football matches themselves, and the effort involved in preparing the fixture lists as a “literary creation”, after the matches have been organized. The respondent agrees that the process of organizing tournaments does involve a substantial investment; however, the same is not true with regard to the process of preparing the fixture lists, which requires nothing more than producing a chronological list of the matches in each league, without any significant investment of effort.

18.  The respondent also argues that the “merger doctrine”, which originated in American law, applies to the circumstances of this case. According to the doctrine, when an idea can be expressed in only one way, that expression will not be granted copyright protection.

19.  Counsel for the respondent also argue that even if the fixture lists are recognized as a protected work, the use made of them is only partial, such that only a few of the league matches appear on the betting forms, and the order in which they appear on the fixture lists is not taken into account.

20.  Regarding the demand for compensation based on the unjust enrichment claim, counsel for the respondent argue that this claim violates the balance established in the law of copyright between the public interest in providing incentives for creativity and the right to freedom of expression and of information. Any application of unjust enrichment law to the use of information that is not protected by copyright must be very limited, and it is not justified in the circumstances of this case. There is no business competition between the appellants and the respondent, and the use of the fixture lists for the purpose of the betting even gives rise to a certain “cross-fertilization” of each side’s interests.

Deliberations

21.  The issue of the appellants’ moral rights in the fixture lists was not raised in the parties’ pleadings, and the deliberations will therefore focus on their “economic” rights only. (On the nature of moral rights, and the distinction between these rights and “economic” copyright, see chapter G of the new Law; CA 528/73 Ettinger v. Almagor [1], at p. 118; CA 513/89 Interlego A/S v. Exin-Lines Bros. S.A [2], at p. 160; S. Portnezy, Copyright Law (3rd ed., 2008), at pp. 1137 – 1197.) The issues to be decided in this case relate first of all to the question of whether the Football Leagues’ fixture lists should be included within the category of copyright-protected works, according to the criteria established for this purpose under Israeli law. A positive answer will necessitate an examination of the nature of the use that the respondent makes of these lists, and whether it reaches the level of a violation of the appellants’ copyright.

22.  The entry into force of the new Law did not change the Israeli law relating to this matter. The new Law anchors the rules that have been developed in the case law to date, and the outcome of this discussion is therefore applicable to both the previous statute and the current legal arrangement.

Copyright in the fixture lists

23.  Among the various works to which the old Law refers, copyright protection is granted, by virtue of s. 1 of that Law, to an “original literary work”. Section 35 provides that the term “literary work” includes tables and compilations. Section 7B of the Copyright Ordinance qualifies this protection and establishes that there can be no copyright in an “idea, fact or data, by themselves”, and that only the manner in which these are expressed may be the subject of copyright. There are similar definitions in the equivalent to this arrangement in the new Law. Section 4(a)(1) of the new Law provides that there will be copyright protection for, inter alia, an original creation that is a literary work. Section 1 of the new Law includes a table or a compilation of data within its definition of a “literary work”. Finally, s. 5 provides that copyright will not apply to an idea, fact or data, but only to the manner in which these are expressed.

24.  The case law development of the arrangements in the old Law and in the Copyright Ordinance fashioned the criteria to be applied in determining whether copyright should be granted to a variety of works, including tables and compilations. In light of the nature of the work which is the subject of the appeal before us — a compilation of the details of the British League matches, in tables — it is more appropriate for it to be judged as a work in the compilation category, although in the circumstances before us, the possible differences between a compilation and a table would be of no consequence.

25.  Among the conditions for the recognition of copyright, the criteria relevant to our case are those relating to the “creativity” of a work and to the “investment” therein – meaning that we must determine the proper interpretation of these criteria and the relative weight that each should be given, in dealing with a work that consists of a compilation of data, even if the data themselves are not protected by copyright.

26.  These criteria developed against the background of the interpretation of the “originality” requirement, which had already been established in the old Law (after it was amended due to the accidental omission of this requirement from the original translation of the English law into Hebrew, see CA 360/83 Struski Ltd v. Whitman Ice Cream Ltd [3], at p. 347), and was included in the new Law as well, as a key condition for copyright protection. The first approach to its interpretation — dubbed the “investment approach” in Interlego A/S v. Exin-Lines Bros. S.A. [2] (and called the “sweat theory” in the United States) — is based on the application to intellectual property of the rationales that underlie the protection of “tangible” property. According to this view, since it would be unfair to allow a person to enjoy the fruits of another person’s labor without permission or the payment of consideration, the level of the creator’s investment in the work should be emphasized as a condition of fulfillment of the originality requirement.

27.  The second approach — the “creativity approach” — focuses on the public interest in encouraging the creation of public goods, through the expansion and compensation of the world of expression. The level of effort invested in a work does not guarantee that the output makes any contribution whatsoever to society, and therefore, this approach focuses on the nature and character of the investment, and not on its quantity. (Regarding these two approaches, see the extensive discussion in Interlego A/S v. Exin-Lines Bros. S.A. [2], at pp. 161–164, 167–168, and the sources cited there.) It should be noted that in the case law, the “creativity” test is also called the “originality” test; however, in accordance with the conceptual division outlined in Interlego A/S v. Exin-Lines Bros. S.A. [2], and for the purpose of avoiding confusion with the “originality” requirement established in the statutes, this test will be referred to hereinafter as the “creativity test”.

28.  Israeli case law recognizes the two tests — both the creativity test and the investment test — as conditions for the fulfillment of the statute’s creativity requirement (see Interlego A/S v. Exin-Lines Bros. S.A. [2], at p. 173), and they are therefore important in this case as well.

Creativity and investment — the nature of the tests

29.  It should be noted that as a rule, these two tests do not establish a particularly high threshold for those seeking to acquire copyright protection for their works (ibid. [2], at p. 170), and compilations are not an exception to the rule. In CA 23/81 Hershko v. Urbach [4], at p. 759, the Court went further, noting that:

‘The degree of originality that is required for the work to be protected pursuant to the copyright laws will differ from case to case, and in some cases could be minimal and even valueless.’ 

30.  Although this approach was not adopted in the same words in later case law, it certainly reflects the understanding that it is not necessary to be overly strict regarding the grant of copyright protection. Thus, it has been held that the creativity condition does not include a requirement of innovation in relation to existing works, and that the meaning of the term “originality” in the statute, with regard to this condition, does not refer to the work itself but rather to the author or compiler, in the sense that the author or compiler must be the “origin” of the work:

‘[It is] not [necessary] for the work [to be] the expression of a novel or innovative idea or invention, but that the work must not be copied from another work, and its source must be its creator or author’ (Struski v. Whitman Ice Cream [3], at p. 346).

Or, as my colleague Justice Rubinstein has written: “original — meaning, independent” (CA 360/83 Krone AG v. Inbar Reinforced Plastic [5], at p. 378).

31.  Nevertheless, it is obvious that the positive aspect of this creativity-independence requirement should not be utterly dismissed. The case law clearly indicates that the fact that a work was independently produced and has not been copied will not necessarily signify that it is protected, and that even if the author or compiler is the source of the work, the creativity requirement may not have been fulfilled. A work that makes use of only general elements and is not based on an earlier work will indeed pass the originality bar of the law relatively easily (see Interlego A/S v. Exin-Lines Bros. S.A. [2], at p. 173). On the other hand, the work must contain some form of the author’s or compiler’s own imprint — even if at times this may be only minimal. It must be the “fruit of the creator’s intellectual labor” (ibid. [2], at p. 378), and it must, at the least, reflect “a very minimal level of personal expression” (CA 2687/92 Geva v. Walt Disney Co. [6], at p. 257. See also CA 2790/93 Eisenman v. Quimron [7], at p. 830.)

32.  As noted above, one of the clear purposes of copyright is to provide incentives to potential authors to publish their works, in order to enrich the world of expression based on the existing facts, data, and ideas. The recognition of copyright protection for works that include no expansion of the existing forms of expression would contradict this said purpose. Therefore, copyright protection will not be granted even to works that are not copied, when —

‘The final work makes use of things that are simple, obvious and known, which are in the public domain, such as a circle, or a simple line’ (Interlego A/S v. Exin-Lines Bros. S.A. [2], at p. 171).

33.  A further distinction which can be of use in implementing the creativity test is that the test does not focus on the final product, but rather on the process of its preparation, and examines the degree of creativity with which the author or compiler endowed the creation during the stages of its formation. Pursuant to this rule, even if the work in its final format is absolutely identical to a different protected work or does not indicate any creativity or investment, it could be entitled to protection due to the creator’s contribution in the process of its formation (ibid. [2], at pp. 170-171, 173; Eisenman v. Quimron [7], at p. 830. See also the discussion below).

34.  As for the investment test — its interpretation is not disputed and its implementation is simple. According to this test, “an expression regarding which copyright protection is sought ... must be the product of a minimal investment of some type of human resource” — time, labor, ability, knowledge, etc. (See Interlego A/S v. Exin-Lines Bros. S.A. [2], at p. 173.)

Originality and investment — the relationship between the two and the importance of each

35.  The question of the importance of these two tests and of the relationship between them has already been elucidated in Israeli case law. In Interlego A/S v. Exin-Lines Bros. S.A. [2], President (ret.) M. Shamgar discussed the various trends that have developed over the years in English and American case law regarding the relationship between the two tests and their weighting in the protection of various works. The decision in that case refers to rules that placed the level of investment, specifically, at the center of the originality requirement, allowing for the erosion of the creativity requirement. Thus, one approach tended towards invoking the level of the investment in the work as an indicator of the presence of creativity, and another held that significant efforts would compensate for a lack of creativity and would, by themselves, satisfy the originality requirement (ibid. [2], at p. 168, 169-170, and the sources cited there). Indeed, the discussion in CA 136/71 State of Israel v. Ahiman [8] indicates that this Court has been willing to implement this latter conception, by using the investment test only. In that case, the Court examined the possibility of granting copyright protection to income tax withholding tables, and held as follows:

‘Although, as is known, there is no copyright in an idea only, there can be a copyright in a special manner of preparation or design chosen by the compiler of the tables in order to make the use thereof easier, if special thought, labor or skill were invested in inventing the plaintiff’s method’ (ibid. [8], at p. 261, emphasis added, S.J.)

36.  Nevertheless, Israeli law has, in the end, accepted a different approach, which conditions copyright protection on the presence of a minimal degree of creativity, and rejects protection of a work based purely on investment. This approach is based on the leading rule established in the United States in Feist Publications Inc. v. Rural Telephone Service Company [17] (hereinafter: “the Feist rule”). (See also the expanded discussion of the rule, below.) The Feist rule was expressly adopted in Interlego A/S v. Exin-Lines Bros. S.A. [2], and has since then been followed in our case law. President Shamgar justified the adoption of the rule as follows:

‘In light of the purpose of the copyright laws, as presented above, clearly the conclusion is that investment alone is not sufficient to justify the grant of copyright protection to an expression. This conclusion relies both on the fact that the copyright laws constitute a balance of competing societal needs, and on the scope of the protection granted to the holder of copyright. The balancing function of the law stems from the fact that the grant of copyright protection to a particular expression limits possible future expressions. An approach that views the right as stemming from the investment per se is not sufficiently sensitive to this important balance, which forms the basis of the copyright law. The “investment” approach is, indeed, a standard approach for the justification of tangible property law, and there are those who see it as appropriate for intellectual property law as well (T. Black, Intellectual Property in Industry (London, 1989) at p. 70). But it appears that the difference between the two areas does not allow for its adoption in the intellectual property field. Expansion of the world of expression is important not only in terms of the self-expression of the creator of the expression, but also with regard to the world of expression of the entire public and all of society. Ownership of the fruit of the tree is not the same as ownership of seeds from which, in the future, other trees will grow. In both cases, the grant of ownership limits the ability of the rest of the world to exploit it in the present; when we speak of ownership of the seeds, however, there will also be ramifications with respect to the variety and quantity of the trees in the future; and in the case of ownership of an expression, there are far-ranging ramifications for the future world of expression. With regard to these matters, not only the aspirations of individuals must be balanced: the good of society as a whole must be considered (Sony Corp. of America v. Universal City Studios, [18], at p. 429). The subject matter of intellectual property is a cushion for the realization of human aspirations, but this is also an area in which humanity’s future aspirations and horizons are developed. Great importance therefore attaches not only to providing compensation for investment but also to the degree of restriction on future development that the grant of copyright is likely to cause’ (ibid. [8], at p. 165 (emphasis added, S.J.). See also, ibid. [8], at p. 169; T. Grinman, Copyright (2nd ed., 2003), at p. 121.)

37.  In Eisenman v. Quimron [7], this Court approved this ruling, holding as follows:

‘Originality is the main thing, and the investment of effort, time or skill is not sufficient to justify copyright protection’ (ibid. [7], at p. 829; see also p. 830, which mentions the approach whereby investment alone may indicate the existence of creativity, although that approach is not actually applied in the decision).

38.  Thus, we are now faced with a clear rule, according to which both the creativity and the investment tests are necessary conditions for granting copyright protection, but each of them by itself is not sufficient. While Israeli law construes both tests rather narrowly — as we saw above — they are cumulative and parallel tests, and a party claiming that a work is subject to copyright protection must show that both tests have been met. A high level of investment in the creation cannot compensate for the absence of creativity, and vice versa. Since the investment test is generally easily met, the creativity test is the one that will, ultimately, determine the question of whether the work satisfies the originality test in the statute. The rules on which the appellants’ counsel rely, including the rule in the British judgment in Football League Ltd v. Littlewoods Pools Ltd [19]), which recognize copyright for football fixture lists, have not been adopted in Israeli case law.

Creativity and investment in a compilation-type literary work

39.  We will now examine how these tests are applied with respect to a compilation-type literary work. First, it is important to note that even when the content of the compilation is not protected by copyright — in that it is composed of ideas, facts, news, etc. — and the general public is therefore permitted to make use of such content, this does not signify that the compilation work cannot enjoy any protection at all:

‘The fact that the “building blocks” that served as the material used by the creator were in the public domain has nothing to do with the question of whether the creator can benefit from copyright protection for his work’ (Eisenman v. Quimron [7], at p. 828).

