Intellectual property

In the Supreme Court

LCA 8127/15

LCA 8263/15

 

 

Before:                                                Justice Y. Danziger

                                                            Justice N. Hendel

                                                            Justice U. Shoham

 

Applicant in LCA 8127/15

and Respondent in LCA 8263/15:                              Manufacturers Association of Israel

 

                                   v.

 

Respondents in LCA 8127/15

and Applicants in LCA 8263/15         1.         Merck Sharp & Dohme Corp. f/k/a

                                                            2.         Merck & Co, Inc.

 

Applications for Leave to Appeal the Jerusalem District Court's decision dated November 10, 2015 in MApp 5707-11-14

 

Date of Session:                            3 Nissan, 5776 (April 11, 2016)

 

On behalf of the Applicant

in LCA 8127/15 and the

Respondent in LCA 8263/15:             Adv. Tal Band; Adv. Yair Ziv

 

On behalf of the Respondents

in LCA 8127/15 and the

Applicants in LCA 8263/15:               Adv. Liad Whatstein; Adv. Uri Fruchtman

 

On behalf of the Attorney General:    Adv. Shimrit Golan

 

 

J U D G M E N T

 

Justice N. Hendel:

 

1.         Israeli law, like the law in other countries, recognizes the protection of patents. Simply put, and perhaps over simplistically, the registration of a patent grants an individual entity ownership, quasi-ownership or at least a bundle of rights with respect to an invention. This law is not new. Patent laws were legislated centuries ago. The innovation of our times is that in this respect, as well, the world has become a global village, meaning that granting a patent in one country may affect the granting of a patent in another country, and vice-versa, its revocation in one country may lead to its revocation in another country. This is not merely an economic insight but rather part of substantive patent law.

 

An additional characteristic of patent law is that it grants legal protection for a limited period of time. Whatever the rights may be, they are not eternal. The customary patent protection period in Israel and around the world is twenty years (sec. 52 of the Patent Law, 5727-1967 (hereinafter: the Law)). This period is as the period of one generation. However, that is not the final word with respect to all types of inventions. In regard to pharmaceuticals, where registering a patent is not enough, and marketing them requires obtaining a license from the  Ministry of Health, it has been established that the twenty-year period may be extended for a certain period of time that shall not exceed five years. This mechanism is known as an "order of extension".

 

The two points that were mentioned – the patent's international aspect and the possibility of granting an order of extension – meet at the seam between space and time. As we shall see, the extension period that is granted in an order in one country can be dependent upon what occurs in another country. This is a sensitive matter. This meeting-point between time and space is the basis of the ruling in this case. It is for this reason that the Attorney General requested to join the proceeding and express his position.

 

Previous Proceedings and the Parties' Arguments

 

2.         Before us are two applications for leave to appeal that address an order extending the period of patents (hereinafter: "extension order"). One application addresses the constitutionality of shortening an extension order after it has been granted, while the other addresses the method of calculating the period of extension in certain circumstances. The applications were filed on the judgment of the Jerusalem District Court in MApp 5407-11-14 (Judge B. Greenberger), which partially granted an appeal on the decision of the Registrar of Patents, Designs and Trademarks, A. Kling (hereinafter: the "Registrar") (Application to change the period of an order of extension for patent no. 110956 (September 18, 2014)). The latter ruled that it is possible to shorten the extension order in the circumstances of the matter and that its period shall be the shorter of those that were being considered. The District Court upheld the ruling regarding the possibility of shortening the order but prescribed a different method of calculation, such that in the circumstances of the matter at hand, the order was extended beyond the period that had been set by the Registrar.

 

The sequence of events leading up to the Registrar's ruling and the judgment of the court of first instance is as follows: The various rights to Israeli Patent no. 110956, upon which the Ezetrol medical preparation, which reduces high cholesterol levels in the blood, is based, belong to the Respondents in LCA 8127/15, who are the Applicants in LCA 8263/15 (hereinafter, jointly, for the sake of convenience: "Merck"). According to Section 52 of the Law: "The period of a patent shall be twenty years from the application date". Merck's application was filed in 1994 and its patent was due to expire upon the lapse of twenty years, on September 13, 2104 to be precise. In 1998, the Law was amended and the option of granting an extension order was added, subject to the fulfillment of a number of conditions (Patent (Amendment no. 3) Law, 5758-1998) (hereinafter: Amendment 3 of the Law). Merck took advantage of this option and filed an application for an extension order, which was granted in 2005. The extension period was due to expire on June 23, 2017. In 2006, after the order had been granted, the Law was again amended (Patent (Amendment no. 7) Law, 5766-2006) (hereinafter: Amendment 7 of the Law). Inter alia, it was provided that the extension period provided in an extension order shall be equal to the shortest extension period granted to the patent in certain countries designated in the Law – subject to a number of conditions that will be specified below (see secs. 64I and 64J of the Law).

 

At the beginning of 2013, the Applicant in LCA 8127/15 and the Respondent in LCA 8263/15 (hereinafter: "The Manufacturers Association"), filed an application to shorten the extension order that had been granted to Merck, based on the argument that such shortening derives from the calculation method that was provided in Amendment 7 of the Law. The Registrar accepted the application and instructed that the period of the order be shortened such that it would expire on January 22, 2016, based on the period of the extension order that had been granted to the patent in the United States. Merck's appeal to the District Court on the shortening itself was denied, however the court ruled that the period of the extension order that had been granted in the United States should not be relied upon, since it was granted after the extension order had already been granted in Israel. Instead, the court instructed that the order remain in effect until October 17, 2016, based on the period of the extension order that had been granted to the patent in Germany. This led to these two applications for leave, in which each of the parties objects to the ruling against it on one of the issues. Merck claims that it was inappropriate to shorten the extension order that it had been granted. The Manufacturers Association emphasizes that the order should be shortened even more – such that it shall expire on January 22, 2016, and not on October 17, 2016.

 

3.         As noted, Merck's arguments are directed against the very shortening of the extension order that it was granted. According to Merck, this is an unconstitutional infringement of its right to property. It is argued that in light of this infringement, Amendment 7 of the Law should be interpreted in such manner that it shall not apply to orders that were granted prior to the amendment taking effect. According to this line of argument, if the proposed interpretation is rejected then the statutory provisions contradict the provisions of the Basic Law: Human Dignity and Liberty. The Manufacturers Association, on its part, relies in this matter on the judgment of the District Court. However, in another matter – that of the period of the extension order that was granted to Merck – it is of the opinion that the court erred. According to the Manufacturers Association, the judgment did not give sufficient attention to the language of the Law, its purpose and the indications that support that it was the legislative intent to provide that the period of the extension order also be examined on the basis of extension orders that were granted in other countries after the order was granted in Israel. Merck, on the other hand, relies in this matter on the rulings of court of first instance.

 

The Attorney General submitted notice that he would appear in the proceedings by virtue of his authority pursuant to sec. 1 of the Procedure (Appearance of the Attorney General) [New Version] Ordinance. The Attorney General’s position was submitted on the matter of the method of calculating the period of the extension order. According to him, and similar to the Manufacturers Association's position, the Registrar was correct in ruling that the period of the extension order could be shortened pursuant to an order that had been subsequently granted in another country.

 

Discussion and Ruling

 

The path I shall take in examining the applications will begin with examining the method of calculating the date of expiration of the order, since the specific arrangement at hand, including the details thereof, is the framework of the constitutional discussion. The interpretation of the Law will assist in understanding its purpose and implications, while delimiting Merck's arguments to the boundaries of the concrete case. This foundation will lead to the discussion in the second matter – the constitutionality of shortening an extension order after it has been granted. Consequently, one must first discuss LCA 8127/15, which was filed by the Manufacturers Association, and thereafter discuss LCA 8263/15, which was filed by Merck.

 

The Method of Calculating the Period of the Extension Order

 

4.         I have decided to address LCA 8127/15 as though leave were granted and an appeal had been filed pursuant thereto, in light of the general legal nature of the issue of the method of calculating the period of the extension that was determined in an order. The matter is relevant to additional patent cases, inasmuch as the same interpretational dispute could also emerge from the present wording of the Law. Merck's argument that a case such as the one before us is not actually expected to occur in the future in the exact same manner, did not go unnoticed. Merck relies on the European law which allegedly prevents this possibility due to uniformity of periods of extension in various countries. However, as we shall see below, the field of patent extensions is dynamic and is subject to frequent legislative changes. This is the case in Israel and in additional countries. Therefore, the fact that the wording of the Law that is in dispute between the parties is still in effect in Israel leads to granting leave to appeal. I shall further state that a sufficiently broad picture of the current European law was not presented, and it is not clear that there is no possibility that a similar dispute might emerge. In any event, the matter could emerge in one variation or another in Israeli law, and this is a central consideration in granting leave to appeal.

 

The Manufacturers Association's argument addresses the method by which the period of the extension order should be calculated pursuant to Amendment 7 of the Law. For the purpose of clarifying the foundation of the dispute, we shall briefly describe the calculation mechanism that was provided by the legislature, as per the wording of the Law at the time:

 

64I. (a) An extension order shall be in effect, subject to the provisions of section 64J, for a period equal to the shorter of the extension periods that were given to a reference patent in the recognized states.

(b) If a license was applied for only in Israel, then the extension order shall be in effect for a period that is equal to the period from the day on which the application for a license was submitted and until the license was given; provided that the application on the applicant’s behalf was submitted and handled in good faith and with due dispatch.

 

It is evident that the principle rule is that the period of the extension order shall be equal to the period of the extension that was granted to the similar patent (the "Reference Patent") in certain designated states listed in the Law (hereinafter: "Recognized States"). Incidentally, at the time Amendment 7 of the Law was enacted, in 2006, this list, in principle, comprised 21 countries (including countries such as Japan, Luxembourg, Australia and Switzerland), and at present, since Amendment 11 of the Law, in 2014, only six countries are included – The United States, Britain, Germany, Italy, Spain and France (see Schedule One of the Law). The Law further provides that when an extension order is granted in a number of Recognized States, the period of the order shall be that of the shortest extension period that was granted in any of the countries. This last rule changed the legal situation that existed prior to Amendment 7 of the Law, in the framework of which the period of extension in Israel was not linked to the period of the shortest extension that was granted in one of the Recognized States. To complete the picture, sec. 64J of the Law provides three limitations to this calculation mechanism. First, the period of the extension order shall not exceed five years. Second, the protection of the patent shall in any event expire 14 years after the date on which a permit to market medical equipment or preparations that are protected by the patent was granted in one of the Recognized States. Third, the order will in any event expire if the extension order that was granted in one of the Recognized States expired in that state, or if the patent that was registered there was cancelled.