40.  It is understood that data, facts or ideas will not become protected even after they are included in any type of compilation (compare, Eisenman v. Quimron, ibid. [7]). Copyright protection is granted in these cases to the manner in which the compiled details are processed and the manner in which they are presented, and not to the details themselves. Naturally, the fulfillment of the statutory requirement of originality, too, is expressed in the examination of the external characteristics of the compilation’s contents:

‘Although, as is known, there is no copyright protection for an idea by itself, such protection can be given to a unique manner of preparation or design . . . and it makes no difference that the “raw material” for the composition of the tables was in the public domain’ (State of Israel v. Ahiman [8], at p. 261).

‘We have seen that compilation and preparation can fall within the definition of a “literary work” as defined in the statute, and that the question of whether a work is entitled to copyright protection is determined according to the degree of originality that it contains’ (Eisenman v. Quimron [7], at p. 831).

41.  In the new Law, these rules were expressly anchored in s. 4(b), according to which the “originality of a compilation is the originality in the selection and arrangement of the works or of the data embodied therein.” Although “selection” of the data was not expressly mentioned in the case law that preceded the new Law, it appears that the new Law does not contain any legal innovation and provides a clarification only, and, even prior to its enactment, the Court would have looked for the required creativity on the basis of the manner in which the information was selected. Creativity in the selection of the data is an alternative, not cumulative, condition for the requirement of originality in the arrangement of the data. (See, on this matter, the explanatory notes to the Copyright Bill, 5765-2005, Draft Laws 196, 1120, and the reference to s. 10(2) of the TRIPS Agreement, which refers expressly to “. . . selection or arrangement of their content . . .” (emphasis added, S.J.). For the text of that agreement, see http://www.wto.org/english/docs_e/ legal_e/27-trips_04_e.htm#1.)

42.  In light of the above, the investment and the creativity tests examine two main characteristics of a compilation-type of literary work: the manner in which the data in the work were selected, and alternatively, the manner in which they are arranged and their design within the work. The Court has previously examined two types of compilations, and has recognized both of them as meriting copyright protection. In one case — State of Israel v. Ahiman [8] — the Court examined originality in the context of income tax withholding tables. However, as we have seen above, the ruling that the tables were entitled to protection was based on the investment test alone, and the case is therefore not helpful here. In the second case — Eisenman v. Quimron [7] — the Court faced the question of whether a person performing the following acts would be entitled to copyright in the entire text: deciphering of an ancient scroll through the assembling, location and arrangement of approximately one hundred of its scraps, filling in the missing parts of the scroll and solving the content written in it. The decision in that case focused on the originality involved in the process of deciphering the scroll (see the above discussion regarding the importance of examining the process of preparing a work) and noted that the restoration of the text could have been carried out in a variety of ways, that the reconstruction of the text could have been carried out in a number of ways, and that the filling in of the missing pieces of the scroll was the fruit of the researcher’s thought process, and was not necessarily dictated by the pieces that had been found. The parameters used in that decision for applying the creativity test were the researcher-compiler’s knowledge, expertise, and imagination.

‘The layers of the work cannot be separated from each other, and they should be seen as one work of creation. An examination of the work, with all its layers, as a single piece, reveals undisputed originality and creativity. Quimron’s work was therefore not technical, “mechanical” work, like simple physical labor, the results of which are known in advance. The spirit, the “extra soul” that he put into the pieces of the scroll, which transformed the pieces into a living text, do not fall within the boundaries of an investment of human resources only, in the sense of sweat, within the meaning of “the sweat of a man’s brow.” These were the fruits of a process in which Quimron used his knowledge, expertise and imagination, exercised judgment and chose between different alternatives’ (ibid. [7], at p. 833).

43.  American case law includes many discussions of copyright protection for compilations. The first comparison that should be drawn, however, is with the case in which the above-mentioned Feist rule was developed, both because Israeli law has adopted its conclusions, and, even more importantly, because the conclusions reached in that decision were based on a set of facts which is similar to the set of facts in the case before us.

44.  In that case, the United States Supreme Court dealt with an action filed by a company that provided telephone services in several areas, in which the company sought to obtain copyright protection for a telephone directory that it published for its customers. The telephone directory (in the parts that were the subject of the dispute) included a list of the customers’ names in alphabetical order, along with the names of the cities in which they lived and their telephone numbers. Similar to the law in Israel, the United States Supreme Court used, as the starting point of its analysis, the assumption that the names of the company’s customers and their details, by themselves, were not protected by copyright, in that they were purely facts, but that the manner in which a compilation of the customers’ details had been designed could, as a matter of principle, be entitled to protection. In that case, the United States Supreme Court emphasized the rule that this Court adopted in Interlego A/S v. Exin-Lines Bros. S.A. [2], whereby creativity is an essential condition for determining the work’s originality:

‘As mentioned, originality is not a stringent standard; it does not require that facts be presented in an innovative or surprising way. It is equally true, however, that the selection and arrangement of facts cannot be so mechanical or routine as to require no creativity whatsoever. The standard of originality is low, but it does exist’ (Feist v. Rural Telephone Service Company [17], at p. 362, emphasis added, S.J.).

45.  The application of the creativity test to the preparation of the telephone directory led the United States Supreme Court to the conclusion that this particular compilation of the company’s customers’ details was not entitled to copyright protection because it lacked any modicum of creativity, either in the selection of the details that appeared in the telephone directory or in the manner in which they were arranged and designed.

46.  An examination of the process of creating the directory indicated that there had been no sorting of the data that was included in it. The records in the directory simply included all the company’s customers and contained only the most basic information pertaining to them:

‘It publishes the most basic information — name, town, and telephone number — about each person who applies to it for telephone service. This is “selection” of a sort, but it lacks the modicum of creativity necessary to transform mere selection into copyrightable expression. Rural expended sufficient effort to make the white pages directory useful, but insufficient creativity to make it original’ (ibid. [17], at pp. 362-363).

47.  The arrangement of the records could not have been more trivial. The customers’ names had been arranged in alphabetical order and there was actually no real alternative to that arrangement:

‘Nor can Rural [the telephone company that had prepared the directory] claim originality in its coordination and arrangement of facts. The white pages do nothing more than list Rural’s subscribers in alphabetical order. This arrangement may, technically speaking, owe its origin to Rural; no one disputes that Rural undertook the task of alphabetizing the names itself. But there is nothing remotely creative about arranging names alphabetically in a white pages directory. It is an age-old practice, firmly rooted in tradition and so commonplace that it has come to be expected as a matter of course... It is not only unoriginal, it is practically inevitable (ibid. [17], at p. 363, bracketed words and emphases added, S.J.).

48.  Now that we have examined the nature of the originality requirement in Israeli law and we have noted the nature of the tests regarding creativity and investment in works that are entitled to copyright protection in general, and to compilations in particular, we will consider the application of these rules to the case before us, and we will examine whether the fixture lists merit copyright protection.

Copyright for the fixture lists — from the general to the particular

49.  The British Leagues’ fixture lists include all the football matches played in the annual tournament, and those matches only. The information about each match includes the names of the teams that are playing and the date and venue of the match. The matches are arranged in chronological order, according to the date and hour at which they will be played. On each date, the matches being played are presented alphabetically according to the name of the home team. The letter “v” (versus) appears after the name of the home team and the name of the guest team in that match appears after the “v”. After that, the venue at which the match is being played appears within a set of parentheses. The records appearing in the lists are arranged in rows, and they include no design or other special arrangement.

50.  It should be noted that an examination of the presence of originality is relevant here only to the process of creating the compilation itself, and certainly not to the work involved in preparing the tournament, nor to the determination of the order of the matches in accordance with the constraints of the teams or the stadiums, nor in accordance with other functional considerations. The selection of the information included in the fixture lists is based on the existing data regarding the details of the matches. The preliminary selection of the teams and the venues of the matches and the coordination among all the parties, with the ultimate aim of holding the football tournament, all relate to the preliminary stage, the stage of the creation of these details. As such, all the creativity and investment that find expression in the organization of the tournament are in no way relevant to the originality requirement in this case. Consideration of these two elements here would be comparable to a consideration of the creativity and efforts invested by the company that prepared the telephone directories for its customers in Feist v. Rural Telephone Service — not only in preparing the directory itself, but also in laying down the telephone infrastructure and connecting customers to it.

51.  The investment test is not an obstacle here. It also appears that even if no effort was required in selecting the matches to be included in the lists, the preparation of the records involved at least the minimal effort that satisfies this requirement. On the other hand, I believe that the creativity test has not been met in this case, in which no selection was made among the details that were included in the lists — and in any event, the argument that the selection involved a degree of creativity was not raised before the lower court — nor did any party carry out any selection with respect to the manner in which the details were organized. Therefore, not only is the information appearing in these lists itself not protected by copyright, there is also no copyright protection for the fixture lists as a single unit, and for the manner of the presentation of the matches.

52.  It is true that the fixture lists do not include details regarding all the matches that are played during that year, and that they do not include any of the matches that are played in Great Britain other than those that are played as part of the tournament. Therefore, it would seem that there is some “selection” in the information that appears in the lists. Nevertheless, this “selection” does not include any calculated process of data filtering. Even though the “source” of the selection is the author-compiler as required in Krone AG v. Inbar Reinforced Plastic [5], this selection includes no substantive expression whatsoever — not even at a most minimal level — of the author-compiler’s spirit and personality, as the rules established in Interlego A/S v. Exin-Lines Bros. S.A [2] and in Geva v. Walt Disney Co. [6] emphasize. This is also true in light of the fact that we are not dealing here with a “classic” type of literary work, but rather with a specialized table of data. It is obvious that no expertise or imagination was required in this selection (see the test described in Eisenman v. Quimron [7]), and that the information that is presented regarding each match is rather trivial. Therefore, as was held in Feist v. Rural Telephone Service, even if the assembling of the Leagues football matches in the lists did include a process of selection — it was not a “creative selection” and it therefore lacks any originality.

53.  The same conclusion can be reached in relation to the form of the arrangement and the design of the information regarding the matches of the Leagues. It appears that the most logical manner (if not the only logical manner) for presenting all of the matches taking place in the framework of the football tournament would be in the order in which they are presented in the lists, i.e., according to the dates on which the matches are being played and obviously with an indication of the names of the teams and of the site at which they will be played. The design of the details — the presentation of each match by indicating the name of the home team and then the name of the guest team, divided by the letter “v”, and the placement of the name of the venue of the match in parentheses — lacks any scrap of uniqueness or personal expression. Thus, according to the rules mentioned above, the arrangement of the information also lacks the necessary degree of creativity in order to satisfy the originality requirement.

54.  The conclusion to be drawn from this is that according to Israeli law, anyone may make any use of the details of each match and of the match itself (as they are all unprotected facts) and of the details of all the matches put together as a bloc (since the manner in which the matches were selected is not protected) and of the manner in which these matches are presented in the lists (since the design of the lists is also unprotected) — and no such use will require permission from the appellants, nor any payment whatsoever to them.

55.  Once this conclusion has been reached, there is no need to discuss the question of the violation of copyright. As a side point, I will add briefly that even if I believed that the compilation did satisfy the originality requirement both in terms of the investment in its preparation and in terms of the creativity contained in it, this would not be sufficient to accept the appellants’ claim. Even if the compilation that was the result of the selection of the matches and the design of the lists were protected by copyright, the respondent did not copy them and did not publish them. Instead, it used only the facts presented in the compilation and these, as stated, are not protected.

56.  Moreover, as can be seen in the appellants’ tomes of exhibits, the design of the tables in which the respondent publishes the details of the matches is completely different from the arrangement in the lists. This design publicizes the details of only some of the British Leagues’ matches rather than the details of all of them, and those that are publicized appear alongside the details of football matches played in Israel and in other countries. Under these circumstances, even if it were assumed that some of the features of the compilation are protected by copyright, it is certain that they have not been copied in full, nor has a significant part of them been copied. Regarding this “significant part” requirement, see s. 11 of the new Law, s.1(2) of the old Law (which uses the phrase “substantial part”), and CA 559/69 Almagor v. Gudik [9], at pp. 830-831; CA 19/81 Goldenberg v. Benet [10], at p. 823; CA 139/80 Harpaz v. Ahituv [11] at p. 21; CA 8393/96 Mifal Hapayis v. The Roy Export Establishment Company [12], at pp. 591-593; CA 360/83 Krone AG v. Inbar Reinforced Plastic [5], at p. 381-382.

Unjust enrichment

57.  Similarly, I believe that the appellants’ arguments regarding the unjust enrichment claim should be rejected as well. The case law of this Court has established, as a basic principle, that the laws of unjust enrichment can also be applied, in certain circumstances, to areas which, as normally defined, should be subject to regulation by the laws of intellectual property. This rule was established by the majority opinion (and against the dissenting opinion of Justice Englard) in LCA 5768/94 A.S.I.R. Importing v. Forum Accessories and Consumer Products [13]:

‘The various opinions in the A.S.I.R. case, although they do not create a uniform rule, clearly indicate that it is possible, in certain circumstances, to invoke the laws of unjust enrichment to protect ideas that are not protected by intellectual property law’ (CA 2287/00 Shoham Machines and Dies Ltd v. Harar [14], at para. 10).

Regarding Justice Englard’s position that the absence of a cause of action based on intellectual property will rule out the ability to make a claim based on unjust enrichment, but leaves open the possibility for a claim based on liability law, see A.S.I.R. Importing v. Forum Accessories [13], at pp. 445-446, and see also O. Groskopf, New Horizons in Law — Protection of Competition through the Law of Unjust Enrichment (2002), at pp. 309-312).

58.  The unjust enrichment cause of action is anchored in s. 1(a) of the Unjust Enrichment Law, 5739-1979 (hereinafter: “Unjust Enrichment Law”):

Duty to make restitution

1(a)

A person who has received an asset, service or other benefit (hereinafter: “the beneficiary”) other than pursuant to a legal right, which has come to the person from another person (hereinafter: “the provider”), must make restitution to the provider with regard to what has been received, and if restitution in kind is not possible or is unreasonable, the beneficiary must pay the provider the value of what has been received.