 

            The question disputed by the parties is how one must act when an extension order is granted in any Recognized State after an extension order was granted in Israel, and the period in the Recognized State is shorter than the period of the Israeli order. The Manufacturers Association argues that the rule of "linking" the Israeli order to an order with the shortest period in a Recognized State also applies in such a case, and therefore, the period that is determined in the Israeli order should be shortened. The representative of the Attorney General also supports this position, in the opinion that was filed in this matter. We would note that procedurally speaking, the Law has a mechanism that allows filing an application to cancel or shorten an extension order that has already been granted, inter alia, on the grounds for which one can object to the period of an extension order that has not yet been granted (sec.  64K of the Law). This is what occurred in the case at hand. In contrast, Merck argues that after the period of the Israeli order has been determined, it cannot be shortened in light of an extension order subsequently granted in a Recognized State for a period that is shorter than that which was determined in the Israeli order. Each of the parties seeks to base its position on the language of the Law and its purposes. We shall now turn to examining these matters.

 

5.         The language of the Law does not explicitly provide that the period of an extension order that was granted in a Recognized State after the Israeli order was granted is not taken into consideration. The opposite is also not explicitly provided. Both options coincide with the language, and as the parties rightfully emphasized, indications for each of them can be found. For example, it was provided that "An extension order shall remain in effect… for the duration of the period that is equal to the period of the shortest extension among the periods of extension that were granted to the patent in the Recognized States" (sec. 64I(a) – emphasis added). It can be deduced from this that the period is determined in accordance with the extension orders that were granted in the past and not those that shall be granted after the order is granted. On the other hand, the statement "were granted" can be interpreted in the sense that the legislative intent was to take orders that were granted into consideration, regardless of when they were granted. Meaning, once an extension order is granted in a Recognized State – even after an order was granted in Israel – it is an order that has already "been granted", and the Israeli order can be shortened as a result thereof. Furthermore, the section even uses the language "shall remain in effect… for the duration of the period that is equal to the period of the shortest extension among the periods of extension that were granted to the patent…". It can be deduced from this that the period of the order is measured at all times – and not necessarily once – vis-à-vis orders that were granted in Recognized States. Through this prism, the language of the Law actually supports the Manufacturers Association's position that the period shall be shortened in accordance with the situation in other Recognized States.

 

An additional argument by Merck is that sec. 64J(3), which addresses the expiration of the patent in a Recognized State, provides that an extension order that is granted in Israel "shall expire no later than the first date on which the extension period of the reference patent expires in one of the Recognized States…". Had the legislature so desired, it could have worded sec.  64I(a) in a similar manner, so that it would be clear that the extension order is affected by extension orders subsequently granted in other states. On the other hand, the differences in the wording of the Law can be explained by the fact that sec. 64J addresses cases of the expiration of the extension order in Israel, and therefore the wording "no later than the date…" was applied. In contrast, sec. 64I addresses the means of determining the period, and therefore the legislature did not deem it necessary to explicitly state the date the extension order in a Recognized State was granted. As noted, the Law has a mechanism that allows changing the period of the order as per a person's request, and one of the causes is a cause "pursuant to which it is possible… to object to the matter of the period of [the order]". It thus emerges that the period of the order is dynamic and can also change after the order is granted.

 

It follows, as was also held by the District Court, that the Law's language does not explicitly rule either way. Hence, we move on to its purpose.

 

6.         Purposive interpretation is multifaceted and multihued. The beacon of the Law is composed of many rays that converge to create the beam that illuminates the citizen’s path – the path of the law. The light rays originate from different sources: the historical and material background of the amendment to the Law, the objective purpose of the Law and its subjective aspect – the legislature’s purpose, as it emerges from the statute's explanatory notes and from the discussions that preceded it, and other sources from which it is possible to learn about the purpose for which the Law was enacted and how it is meant to realize it (see: HCJ 9098/01 Ganis v. The Ministry of Building and Housing, IsrSC 59(4) 241, 261 (2004) [http://versa.cardozo.yu.edu/opinions/ganis-v-ministry-building-and-housing ). All of the above, including the content of the Law, will also illuminate our way in interpreting Amendment 7 of the Patent Law.

 

The District Court accepted Merck's argument that shortening the period of an extension order after it had already been determined, compromises the certainty and finality that are required in order for a company that was awarded an extension order to make plans. I am of the opinion that in the circumstances of the case, the analysis cannot end here. Since the certainty consideration was at the focus of the District Court's ruling, I shall somewhat elaborate and explain why I do not accept this position. It is true that when interpreting a statute, the concern of compromising certainty bears weight as an interpretational consideration (Aharon Barak Interpretation in Law – Statutory Interpretation, vol. II 583 (1993)). However, this is one interpretational consideration among many that can be of assistance when the language of the law, or other indications, do not explicitly contradict it. In the case at hand, it appears that the legislature did not consider the matter of the certainty of the date of expiration of an extension order to be a primary concern. We have already referred to sec. 64J(3) of the Law, which at the relevant time provided – and in principle continues to provide – that "an extension order shall expire not later than the first date on which the extension period of the reference patent expires in one of the Recognized States". It emerges that the expiration of the order depends, at any given time, on the status of the similar patent in the Recognized States. We also referred to sec. 64K, which allows filing an application to shorten the extension period and in fact, to reexamine it  even after the order was granted. The explanatory notes that accompanied this section of the bill, state as follows:

 

It shall be noted that one may request to cancel an extension order or change its period even when the cause of action arises after the extension order was granted, such as in the case in which after the extension order was granted, the period of a parallel patent was extended in a permitting state [a Recognized State], and the extension period in the permitting state is due to end before the expiration of the period of the extension order (sec. 10 of the Patent (Amendment no. 7) (Extension of Period of a Basic Patent) Bill, 5775-2005, Government Bills 187 (emphasis added)).

 

I will illustrate the matter through an example. But first it should be made clear that the period of the order and the date of its expiration are two separate matters. The legislature emphasized the fact that the period of the extension orders in the various countries, for example three years, will be identical. However, there may be differences as to the date of expiration of the protection of the patent, which could derive, for example, from the difference in the dates when the patent was due to expire to begin with, as a result of filing the application for its registration at different times in various countries. We will now present the example that will clarify what is stated in the explanatory notes that were cited.

 

Let us assume, theoretically, that an extension order is granted in Israel for a period of three years – from the date of the end of the patent's twenty-year protection – which was due to expire on December 31, 2017. After the order was granted in Israel, an extension order was granted in England for a period of three years. However, in England the period of patent protection was due to expire, had the extension orders not been granted, a year before the expiration of the protection of the patent registered in Israel. Therefore, the period of the extension in England is due to expire on December 31, 2016. According to the provisions of sec. 64J(3), the granting of the order in England will also lead to the expiration of the order that was granted in Israel on December 31, 2016, even though the English extension order was granted after its Israeli counterpart. Thus, when an order is granted in a Recognized State,  the legislature was willing to sacrifice certainty as to the date of expiration of the extension order in order to "link" the date of expiration of the patent's protection in the two countries. Merck is indeed attempting to distinguish between the example that is presented in the explanatory notes, which was illustrated by the English order example, and the case that is the subject of the rulings of the lower court. In the facts of the case before us, it is agreed that according to each of the scenarios, the Israeli order will expire first. The question is when. In the example that was presented above, the English order was due to expire first, and this is the reason the order in Israel was shortened. In response, and as shall be clarified below, it was stated that this is a distinction without a difference. In any event, the example that is presented in the explanatory notes is sufficient to determine, at the very least, that in the eyes of the legislature, the purpose of creating legal certainty with respect to the date upon which the extension order shall expire does not bear conclusive weight. This is in contrast to the position of the District Court which emphasized that purpose.

 

Furthermore, in the explanatory notes for the Patent (Amendment No. 13) (Extension of Period of Protection) Bill, 5772-2012, Government Bills 682, it was explicitly provided that the amendment is meant, inter alia, to enhance the degree of certainty required by the pharmaceutical companies (see the general part of the bill). The certainty consideration is not a foreign consideration in patent laws, but it does not stand alone. Alongside the emphasis on certainty, the explanatory notes explicitly state that the Registrar must take into consideration events that occurred after the order was granted in order to reexamine the period of the extension. There is even an explicit determination that in circumstances such as those before us, the period of the order should be shortened as per the shortest order that was granted thereafter (ibid, sec. 8). This is a statutory amendment that was subsequent to Amendment 7, which addressed other matters and did not in any way alter the controversial wording, but rather only referred to it in the explanatory notes. In any event, the matter is raised not in order to rule on the interpretational question, but rather, at the very least, to cast doubt on the logic that the legislature was of the view that certainty prevails over the need to choose the shortest extension order that was granted in a Recognized State.

 

The Attorney General's representative added that compared to other laws, patents are characterized by their very nature by a lack of finality and certainty, and referred to various provisions of law which, in the framework of various proceedings, allow discussing the validity of an existing patent based on causes of action pursuant to which it would have been possible to object to the granting of the patent to begin with (see, for example, secs. 73B and 182 of the Law). There is merit to Merck's argument in this regard that these sections are mainly applied when there should not have been patent protection to begin with, for example, when it is subsequently discovered that the patent owner did not comply with the threshold conditions, and not necessarily in cases in which the cause of action for cancellation was created after the patent was granted. However, it is important to note that in these sections – as in sec. 64K which addresses the application to shorten extension orders – the legislature provided that there is no statute of limitations. This testifies to that fact that in the special context of patent laws, finality and certainty are of less importance, in light of the heavy weight of the opposing public interest. Justice S. Netanyahu elaborated on this in CA 217/86 Mordechai Schechter v. Avmatz Ltd., IsrSC 44(2) 846, 864 (1990).

 

These all express the policy of the Patent Law, which imprints a stamp of temporariness on the patent and only grants the inventor conditional protection when the invention and the inventor fulfill those conditions which are based on the public's best interest that the invention is indeed patentable and that the patent owner is indeed its owner.

Blocking the option of challenging the patent due to limitation of actions would lead to the outcome that at the end of the period of limitation, the patent would become absolute. This is an outcome that is contrary to the policy and the spirit of the Patent Law… The conclusion that follows from the Patent Law is that the law rejects the approach of expiration of an application to cancel a patent due to limitation of actions, and does not coincide therewith.