59.  The section sets three conditions for this cause of action to arise: that there has actually been enrichment; that the beneficiary has “received an asset, service or other benefit ...”; that the said enrichment has “come” to the beneficiary from the provider and at the provider’s expense; and that the beneficiary’s enrichment at the expense of the provider has been “other than pursuant to a legal right.” The case law has added the requirement of “an additional element” with respect to the third condition, for the purpose of proving the cause of action:

‘The third element, according to which the question of whether the enrichment was “other than pursuant to a legal right” is examined, indicates that the fact that there was enrichment is not sufficient, per se, to give rise to an unjust enrichment claim. It is also not sufficient for the enrichment to have come from the provider and for it to have been at the provider’s expense. For the unjust enrichment claim to arise, another element is necessary. This additional element focuses on the nature of the enrichment’ (LCA 371/89 Leibowitz v. E. and J. Eliahu Ltd [15], at pp. 321-322).

60.  In A.S.I.R. Importing v. Forum Accessories [13], all the justices agreed that “imitation or copying of a product ‘per se’, in the absence of an intellectual property right in the product pursuant to the statutory law ... does not grant a right to restitution under the Unjust Enrichment Law.” They also agreed that “a condition for a right to restitution is that an ‘additional element’ compounds the copying or the imitation” (ibid. [13], at p 449). However, in that case, the Court dealt at length with, and offered differing interpretations of, the nature of the “additional element” and the manner in which it should be properly applied in circumstances that are ordinarily regulated by intellectual property law, and in which an action brought pursuant to intellectual property law has been dismissed.

61.  According to Justice Strasberg-Cohen’s suggestion in that decision, the additional element is present when there has been bad faith conduct (ibid. [13], at pp. 431-432). President (ret.) Barak accepted this interpretation, but offered a more focused test, according to which unfair competition in violation of commercial practice will fulfill the “additional element” requirement (ibid. [13], at pp. 474-477). Deputy President (ret.) Levin and Justice Or also adopted the unfair competition test. (For additional tests that were not accepted by the majority opinion, see Justice I. Zamir’s “special severity” test, ibid. [13], at p. 492; Justice Cheshin’s “quasi-tort” test, ibid. [13], at pp. 371-373. See an extensive discussion of the various approaches and the scope of the application of the unjust enrichment laws in cases of this type in Shoham Machines and Dies Ltd v. Harar [14], at para. 11.)

62.  In that judgment, President Barak listed a number of considerations that must support a determination as to whether this test has been met under the circumstances, and whether it substantiates the claim of unjust enrichment: the importance, the innovativeness and uniqueness of the work from which the beneficiary was enriched; the effort that was invested in its preparation; the number of times that the work was copied, and the frequency of such copying; the beneficiary’s awareness of the fact that the work was copied; in cases of products with a functional use — the existence of reasonable alternatives for manufacturing similar products; and the results of the copying and the degree of its impact on the provider (ibid. [13], at pp. 477–479. See also Justice Cheshin’s opinion, ibid. [13], at pp. 431–432, which focuses on two of the tests, and Shoham Machines and Dies Ltd v. Harar [14], at para. 12.)

63.  In the case before us, the possibility of determining the presence of an “additional element” according to the unfair competition test can be immediately dismissed due to the respondent’s status as the only body authorized to arrange betting on the results of sports games and competitions in Israel (see ss. 1 and 11 of the Regulation of Sports Betting Law, 5727-1967). The issue of unacceptable commercial competition is not relevant in this case, because ab initio there cannot be any competition between the respondent and the appellants. Therefore, arrangement of the betting cannot in any way harm the appellants’ existing or potential business or profits, even though the details relating to the British Leagues matches are based on the fixture lists.

64.  As an aside, I would comment that even if the betting were not under the respondent’s exclusive authority as a statutory body, the respondent’s use of the details of the British Leagues’ matches would not amount to unfair competition. The preparation and publication of the fixture lists are indeed very important for the purpose of informing the public of the program for the football tournament, but the copying of the work for the purpose of arranging the betting can only help to publicize that program. It is highly doubtful that there is any innovation and uniqueness contained in these lists, as we have seen above. Additionally, the effort invested in the preparation of the lists — as distinguished from the undoubtedly significant investment that was involved in preparing the tournament and setting up the matches — was rather minimal. On the assumption that the appellants, too, can arrange betting on the Leagues’ matches, it appears that requiring the respondent to pay royalties to the appellants for the use of the details of the matches would actually create unfair competition on the part of the appellants, who will in that case hold a monopoly on the information.

65.  The respondent has not engaged in any improper behavior that justifies the payment of royalties to the appellants, even according to the broad good faith test established in A.S.I.R. Importing v. Forum Accessories [13]. The respondent is not abusing its authority and it is not denying the appellants any other indirect profits for broadcast rights for the matches or from the sale of accompanying products relating to the football teams. It is not impossible that the gambling actually increases the awareness of the British Leagues’ matches in Israel. In light of this, there is no basis for invoking an unjust enrichment claim in the circumstances of this case. Furthermore, obligating the respondent to pay royalties would lead to the unjust enrichment of the appellants. In view of the nature of the respondent’s activity and its exclusivity in relation to the arrangement of betting, the other tests that were proposed in A.S.I.R. Importing v. Forum Accessories [13] regarding the interpretation of the “additional element” are not relevant here. Therefore, the appellants’ arguments with respect to this issue must be rejected as well.

66.  As a marginal point I will comment that the discussion in A.S.I.R. Importing v. Forum Accessories, ibid. [13] related to a number of products that should have been regulated by patent and industrial design laws (bathtub fixtures; equipment for processing and cutting aluminum; and a unique manner of attaching the pages in a photo album), and not to works whose protection would be determined by copyright. The intellectual property laws did not apply in those circumstances, as the plaintiffs in that case had not registered the products as required by law. In light of this, Grinman proposes that a distinction be made between situations in which protection under intellectual property law has been denied due to technical defects, and cases in which the protection has been denied due to the essence of the product or the work — in light of specific interests, or because of proper policy considerations, etc. — and particularly when the enrichment occurred in relation to information or data that are in the public domain. His position is that the application of the unjust enrichment laws must be more limited in the latter situation:

‘Since these laws already involve an internal balancing between the conflicting public interests, and particularly a balancing between the interest in encouraging creative work and the public interest in freedom of expression and of information, it would be wrong to apply the laws of unjust enrichment to this area in a manner that would violate this balancing’ (Grinman, Copyright, supra, at p. 65).

67.  This proposal is consistent with the position — recently fortified in the case law — that the overuse of causes of action based on unjust enrichment in areas that overlap with intellectual property law is undesirable:

‘Indeed, only in unusual cases will the elements of the inventiveness that characterize the product, its uniqueness, innovativeness and the resources of time, money and human effort that were invested in its development be of a degree that justifies the tipping of the scales in favor of the grant of relief pursuant to the laws of unjust enrichment, and not pursuant to the natural and accepted coverage of the intellectual property laws and the laws of tort’ (CA 9568/05 Shimoni v. “Moby” Birnbaum Ltd [16], and the sources cited there).

68.  Nevertheless, since in this case the unjust enrichment claim would not arise even under the criteria established in A.S.I.R. Importing v. Forum Accessories [13], we leave for further examination the question of adapting the “additional element” tests established in that judgment to circumstances in which an idea or information constitutes the basis for the unjust enrichment claim.

69.  In conclusion, I believe that the appellants are not entitled to any relief with respect to the use made by the respondent of the details in the fixture lists, because these lists are not protected by copyright and because of the absence of a claim based on unjust enrichment. Therefore, if my opinion is accepted, the appeal in all its parts must be denied.

70.  The appellants will bear the costs of the appeal and attorneys’ fees for the respondent, in the amount of NIS 30,000.

 

Justice N. Hendel

I concur.

 

Justice M. Naor

The respondent, as noted by my colleague Justice Joubran, makes use of the details that appear in the fixture lists. I agree with my colleague’s conclusion that there is no protection for this use, and that the appellants must bear the costs, as proposed by my colleague.

 

Appeal denied.

 

28 Adar 5770.

14 March 2010.

Hughes Aircraft Company v. State of Israel

Case/docket number: 
CA 345/87
Date Decided: 
Monday, July 2, 1990
Decision Type: 
Appellate
Topics: 
Abstract: 

Appellant, the Plaintiff in the District Court below, sued the Respondents for infringement of a Patent owned by it, which concerns optical display systems utilizing holographic lenses. Respondent 1, the State of Israel, had ordered from Respondent 2, Kaiser Aerospace & Electronics Co., the manufacture and installation in certain aircraft of head-up display systems (HUD), which the Appellant contended infringed its Patent.

           

The HUD is an information display system installed in the airplane's cockpit that displays information to the pilot concerning the flight, firing and direction of armaments, radar picture, view of enemy aircraft, and the like. Normally, the pilot obtains such information by reading the various dials and other displays in front of him. The HUD displays this same information on the aircraft's windscreen, facing the outside world. The pilot can read the information without lowering his head toward the dials, while he is watching the outside world, with consequent significant advantage, especially in the case of military aircraft.

           

The Respondents defended against the Appellant's suit in the District Court on three grounds. First, they denied that they infringed the Appellant's Patent. Second, they contended that the Patent was invalid, arguing that the invention was not novel when it was patented, that it did not constitute an inventive step and that the Description of the invention in the Patent was insufficiently precise. The Respondents' third defense was that they were the beneficiaries of a license granted by the Appellant to the United States government.

           

The lower court held in favor of the Appellant that the invention was patentable, in that it satisfied the requirements of novelty and inventive step and that the Description was adequate. It also ruled in favor of the Appellant that the Respondents are not beneficiaries of the license granted by the Appellant to the United States. However, it decided the case against the Appellant on the ground that the Respondents had not infringed the Patent, based on its determination of the scope of the Patent as set forth in the Patent Claims filed by the Appellant.

 

The Appellant appealed this decision to the Supreme Court which, sitting as a court of appeals, reversed the lower court's judgment, in an opinion written by the President, and entered judgment in the Appellant's favor. The Supreme Court ordered the Respondents to abstain from infringing the Patent and returned the case to the District Court to hear evidence concerning the issue of damages. Among the various points of law passed on by the Supreme Court, it held that -

           

1. If the inventor wants to link a Patent to a specific result, he must claim that result in the Claims section of the Patent. The elements included in a combination patent must also appear in the Claims. In a patent limited by result, the result is one of the components of the invention so the inventor must claim protection for it in the Claims.

 

2. A Patent should be interpreted as an entirety. Although the patentee may not rely on the Description to claim a monopoly, and what is not included in the Claim is not included in the monopoly, the meaning of the Claim should be interpreted in light of that which is contained in the Description and accompanying drawings. This is so also when the Claim appears to be unambiguous on its face.

 

3. Even if the Respondents in this case did not infringe the Patent literally, they took the substance of the Appellant's protected invention.

 

4. The patentee bears the burden of proof on the issue of infringement of the Patent. On the issue of its validity, once registered, the burden of proof is on the party that denies its validity.

 

5. One may not piece together a claim of non-novelty by combining that which is contained in several earlier documents, unless such combination was obvious and would have been apparent to a person skilled in the an at the time the Patent was issued. The information in the public hands must have been sufficient to enable it to perform the invention. If performing the contents of the prior publication, in light of the knowledge possessed at the time by one skilled in the relevant art, constitutes an infringement of the Patent, then the invention is not novel.

 

6. The requirement of an inventive step is wider than the requirement of novelty. The invention must also make a material contribution to the field. In judging this issue, one must examine the total an in the field. One may put together different documents, if such joining would have been obvious to a skilled person at the time. On the other hand, the inventive step may consist of the very joining together of such different documents, when such combination was not previously apparent to a skilled person.

 

7. The skilled person to whom these tests are addressed is the average man of the art. He may be art individual or a team familiar with the field, that will be called upon to solve the difficulties on which the dispute revolves.

 

8. Various subordinate tests have been developed for judging the issue of inventive step, including: whether the invention satisfies a "long-felt need", if it meets with commercial success arising from the advantages of the invention rather than from external market forces, and the reaction of professionals in the field. An invention that satisfies a long-felt need may be art inventive step even if it does not meet with commercial success.

 

9. The purpose of the requirement of sufficiency of the Description is to ensure that the inventor actually had the invention at the time of the application and to inform the public how to perform it, so as not discourage further research in the field and to allow others its lawful use. The sufficiency of the Description is tested against the general professional knowledge existing in the relevant field at the time of the application. The inventor should include in the Description the data which will allow persons skilled in the art to perform it, without requiring of them any inventive step. This does not preclude the possibility of some trial and error, not exceeding that which is reasonable in the circumstances.

Voting Justices: 
Primary Author
majority opinion
majority opinion
majority opinion
Full text of the opinion: 

            CA 345/87

            and Cross-Appeal

        

Hughes Aircraft Company

v.

1. The State of Israel

2. Kaiser Aerospace & Electronics Company

 

 

 

In the Supreme Court Sitting as a Court of Civil Appeals

[July 2, 1990]

Before Shamgar P., Barak J., and Bach J.

 

 

Editor's synopsis -

            Appellant, the Plaintiff in the District Court below, sued the Respondents for infringement of a Patent owned by it, which concerns optical display systems utilizing holographic lenses. Respondent 1, the State of Israel, had ordered from Respondent 2, Kaiser Aerospace & Electronics Co., the manufacture and installation in certain aircraft of head-up display systems (HUD), which the Appellant contended infringed its Patent.

           

            The HUD is an information display system installed in the airplane's cockpit that displays information to the pilot concerning the flight, firing and direction of armaments, radar picture, view of enemy aircraft, and the like. Normally, the pilot obtains such information by reading the various dials and other displays in front of him. The HUD displays this same information on the aircraft's windscreen, facing the outside world. The pilot can read the information without lowering his head toward the dials, while he is watching the outside world, with consequent significant advantage, especially in the case of military aircraft.