 

This line of argument also emerges from the discussions at the Constitution, Law and Justice Committee (Minutes of the Meeting of the Constitution, Law and Justice Committee, the 16^th Knesset (October 11, 2005) (hereinafter: the Committee's Minutes)). For example, the Committee Chair, MK M. Eitan said:

 

The extension order it grants is flexible… If I take the countries that decided, the Registrar takes the smallest, afterwards, another country that extended less joins, and the Registrar reduces… With a reducing system, I take only the countries in which they were approved (ibid, page 20).

 

In other words, the question of adapting the extension order that was granted to orders that were subsequently granted in other countries was raised during the discussions. The discussion addressed the updating of the period of the order, without an explicit reservation being voiced regarding this arrangement due to compromising the certainty or finality of the order. Further on, the Committee Chair was even asked what happens when an additional country is added, and his answer was "until the shortest one" (ibid, page 21). The compromising of certainty was not the focus of the discussion, which concentrated on the issue of compatibility between the expiration date of the order in Israel and the expiration date in other countries, in terms of the relationship between the generic industry, the ethical industry and Israel's status in the global pharmaceutical market. Even a representative on behalf of Pharma – The Association of the Research-Based Pharmaceutical Companies in Israel – agreed that "we prefer to start from the top and go down. We set a number that decreases when there is new information" (ibid). Thus, certainty was not even an issue for the representatives of the industry with which Merck associates itself, who were concerned about other matters.

 

7.         Merck argues that the Law has an additional important purpose – to prevent the expiration of an extension order or a patent in a Recognized State when the patent owner would still be protected in Israel. According to Merck, this need for co-termination is the explanation for the legislature’s willingness to revoke the period of an extension order when the market opens to competition in one of the Recognized States. However, occasionally this consideration is irrelevant. This is the case in the matter at hand since both according to Merck's calculation method and according to the Manufacturers Association's calculation method, the Israeli order will allegedly expire first, since the cause of expiration in the case at hand does not derive from sec.  64J(3), which addresses the expiration of the patent in another state, but rather from sec. 64I(a). According to Merck, only in the case of co-termination can one justify compromising certainty. Such an explanation is indeed possible, however it has its shortcomings for several reasons.

 

First, in the explanatory notes to Amendment 7 of the Law, which were cited above, the example of the expiration of the patent in another country is presented only as an example – "such as" – of a cause of action that emerges after the order in Israel was granted and which results in the shortening of the Israeli extension order. “Such as” is indicative of the fact that this is not the only example. There are other examples. In fact, the most conspicuous additional example of secs. 64I and 64J, other than the example that the legislature presented, is a case such as the one before us. Second, even according to Merck's argument, the legislature was willing to compromise certainty for the sake of the purpose of co-termination of a patent in Israel and in another country. Why is it not possible that the legislature viewed other values as justifying compromising certainty? There is no indication in the Law or in the explanatory notes that the consideration of compromising certainty prevails over any other consideration. I would reiterate that the explanatory notes to the later amendment explicitly provide that one of the purposes of the amendment is to create certainty, while concurrently determining that an extension order should also be shortened in a case such as the one before us, even though this is not a case of co-termination. Third, Merck's argument does not offer any positive reference to any purpose that necessarily supports the interpretation that it proposes. What does the basic calculation method derive from? What is the purpose of considering the orders that were granted in other Recognized States, even when according to each of the scenarios the patent will first expire in the State of Israel? Merck did not offer an answer to this question, which has decisive importance in resolving the dispute.

 

I would incidentally note that the consideration of opening competition in Israel at the time it is opened in a Recognized State is certainly a central consideration that guided the legislature. The majority of the discussions in the Constitution, Law and Justice Committee prior to Amendment 7 of the Law focus on this international aspect and on the question whether and in what circumstances it is appropriate that a patent be protected in Israel when it has expired in another country – an outcome which would prejudice the ability of the generic industry in Israel to compete with its foreign competitors. It emerges from Merck's statement of claim that this matter also concerned various actors in the international arena, who examined the Israeli arrangement under Amendment 7 of the Law. However, this consideration, as important as it may be, does not indicate the opposite – a desire to avoid opening competition in Israel as a first country. It is indeed possible that the time of expiration in Israel will be first. Had the legislature desired a consistent rule of co-termination, all it had to do was provide that the protection of a patent would always expire along with the expiration of the extension order or the cancellation of the patent in a Recognized State. It did not do so, but rather prescribed a more complicated mechanism. According to Israeli law, an extension order will expire when the patent protection in another Recognized State expires. However, if according to the rules of Israeli law – a patent and extension order – the period of the extension of patent protection has ended, this situation will not be affected by the existence of an extension order that has not yet expired in another Recognized State. Prima facie, according to each of the options, and also according to Merck's above interpretation in the case at hand, the situation will be that of expiration in Israel before the other countries. Moreover, the dispute between the parties is fundamentally based on the fact that the U.S. order was granted after the Israeli order. Had the U.S. order been granted earlier, Merck would not have any claim, even though the period of the Israeli order would have been determined in accordance with the period of the U.S. order, and notwithstanding the expiration of the patent in Israel before its expiration in the United States.

 

8.         What, then, is the purpose that should guide the interpretation of sec. 64I(a) of the Law – a purpose that is neither the creating of certainty nor the equating of dates of expiration of the patents in Israel and in another Recognized State? In order to answer this question, we must revisit the various incarnations of the arrangements, examine the purpose of the extension orders and discover why the legislature chose the specific mechanism for calculating the extension period.

 

A theoretical key to understanding the purpose of the Law is recognizing the uniqueness of the mechanism of calculating the period. The rule for protecting patents is twenty years. Why does the legislature address various extensions and shortenings in the pharmaceutical field? Article B1 of Chapter D of the Law is entitled "Extending the Period of Protection". One can discern two main channels in sec. 64A, the definitions section. The first is the medical channel. There is a definition of a medical preparation, of what constitutes material – the active ingredient in a medical preparation – and stating that a marketing permit is a permit to market medical equipment or a preparation, and the like. The second is the global channel. The section distinguishes between Recognized European States and other Recognized States, refers to the difference between an extension order that is granted in the United States and an order that is granted in Europe, and defines a "reference patent", which is a patent that, inter alia, is registered in another Recognized State and corresponds to the Israeli patent. What is unique to the pharmaceutical field that warrants the option of an extension order? The answer is that marketing pharmaceuticals requires the involvement of an additional entity – the Ministry of Health. In this field, an examination of the innovation of the invention is not sufficient. An examination of the pharmaceutical’s potential benefit or harm is inherently required. Therefore, marketing pharmaceuticals is contingent upon an approval and licensing procedure. The licensing period takes time, and therefore there is a gap between the time of filing the patent application and the time it is made available for consumer use. This gap does not exist or is not significant in other fields, and this is the origin of extension orders.

 

The extension period is not meant to be determined in an arbitrary manner. Generally, the presumption is that the twenty-year period achieves the public objective of incentivizing inventors. This is the foundation for the basic rule provided in the Law. Thus, changes to the period are also meant to be derived from this objective, and at the very least, should give it significant weight. Obviously, each field has its own unique nature. The rules for the field of practical physics are not the same as for the field of agricultural developments, and neither are the same as for the pharmaceutical field. The arrangements for incentives, the market forces, the extent of global impact and additional characteristics are not necessarily identical. It should be noted that, at present, pharmaceuticals plays a central role in the economy. The industry requires significant investments and creates enormous revenues. This explains the public economic interest as well as the impact on the individual, who may, unfortunately, suffer  various diseases that may benefit from these pharmaceuticals. There is a connection between a plain and simple financial business of an impressive scope and a public service at the highest level. The outcome of this mix is that the path to an extension order traverses weighty  considerations, and the legislature, in its capacity as regulator, must keep an eye on the situation in Israel and abroad so the period of time will "be in line" with the patent's terms in other countries, while taking global developments into consideration. Before presenting the analysis, I will summarize in stating that the purpose of the extension order is to compensate the pharmaceutical developers in the form of a certain period of time, but not to over-compensate them. Uniformity among countries must be considered, and this consideration, which, as will be explained, prevails over stability and determining a period that is known in advance – although these also play an important role in the entire picture. In fact, the mere granting of an extension order creates an opening for a calculation that is not completely certain but is rather dynamic.

 

And from the general picture to the statutory development.

 

9.     Until Amendment 3 of the Law, in 1998, anyone who was not the patent owner was forbidden from performing actions for the purpose of licensing a patent-based product in fields in which such licensing was required, until the period of the patent's protection had lapsed. The main field in which licensing is required is the pharmaceutical industry. As a result, one could only begin the licensing procedures – which may take extended periods of time, and even years – after the expiration of the patent upon which the pharmaceutical was based (see the definition of "Utilizing an Invention" in sec. 1 of the Law prior to the amendment). This situation created a problem: pharmaceutical companies in the "generic industry" – that primarily engages in the manufacturing of pharmaceuticals that utilize existing patents – could not initiate the actions necessary to obtain a license for their products until the relevant patent had expired. Consequently, the approval of generic pharmaceuticals was delayed for an extended period. Concurrently, in other countries, it was possible to initiate the actions necessary for licensing of the competing pharmaceuticals during the period of the patent's protection. This created a situation in which one day after the patent expired, companies domiciled in one of those countries could file a licensing application, while the Israeli companies could only begin to take the required actions. This situation adversely affected Israeli manufacturers both  in the Israeli market and in the export market. Amendment 3 of the Law was intended to allow  the use of the patent during the period of its protection, subject to certain conditions, for the purpose of obtaining a marketing license – as opposed to actually marketing – from the Ministry of Health (see sec. (3) of the definition of "Utilizing an Invention" in sec. 1 of the current Law, along with sec. 54A; LCA 2826/04 Patents Registrar v. Recordati Ireland Limited, IsrSC 59(2) 85, 87-88 (October 28, 2004) (hereinafter: the Recordati case); Amir Friedman, Patents – Law, Case Law and Comparative Law 123-145, 688, 751-752 (2001) (Hebrew) (hereinafter: Friedman).

 

This amendment indeed solved the difficulties of the generic pharmaceutical manufacturing companies, but concurrently created a problem in terms of the patent protection granted to companies that primarily engage in research and development of new pharmaceuticals for the sake of registering patents (hereinafter: the ethical companies). According to the law prior to Amendment 3, these companies actually benefited from an additional period of protection for their registered patents, due to the period of time that was required for the generic companies to receive the Ministry of Health license. This period of time was not perceived as an unearned benefit to the ethical companies, inasmuch as they were themselves required to obtain a Ministry of Health license before they began marketing their pharmaceuticals, which meant that a period of time lapsed between registering the patent and marketing the pharmaceuticals. After the Law was amended, the period of time required for licensing the generic pharmaceuticals was significantly shortened, while the ethical companies still needed an extended period of time until they could begin to market their patent-based pharmaceuticals. In order to reinstate the equilibrium that existed before the amendment of the Law and to prevent harm to the ethical companies, an extension orders arrangement was introduced, similar to those of other countries around the world.

 

The combination of the possibility of initiating actions towards licensing a patent even before its expiration, along with the possibility of extending the period of the patent's protection beyond twenty years, was meant to address the difficulties of both the ethical and generic industries. On the one hand, the ethical industry was granted an additional period of protection, meant to compensate it for the "lost years". On the other hand, the Israeli generic industry was able to compete with its foreign colleagues, and like them, it could file an application for licensing a generic pharmaceutical immediately after the expiration of the patent (see secs. 54A, 64A-64P of the Law; the Patent (Amendment No. 3) Bill, 5758-1997, Government Bills 2651 (hereinafter: the Government Bill); the Patent (Amendment No. 4) Bill, 5758-1997, Bills 2664 (hereinafter: the Committee Bill); Friedman, pp. 135-136).

 

That is the background that leads us to the next stage – the method of calculating the period of the extension. If the objective is to compensate the ethical companies for the loss of the period of protection that was taken from them, then that is the period of time that should constitute the basis for calculating the period of the extension order. Indeed, the mechanism that was provided in the Law is directed towards that objective. Section 64I(b) refers to a situation in which licensing was requested only in Israel. In this situation, the extension is for the period of time that is equal to the period between filing a license application for the pharmaceutical and its approval – subject to everything being performed with due dispatch. Section 64I(a), as worded at the time, referred to a situation in which licensing was also requested in another Recognized State, and provided that the period of the order shall be the same as the period of the order that was granted in the other state. The assumption is that the extension period is also, to some degree, determined in the Recognized States based on the period of time between the registration of the patent and the receipt of the marketing permit. See, for example, the definition of an "Extension Order on a Reference Patent" in sec. 64A of the current wording of the Law. According to this section, the foreign extension order, pursuant to which the period of the extension in Israel is determined, should be based, inter alia, "in accordance with the term of review for the purpose of providing the first marketing license by the authority accredited to provide marketing licenses" in the United States, or on "the time passed since the filing date for the reference patent and up to the granting date of the first marketing license" in a Recognized European State.

 

We now reach the heart of the matter: The legislature decided that the period between the application to register the patent and the approval to market it, or the extension period that was granted in a Recognized State based on this figure, properly compensate the patent owner. It should be noted that in this context there is a certain difference between the explanatory notes of the two bills that led to Amendment 3 of the Law – the wording of which is identical, and similar wording was eventually adopted in Amendment 3. The government bill explains that the compensation is for the period of the "actual protection" that the patent owner lost due to the amendment of the Law. The assumption is that the period of the extension order is longer than such period, and therefore the compensation is even more than appropriate:

 

One cannot determine in advance how much time the licensing procedure of a generic product will take. One can also not foresee how much time will be needed until the patent owner will receive licensing in the State of Israel, although there is no doubt that the period that will be required for the patent owner will always be longer than the period that will be required for licensing the generic product.

The Committee has found that the period that has elapsed since the patent owner obtained the licensing from the Israeli Ministry of Health will be an appropriate period for compensating for the fact that a generic company will be able to enter the market immediately upon the expiration of the patent.

This period will be known when the patent owner submits its application to extend the period of the patent. This extension will always grant the patent owner a longer period of compensation than the period of the de-facto protection that it “will lose” as a result of the amendment of the law (The Government Bill, sec. 3).

 

Thus, the extension order's objective is to compensate the patent owner for the period of the de-facto protection that it lost as a result of the amendment of the Law. The duration of the extension considers the period of time until the patent owner – in Israel or in another state in which an extension order was granted – obtained the license, which is longer than the period of time the patent owner lost. In contrast, the Constitution, Law and Justice Committee’s bill noted that the compensation is for the period of time during which the patent was registered but the Ministry of Health’s marketing approval had not yet been granted, and therefore, the period of the extension is identical to this period (see the Committee Bill, page 148). In any event, granting the patent owner appropriate compensation is a central objective that the legislature sought to achieve. Even in the current framework, Merck's argument is not directed against the duration of the order that was granted in the United States, in and of itself. No argument was raised that the duration of the period is what infringes its property, but rather only that the order was granted after the Israeli order had been granted. Therefore, for the purpose of the continuation of the discussion, we can establish the following axiom – which was not challenged in any way by either of the parties: A period of protection that is based on an extension order that was granted in a Recognized State (which takes into consideration the period of time that is required for the patent owner to license the pharmaceutical), constitutes appropriate compensation for the patent owner for the period it "lost", either as a result of Amendment 3 of the Law, or as a result of the need for licensing.

 

After Amendment 3 of the Law, the question arose as to how to calculate the period of an extension order when a number of extension orders have been granted in Recognized States. The interpretation that was given to the Law in the Deputy Registrar’s decision in Application to Extend a Period of Protection for Patents no. 84601, 105264, 79336 (July 23, 2003) was that the patent owner may choose a specific state, and the period of extension and the rules of expiration of the patent would be in reference to that state. Amendment 7 of the Law, which explicitly clarified that the Patents Registrar must seek the state in which the extension period that was granted was the shortest, was amended, inter alia, following this decision of the Patents Registrar. The explanatory notes of the Law do not include any explicit reference to choosing this arrangement, however it can be understood in light of the purpose that Amendment 3 was meant to realize. It was possible to amend the Law in the spirit of the Deputy Registrar's decision, or to prescribe a different rule, such as linking the period of the extension order in Israel to the order that was granted first among the Recognized States. Why, then, did the legislature nevertheless chose to follow the state that granted the shortest period of time? It should be noted that the guiding rule that was presented was that the calculation mechanism provided in sec. 64I(a) grants appropriate compensation for the patent owner. Hence, there are grounds for finding that the legislature was of the opinion that there is no flaw in choosing the shortest extension order granted in one of the Recognized States. In any event, and what is the important is that the legislature provided that compensation that is calculated in accordance with the state in which the extension is shortest is appropriate and realizes the purpose of the Law.

 

10.       Similar conclusions emerge from the deliberations of the Constitution, Law and Justice Committee that preceded Amendment 7 of the Law. The vast majority of the deliberations addressed the co-termination consideration and not the question of the duration of the extension period in cases in which the patent protection expires in Israel before other states. However, there was some reference to this issue as well. At the beginning of the discussion, the background of Amendment 3 of the Law was clarified. As stated by the Committee Chair, MK Eitan: "What interests me is that there will be effective protection for a certain period of time during which I will be able to exhaust the patent". Later in the discussion, the Ministry of Justice representative stated that "in order to reach short periods, we decided to base the period in Israel on the periods abroad". Afterwards, the Committee Chair clarified the situation: "Almost 20 years have passed. I ask the Patents Registrar to give me 5 more years. He sees what is happening in a variety of states, you said. He takes the state in which the patent will expire in the shortest period of time after the lapse of the 20 years…" (Minutes of the Committee, at p. 7). Meaning, the objective is to compensate the patent owner for a certain period of time, and the assumption is that this is realized even by the shortest period of time for which an extension order was granted in another state. Of course, appropriate weight is to be given to the Committee’s deliberations. While they do not establish the purpose of the Law, together with the other components of the analysis, one cannot say that they do not bear any weight. It is appropriate here to mention that according to the Law, the purpose of compensating the patent owner also retreats before the co-termination consideration. This is in light of the importance that the legislature attributed to the ability of the Israeli generic industry to compete with foreign companies. However, this purpose, as mentioned, is not directly relevant to the interpretive question we are currently addressing in regard to the date of expiration of the order in a situation in which, in any event, it first expires in Israel.

 

11.       An additional, important component of purposive interpretation, alongside the language of the Law, the various arrangements therein, the explanatory notes and the statements made in the Knesset committees, is the objective purpose of the Law. Through this perspective, one must not forget that at issue is not only a competition between the ethical companies and the generic companies. The public is also part of the story. From the public perspective, the tension inherent in the patent laws is between the interest to the free use of an invention for the benefit of the public, and the desire to provide incentives for development and invention by way of the Law's protection against the copying of the patent:

 

The conflicting considerations and interests that underlie the patent law system are well reflected in the pharmaceutical arena. One the one hand, the pharmaceutical companies invest extensive funds and significant human resources in developing new pharmaceuticals, and expect to receive proprietary protection for their inventions, which are achieved through immense investment. Granting proprietary protection for an invention encourages developing new pharmaceuticals and completing the development of existing pharmaceuticals. On the other hand, there is the interest of freedom of competition and occupation of the public and the competitors, which encourages generic pharmaceutical companies to manufacture competing pharmaceuticals at affordable prices that are significantly less expensive than the price of the patent-protected pharmaceuticals. Promoting the interest of the generic companies to distribute competitive pharmaceuticals promotes not only the economic benefit of these companies, but also the interest of the consumer, by significantly reducing the prices of pharmaceuticals in the market (LCA 6025/05 Merck & Co Inc. v. Teva Pharmaceutical Industries Ltd., para. 21 (May 19, 2011), per Justice A. Procaccia (hereinafter: the Merck case).

 

It is doubtful whether the public interest in encouraging research and development is prejudiced by adopting the interpretation of the Manufacturers Association and the Attorney General. If sufficient incentive existed prior to Amendment 3 of the Law, the legislature was of the opinion that such incentive was not prejudiced as a result of Amendments 3 and 7, in light of the compensation that is granted to the patent owners. This is also the case if we consider the period of the shortest extension granted in a Recognized State. Reality and the development of the industry since the amendment of the Law do not contradict this position. On the other hand, if the patent owners are over-protected, beyond what is necessary to incentivize them, such protection will certainly be at the expense of the entire public, since the price of the pharmaceuticals significantly declines after the market opens to competition. It emerges that the public interest supports avoiding granting compensation that exceeds that which is necessary to maintain the incentive that the ethical companies enjoyed prior to the amendments to the Law.