           

            The Respondents defended against the Appellant's suit in the District Court on three grounds. First, they denied that they infringed the Appellant's Patent. Second, they contended that the Patent was invalid, arguing that the invention was not novel when it was patented, that it did not constitute an inventive step and that the Description of the invention in the Patent was insufficiently precise. The Respondents' third defense was that they were the beneficiaries of a license granted by the Appellant to the United States government.

           

            The lower court held in favor of the Appellant that the invention was patentable, in that it satisfied the requirements of novelty and inventive step and that the Description was adequate. It also ruled in favor of the Appellant that the Respondents are not beneficiaries of the license granted by the Appellant to the United States. However, it decided the case against the Appellant on the ground that the Respondents had not infringed the Patent, based on its determination of the scope of the Patent as set forth in the Patent Claims filed by the Appellant.

 

            The Appellant appealed this decision to the Supreme Court which, sitting as a court of appeals, reversed the lower court's judgment, in an opinion written by the President, and entered judgment in the Appellant's favor. The Supreme Court ordered the Respondents to abstain from infringing the Patent and returned the case to the District Court to hear evidence concerning the issue of damages. Among the various points of law passed on by the Supreme Court, it held that -

           

1.     If the inventor wants to link a Patent to a specific result, he must claim that result in the Claims section of the Patent. The elements included in a combination patent must also appear in the Claims. In a patent limited by result, the result is one of the components of the invention so the inventor must claim protection for it in the Claims.

 

2.     A Patent should be interpreted as an entirety. Although the patentee may not rely on the Description to claim a monopoly, and what is not included in the Claim is not included in the monopoly, the meaning of the Claim should be interpreted in light of that which is contained in the Description and accompanying drawings. This is so also when the Claim appears to be unambiguous on its face.

 

3.     Even if the Respondents in this case did not infringe the Patent literally, they took the substance of the Appellant's protected invention.

 

4.     The patentee bears the burden of proof on the issue of infringement of the Patent. On the issue of its validity, once registered, the burden of proof is on the party that denies its validity.

 

5.     One may not piece together a claim of non-novelty by combining that which is contained in several earlier documents, unless such combination was obvious and would have been apparent to a person skilled in the an at the time the Patent was issued. The information in the public hands must have been sufficient to enable it to perform the invention. If performing the contents of the prior publication, in light of the knowledge possessed at the time by one skilled in the relevant art, constitutes an infringement of the Patent, then the invention is not novel.

 

6.     The requirement of an inventive step is wider than the requirement of novelty. The invention must also make a material contribution to the field. In judging this issue, one must examine the total an in the field. One may put together different documents, if such joining would have been obvious to a skilled person at the time. On the other hand, the inventive step may consist of the very joining together of such different documents, when such combination was not previously apparent to a skilled person.

 

7.       The skilled person to whom these tests are addressed is the average man of the art. He may be art individual or a team familiar with the field, that will be called upon to solve the difficulties on which the dispute revolves.

 

8.       Various subordinate tests have been developed for judging the issue of inventive step, including: whether the invention satisfies a "long-felt need", if it meets with commercial success arising from the advantages of the invention rather than from external market forces, and the reaction of professionals in the field. An invention that satisfies a long-felt need may be art inventive step even if it does not meet with commercial success.

 

9.       The purpose of the requirement of sufficiency of the Description is to ensure that the inventor actually had the invention at the time of the application and to inform the public how to perform it, so as not discourage further research in the field and to allow others its lawful use. The sufficiency of the Description is tested against the general professional knowledge existing in the relevant field at the time of the application. The inventor should include in the Description the data which will allow persons skilled in the art to perform it, without requiring of them any inventive step. This does not preclude the possibility of some trial and error, not exceeding that which is reasonable in the circumstances.

 

Israel Supreme Court Cases Cited:

[1] C.A. 314/77, L. M. Lipsky Ltd. v. Manor, 32(1) P.D. 205.

[2] C.A. 433/82, Bachri v. Padlon, 39(3) P.D. 533.

[3] C.A. 700/78, Issesco, The International Co. for Solar Energy Systems Ltd. v. Banit, 34(1) P.D. 757.

[4] C.A. 244/72, Plantex v. The Wellcome Foundation Ltd., 27(2) P.D. 29.

[5] C.A. 665/84, sanopy Ltd. Unifarm Ltd., 41(4) P.D. 729.

[6] C.A. 75/55, "Dong-Or" Ltd. v. Aktiebolaget Sievert & Fornander, 10 P.D. 1990.

[7] C.A. 528/61, Greenblad v. "C-B"Ltd., 16 P.D. 2490.

[8] F.H. 20/85, Bachri v. Padlon, 39(4) P.D. 463.

[9] C.A. 118/51, New Zealand Insurance Co. Ltd. v. Yuval, 7 P.D.518.

[10] C.A. 367/68, Mahlev v. The Heirs of the Deceased Aaron David Levy, 22(2) P.D. 606.

 

Israel District Court cases Cited:

[11] C.F. (TA) 2051/69, Inteco Establishment v. Sepeca, 79 P.M. 240.

[12] C.F. (TA) 1290/57, American Cyanamid Co. v. Laftit S.P.A., 42 P.M. 109.

 

American Cases Cited:

[13] Autogiro Company of America v. United States, 384 F.2d 391 (1967).

[14] United States v. Adams, 383 U.S. 39 (1966).

[15] Graver Tank & Mfg. Co. v. Linde Air Product Co., 339 U.S. 605 (1950).

[16] Nelson v. Batson, 322 F.2d 132 (1963).

[17] Anderson's Black Rock v. Pavement Salvage, 396 U.S. 57 (1969).

[18] W.L. Gore & Assoc. Inc. v. Garlack, Inc., 721 F.2d 1540 (1983).

[19] Graham v. John Deere Co., 383 U.S. 1 (1966).

[20] Photo Electronics Corp. v. England, 581 F.2d 772 (1978).

[21] Diamond Rubber Co. v. Consolidated Tire Co., 220 U.S. 428 (1911).

[22] In re Piasecki, 745 F.2d 1468 (1984).

[23] Pauduit Corp. v. Dennison Mfg. Co., 774 F.2d 1082 (1985).

[24] Falkenberg v. Bernard Edward Co., 175 F.2d 427 (1949).

[25] Re Napuin, 398 F.2d 863 (1881).

[26] Webster Loom Co. v. Higgins, 105 U.S. 580 (1881).

[27] Brooks v. Jenkins, 3 McLean 432 (1944).

[28] In re Sherwood, 204 U.S.P.Q. 537 (1980).

[29] Mine Safety Appliances Co. v. United States, 364 F.2d 385 (1966).

 

English cases cited:

[30] British Thompson-Houston Co. Ltd. v. Corona Lamp Works Ltd., (1922) 39 R.P.C. 49 (H.L.).

[31] Catnic Components Ltd. v. Hill & Smith Ltd., [1981] F.S.R. 60 (H.L.).

[32] British United Shoe Machinery Co. Ltd. v. A. Fussel & Sons Ltd., (1908) 25 R.P.C. 631 (C.A.).

[33] Rosedale Associated Manufacturers Ltd. v. Carlton Tyre Saving Co. Ltd., [1960] R.P.C. 59 (C.A.).

[34] Electric & Musical Industries Ltd. and Boonton Research Co. Ltd. v. Lissen and another, (1939) 56 R.P.C. 23 (H.L.).

[35] Clark v. Acke, (1877) 2 App. Cas. 315.

[36] British-Thompson Houston Co. Ltd.; Marconi's Wireless Telegraph Co. Ltd. and Electric and Musical Industries Ltd. v. Guieldford Radio Stores and E.K. Cole Ltd., (1938) 55 R.P.C. 71 (C.A.).

[37] No-Fume Ltd. v. Frank Pitchford Co. Ltd., (1935) 55 R.P.C. 231

[38] Poseidon Industry A.B. and others v. Cerosa Ltd., [1982] F.S.R.

209 (C.A.).

[39] In the Matter of Klaber's Patent, (1906) 23 R.P.C. 461 (H.L.).

[40] Williams v. Nye, (1890) 7 R.P.C. 623 (C.A.).

[41] British Celanese, Ltd. v. Courtaulds Ltd., (1935) 52 R.P.C. 171 (H.L.).

[42] General Tyre & Rubber Co. v. Firestone Tyre & Rubber Co. Ltd., [1972] R.P.C. 457 (C.A.).

[43] British Westinghouse Electric and Manufacturing Co. Ltd. v. Braulik, (1910) 27 R.P.C. 209 (C.A.).

[44] Edison & Swan Electric Co. v. Holland, (1899) 6 R.P.C. 243 (C.A.).

 

Dr. A. Goldenberg, T. Band, R. Luthi, and S. Kolb - for the Appellant (the Respondent in the Cross-Appeal);

A. Gabrielli and A. Levitt - for the Respondents (the Appellants in the Cross-Appeal).

 

 

JUDGMENT

            Shamgar, P.: General

           

            1. This is an appeal against the judgment of the District Court in Tel Aviv-Jaffa, in the matter of a claim of patent infringement, as well as against the decision of the aforesaid Court in a motion to correct an error in the aforesaid judgment. A counter-appeal was submitted by the Respondents concerning the lower court's ruling that each party shall bear its own costs.

           

            2. The Patent forming the subject-matter of the hearing is Patent No. 48719 and it concerns "optical display systems utilizing holographic lenses". The Appellant filed an application to register the Patent in Israel, in which it claimed a privilege under the Paris Convention on Protection of Intellectual Property (1884) pursuant to an application which was filed in the United States on 23.1.1975. The Patent was entered in Israel on 31.7.1977 and was granted on 1.11.1977.

 

 

            In February 1984, the Appellant filed a claim based on the grounds of infringement of the Patent, and in April of that year it filed a petition for a temporary injunction against Respondent 2 and for a declaratory order against the State. Counsel for the parties accepted the lower court's suggestion to hear the main claim directly, in which they sought a permanent injunction against Respondent 2, an order requiring the Respondents to submit reports, a declaration against Respondent 2 and the award of monetary relief.

           

            As is evident from the statements of the lower court, by the time of the hearing before it, Respondent 2 had not yet manufactured the head-up display (abbreviated to and hereinafter "HUD") forming the subject-matter of the dispute. It began to design it following signature of the agreement with Respondent 1. The design was completed in June 1985, and during the hearing before the lower court, Respondent 2 was engaged, as stated in the lower court's judgment, in the preparation of the technical drawings required to manufacture the HUD. The Appellant argued that it is entitled to prevent the manufacture of the HUD and its supply to the State of Israel even before such acts are actually carried out.

           

            3. The Respondents defended against the claim of infringement by way of three lines of defence: First, Respondent l's product does not infringe the Patent. Second, the Appellant's Patent is invalid. Insofar as the second argument is concerned, the Respondents contended that the invention forming the subject-matter of the Patent was not registrable as a Patent for three reasons: the invention was not novel on the date of appearance of the Patent; the invention did not have an inventive step; and the Patent Specification is insufficent. The third line of defence contends that even if the Patent was infringed and even if it is valid, the Appellant licensed the United States government to utilize the Patent, and this licence also applies to the transaction entered into between the Respondents. By agreement between counsel for the parties, opinions were submitted by six experts - three by each party - in connection with the infringement, the validity and the licence.

 

            4. The lower court rejected the Appellant's claim.

           

            In its judgment, the District Court rejected the Respondents' contentions concerning the Patent's validity and the licence, but allowed the contention that the Patent was not infringed. On this question, to which the lower court devoted the majority of the hearing, the Court ruled that one of the elements listed in Claim 1 of the Patent was not proved with respect to Respondent 2's product, and it was therefore not proved that the Patent was infringed. The Appeal deals principally with this issue. In its Appeal, the Appellant also attacks the lower court's decision, after the issuance of the judgment, upon a motion by the Appellant to amend an error in the judgment. In its opinion, allowing the motion would have required overturning the result which the Court had reached and acceptance of the Appellant's claim.

           

            The Respondents ask that the Court reject the Appeal, both for the reasons contained in the lower court's findings and conclusions and for reasons which the lower court rejected or did not refer to, this in the event that we allow the Appeal with respect to the lower court's conclusion on the question of infringement. Along with their pleadings against the Appeal, the Respondents filed, as aforesaid, a Counter-Appeal against the lower court's decision on the matter of costs.

           

            Outline of the Proceedings

           

            5. The Appeals will be considered on the basis of the following:

           

            (a) We will first discuss the technical background of the invention that forms the subject-matter of the Patent.

           

            (b) We will then deal with the question of infringement, the answer to which sealed the Appellant's fate in the lower court. If we conclude in our discussion of this question that the lower court was right in its conclusion, we will naturally be exempt from having to discuss the questions of the Patent's validity and the licence. In such event, we will have to resolve the Appellant's attack against the lower court's decision concerning the motion to correct the judgment.

 

            (c) If we conclude that the Patent was actually infringed, we will also discuss the questions of its validity and the licence. The lower court, which as aforesaid ruled that the Patent was not infringed, saw fit to answer these questions as well, albeit briefly.

           

            (d) Finally, if we find no cause to deviate from the lower court's decisions, the question of costs - the subject-matter of the Counter-Appeal - will arise.

           

            The Technical Background

           

            6. The following are the principal data which are relevant to the matter: The Patent that forms the subject matter of these proceedings deals, as aforesaid, with "optical display systems utilizing holographic lenses", or as Claim 1 of the Patent states, "a display system having a holographic lens".

           

            Although the Patent concerns a head-up display system installed in aircraft, nevertheless, from the wording of the Patent it is evident, prima facie, that it applies to any display system utilizing holographic lenses in the manner set forth and described in the Patent, and that the HUD is just one example (albeit the preferred one) of such a system. This is also evident from the description of the Patent (p. 3) and its specification (p. 27), which notes the holographic HUD and another device installed in a helment as preferred examples of the embodiment of the invention.

           

            With regard to the utilization of the HUD in aircraft, the lower court stated:

           

"The HUD... is an information display system installed in the cockpit that displays information to the pilot, including: information on the flight (altitude and speed etc.), on firing, direction of armaments, radar picture, view of enemy aircraft, and the like. Normally, the pilot obtains the required information from a series of dials and displays in front of him. By displaying the information on the aircraft's windscreen, facing the outside world, the pilot does not have to lower his head toward the dials. He can read the information while he is watching the outside world. This is an enormous advantage to a pilot who must act quickly, respond immediately and work with maximum concentration. Consequently, the HUD became a hit in airplanes in general and in combat planes in particular".

 

            The utilization of the HUD itself was already known several years before the Patent in question came into existence. However, this was a HUD, in various transformations, whose entire operation hinged on conventional optical lenses, which limited the ability to utilize the device and realize its advantages. The development of the holographic HUD was designed to remove these limitations.

           

            In order to understand how the HUD works, we would do well to describe the device's various components, in the words of the lower court:

           

"The conventional HUD uses a cathode ray tube ("CRT") similar to that of an ordinary TV set. It would be convenient to use Fig. 15 of the Patent to demonstrate how it works. I will therefore set it forth here:

       The information which one wants to screen to the pilot is displayed on the CRT (numbered 176 in this drawing) similarly to the manner in which an image is displayed on a TV screen. (The picture appearing on the CRT screen is called the 'object plane' and it is numbered 176 - M.S.). The light emitted by the screen passes through a 'relay lens' (numbered 180 on the drawing), hits the folding mirror (numbered 182 on the drawing) and is reflected to a transparent plate called a combiner (located at number 168 - M.S.). On the way to the combiner, the light rays pass through a 'collimator', which is a lens that converts the beams focused on it to parallel rays. The combiner is located between the (eye of) the pilot at point 184 of the drawing and the aircraft's canopy (numbered 160 on the drawing). The combiner is a plate made of glass, which is partly coated with silver, that acts as a kind of selective mirror. It reflects the light reflected to it from the folding mirror toward the pilot, but it simultaneously acts as a transparent plate through which the pilot can see the outside world. The combiner allows about 30% of the light coming from the CRT to be reflected by the aforesaid mirror horizontally to the pilot's eyes. The remaining 70% of the light passes through the mirror as if it had passed through ordinary glass and does not reach the pilot's eyes. When the pilot looks at the mirror he can see the 30% of the light from the CRT, although not clearly and strongly and, as stated, he can also see the outside world through it. The result is that the information reaching the pilot's eye from the CRT is visible to him superimposed on an image of the outside world, which he sees through the same mirror. Due to this combination, the pilot actually sees only 70% of the outside light, so his picture of the outside world is slightly dimmed, but on the other hand, he receives the screening of the information superimposed on a picture of the outside world. The combiner, thus, combines the information coming from the CRT and a view of the outside world".

 

7.  The conventional HUD had three main drawbacks:

 

            (a) A narrow Immediate field of view: The display reached the pilot's eye at an angle of about 15-16 degrees, and any movement by him outside this narrow range prevented him from receiving the information through the HUD.

           

            (b) A dim picture of the outside world: Due to the combination of the light coming from the CRT and the outside light, only 70% of the outside light reached the pilot's eye, the effect of which was similar to placing sunglasses on the pilot's eyes, which was a significant limitation, particularly at times or in places of limited visibility.

           

            (c) Glare: The combiner acted as a mirror not only for the light coming from the CRT, but also for light beams coming from other angles and of other colors, which interfered both with the pilot's view of the outside world and with his reading of the information reflected by the combiner.

           

            Beginning at the end of the sixties, various attempts were made to improve the HUD, with the aim of solving the problems described above. The lower court cited, for example, the attempts in this field made by the Farrand and Marconi companies, but they did not go beyond conventional optics, and counsel for the parties were divided as to the degree of success of those attempts.

           

            8. Still another attempt to improve the HUD, which is relevant to the present case, sought to go beyond conventional optics and to harness the technique of holography to the HUD. The hologram was invented in 1948 by Dennis Gabor, and to understand its principles and how it works we will rely on the statements of Advocate Gabrielli, learned counsel for Respondent 1, as set forth in the lower court's judgment:

           

            "The hologram is created by a series of dense lines which are formed on a photosensitive film by two laser beams, which are applied to the film from different directions to form a series of dense lines. The development of this system was known as a hologram. The hologram is able to bend light beams by diffraction. There are two main types of holograms: transmissive and reflective. The first is formed by two laser beams striking the film from the same direction, whereas the second is formed by two laser beams aimed at the film from two different directions. Whereas a mirror reflects an image, and a lens works by refraction, a hologram works by diffraction. Each of the above optical effects has the practical effect of repositioning or realigning the light beams".

 

            The harnessing of the hologram for use in the HUD began in the early seventies. In the holographic HUD, the combiner is a hologram (number 168 on the above drawing). The lower court described its operation as follows:

           

"The holographic combiner may be considered a selective mirror. It acts as a mirror for light of a certain frequency, i.e. of a certain color, coming from a certain pre-determined angle, and reflects it to a certain pre-determined range. For light of a different frequency, i.e. of a different color, or light coming from a range of different angles, it acts as transparent glass and allows it to pass through without reflecting it. It is made of a material similar to that found on an ordinary photographic film which is applied to a sheet of glass or another transparent base. As stated earlier, two laser beams are reflected onto it, one called the 'object beam' and the other called the 'reference beam'. The following drawing demonstrates these two beams which create the holographic combiner:

 

  After the projection, the transparent plate is developed in the same way as the development of a photographic film, which is how the holographic combiner is formed. When light moves toward the holographic combiner in the same direction as one of the light beams reflected onto it as described above, the light will be reflected back to the original direction of the other laser beam. This is the optimum reflection angle which yields maximum optical efficiency. Light which moves toward the combiner at a substantial deviation from the direction of one of the light beams which were originally reflected will not be reflected at all. Light striking with a small deviation will be reflected, but with inferior optical efficiency. This is called 'angular sensitivity'. As stated earlier, the light striking the combiner is reflected to a specific angular range. The manner in which a person looking at the combiner will see the light reflected from it depends on his position. If he views it from a direction within the range of the angles to which the light is reflected from the combiner, he will see the light at varying strengths. The more he shifts from the optimum angle of reflection, the weaker the reflected light he will see. If it is viewed from outside the range of angles to which the light is reflected, he will see nothing at all".

 

            9. The holographic HUD was intended to solve the three drawbacks listed earlier, which limited the use of the conventional HUD. The use of a holographic combiner did indeed solve the problem of dimness of the picture. The hologram's selectivity with respect to the various angles from which the light was coming and its various frequencis (i.e. colors) made it possible for almost all the light beams from the outside world to reach the pilot's eye, together with most of the light beams from the CRT screen. This feature of the hologram also eliminated the phenomenon of glare.

           

            As described above, in order to achieve maximum optical efficiency in utilizing the hologram, it was necessary to build it in such manner that the laser beams would be projected onto the surface which was to serve as a holographic combiner in exactly the same angles at which the light would be projected from the CRT screen, until it reaches the pilot's eye. Once the hologram was built in this way, there was formed a kind of imaginary exact route for the information picture, which could "travel", as it were, by the route created when the hologram was built, to arrive in full at the pilot's eye, without any of this light escaping from the hologram to the outside world. On the other hand, light beams from the outside world, arriving in different frequencies and from different directions, were completely unaffected by this imaginary route and passed in their entirety to the pilot. This feature was called a "selective mirror". The technical terminology for this optimum situation is that the principal beams of the system satisfy the state called the "Bragg condition".

 

            Another important point must be added. As mentioned earlier, the picture coming from the CRT to the combiner is superimposed on the view of the outside world. The pilot's eye cannot focus simultaneously both on the picture of the outside world and on the information picture superimposed on it, because, just like any other lens, the human eye must focus itself according to the distance of the object from it. Since the outside picture reaches the pilot, for focusing purposes, from "infinity", the information picture displayed on the HUD must also come, as it were, from infinity, for the pilot to be able to see it simultaneously and clearly. In terms of optics, this means that the information picture must reach the pilot's eye in parallel light beams.

           

            The two features described above were achieved in the production of the hologram by placing one laser source (the object beam) at the location of the image plane (the CRT screen) and placing the other source (the reference beam) at theoretical infinity. Thus when the combiner is in operation, the light moves from the surface of the image by the imaginary route fixed for it, reaches the pilot in full and is visible to his eye at the exact same focus as the light from the outside world.

           

            10. The manufacturing configuration described above, which the parties called the "conventional configuration", indeed gave the HUD maximum optical efficiency, but it created new limitations for users. First, the considerable angular sensitivity of the hologram narrowed the immediate field of view of the pilot to an even greater extent than that of the conventional (non-holographic) HUD. The effective angle of view of the information was reduced to l0 to 15 degrees. Second, there arose a problem of aberration of the light beams reaching the pilot from the CRT. This aberration phenomenon distorted the information picture in various ways: instead of a sharp picture, the pilot saw a "comet" or "cloud". Aberrations of various types caused "clouds" of various types. Furthermore, attempts to solve the first problem, i.e. the narrow field of view, exacerbated the problem of optical aberrations, and vice versa.

 

            The Appellant argued that it was the first in the world to deviate from the conventional configuration for construction of the holographic HUD. This deviation allowed it to break out of the circle of inter-relationships between the problems of field of view and aberrations. By means of the deviation, they obtained from the combiner aberrations of a type which could be compensated for by a system of conventional optical relay lenses.

           

            The substance of the Appellant's development was moving the laser sources used to build the holograms from their "traditional" positions - i.e. the image plane and infinity - to other positions, called "entry pupil" and "exit pupil". The exact location of these positions, as well as the definition of the laser sources themselves, will be clarified later.

           

            This manufacturing configuration resulted in a discrepancy between the construction geometry of the hologram and its utilization geometry. The significance of this discrepancy is reflected in a loss of optical efficiency in the area of the center of the image. However, the new construction made it possible for the first time to achieve high optical efficiency with a wide field of view, while obtaining certain aberrations which could be corrected by the relay lens. The professionals called the aberrations which arose in the system "axial astigmatism" and "axial coma". The former refers to a change in the focal point in the horizontal and vertical directions, and the latter refers to an aberration which causes a sharp image to look like a "comet" at the center of the field of view.

           

            Regarding the deviation from the conventional configuration, I note that there is no dispute that this deviation was already known at the relevant time, so it is not a novelty in the Appellant's Patent. Learned counsel for the Respondent argued that the Appellant presented the deviant technique, in its pleadings and before the lower court, as if it is part of the novelty of the invention. However, a study of the pleadings and of the lower court's judgment shows that no such representation was made, and all that the Appellant stated was that it had developed the new technique, although prior to the Patent.

 

            11. The following are the relevant sections of the Patent:

           

            Claim 1 of the Patent that forms the subject-matter of this proceeding, which as usual is the widest and most encompassing of all the claims, defines the invention that is protected by the Patent as follows:

           

"A display system having a holographic lens constructed with two coherent sources located relatively close to entrance and exit pupils thereof, and which deviates the axial ray coming from an object surface through an off-axis angle into an exit pupil and which has a focal surface with axial coma and axial astigmatism, said display system having: first, means along said axial ray between said object surface and said holographic lens to compensate said axial coma, and second, means along said axial ray between said object surface and said holographic lens to compensate said axial astigmatism."

 

            For the purpose of the hearings, the lower court simplified the wording of the Claim, marking with an asterisk those terms whose interpretation was disputed by the parties:

           

"The Claim is for a display device with a holographic combiner formed by two laser beams. The sources (*) of these light beams are located relatively close (*) to the places known by the name entrance pupil and exit pupil (*). The holographic combiner causes the light beam which strikes it and which comes from the CRT (i.e. the image plane) to shift, by means of the off-axis angle, into the exit pupil. The combiner has a focal plane which has optical aberrations (*), known as axial coma aberrations and axial astigmatism aberrations. The aforesaid device has means, along the axial beam (between the CRT and the combiner), for compensating these aberrations, one to compensate the coma aberrations, the other to compensate the astigmatism aberrations (*)".

 

            The following extracts from the Specification of the Patent are relevant for our purposes, in addition to the Claims:

           

            "Background of the Invention

           

            1. Field of the Invention

           

This invention relates to display systems utilizing holographic lenses and more particularly to a display system incorporating a holographic lens constructed with aberrated wavefronts which is used in conjunction with other optical elements including cylindrical, tilted and decentered surfaces to provide correction of the aberrations in the holographic lens.

 

2. Description of the Prior Art

The holographic lens is constructed with coherent sources located close to or at the desired entrance and exit pupil locations of the holographic lens, so that the Bragg condition is met for the chief rays, thus providing a high reconstruction efficiency across a large field of view.

Unless compensation is provided for the aberrations in the holographic lens operating at a relatively large off-axis angle, the display provides a very poor image quality that may be unsatisfactory for operations such as helmet-mounted display or aircraft head-up displays.

 

Summary of the Invention

 

Briefly, this invention is a display system such as a helmet-mounted display or a head-up display utilizing a holographic lens operating at a relatively large off-axis angle and with a relatively large field of view. The observer looks through the holographic lens at a scene which is a collimated virtual image of an object surface projected through optics including a relay lens. The holographic lens is constructed with aberrated wavefronts to minimize the variation of astigmatism across the field, the aberrated wavefronts being obtained by means such as by placing tilted cylindrical elements in the hologram construction optics. The relay lens may contain cylindrical surfaces which primarily permit the compensation of the axial astigmatism in the holographic lens. The relay lens may also include a prism system, tilted glass plates or lenses, or decentered lenses to compensate for axial coma in the holographic lens.

 

Objects of the Invention

 

It is therefore an object of this invention to provide a display system having good image quality over relatively large fields of view and obtained by utilizing a holographic lens in conjunction with other optical elements.

 

It is another object of this invention to provide a display system in which an image of an object is collimated by a holographic lens to provide a high quality image of the object located at infinity and clearly viewable by an observer located at the exit pupil of the holographic lens.