 

12.       We will now implement the above in the dispute at hand. The question is whether the purposes that were described above are more consistent with Merck's interpretation – that the periods of extension orders that were granted after the Israeli order was granted should not be taken into consideration – or with the interpretation of the Manufacturers Association and the Attorney General – that these periods should be considered. In my opinion, the position of the latter is the one that corresponds more completely with what was stated above. It is the position of the legislature that the periods of extension orders granted in the Recognized States all meet the criterion of compensating the patent owners for the periods of time that they lost. If this is the case, the most appropriate compensation, in terms of striking a balance among all of the conflicting values and interests, is the shortest period of time that was granted in one of the Recognized States. It does not matter, in this respect, if the order in the Recognized State was granted before or after the order in Israel. Deviating from the shortest period of time would mean over-compensating the patent owner and prejudicing the generic companies and indirectly, the pharmaceuticals' consumer public. Indeed, changing the period of the order after it was granted can affect certainty and the patent owners' ability to rely on the order, however the legislature was willing to pay this price in the framework of striking a balance among all the conflicting interests, as detailed in the analysis above.

 

We should bear in mind how delicate is the balance that must be struck: encouraging research and development as opposed to distributing knowledge; the ethical companies as opposed to the generic companies; the situation in the Israeli market compared to the situation in the international market; the economic interest of the patent owner as opposed to the public health interest. It should be noted that the sensitivity to what is being done in the Recognized States does not derive from mutual respect for the internal decisions of any one state or another. It is rather that the determination of a period of time elsewhere inherently affects what happens here. One cannot ignore the economic reality. It thus follows that the significance of the shortest period of time is that it reflects an appropriate period of time for restricting competition. It should further be mentioned that the recognition of the inventors' bundle of rights also coincides with the interest of the individual who purchases the pharmaceuticals. The approach is that appropriate treatment of the inventor's profit will incentivize the market and expand the basket of pharmaceuticals available to those who need them.

 

The conclusion is that the interpretation that should be adopted is that when determining the period of the extension order one must also consider orders that were granted in Recognized States after the order was granted in Israel. This is the foundation, but the road to completion of the entire structure is still long. This is the interpretation of the Law, however one must continue to examine whether applying it to Merck unlawfully infringes its proprietary right. And on the other hand, even if there is no wrongful infringement of a proprietary right, the question emerges whether there was reliance upon a legal situation and whether this has significance. We shall now address these matters.

 

The Constitutionality of Shortening the Extension Order

 

13.       An additional question the parties disputed is the constitutionality of the transitional provisions of Amendment 7 of the Law, which prima facie, provide that the calculation mechanism under this amendment will also apply to extension orders that were already granted in the past. This is the issue at center stage in LCA 8263/15, which was filed by Merck. According to Merck, this is a constitutional infringement of its proprietary right, which cannot be justified. We shall begin by presenting the transitional provision:

 

The provisions of the main law, as worded in this law… shall also apply to applications for the granting of extension orders that were filed before its commencement and to extension orders that were granted before its commencement, provided that the validity of the basic patent for which the extension order was granted has not yet expired (sec. 22(a) of the Explanatory Notes to Amendment 7 of the Law – emphasis added).

 

Merck claims that this is a retrospective act of legislation, since it applies to orders that were already granted, and that it changes a legal situation upon which one could rely. The Manufacturers Association is of the opinion that this is prospective legislation, since the amendment does not infringe the assets that Merck has already accumulated, but rather, at most, infringes its future economic interest, inasmuch as the order should be viewed as though it is to enter into effect only upon the lapse of the twenty-year basic protection. I admit that I am not of the opinion that the dispute regarding the classification is decisive in the case at hand. There are four types of application: retroactive, retrospective, active and prospective (see HCJ 6971/11 Eitanit Construction Products Ltd. v. State of Israel, paragraphs 37-38 (April 2, 1013); PPA Orit Arbiv v. The State of Israel, IsrSC 46(2) 765, 778-784 (1992)). At times, the legal reality does not cooperate with archetypes. Not every law fits into neat, organized compartments. Even if I were to address the issue as it was presented, it would be incorrect to rule that the amendment is retrospective or retroactive. This being the case, Merck will not benefit from the claim that the current transitional provisions infringe its rights. I shall clarify.

 

Take, for example, a person who was involved in a work accident on January 1, 2000. In an ordinary situation, his claim would expire under the statute of limitations upon the lapse of seven years. This is the law at the time when his cause of action was established. Let us assume that in 2002 the legislature decides that a claim for work accidents can be filed up to ten years from the date of the accident. A year later, the legislature decides that the period of limitation of actions shall be eight years from the date of the accident. It is further established that all of the amendments also apply to accidents that occurred in the past and for which a cause of action has already arisen. We should take note of the fact that along the legislative axis, from the date of the injury, the person in the example was awarded a benefit in the sense that instead of a seven-year limitation period, the law establishes an eight-year limitation.

 

It would appear that this example is similar to the case at hand. Merck received a patent in 1994, for twenty years. At that time, the legal mechanism of extension orders, which was legislated in 1998, did not exist. An extension order was granted to Merck in 2005, and the relevant transitional provision shortened the period of extension but maintained the order itself. All of this was done during the twenty-year period. Indeed, alongside the granting of the extension order, generic companies were permitted to begin taking steps toward licensing their pharmaceuticals during the twenty-year period. However, there is an additional fact – in the beginning, the law allowed the ethical companies to look for reference states as they desired, including states that grant maximum extension periods, and this option was later cancelled. All in all, Merck's situation would appear to be better, and it is at least not worse than it was when it filed the patent application.

 

In my opinion, in both of these examples one cannot say that there is a retroactive or retrospective infringement. The infringement in the statutory provisions can be defined as active, since it applies to a right that exists in the present – a patent – and it operates in the future. It does not apply to an action that has already ended or to a right that has been exhausted. At most, one can say that it has certain retrospective characteristics (see and compare with para. 2 of the opinion of Justice U. Vogelman in HCJ 3734/11 Chaim Davidian v. Knesset (August 15, 2012) (hereinafter: the Davidian case)). However, even an active law can infringe property rights, and even retroactive application can comply with the requirements of the law (see and compare: HCJ 4562/92 Sandberg v. Broadcast Authority, IsrSC 50(2) 793, 817-819 (1996); HCJ 1149/95 Arco Electricity Industries Ltd. v. Mayor of Rishon Lezion, IsrSC 54(5) 547-574 (2000)). It emerges that the title – retrospective or active – is not decisive, nor even appropriate. The situation before us incorporates both retrospective elements and prospective elements. They are intertwined. Meaning that we are addressing an order that was granted in the past but an infringement of a future part thereof, and this is what the discussion should focus on. The title is not a self-sustaining, living being. It is meant only to assist in examining the fundamental question – whether or not we are dealing with a wrongful infringement of proprietary rights. I shall thus focus upon a substantive examination of the elements that are relevant to analyzing the matter, those that are retrospective and those that are prospective, and they shall decide how the constitutional law applies in the concrete circumstances.

 

1.According to Merck – and pursuant to the Recordati case (para. 22 of the judgment) – upon the granting of an extension order, a proprietary right is created. It is argued that if this is the case, then the shortening thereof constitutes an infringement of property that is contrary to Basic Law: Human Dignity and Liberty. On the other hand, the Attorney General's representative and the Manufacturers Association argue that the Recordati case  held that there is no proprietary right prior to the granting of the order, but it did not establish the opposite position, that the right is created upon the granting of the order,. According to them, the proprietary right crystallizes only upon the lapse of the period of the basic patent right, when the patent becomes protected by virtue of the extension order. According to them, until this stage, there is no vested right that the duration of the order not be shortened.

 

 This requires addressing a basic question. Basic Law: Human Dignity and Liberty explicitly mentions the right to property. The heading of sec, 3 of the Basic Law is "Protection of Property" and its language states: "There shall be no infringement of the property of a person." Section 8 of this law provides that "There shall be no infringement of rights under this Basic Law except…". The question when a person has a right to property and when an economic interest has not crystalized into such a right is a weighty question (see, for example, CA 6821/93 United Mizrachi Bank Ltd. v. Migdal Cooperative Village, IsrSC 49(4) 221, 327-331 (1995) (hereinafter: the Mizrachi Bank case); Yoseph Edrey, A Declarative and a Constructed Constitution - the Right for Property Under the Israeli Constitutional Law and its Location on the 'Constitutional Rights' Scale, 28 Mishpatim  461, 519-529 (5757) (Hebrew); Aharon Yoran, The Scope of the Constitutional Protection of Property and Judicial Intervention in Economic Legislation, 28 Mishpatim  443, 447-450 (5757) (Hebrew)). In various countries, such as Canada, the right to property is recognized as a protected right in a charter. This situation also derives from internal considerations of constitutional politics (see: David Johansen, Property Right and the Constitution, Library of Parliament (Canada), Law and Government Division, (October, 1999)). In any event, this outcome also derives from the difficulty in defining what property is, and in distinguishing between it and an economic interest that is not constitutionally protected. The concern is that a property right will be interpreted in an excessively broad manner, while limiting or frustrating various acts of legislation which have economic implications (see Joshua Weisman, Constitutional Protection of Property, 42 Hapraklit 258, 259-260 (5755) (Hebrew)). The distinction between an economic interest and a property right is a general issue, and it is implemented in each of the fields of law while striking a balance between the interests and values at issue. This is also the case in the field of intellectual property in general, and in the area of patent law, in particular.

 

At present, I do not need to set hard and fast rules as to whether granting an extension order creates a proprietary right in order to rule in the matter at hand. The case law has already held that, as a matter of principle, a patent is a proprietary right (see, for example, the Merck case, para. 17; HCJ 5379/00 Bristol-Myers Squibb Company v. Minister of Health, IsrSC 55(4) 447 (2001)). I am willing to assume for Merck's benefit that an order to extend the patent is included in this right. However, the case before us does not address the matter of the cancellation of an extension order. The question before us is different: What is the law that governs the shortening of an extension order? One can even pinpoint the issue: What is the law that governs shortening an extension order in the current circumstances, in which Merck's patent was registered before Amendment 3 of the Law, and before the institution of extension orders, along with its purposes, was established? Does such a right include a constitutional protection not to have its duration changed? This framing of the question is what leads to rejecting Merck's position that its proprietary right was unlawfully infringed. I shall clarify my position.

 

15.       Should all legislation that has economic implications be examined through the prism of the constitution? This question is at the heart of the discussion that surrounds the nature of the constitutional right to property. As early as the Mizrachi Bank case various positions were expressed regarding the nature of the right. As is well known, that case concerned a challenge to a provision of law that somehow infringed the possibility of collecting various types of debts. President (Emeritus) M. Shamgar ruled that for the purpose of the constitutional examination, an obligatory right should also be considered property (ibid, page 328). An apparently more expansive approach was expressed by President A. Barak. According to him, "property is any interest, which has an economic value". However, the question whether any governmental action that affects the value of an individual's property requires a constitutional examination remained to be further discussed. It was additionally ruled that de minimis infringements would not necessitate a constitutional examination (ibid, pages 431-432). From a different direction, Justice I. Zamir expressed a more cautious approach, pursuant to which it is not desirable to define any infringement of a person's financial income or the value of his property as an infringement of property. However, he assumed for the purpose of the ruling that the legislation that was the subject of the dispute did infringe a right to property since according to him, even under this assumption, the case concerned an infringement that passed constitutional review (ibid, pages 470-471). This pattern of deciding, and in fact of avoiding decision, repeated itself in various contexts in which economic legislation was subjected to review. The conspicuous example is that of tax legislation in which the Court has chosen to analyze the cases brought before it on the assumption that the legislation infringes a right to property, without ruling on this matter (see an example of this in the Davidian case, para. 29 of the opinion of President M. Naor, and the survey there).

 

I will already state that the case before us does not require an extensive discussion of whether the transitional provisions of Amendment 7 infringe Merck's right to property in a manner that requires a constitutional review. Even if that were the case, there is no unlawful infringement. In my opinion, this is not a borderline case, and there is no need for  an elaborate analysis of the elements of the Limitation Clause. This is a case of primary legislation for a proper purpose – encouraging one of the fields of industry and reducing the price of pharmaceuticals for the entire public. The extensive analysis that was performed above, in the framework of LCA 8127/15, leads to the conclusion that the proportionality condition is also met in all of its senses, including in its narrow sense. The compensation which Merck was awarded in the form of the new extension period that was determined in the order is appropriate and realizes the purpose for which the arrangement was enacted. Merck's complaint was not directed at the duration of the period itself, but to the very shortening thereof. That being the cases, in a broad examination, Merck's economic situation was not harmed. What was harmed was the possibility that it may be improved. The legislature is the one that granted it that possibility, and it is the one that subsequently took it away, without worsening Merck's overall situation (and we will already preempt and say that no reliance whatsoever of Merck on the legal situation prior to Amendment 7 of the Law was either argued or proven). We would note that at the time when Merck registered its patent, the arrangement of extension orders had not yet been enacted. Thus, the scales clearly tip toward realizing the purposes of Amendment 7 of the Law. In any event, Merck's arguments in this context – both interpretational and substantive – are to be rejected. It should further be noted that I did not find merit in its arguments that related to flaws in the legislative proceedings that preceded Amendment 7 of the Law, and I suffice in referring to our discussion above in LCA 8127/15.

 

16.       However, and in this sense, above and beyond that which is necessary, it is appropriate to refer briefly to the question whether we are addressing an infringement of the right to property that requires constitutional review. And the end of the last sentence should be emphasized. The important question when addressing legislation that has economic implications is not necessarily whether there is an infringement of a right to property, but rather if there is a constitutional infringement of a right to property. As already mentioned, in the Mizrachi Bank case President Barak already addressed the possibility that there could be an infringement of an individual's property that would not require a constitutional review of the law when only a de minimis infringement was involved. In HCJ 2442/11 Adv. Chaim Stanger v. Speaker of the Knesset (January 12, 2011), one can see an additional development of constitutional review. One of the issues addressed in the judgment was the constitutionality of a statute that revoked the possibility of filing a third-instance appeal as of right in various detention matters. Instead of a third-instance appeal as of right, the possibility of applying for leave to appeal was provided. President A. Grunis made an obiter dictum distinction between the "constitutional threshold", which is the lower threshold beneath which there will be a constitutional infringement, and the "legal status". I would prefer to define the distinction between a constitutional infringement and an infringement that is not constitutional. As President Grunis stated, there are laws that are above the constitutional threshold, where even if their amendment harms an individual, they are still not exposed to constitutional review:

 

There is no doubt that the amending law discussed in the petition adversely affects, to some degree, the state of suspects and defendants as compared to the previous legal situation. However, the mere adverse change does not necessarily lead to the conclusion that there is an infringement of a constitutional right… We must distinguish between the constitutional threshold and the legal status preceding the amendment to the Law… The fact that the Law was amended and lowered the legal threshold does not, in and of itself, lead to the conclusion that the constitutional threshold was infringed with the adoption of the amendment to the Law (para. 45). 

 

It is possible that in relation to the previous law, a right that was granted to a person is taken away, while in relation to the Basic Law, there is no infringement that justifies constitutional review. This holds true even with respect to the right to liberty – in matters of detention – and so with respect to the right to property.

 

HCJ 5998/12 Guy Ronen v. Knesset (August 25, 2013) addressed a statutory provision that changed the mechanism for calculating the pension allowance of some IDF retirees. The petitioners argued that the new calculating method would lead to giving allowances of amounts lower than they would have received in accordance with the previous calculation method. President Grunis reiterated his position, and in an even more precise manner:

 

The amendment of a law after the legislation of the Basic Law must be examined with respect to the constitutional threshold that is determined by the Basic Law, and not in relation to the legal state that preceded the amendment of the law. It should be noted that the cases that are prone to such confusion are cases in which the law that is being constitutionally reviewed changes an existing law or constitutes an amendment to an existing arrangement. It is clear that in a situation in which a new law is enacted in a matter that until such time was not regulated by statute, no concern arises that the amendment will be examined in relation to a preceding legal state (para. 14. My colleagues Justice Y. Danziger and Justice Z. Zylbertal concurred).

 

Thus, the examination is not whether a person's property (in the broad sense given this term in the Mizrachi Bank case) was infringed, but rather whether the constitutional threshold was crossed, in which event the infringement must be examined through the prism of the constitution.

 

In the framework of the discussion in LCA 8127/15 we saw that the calculation mechanism established in Amendment 7 of the Law, in and of itself, leads to an appropriate result. Merck does not argue that that the period of the extension order granted in the United States was too short, but rather that the legal situation changed. But it emerges from the above analysis that the situation that preceded Amendment 7 – in the framework of which a patent owner could choose the state that granted the longest extension period as the reference state – is one that benefited it in a manner that exceeded what is necessary. In other words, if the substantive provisions of Amendment 7 – which have not given rise to any objection – are above the constitutional threshold, then the legal situation that existed before them was certainly above this threshold. In the circumstances of the specific statutory development of the case before us, the constitutional threshold was not crossed.

 

17.       Incidental to the discussion, I shall address the issue of the significance of specific reliance on the part of the patent owner upon an extension period that was retroactively cancelled by a statutory amendment. The argument of reliance and adverse change is an argument that is independent and separate from the argument of unconstitutional infringement of property. It can be argued that if and to the extent specific reliance by Merck on the legal situation that was changed can be proven – it may be, without setting a hard and fast rule in the matter – then it is possible to initiate an appropriate proceeding, pursuant to the rules of administrative law, in the framework of which the relief that would be granted could also take the form of compensation for damages that were caused, and not necessarily the granting of a patent right (see and compare the Davidian case, paras. 21-26; Daphne Barak-Erez, Protecting Reliance in Administrative Law, 27 Mishpatim 17 (5766) (Hebrew)). In the current proceeding, Merck did not raise an argument of concrete reliance on the statutory situation, and therefore the question is theoretical. It should be noted that the Attorney General's representative argued that in light of the nature of the extension orders and their subjection to changes due to events that occur after they are granted, reliance on the period of the extension, at least before the order becomes operative upon the lapse of the basic patent period, is not protected. This is a fine question, but it can be left to be addressed in due course since, as noted, in the present circumstances and the current proceeding, reliance on a legal situation that was changed was neither argued nor proven.

 

18.       For the purpose of enriching the discussion, while addressing the essence of the economic aspect, it would be appropriate to add a comment focusing on the nature of Merck's rights. To be clear, the ruling in this judgment does not depend on the various remarks in the following paragraphs, however they would seem to reinforce the result I have reached.

 

In practice, no one disputes that Merck does not have a property right in the traditional sense. At most one can say that it has a right to intellectual property. This is the prism through which one must view the matter. Intellectual property laws are different, for example, from real estate laws or tax laws in terms of defining the property right. As opposed to a property right in a physical object, which prevents another person from taking the object from its owner, or tax laws that allow the authority to take funds that the citizen accumulated – an intellectual property right is no more than a prohibition forbidding another from performing a certain action, even when the performance thereof does not prevent the owner of the right from performing an identical action. The objective of the prohibition is not the preservation of the safety of the owner of the right or of his property, but rather of his ability to generate more profits in the future – if only to cover past investments. It is therefore interesting to ask what is the source of the justification to impose prohibitions upon the general public, even when no harm might be caused to another's negative freedom or to the property he has accumulated? The dispute between legal systems and philosophers regarding the status of intellectual property laws, including patent laws, is well known. One approach seeks to base them on a kind of natural right of the creator, who labored on his creation, to reap the fruits of his labor. Another approach focuses on general policy considerations, primarily incentivizing the development of patents, the creation of works, etc., for the sake of creating a more efficient, higher quality market (see, for example, Daphna Lewinsohn-Zamir, The 'Fair Use' Defense in Copyrights,16 Mishpatim  430, 430-431 (5746-5747) (Hebrew); Wendy Gordon, On Owning Information: Intellectual Property and the Restitutionary Impulse, 78 Va. L. Rev. 149 (1992); Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. L.J. 287 (1988)).

 

In any event, the intellectual property right is special. It is a challenging question whether the uniqueness derives from its relative novelty – a fact that may change; or from other special reasons whose persuasiveness will stand the test of time. The intellectual property right presently primarily focuses on loss of future profits and not on protecting against direct harm to existing property. There are those who are of the opinion that the interest of preventing loss of profits is less positively protected by the law, and there are those who have even attempted to justify this on a normative level (see Eyal Zamir, Loss Aversion and the Marginality of the Disgorgement Interest, Shlomo Levin Volume 323, 368-372 (Asher Grunis, Eliezer Rivlin & Michael Karayanni, eds., 2013) (hereinafter: Zamir, Loss Aversion) (Hebrew)). It has been explained that harm such as the expropriation or trespass of land, and the taking of property by a tax mechanism carries heavier psychological weight than the loss of profits (such as the removal of patent protection, which allows competition and causes a decline in profits from the sale of a product). This phenomenon is referred to as loss aversion (see, in a general manner, Eyal Zamir, Law, Psychology, and Morality: The Role of Loss Aversion (2015) hereinafter: Zamir, Law, Psychology and Morality)). The more we are in the realm of loss of profits, the harm to the potential profiter is of lesser magnitude than the harm to a person who suffered injury. Intuitively, and even without relying on research, the expropriation of an object by the authority is deemed more offensive than the denial of the option of receiving an object in the future. It is interesting, in this context, that Prof. Zamir wrote that it is possible that the loss aversion phenomenon does not necessarily reflect the objective value of objects and rights. It is possible that were we all rational people – as those theoretical creatures that perform transactions in the research of some economists – there should not be a principled difference between the realm of damages and the realm of loss of profits. However, since psychology is what it is, this is of considerable and significant weight (Zamir, Loss Aversion, pp. 370-372; Zamir, Law, Psychology and Morality, pp. 205-207).