 

It is another object of this invention to provide a high quality display system utilizing a holographic lens operating at a relatively large off-axis angle in conjunction with other optical elements...

 

It is still a further object of this invention to provide a holographic head-up display that provides good image quality while operating at a relatively large off-axis angle and having a relatively large field of view."

 

            12. The parties also disputed the scope of the Patent before the lower court. Learned counsel for the Respondents (the Defendants in the lower court) argued that the Patent is applicable, if at all, only to correction of the aberrations in the manner mentioned in Claim 1. All the other elements mentioned in the Specification - such as the holographic HUD, the holographic combiner made with aberrated wavefronts, the use of a holographic combiner together with an optical relay comprising tilted and decentered lenses, the use of an optical relay to correct aberrations orginating from the holographic combiner, and the specific aberrations mentioned in Claim 1 - all these, it was argued, were known on the date of filing of the Patent in the United States. This is evident, contends counsel for the Respondents, from the chapter dealing with the "Background of the Invention", a passage from which was cited above.

 

            On the other hand, learned counsel for the Appellant (the Plaintiff in the lower court) argued that the invention refers to a holographic HUD with a wide field of view. The system may well comprise a combination of several components, some of which may have been known previously, but this is a combination patent which was granted for a combination of the assembly of components into a single unit, and we should not break down the invention into its components and distinguish between those which were already known and those which were not. In a combination patent, the invention is embodied in the final combination of several components which gives birth to a whole new system which had never before been made, and which entails an inventive step.

           

            Regarding the mention of the components in the chapter "Background of the Invention", the lower court ruled:

           

          "If an inventor has claimed in the Specification that certain matters were 'prior art' at the time he prepared the Patent, he cannot claim those matters or any part of them in the Claim. Even if he erred in writing whatever he wrote, he is bound by his mistake and we do not have to look at the sources of the prior art to determine whether such matters are actually so or not".

           

            However, the lower court accepted the Appellant's argument that the Patent in question is a combination patent, saying:

           

            "After reading the Claims, against the background of the Specification, parts of which were cited above, and in view of the experts' testimony... I conclude that Claim 1 of the Patent is for the HUD in its entirety and not only for the correction of the aberrations mentioned therein. It is true that certain parts and subjects of the HUD were not novel, but were known previously. However, the creation of the new holographic HUD, with the innovations and corrections which were made as aforesaid, is the invention forming the subject-matter of the Patent".

 

            In his argument in the Appeal, learned counsel for the Respondents, Advocate Gabrielli, did not dispute the finding that the Patent is a combination patent, subject, of course, to his arguments regarding the Patent's invalidity. Mr. Gabrielli agreed during the hearing before us that:

           

"The combination of the Patent is a combination of a holographic lens made with sources near the pupils, together with means of correction or compensation which neutralize the aberrations formed".

 

The Question of Infringement

 

            13. Section 13 of the Patents Law 5727-1967 (hereinafter "the Law") provides -

           

"The specification shall end with a claim or claims defining the invention..."

 

Pursuant to Section 49 of the Law:

 

"A patentee is entitled to prevent any other person from exploiting, without his permission or unlawfully, the invention for which the patent has been granted, whether in the manner defined in the claims or in a manner similar thereto and involving the main features, as defined in the claims, of the invention which is the subject-matter of the patent (exploitation as aforesaid hereinafter referred to as "infringement")".

 

            From this it follows, that the scope of the legal protection of the patent, or - as it is commonly termed, the "scope of the monopoly of the patent" - must be determined by the definition in the Claims. However, apart from the Claims, the Specification of the Patent also contains another part, the Description of the Patent. The function of the Description is to set forth the background of the Patent and describe its nature, its purposes and how it works. The function of the Claims is to define precisely and carefully the scope of the monopoly. The description sometimes includes drawings. The lower court defined the relationship between the components of the Specification, with respect to the interpretation of the Patent and the determination of its scope:

 

"...The interpretation of a patent is no different from the interpretation of any other document... It should be interpreted as an 'integrated and complete document' and one may not disconnect one part from another artificially. Therefore, one should not separate the Claims from whatever precedes them, as if they had been created anew. However, when the court is required to interpret whether an infringement occurred, it will first refer to the Claims, and it will refer to the Description of the Patent only if it finds it difficult to explain the Claims or if it encounters unclarity.

Thus, the proper manner of interpretation is to read the Claims and interpret them standing by themselves, and if they are unclear, reference may be made to the Description in the Specification in order to clarify them or to understand what the inventor meant when he drafted the Claims as he did. In any case, the Description cannot enlarge or narrow the content of the Claims".

 

            With regard to the interpretation of the terms appearing in the Specification, the lower court stated:

           

"As stated earlier, the interpretation of a document is generally a legal question which the court must decide, but when the court interprets technical terms appearing in a patent Specification, it must interpret them as they are understood by members of the profession, as established by the testimony of experts in that field. One may also bring evidence that technical and scientific terms appearing in the Specification may be given different interpretations, depending on the context in which they appear.

 

Sometimes, terms in the Patent should not be given their ordinary and usual technical meaning, if the patentee gave them a different meaning in the Specification, on the basis of which he worded the Patent".

 

            As concerns the importance of the drawings in the Description, the lower court stated:

           

"The first part of the Specification (the Description) sometimes also contains drawings. These drawings - which are naturally attached to the Description related to them - also play a part whenever the Description on its own is insufficiently clear".

 

            14. Thus, the interpretation of a patent is no different in substance from the interpretation of any other document, and the normal principles of interpretation applying to documents will also be applicable to a patent. However, caution is called for in interpretation due to the special nature and power of a patent, in that it accords a form of market monopoly. It is a basic principle of interpretation that a patent must be read as a whole document, in order to discover the inventor's intent, as expressed in the document. As Judge Asher said in C.F. (TA) 2051/69 [11] at page 247, "It cannot be said that the claims should be separated from whatever precedes them, as if they had been created anew". Therefore, the Patent Claims should not be read in isolation from the Description and the drawings. Although the Patent is intended primarily for the professional in the relevant field, and it should therefore be interpreted in the light of the professional knowledge which existed at the relevant time, nevertheless, since the aim of the task of interpreting the Patent is to discover the inventor's intent, a certain degree of flexibility is allowed in giving meaning to the terms and expressions appearing in the Claims, and the Patent Description may serve as a glossary for these terms and expressions. In other words, the inventor may be, to a certain degree, the lexicographer of his invention.

 

          As Viscount Haldane said in a famous judgment of the House of Lords, to which I will return later, British Thompson-Houston Co. Ltd. v. Corona Lamp Works Ltd. (1922) [30], at 67 (hereinafter - "the Corona case"):

 

"We have to scan the Specification with the closeness which is required in the case of any instrument conferring a monopoly, but, subject to this, all we can legitimately do is to apply the ordinary rules for the construction of written instruments. One of these... is that the instrument must be read as a whole. The Claiming Clauses, for example, are not to be taken as standing in complete isolation. For if the Patentee has used in these clauses expressions which he has already adequately interpreted in the body of his Specification, he is entitled to refer to the Specification as a dictionary in which the meaning of the words he uses has been defined."

 

          See also the statements of Lord Diplock in Catnic Components Ltd. v. Hill & Smith Ltd. (1981) [31], at 65-66:

         

          "My Lords, a patent specification is a unilateral statement by the patentee, in words of his own choosing, addressed to those likely to have a practical interest in the subject matter of his invention (i.e. 'skilled in the art'), by which he informs them what he claims to be the essential features of the new product or process for which the letters patent grant him a monopoly... A patent specification should be given a purposive construction rather than a purely literal one derived from applying to it the kind of meticulous verbal analysis in which lawyers are too often tempted by their training to indulge."

 

          See also: T. A. Blanco White, Patents for Inventions, (London, 5th ed., 1983) 9-15, 130-131; T. Terrell, On the Law of Patents, (London, l3th ed., by W. Aldous and others, 1982) 72; H. G. Fox, The Canadian Law and Practice Relating to Letters Patent for Inventions, (Toronto, 4th ed., 1969) 215- 218.

         

            The separation between the Claims chapter and the Description chapters was not the common practice in former times, but it was a natural development arising from the inherent tension between the need to delimit the monopoly on the one hand, and the duty to disclose to the public detailed information on the manner of embodiment of the invention, on the other hand. This tension, and the nature of the Claims chapter of the Specification, was discussed by the House of Lords in British United Shoe Machinery Co. Ltd. v. A. Fussel & Sons Ltd. (1908) [32], at 650:

           

"Correct delimitation was of the greatest possible importance to the inventor, because if his Patent covered something which was old the Patent was wholly bad. At the same time there was the danger of confining himself to a mere outline which gave delimitation but did not tell the public the best way within those limits of performing his invention. The one duty required him to state his invention in its most general form and the other duty required him to state it in its best and therefore in a very special form. Out of that has arisen the practice, which originally was perfectly optional, of having a separate part of the Specification primarily designed for delimitation."

 

            In light of the foregoing, I do not believe that we should accept the interpretative approach of the lower court, to the effect that the Claims should be interpreted on their own, and that reference may be made to the Description only if they are found to be unclear on their face. Although this approach was typical of court rulings in the past (see, for example, the references cited by Fox, supra, at 217, and the same might be deduced from Judge Asher's statements in C.F. (TA) 2051/69 [11], at p. 250), it nevertheless leaves the recital of information and the facts incomplete, and the courts have not continued to adopt it, as is evident from the statement of Master of the Rolls Evershed:

           

"It is... legitimate and appropriate in approaching the construction of the claims to read the specification as a whole. Thereby the necessary background is obtained and in some cases the meaning of the words used in the claims may be affected or defined by what is said in the body of the specification." (Rosedale Associated Manufacturers Ltd. v. Carlton Tyre Saving Co. Ltd. (1960) [33], at 69.

 

          The logic underlying this interpretative approach was discussed by the American Court of Claims in Autogiro Company of America v. United States (1967) [13], at 396-97:

         

          "Claims cannot be clear and unambiguous on their face. A comparison must exist. The lucidity of a claim is determined in light of what ideas it is trying to convey. Only by knowing the idea, can one decide how much shadow encumbers the reality. The very nature of words would make a clear and unambiguous claim a rare occurrence...

 

Allowing the patentee verbal license only augments the difficulty of understanding the claims. The sanction of new words or hybrids from old ones not only leaves one unsure what a rose is, but also unsure whether a rose is a rose. Thus we find that a claim cannot be interpreted without going beyond the claim itself. No matter how clear a claim appears to be, lurking in the background are documents that may completely disrupt initial views on its meaning."

 

          This interpretative rule is also expressed in the Patent Convention of the European Economic Community, which expressly provides that the Claims should be interpreted in the light of the Description and the drawings (Community Patent Convention, 1975, Art. 69; W.R. Cornish, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (London, 2nd ed., 1989)).

         

          Incidentally, German law has adopted the liberal approach according to which the Claims are merely the basis for delimiting the invention, which is discovered by reading the Description and the drawings and by examining the total knowledge in the relevant technical field (E. Reimer, Patentgesetz und Gebrauchmustergesetz, 3 Auflage (1968)).

         

          Thus, the proper interpretative approach is to interpret the terms and expressions appearing in the Claims in the light of the other parts of the Specification, with the aim of giving those terms and expressions the meaning which the inventor chose to give them. The meaning may be wide in scope or it may be narrow, provided that it is based on the Patent and is understandable to the professional (the man of the art) at the time of the Patent.

 

            However, a distinction must be made between the manner in which the understanding of the monopoly can be widened and explained, and the delimitation of the invention. As stated earlier, reference may be made to the Description in order to better understand the monopoly; but it is not possible to rely only on the Description in order to claim a monopoly. What is not included in the Claims is not included in the scope of the monopoly:

           

"The function of the claims is to define clearly and with precision the monopoly claimed, so that others may know the exact boundaries of the area within which they will be trespassers. Their primary object is to limit and not to extend the monopoly. What is not claimed is disclaimed. The claims must undoubtedly be read as part of the entire document and not as a separate document; but the forbidden field must be found in the language of the claims and not elsewhere... A patentee who describes an invention in the body of a specification obtains no monopoly unless it is claimed in the claims." (Electric & Musical Industries Ltd. v. Lissen (1939) [34], at 39, per Lord Russell of Killowen).

 

            The above principle was summarized by the United States Supreme Court, per Justice Clark, as follows:

           

"While the claims of a patent limit the invention, and specifications cannot be utilized to expand the patent monopoly... it is fundamental that claims are to be construed in the light of the specifications and both are to be read with a view to ascertaining the invention..." (United States v. Adams (1966) [14], at 48-49).

 

Fox summarized the matter as follows, supra, at 218:

 

          "The true rule is that, in construing the claims, reference may be made to the body of the specification for the purpose of interpreting the phraseology used, but, once the true meaning of the claims is arrived at, it is not legitimate to add to, subtract from, or in any way vary their scope by reason of matters that appear in the body of the specification."

           

            15. As stated in Section 49 of the Law, the protection accorded to the patentee applies not only to literal infringement of the Patent, but also to the taking of the substance of the invention, i.e. its content and essence, or in the words of English law - the "pith and marrow" of the patented invention. The basis of this principle is in the aim underlying patent law - to protect inventions, not drafting.

           

            Learned counsel for the Respondents contended that the Appellant is estopped from claiming that the substance of the invention was infringed. The Appellant relied in its pleadings at all times on literal infringement of all elements of the protected invention, and it should have pleaded separately, and proved with evidence, infringement of the substance of the invention. The lower court rejected the first argument on the basis of the facts, since it determined that one cannot conclude from the Appellant's arguments that it limited its claim to literal infringement only. However, the court accepted the second argument, ruling that the Appellant failed to submit sufficient evidence to prove infringement of the substance of the invention, an argument which was raised indirectly, during summation. There was a procedural arrangement between the parties that all evidence on technical matters would be submitted to the lower court in written opinions, and in this framework the question of the substance of the invention was not analyzed at all.