 

19.       An additional aspect of intellectual property is the distinction between the core and the margins. We have mentioned the various approaches that justify the law's protection of intellectual property. Without delving into the thick of it, it is obvious that even those who support the "natural" approach leave considerable room for policy considerations. This is a fortiori the case when addressing the "margins" of intellectual property arrangements, which reflect policy considerations and not necessarily property rights that prevail over the policy considerations (see, for example, the Merck case, paras. 17-27; Daphna Lewinsohn-Zamir, Economic Considerations in Protecting Inventions, 19 Mishpatim 143 (1983) (Hebrew); and compare, Miguel Deutch, Commercial Torts and Trade Secrets 699 (2002) (Hebrew)). The question before us is whether the shortening of the protection period of an intellectual property right is an infringement of a right to property. In other words, the question does not relate to the mere existence of the right, but rather to outlining its boundaries. The right exists, but it is not clear what is included therein to begin with and how its exact limits are defined.

 

Take as an example a petition to expand the protection of the basic patent from twenty years to twenty-two years, on the grounds of a constitutional infringement of property. Obviously such a petition would be dismissed. Analytically speaking, how is this different from a claim due to the shortening of a period of a patent from twenty-two years to twenty years (assuming there is no specific reliance on the duration of the period)? The difficulty in defining the precise boundary stems from the fact that intellectual property is an idea and not an object. Therefore, the mere definition of the intellectual property right is not sharp and precise. Its boundaries can be changed by their very nature, as opposed to those of objects for which the physical reality prescribes their exact size. This question can emerge in various contexts that address abstract ideas. For example, in criminal law, does a statutory amendment that allows imposing longer imprisonment on the perpetrator of a certain offense require constitutional review? What are the boundaries of the right to freedom? The precise boundaries were, of course, prescribed based on the legislature's policy considerations, and they are more exposed to changes. This determination is particularly apparent when addressing patent laws, which are at the center of the technological stage. This requires that they react quickly to various events and developments – even more so than other intellectual property fields – such as the protection of trademarks or literary works. In the dynamic environment of technological developments, innovations and inventions – and especially in a global world in which competition crosses virtual and physical borders – the boundaries of the right must also be dynamic.

 

This is the foundation of the extension orders arrangement. It is not a "rigid" arrangement that creates a representation of an irreversible right, but it is rather a dynamic arrangement that is given to certain changes to begin with. The most conspicuous example of this appears in sec. 64J of the Law, which provides that an extension order can be cancelled due to a subsequent extension order being granted in a Recognized State. Indeed, the cause for expiration in this section is the expiration of the patent in another country, but ultimately, in the prism of exposure to change, Merck was aware, as early as at the time of receiving the order, that orders that may be granted in other countries could lead to the shortening of the period of the order that it was granted. At issue is an expansion of the possibility that the order may be shortened – a possibility that had already existed. To begin with, it was not an irreversible right that was granted, but rather a right dependent upon orders granted overseas. In the case at hand, the transitional provisions in Amendment 7 of the Law explicitly provide that the amendment will only apply to those whose basic patent period had not yet expired. Anyone who already received the patent's protection by virtue of the extension order was not harmed by the amendment.

 

A Comparative Perspective

 

20.       It would be informative to turn to Jewish law's approach to patent laws, and along the way we will also mention the pharmaceutical field. We shall begin with recognizing the inventor's proprietary status. Conceptual caution is necessary here. Rabbi Isaac Halevi Herzog (one of the two first chief rabbis of the State of Israel, along with Rabbi Ben-Zion Meir Hai Uziel, d. 1959) emphasized in his monumental book about property laws in Jewish law, that due to the nature of the Jewish law system – from the written Torah to the oral law, the Mishna and the Talmud, and up to the Responsa that continue to be written to the present day – the development of the law is based on concrete examples. It is difficult to find a direct definition in its sources for the right to property in general, and certainly for the right to intellectual property. However, Rabbi Herzog insisted that it is possible to find the intellectual nucleus that, at least in general terms, could guide the Halakha:

 

It should be made clear once more, that even the sources adduced above would furnish no firm legal ground for patent-right. They would merely supply the spirit and the trend which would have to be clothed with the body and substance of takkanoth, of legislative enactments… Had disputes about such matters been of relatively frequent occurrence, they would have found an echo in our juristic literature, and although, as already stated, there is no direct ruling or dictum in the Talmudim on patent right, there is in that ocean of Jewish law and lore enough of the basic moral idea and even of a legalistic nucleus to have supplied the authorities with material for dealing with the question from the halakhic standpoint. I have no doubt that under Jewish law had the question become actual, patent-rights would have been protected in some measure, at least by special enactments supported by certain Talmudic analogies (Isaac Herzog, The Main Institutions of Jewish Law 1: The Law of Property 132 (1939)).

 

            Indeed, the Sages labored and found rich, interesting sources and precedents. Rabbi Shimon Shkop (Head of the Grodno Yeshiva who lived in Europe and died in 1939), at the beginning of his commentary to the Talmud tractate Bava Kamma – which relates to damages – referred to one of the heads of damages in the Talmud, the pit. The question is on what grounds can a person who dug a pit in the public domain be found liable for the injuries of a person who was injured thereby. At first glance it would appear that the person did not cause harm by his body or property, since the pit is located in the public domain. Rabbi Shkop explains as follows:

 

And in the case of a pit, the Torah held him liable for the injury caused by his harmful thing, and that the pit is his is due to the digging and the opening. That is, he prepared the harmful thing and he is therefore called its owner, similar to that which concerns a person’s right: it is accepted under the laws of the Torah and the laws of the nations that whoever invents something new in the world is the owner of all rights thereto – similarly, the Torah called a person who prepares a harmful thing the owner of the pit and the owner of the fire, and held the owner of the harmful thing liable (Novellas of Rabbi Shimon Shkop, Bava Kamma 1. See also LCA 7337/12 Amir Cohen v. John Deere Water Ltd., para. 6 of my opinion (March 12, 2013)).

 

The principle that emerges is that "whoever invents something new in the world is its owner". This is the linkage between the owner of the invention and his invention. Rabbi Shkop repeats this principle elsewhere, when he addresses the possibility of gaining ownership by thought and invention: "Also a thing that was created by a person's wisdom belongs to such person… who also was awarded with the instrument of thought, to benefit from what he shall invent therewith… and since he has sold him his wisdom, meaning his body and limbs that invented this thing in the world – then immediately when such thing enters the world it belongs to the buyer (Novellas of Rabbi Shimon Shkop, Gittin part 4; see Rafi Reches and Michael Wigoda, Protecting Copyrights, Patents and Inventions in the Jewish Law, Ministry of Justice (2010)).

 

Rabbi Herzog was of the opinion that one can already find an anchor to the rights in a new invention – and in fact, a patent – in the Babylonian Talmud and its commentaries. One of the issues addresses a person who wants to cast a fishing net near a place where a trap had already been set by another person. It was ruled that he must distance it from that of the other: "Fishing nets must be kept away from the fish the full length of the fish's swim. And how much? Rabbah son of R. Huna: Up to a parasang?' (Bava Batra 21b). The Talmud commentators discussed the basis for prohibiting the competing fisherman from laying down his trap – since the fish have not yet been caught by the first fisherman, and therefore, prima facie, they have not yet become his property. One of the explanations is presented by the Tosafist Rabeinu Meir of Ramerupt (Ashkenaz, 11^th century).

 

Rabbi Meir, Rabeinu Tam’s father, says that this is a dead fish, since the fishermen would place a dead fish in their nets so the fish would gather around such fish. And since he was the first to cast his net, and due to his act the fish were gathering around – if the other were to cast his net, it would certainly be as though he was stealing from him (Kiddushin 59a).

 

According to Rabeinu Meir, the fact that casting the net requires prior thought and action entitles the person who cast the net to a proprietary right in the anticipated profit even though this profit has not yet been realized and the fish have not yet entered his possession. According to Rabbi Herzog, one can view this source as an anchor for the protection of patents: "Here at last we have some approach to the idea of patent-protection" (page 131).

 

Rabbi Asher Weiss (a contemporary Jerusalem scholar) also ruled on the matter of the halakhic validity of a registered patent: "It is my humble opinion that it is a simple position that a person also has a monetary right in the fruit of his spirit and creation, and what he conceived is not less than what he acquired, and just as the fruit of the palm belong to the owner of the palm, even though he did not acquire them through the routes of title, so the fruit of his spirit belong to him and there is no need for title." He therefore ruled as a matter of Halakha that "[in] a registered patent, it is clear that according to the law of the Torah, others are prohibited from doing as is set forth therein (Rabbi Asher Weiss, Darkhei Horaa 4, 100 (5766)).

 

21.       However, alongside the recognition of the proprietary, or quasi-proprietary right that a person has in his inventions, we find resonances in Jewish law to the fact that this right is not unlimited and that it must be balanced with the public interest of having knowledge resources available to all. The Mishna tractate Yoma gives a list of craftsman who did not agree to reveal the secret of their craft to others, while denouncing this:

 

And these they mentioned to their shame: those of the House of Garmu [who] did not want to teach about the act of the shewbread; those of the House of Avtinas [who] did not want to teach about the act of the incense; Hygros, son of Levi, knew a chapter in song but did not want to teach; Ben Kamtzar did not want teach the art of writing; … It was said about the above, the name of the wicked shall rot (mYoma 3, 11).

 

The Babylonian Talmud explains why the Sages required that the craftsmen reveal their secrets: "When the Sages heard that, they said: whatever God created was created in His honor. As it was said: 'Anyone that is called by my name, I have created in my honor" (TB Yoma, 38a). This is a religious approach that emphasizes the fact that the natural – material and corporeal – resources are universal because they were created by God. It is inappropriate to attribute them exclusively to any specific entity. This is the case with respect to all natural resources, and a fortiori, with respect to a resource that has the potential to heal. As told in the Babylonian Talmud in tractate Avoda Zara:

 

Rabbi Yochanan suffered from the tzefidna disease. Hhe went to a Roman matron who prepared a remedy on Thursday and on the eve of the Sabbath. Rabbi Yochanan asked her: What will I do on the Sabbath? She responded: You do not need a remedy on the Sabbath. He asked her: What will I do if I do, nevertheless, need a remedy? She responded: Swear to me that you will not reveal the recipe and I will give it to you. Rabbi Yochanan swore "to the gods of Israel that I will not reveal". Rabbi Yochanan left and gave a public sermon in which he revealed how the remedy is prepared.