           

            In my opinion, this approach is not acceptable, because it is not based on the wording of the law or on any concept underlying the protection of the invention from the taking of its substance. When patent infringement is claimed, the court must delimit the monopoly protected by the Claims, which entails interpretation of the Claims, according to the principles enumerated above. The task of interpretation is given to the court, which considers all the evidence before it and defines the scope of the monopoly. Forbidden entry into this area constitutes infringement of the patent, and for this purpose, no distinction is made between literal infringement and taking its substance:

 

"The substance of the invention must be proved from the content of the Patent Claims - as provided by Section 49 of the Law... What the Claims mean, and what is the substance of the invention defined in the Claims, is a question of law to be resolved by the court..." (C.F. (TA) 2051/69 [11], at p. 245).

 

            Section 49 of the Patents Law follows this path and includes in the term "infringement" both of the above types of infringement (see also C.A. 314/77 [l], at p. 213). This is also the opinion prevailing today in English law, particularly since the statements of Lord Diplock in the Catnic case [31], supra, at 65:

           

"... both parties to this appeal have tended to treat 'textual infringement' and infringement of the 'pith and marrow' of an invention as if they were separate causes of action, the existence of the former to be determined as a matter of construction only and of the latter upon some broader principle of colourable evasion. There is, in my view, no such dichotomy; there is but a single cause of action and to treat it otherwise, ... is liable to lead to confusion."

 

And see also Blanco White, supra, at 21:

 

"The question of immaterial variations was in most older cases treated either by saying that a claim could be infringed by anything 'substantially' within it; or by treating questions of infringement as if there were two sorts of infringement, 'textual' infringement by things actually within the language of the claim and 'infringement by taking the pith and marrow of the invention' by things not quite within the claim. The more recent cases implied that whichever way the point was phrased, the question was primarily one of interpretation of the claim, although at some point it merged into a residual question of 'fact and degree'. ... It is now clear, however, that there is only one sort of infringement and that the whole matter depends on correct interpretation of the claim."

           

            See also Cornish, supra, at 159.

           

            This conclusion is consistent with the logic underlying the expansion of the protection of patent law beyond literal infringement. The words of the American Supreme Court in the leading case on the subject are apt:

           

"In determining whether an accused device or composition infringes a valid patent, resort must be had in the first instance to the words of the claim. If accused matter falls clearly within the claim, infringement is made out and that is the end of it. But courts have also recognized that to permit imitation of a patented invention which does not copy every literal detail would be to convert the protection of the patent grant into a hollow and useless thing. Such a limitation would leave room for - indeed encourage - the unscrupulous copyist to make unimportant and insubstantial changes and substitutions in the patent which, though adding nothing, would be enough to take the copied matter outside the claim, and hence outside the reach of law. One who seeks to pirate an invention, like one who seeks to pirate a copyrighted book or play, may be expected to introduce minor variations to conceal and shelter the piracy. Outright and forthright duplication is a dull and very rare type of infringement. To prohibit no other would place the inventor at the mercy of verbalism and would be subordinating substance to form. It would deprive him of the benefit of his invention..." (Graver Tank & Mfg. Co. v. Linde Air Product Co., (1950) [15], at 607, per Jackson J.).

 

            In practice, literal infringement hardly exists, because it would frustrate the infringer's aims. Generally, the infringer would not follow the wording of the claims exactly, but would attempt to show that the product which it is claimed infringes differs from the protected invention (Clark v. Acke (1877) [35], at 320; Lipscomb's Walker, On Patents (New York-San Francisco, 3rd ed., by E. B. Lipscomb III, Vol. VI, 1987) 512; C.F. (TA) 2051/69, supra, at p. 248), and there is no logical reason to demand the setting forth of separate and additional facts for assessing the question of the substance of the invention.

 

            16. The taking of the substance of an invention may be accomplished in a variety of ways, depending on the imagination and sophistication of the patentee's competitor. Therefore, one should not fix rigid rules for identifying these ways. In English law, the doctrine of variations is applicable on this point, according to Which, variations in the components of a protected invention that do not affect the functioning of those components as claimed in the Patent will not protect from a charge of infringement:

           

"... the claims must be read as covering the taking of the substance of what is claimed with 'immaterial variations'... there must, as compared with what is claimed, still be 'substantially the same parts acting upon each other in substantially the same way' (Rodi & Wienenberger v. Showell, (1969) R.P.C. 367 at 381)." (Blanco White, supra, at 19).

 

            The determination whether the variations affect the functioning of the invention is made in light of the contents of the Patent and the professional knowledge in the relevant field as it existed on the date of filing of the application for the Patent. The question is, in every case, whether the experts who read the Patent would have understood that the inventor intended that utilization of any component of the invention exactly as described in the Patent would constitute a significant and critical requirement for protection, or whether changes to any such component, which do not significantly affect the functioning of the invention, would fall within the ambit of the Patent. As Lord Diplock said in the Catnic case [31], at 66:

 

"The question in each case is: whether persons with practical knowledge and experience of the kind of work in which the invention was intended to be used, would understand that strict compliance with a particular descriptive word or phrase appearing in a claim was intended by the patentee to be an essential requirement of the invention so that any variant would fall outside the monopoly claimed, even though it could have no material effect upon the way the invention worked.

 

The question, of course, does not arise where the variant would in fact have a material effect upon the way the invention worked. Nor does it arise unless at the date of publication of the specification it would be obvious to the informed reader that this was so. Where it is not obvious, in the light of then-existing knowledge, the reader is entitled to assume that the patentee thought at the time of the specification that he had good reason for limiting his monopoly so strictly and had intended to do so, even though subsequent work by him or others in the field of the invention might show the limitation to have been unnecessary. It is to be answered in the negative only when it would be apparent to any reader skilled in the art that a particular descriptive word or phrase used in a claim cannot have been intended by a patentee, who was also skilled in the art, to exclude minor variants which, to the knowledge of both him and the readers to whom the patent was addressed, could have no material effect upon the way in which the invention worked."

 

            This statement was innovative when it was made, but today it is the prevailing rule in England and in the courts of common law countries (see for example the references of the Court of Appeals cited by Cornish, supra, at 162 n. 20).

           

            The taking of the substance of the invention is also possible by replacing the components protected in the Patent with other, different components. To cope with the problem of infringements of this type, the doctrine of equivalency was developed. In the United States, this doctrine is the main yardstick for testing the substance of the invention, and it was described in Graver Tank [15], supra, at 608-609, as follows:

           

          "The essence of the doctrine is that one may not practice a fraud on a patent... 'To temper unsparing logic and prevent an infringer from stealing the benefit of the invention' a patentee may invoke this doctrine to proceed against the producer of a device 'if it performs substantially the same function in Substantially the same way to obtain the same result.' The theory on which it is founded is that 'if two devices do the same work in substantially the same way, and accomplish substantially the same result, they are the same, even though they differ in name, form or shape'... What constitutes equivalency must be determined against the context of the patent, the prior art, and the particular circumstances of the case... It does not require complete identity for every purpose and in every respect... Consideration must be given to the purpose for which an ingredient is used in a patent, the qualities it has when combined with the other ingredients, and the function which it is intended to perform. An important factor is whether persons reasonably skilled in the art would have known of the interchangeability of an ingredient not contained in the patent with one that was." (References omitted - M.S.)

 

            Accordingly, the replacement of a component of the invention will not prevent a conclusion of infringement if the competing product functions in a substantially identical manner to the invention, which is accomplished by substantially identical means to those claimed in the Patent. It is not enough that the functioning of the competing product is identical to the functioning of the invention, and there is no infringement merely because both accomplish the same result. For the competing product to invade the protected territory, the ways and means of attaining the function or accomplishing the result must also be identical (see Lipscomb's Walker, supra, (vol. VI), at 549-554). The doctrine of equivalency also prevails in English law, where it is called the "doctrine of mechanical equivalency". Where a minor and non-essential component of the invention is involved, there will be an infringement, both when the component was replaced by an equivalent component and when the component was omitted completely from the infringing product:

           

"It is... clear law that if a feature is not an essential of the claim, a device having such features as are essential will fall within the claim, whether the inessential integer is replaced by something else or omitted altogether..." (Blanco White, supra, at 20).

 

            Another principle is that the greater the contribution of the invention to the professional field, the more the courts will tend to widen the territory protected by the Patent:

           

"Since the purpose of the doctrine of equivalents is to give the inventor an opportunity to secure a just reward for his invention - an opportunity which he would otherwise be denied because of the failure of the language of his claim to include devices which were in fact the same as his own in function, means, and result - the degree of protection afforded beyond the language of the claims will vary directly with the value of the inventor's contribution to the art. As the principle is commonly put, the inventor is entitled to a range of equivalents commensurate with the scope of his invention: broad if his invention is broad; narrow if his advance is a small one in a crowded field." (Nelson v. Batson (1963) [16], at 135; Lipscom's Walker, supra, vol. VI, at 546-547; 60 Am. jur. 2d (New-York and San Francisco, 1987) 630).

 

            17. The doctrine of variations and the doctrine of equivalency are, as stated above, the yardsticks for testing whether the substance of the invention was taken, and I do not accept the Respondents' contention, which the lower court did accept, that it is doubtful whether the latter doctrine was adopted by Israeli law. I can only cite the words of Judge Asher in the aforesaid C.F. (TA) 2051/69 [11], at page 250):

           

"Anyone who takes the important parts of an invention and uses them to make his product - will be deemed to have infringed the Patent, even if he did not use unimportant parts of it, or changed those parts, or replaced them with equivalent parts... It appears to me that when the legislature spoke of the 'substance of the invention' in Section 49 of the Law, it meant the doctrine of the 'pith and marrow' as described above, no more and no less" (Emphasis added - M.S.).

 

            Furthermore, this Court has ruled that "the doctrine of equivalency is a part of the question of inventive step" (C.A. 433/82 [2], at page, 539), and there is no reason why this doctrine should not also be considered within the framework of the question of infringement.

 

            And now to the Patent before us.

           

            18. The Respondents contended before the lower court that Respondent 2's product does not infringe the Patent, because two elements in Claim 1 of the Patent do not appear therein. These two elements are:

 

            (a) Two coherent sources used to create the hologram, located relatively close to the entry pupil and the exit pupil.

 

            (b) A means located along the axial beam, between the CRT and the combiner, to compensate for the axial astigmatism aberrations.

           

            As for the first element, the Respondents argued that the hologram used by Respondent 2 is not made with the sources located relatively close to the aforementioned pupils. As for the second element, the Respondents argued that in the Respondent 2's product, there is no such means of correcting the aberration called "axial astigmatism".

           

            Most of the rest of this judgment will be devoted to examining the question of the existence of the above two elements in Respondent 2's product. The District Court concluded that the second element exists in the product against which the claim of infringement was made, but the first element, which concerns "the relative closeness of the sources to the pupils", does not exist therein. The lower court therefore concluded that the Appellant's Patent was not infringed. The Appellant seeks to overturn the ruling on the question of relative closeness. The Respondents, in addition to supporting the lower court's conclusion on this point, seek a ruling against its conclusion that the Patent was not infringed also because the second element mentioned above, i.e. the means of correcting the aberration, is not present in the product. Naturally, it would be sufficient for us to find that one of the above elements is not present in the product to rule that the Patent was not infringed and to reject the Appeal on this point.

 

       We will now examine the existence of the first element, i.e., the question of the relative closeness of the sources.

 

            The Location of the Sources

           

            19. Before commencing our examination of the meaning of relative closeness, which is the core of the dispute, we must first clarify the meanings of the other terms used in the definition of this element.

           

            There was a dispute between the experts and the counsel for the parties as to the meaning of the terms "two coherent sources" and "exit pupil". The lower court preferred, for both terms, the definitions of the experts for the Appellant, and since the present dispute does not extend to this point, those definitions are acceptable for our purposes.

           

            (a) Two Coherent Sources

           

            The lower court accepted the version of the Appellant's experts, Gray and Hesselink, that:

           

"When an aberrated light source is used, the source of the laser is not a point, it is in fact a kind of stain or cloud of light which is delimited at both ends by the vertical point source and the horizontal point source. Therefore, the location of the laser source cloud is defined by reference to the point sources; i.e., the vertical point source and the horizontal point source. When designing it, one must make sure that one of the above point sources is near the pupil. In a system such as the HUD, the side of the cloud which is near the vertical point source must be placed near the pupil".

 

(b) The Exit Pupil

 

            The District Court had the following to say about the meaning of this term:

           

            "The starting point in designing a HUD is the pilot's eye. The whole point of design is to ensure that the pilot sees most of the light beams as clearly and fully as possible. The treatment and location of the beams are aimed at correcting the optical aberrations as much as possible and enhancing the optical efficiency of the light beams which the pilot is to use. To handle these beams, we must first fix the position where the pilot's eye will be during flight. This allows the designer to treat only those beams which will be used by the pilot, i.e. those coming from the combiner to the position where the pilot's eye will be. This position is fixed by locating an imaginary reference plane at the center of the area where the pilot's eye will be during flight. This reference plane is in the form of an 'aperture' and its position is entered into a computer as the basis for making the various calculations concerning it".

 

            The court accepted the definition of the Appellant's experts that the "exit pupil" of the HUD is the "aperture" described above, and as learned counsel for the Appellant, Advocate Goldenberg, said:

           

"The term 'exit pupil' means the smallest aperture of relevant beams. This is an imaginary reference window which is placed at the center of the viewing area. It is therefore commonly called the 'pilot's eye' or the 'center of the viewing area'."

 

            (c) There was no dispute between the parties regarding the location of the entrance pupil. Its location was determined with reference to the location of the exit pupil on the basis of known optical equations, and it is the place where the exit pupil will be placed on the other side of the hologram, i.e. the side where the CRT is.

           

            20. Now to the main question in this Appeal, i.e. what is the meaning of the expression "relatively close" appearing in Claim 1 of the Patent.

           

            There are two aspects to this question. First, does the expression "relatively close" mean physical distance, or is it a functional expression? In the Appellant's opinion, it is a functional expression, i.e. "relatively close" means "as close as possible provided that optical efficiency is achieved in the hologram". This optical efficiency is achieved whenever the system's principal beams satisfy the Bragg condition. On the other hand, the Respondents argue for the physical intepretation of the expression, i.e., that "relatively close" refers to the physical distance between the sources and the pupils.

           

            The second aspect - if we accept the physical interpretation of the expression "relatively close" - is whether in order to measure the physical distance between the sources and the pupils it is necessary to consider a certain angular deviation between the location of the sources and the pupils, since this deviation is present in Respondent l's product. In the Appellant's opinion, this deviation should be ignored when calculating the physical distance. The Respondents contend, on the other hand, that the physical distance should include the angular deviation.

           

            Finally, of course, it will be necessary to resolve the question of the existence of relative closeness in Respondent 2's product.

           

            "Relatively Close" - Physical or Functional Interpretation

           

            21. The lower court accepted the physical intepretation of the expression "relatively close", saying -

           

"In this dispute between the Plaintiffs experts and the Defendants' expert, I hold for the Defendants. I find that it is not possible to conclude from the Patent, neither from the wording of the Claim nor from the description in the Specification, that the functional factor is decisive on the question of what is 'relatively close'. I have read and re-read the wording of Claim 1, in order to determine whether it is possible to interpret it as argued by counsel for the Plaintiff, but I find it difficult to interpret the Claim this way. The only source in the Specification that speaks of functional efficiency, which Dr. Goldenberg cited as evidence of the inventor's intent, is on page 3...

 

However, this section is in the chapter which describes the prior art, and I cannot see how it can be interpreted as describing the patented invention. It merely describes the prior art in the profession about the results achieved when the sources are placed near or on the pupils, and it has nothing whatsoever to do with the inventor's interpretation of "relatively close". If in the entire Specification, which covers 30 pages, one finds only this brief passage, comprising just a few lines, which deals with such a significant subject as the functional efficiency (which, as stated, appears in the chapter dealing with the prior art), it is only because the functional factor is unrelated to the interpretation of the expression 'relatively close' in Claim 1 of the Patent."

           

            The Appellant's contention on this point may be summarized as follows:

           

            The use of a functional definition is acceptable and sometimes essential in patent law. The fact that the present Patent adopted a functional definition is evident from the following:

           

            (a) The functional definition is evident from a reading of the Patent (pp. 1-3, 13 and 14). The lower court erred in ruling that it one should not rely on page 3 of the Specification, which speaks of functional efficiency, on the ground that this passage belongs to the "Prior Art" chapter and that it was brief relative to the length of the Specification. First, the description appearing in the aforesaid chapter also appears on page 14 of the Patent, in the chapter describing the invention. Second, since it is a combination patent, there is nothing to prevent some of its components from appearing in the "Prior Art" chapter. Third, the brevity of the description is the result merely of the fact that it is a well known component, about which details need not be given. During the hearing before us, in the course of replying to the Respondent's pleading, learned counsel for the Appellant enlarged upon this argument by saying that in a functional patent there is no need to include the protected result in the Claims chapter of the Specification.

           

            (b) The term "relatively close" is a technical term which should be interpreted according to the testimony of the experts. The experts for both parties agreed that it is a "term of art", which is perceived as such by the community of scientists dealing with holographic display systems. Respondent l's experts admitted that this term expresses a functional definition, in the present Patent as well, but they changed their minds at a later stage.

           

            (c) The degree of relative closeness between the sources and the pupils may vary among display systems which are identical to the invention. Even the Respondents' experts admitted this. Accordingly, the functional intepretation should be preferred.

           

            (d) There is no alternative to the functional definition. Neither the Respondents nor the lower court suggested any specific physical distance as the definition of relatively close; Respondent 1 only explained that it is "a very small distance". The only distance mentioned by the court was five inches.

           

            The Respondents argued that the functional interpretation is unacceptable, for the following reasons:

           

            (a) It is not possible to conclude from the Patent that the term "relatively close" reflects a functional definition. The mention of optical efficiency in the Specification cannot establish such a definition. All that is evident from the Patent is that the term refers to a very small distance, of a few millimeters, in which the two points are located, almost one on top of the other. This is actually the interpretation which the District Court accepted. There is no mention whatsoever in Claim 1 of optical efficiency, Bragg condition, width of field of view, or anything else which connects the expression "relatively close" to the proposed functional interpretation. Since a holographic lens which is made with sources located near the pupils is part of the prior art, the inventor did not dwell on this subject in the Patent Claims. The substance of Claim 1 is the means of correcting the aberrations, and the other Claims (2 to 10) also deal with these means. Only the last Claim (11) deals with one of the examples of the device, the one concerning the helmet.

           

            (b) The Appellant's experts also held, in their first opinion, that the physical interpretation of the term is the correct one. They measured the distances between the sources and the pupils in Respondent 2's product, and when they found that they were very small distances, they determined that they are relatively close. Only at a later stage, in their second opinion, which was given in reply to the opinion of the expert for the Respondents, did the Appellant's experts raise the functional interpretation, as contended.

           

            (c) Adoption of the functional interpretation would lead to absurd results which are inconsistent with the wording of the Patent. According to this interpretation, if the optical efficiency is high for the chief beams, then the sources are relatively close to the pupils, but if the optical efficiency is low they are not relatively close, even if physically the sources are close to, or even on top of, the pupils. The latter may occur, according to the Respondents, if low optical efficiency is achieved due to various factors in the manufacture of the hologram, such as the degree of exposure to laser beams or the method of development, which affect the optical efficiency but are unrelated to the closeness of the sources to the pupils.

 

            22. The Respondents' last contention is unacceptable to me, on its face, so I will deal with it immediately. The technique (which was known) of placing the sources near the pupils, by which the optical efficiency of the system is achieved, must assume that the other components and processes which are used to build the hologram and which may affect its efficiency were exhausted optimally to achieve the highest possible optical efficiency. When according to the functional interpretation we examine whether optical efficiency is achieved by the factor of relative closeness, it is only natural that we assume that the other factors will remain unchanged (ceteris paribus). The fact that the optical efficiency achieved by this factor can be adversely affected by manipulating the other parameters (degree of exposure and development method, etc.) should not change the theoretical outcome - that if the other parameters had been properly and optimally implemented, it would have been potentially possible to achieve optical efficiency. In other words, according to the functional interpretation, the optical efficiency should be assessed only as the outcome of the distance between the sources and the pupils, and not as a function which is accompanied by other variables that are unrelated to this distance.

           

            Furthermore, so far as the court knows, optimum exposure or development of the hologram do not create new problems in the device, as is the case with the closeness of the sources to the pupils, as a result of which the aberrations are caused. It is therefore unclear why the manufacturer of the hologram should want to exposure or develop it in a way which would reduce the optical efficiency, because this efficiency is one of the main goals of the device. A product which is not optically efficient will in any case be a failure, and it is doubtful whether there will be any need at all for a Claim concerning its infringement.

           

            The situation will be different in a case where high optical efficiency is achieved by means which do not involve closeness of the sources to the pupils. For example, if it would be possible to achieve high optical efficiency while leaving the sources at the image plane and infinity, then the outcome would be that this efficiency would not be achieved due to the element of "relative closeness" inherent in the invention.

 

            23. The use of a functional definition and relative terms is known in patent law, and it appears in the topic called "claim limited by result". Blanco White, supra, at 145-146, writes about patents of this type as follows:

           

"It is permissible to limit the claims of a patent to that which gives a particular useful result if, and only if, those engaged in the art concerned can determine whether or not they have attained that result either by employing a proper criterion set out in the specification or by conducting simple experiments.

 

It follows from the rule that claims must be as clear as the subject admits of, that particular care must be taken when claims of this sort are adopted to give in the specification all possible assistance in determining what does, and what does not, give the useful result concerned: clarity of claim and sufficiency of description go together here. Thus a claim limited by result has been held bad for ambiguity where the instructions for attaining the result were meaningless to those in the art. In addition, it must not be forgotten that there is no authority for putting upon the reader of the specification the burden of making any but 'simple' experiments. Just what the word 'simple' means in this context is not clear; all that is certain is that invention must not be required in order to determine whether a claim is infringed or not."

 

            In other words, a Patent Claim can and will be defined according to whether it achieves a specific result. However, fear of overbreadth and vagueness of the Patent in such a case require clear definition of the result protected in the Claims and disclosure of sufficient information in the Patent Specification to allow anyone skilled in the art to know whether he is within the scope of the Patent without recourse to anything more than simple experiments which entail no inventive step.

 

            In discussing the requirement of sufficiency of the description, Blanco White stresses the importance of accuracy and clarity in a patent limited by result, supra, at 137:

           

         "Sufficiency of description deserves special consideration in connection with claims limited to the securing of a particular result, in view of the need for any claim to be as clear as the case allows. Such claims, in effect, put upon the reader of the specification the burden of seeking to carry out the invention in order to determine where the boundaries of the monopoly lie, so that the specification must not only enable the reader to carry out the invention claimed in the form of a single preferred embodiment, but also enable him to ascertain whether the particular result concerned is or is not secured by forms of the invention lying near the boundaries of the claim. Further, it would seem that in such a case the specification cannot be fair unless it discloses any information the applicant may have as to the sort of departures from the preferred embodiment that will lead to the desired result not being secured and as to unsuccessful experiments generally: the objection to 'forcing persons to make experiments in which they must afterwards be defeated' can hardly go less far, where the applicant obliges his readers to experiment over the whole field of the invention and does not merely invite them to try a preferred embodiment."

 

            Blanco White continues by indicating the need to give details concerning which components or characteristics can help to achieve the protected result, supra, at 146:

           

"... the distinction may well be, that it is legitimate to claim the attainment of a particular result by the adjustment or selection of particular characteristics or features, but not to claim the attainment of a result by any means whatever."

 

                      In the United States, see 60 Am. Jur. 2nd, supra, at 402.

         

          It is important to distinguish here between a new result that was unknown prior to the invention and a result which is part of the art prior to the invention. In the former case, the inventor may be able to protect the achievement of the result in any manner. In the latter case, such a claim would be considered too wide. If the result itself is not a novelty but was known, in the sense that it was a desired objective, the attainment of which was aspired to, one cannot claim a right for any possible manner of attaining it, but only for the specific novel way in which it was attained now. As Blanco White says, supra, at 146:

         

"It is clear that the discoverer of a new principle is entitled to claim all devices making use of it: all modes of carrying it into effect. For in such a case the new principle itself will be a part of his invention. If however the principle itself is old, such a claim will be too wide, for then the inventor has contributed nothing new except any special method of carrying it out, and his claims must consequently be confined to such special methods.

 

This distinction applies in particular where the 'principle' concerned is the advantageous character of a particular result. If the result is in itself new and not obvious, the inventor may - in theory, at least - claim all methods (including methods in themselves obvious) of attaining it. But if the result is known, either in the sense that it has been attained before or in the sense that it was an obviously desirable result if it could be attained, then a claim to any method of attaining it will be too wide."

 

          24. The main efforts of the courts in dealing with the issue of patents limited by result were made, as we will see, in the form of requirements of sufficiency and clarity resting upon the patentee. However, the present dispute becomes more severe in view of two very different questions, namely: First, in a patent of this type, does the protected result have to appear in the Claims themselves, as the Respondents contend, or is it sufficient that a result is specified in the Description, as the Appellant holds. Second, in a combination patent, may one of the known components of the invention - in this case a component which causes the result - appear only in the Description, as the Appellant holds, or must the result be included in the Claims even in such a type of patent, as the Respondents claim.

 

            On both questions, I hold for the Respondents, and I will now address them one by one.

           

            25. Regarding the requirement that the result appear in the Claims, this seems to me obvious from what we have seen above and from the very definition of the subject as a "claim limited by result". However, since ample references have been submitted which prima facie support the absence of any such requirement, I will expand this point.

           

            A leading case on the subject of claims limited by result is the judgment of the House of Lords in the afore-mentioned Corona case [30], which involved an invention entailing improvements to electric light bulbs, which gave the light bulbs advantages of power and useful lives which previously were impossible. The invention comprised several components, whose combination yielded the said advantages. Claim 1 of the patent was for:

           

"An incandescent electric lamp having a filament of tungsten or other refractory metal of large diameter or cross section or of concentrated (i.e. coiled) form and a gas or vapour of low heat conductivity at relatively high pressure, the combination being such that the filament may be raised to a much higher temperature than is practicable in a vacuum lamp without prohibitive vaporisation or deterioration or excessive shortening of useful life, substantially as set forth." (Emphasis added - M.S.).

 

            It was argued against the Patent that the component "filament of large diameter" is insufficiently clear and does not define the scope of the monopoly, since a competing manufacturer would be forced to experiment with components of different diameters before he could know if he has infringed the Patent - because attaining the advantages attained by the inventor is the only test of infringement. The House of Lords upheld the Claim, ruling that the term "large" is sufficiently defined in the Specification because it is understandable to someone skilled in the art, and that attainment of the advantages of the invention is the test which should be applied by any competing manufacturer.

 

       Learned counsel for the Appellant argued before us that just as there was no need to define "large" in the Claim, the patentee should also not be required to define the functional interpretation of "relatively close" in the Claims in the present case. I believe that this comparison is wrong. In a patent limited by result, a distinction must be made between the protected result on the one hand and the adjectives used to describe the relationship between the other components of the invention and the result, on the other hand. The dispute in the Corona case [30] did not center on the question of including the result in the Claim, but only on the question whether the inventor could use an unquantified adjective ("large"). In fact, the House of Lords ruled that the degree of "largeness" need not be quantified in the Claim, in view of the Description (which describes in detail the usual sizes), but the result which is achieved by means of this "large" component is included in the Claim itself. The combination of the three components listed at the beginning of the Claim in the Corona case [30], one of which is a filament of large diameter, achieves the result specified at the end of the Claim: the filament may be heated to a higher temperature than possible in ordinary light bulbs, thus increasing the quantity of light emitted by the bulb, without any loss of energy which would have been caused previously as a result of evaporation and erosion and without shortening the light bulb's lifetime. As Viscount Finlay said at 77:

      

       "The workman is working to get the result which is described in the later l