 

Even though Rabbi Yochanan swore to the Roman matron that he would not reveal her secret, Rabbi Yochanan broke his vow due to the public interest in healing, and revealed the Roman matron's healing secret to the entire public (in the Talmud there is reference to the question whether this amounts to desecrating the name of God).

 

22.       It should be noted that we are dealing with patent laws. Even according to Israeli law, patent laws are characterized by their application to an invention "that is a process in any technological field, that is new, useful, can be used in industry and constitutes inventive progress" (sec. 3 of the Law). From the Jewish law sources it emerges that the justification for protecting the patent derives from the creation. In this sense, there were those who said that just as the works of a person's hands belong to him, so do the inventions of his imagination and the implementation thereof. According to this approach, a creation – either of the hand or of the head – entitles a status of "ownership" with respect to the invention and its fruits.

 

An example of an invention in the pharmaceutical field was cited. Rabbi Herzog emphasized that our Sages did look kindly on a person's wish to keep the invention to himself forever. This is due to the recognition that what is concerned is an invention that can save lives (ibid, page 128). The tension that was presented in the above analysis is expressed in the fact that the craftsman has a right to receive money, but is not entitled to keep the patent secret to himself, certainly not forever. One can say that patent rights do not override patients' rights (in the broad context, see Nimukei Yosef Al Harosh, Yevamoth 12a; Ritva (Rabbi Yom Tov Ben Avraham Asevilli) on the Babylonian Talmud, ibid; Rabbi Herzog's position, ibid, page 129).

 

It is interesting to note that the adjudicators that were cited – Rabbi Shkop, Rabbi Herzog and Rabbi Weiss – lived between the 19^th and 21^st centuries. During this period the field of patents has become much more sophisticated. The words of Prof. Edward Fram, an expert on history, halakha and its development, are relevant in the case at hand: “like rabbis in all periods, …rabbis had to address the needs of the marketplace in order to keep the halakhah relevant and maintain the integrity of Jewish life" (Edward Fram, Ideals Face Reality – Jewish Law and Life in Poland 162 (1997)). Indeed, the economic question directly relates to the Jewish community in general, and in the State of Israel in particular. Integrity is maintained by the fact that the Rabbis based their conclusions on the principles of halakha and on Talmudic sources. The theoretical foundation is not, essentially, economic, but rather the recognition of the person's abilities to create and the link between him and his creation, while considering the needs of society. It appears that the religious foundation is "and you shall walk in His ways" (Deuteronomy 28, 9) – What He (God) creates – you (man) also create. The justification for legal recognition is thus perceived as both moral and practical.

 

23.       We now proceed from a broad perspective to a narrower one focusing on American law with respect to the specific arrangement of extension orders, their background and the method of their calculation. The basic rule in the United States is also that a patent's protection is for twenty years from the date the application for the patent registration was filed (see 35 U.S.C § 154(a)(2)). However, an exception to this rule was provided in the form of the possibility of granting an extension order ("Patent Term Extension", see The Drug Price Competition and Patent Term Restoration Act of 1984, Public Law 98-417, 98 Stat. 1585 (codified at 21 U.S.C. § 355(b), (j), (l); 35 U.S.C. §§ 156, 271, 282) (hereinafter: the Hatch-Waxman Act).

 

The rationale behind this exception is similar to the process that led to the corresponding Israeli arrangement. The Hatch-Waxman Act was enacted against two backgrounds: On the one hand the Act addresses the problem of the generic industry. As in Israel, the American industry was also facing difficulty in competing in the free marketplace with other pharmaceutical companies immediately after the patent expiration since, according to the rulings of the courts at that time, it was not possible to perform various actions required by the regulator to license a patent-based product as long as the patent had not expired:

 

The second distortion occurred at the other end of the patent term. In 1984, the Court of Appeals for the Federal Circuit decided that the manufacture, use, or sale of a patented invention during the term of the patent constituted an act of infringement… even if it was for the sole purpose of conducting tests and developing information necessary to apply for regulatory approval... Since that activity could not be commenced by those who planned to compete with the patentee until expiration of the entire patent term, the patentee's de facto monopoly would continue for an often substantial period until regulatory approval was obtained" (Eli Lilly & Co. v. Medtronic Inc., 496 U.S. 661, 670 (1990) (hereinafter: the Eli Lilly case).

 

This problem was resolved by sec. 35 U.S.C § 271(e)(1) of the law that provides as follows:

 

It shall not be an act of infringement to make, use… or sale… solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological product"

 

On the other hand, the arrangement of extension orders was provided for patents for which the patent owner is required, as a condition for marketing, to perform various licensing actions that take a significant amount of time (see 35 U.S.C. § 156). In the United States, as in Israel, both of these arrangements were perceived as different sides of the same coin. On the one hand, the need to open the market to competition at the time of the patent expiration; on the other hand, compensating the patent owner for "lost" time”. A fine example of the tight connection between the two arrangements can be found in the Eli Lilly case. In that case, which was heard by the Supreme Court, a question emerged whether a certain medical device was covered by the section that allows performing licensing actions even before the patent's expiration. The federal court’s answer was negative, however this ruling was reversed by the Supreme Court in light of purposive interpretation of the law. The ruling was based on two facts. First, the device at issue was required to undergo various examinations as a condition for marketing. Second, it was possible to receive an extension order in that field. The Court held that as a rule, and since these are related arrangements, it would not be possible to benefit from both of them. If it is possible to receive an extension order, the competitors would be able to take actions toward licensing during the period of the patent, and vice versa, in light of the tight linkage between the two arrangements:

 

It seems most implausible to us that Congress, being demonstrably aware of the dual distorting effects of regulatory approval requirements in this entire area… - the disadvantage at the beginning of the term producing a more or less corresponding advantage at the end of the term - should choose to address both those distortions only for drug products; and for other products named in 201 should enact provisions which not only leave in place an anticompetitive restriction at the end of the monopoly term but simultaneously expand the monopoly term itself, thereby not only failing to eliminate but positively aggravating distortion of the 17-year patent protection. It would take strong evidence to persuade us that this is what Congress wrought, and there is no such evidence here (Eli Lilly, p. 672).

 

As can be seen, it is one earth. The difficulties in Israel and the United States are common, as are the solutions – both for the generic industry and for the ethical industry.

 

To conclude, we will turn our glance towards the method of calculating the period of the extension order in the United States. As noted, in Israel there is a distinction between a situation in which the licensing of the patent was requested only in Israel, and a situation in which licensing was requested in an additional Recognized State. In the first case, the period of the order is the time the licensing procedure lasted, from the date the application was filed until the license was granted. In the latter case, there is a linkage to the shortest extension order that was granted in one of the Recognized States. The calculation mechanism in the United States is also based on the period of the licensing process, although in a more complex manner. It is based on the duration of the testing phase and the approval phase. The testing phase is the period from the date when approval for experimenting on humans was received and until the date the new drug application form was filed. The approval phase starts at this stage and continues until the final approval of the pharmaceutical (see 35 U.S.C. § 156). There are a number of scenarios and calculations, and there is no need to specify all of them in the framework of this judgment. Suffice to say that the main rule is to grant an order for the period of half of the testing phase together with the entire approval phase (ibid). As in Israel, there are various restrictions that apply to the length of this period, and particularly that it be for no more than five years in total, and no more than 14 years from the day the marketing approval is granted.

 

This is the current calculation in principle, without addressing all of the legislative changes that have also occurred in the United States. One can now understand the legislature’s decision to view equating the period of the Israeli order with the U.S. order as appropriately compensating the patent owner. This, as noted, is the situation in Merck's specific case. This is what we have said in light of the global aspect of the use of pharmaceuticals. There are countries that legislate their laws on this matter with one eye looking inward and one eye examining what is occurring in other countries. That is the demand of the economic reality in striving to give proper weight to all of the factors involved in what occurs in this field, including the individual.

 

Conclusion

 

24.       The transitional provisions of the Israeli law do not amount to retroactive infringement. Even if the shortening of the period of the extension infringes a constitutional right, it clearly passes constitutional review under sec. 8 of the Basic Law. Finally, there are solid grounds for the conclusion that the infringement does not reach the constitutional threshold. As was explained above, not every infringement is necessarily a constitutional infringement. The legislature gave and the legislature took back its share. I am not saying that this conduct, or such legislation, is immune to constitutional review. However, it must be grounded. In the example of the third-instance appeal by right that was discussed above, had the legislature provided that there is a right of appeal in the Tel Aviv district but not in the Northern district, it could have been argued that we were concerned with a constitutional infringement. This is certainly so in the case of wrongful discrimination.

 

As noted, in this case the purpose is to grant appropriate compensation to the patent owner, in the form of a period of protection that exceeds twenty years, but in a manner that does not excessively prejudice other important interests and values, such as opening the market to competition. Viewed as a whole, the actual period of protection that Merck was awarded is longer than that to which it was entitled when the patent was registered. Not a hermetic twenty-year unit, but rather a longer cumulative period of time that includes the period of the extension order. The shortening of the extension order relies on a calculated, considerate policy of the legislature. This is true with respect to the ethical companies. This is true with respect to the generic companies. This is true with respect to the public. There is a proper dynamic between the situation in Israel and in the overseas markets.

 

25.       It is possible that had LCA 8263/15 stood on its own, it would not have been appropriate to grant leave to appeal. However, due to the material connection between the two applications, and once it was decided to hear LCA 8127/15 on its merits, I would recommend to my colleagues that leave to appeal be granted in both of the cases. I would further recommend that we hear LCA 8263/15 as though leave had been granted and an appeal filed pursuant thereto, and to deny the appeal on its merits, while accepting the appeal in LCA 8127/15 as follows:

 

In the dispute in LCA 8127/15 between the District Court and the Registrar, my opinion is as the opinion of the Registrar, that the extension order that was granted in the United States is the relevant reference patent extension order in the circumstances of the matter. Accordingly, I would recommend to my colleagues that we rule that the period of the extension order that was granted to Merck has expired. In the circumstances of the matter, Applicants 1 and 2 shall bear the Manufacturers Associations' expenses and legal fees in the amount of NIS 125,000.

 

Justice Y. Danziger

 

I concur.

 

 

Justice U. Shoham

 

I concur with the comprehensive, thorough opinion of my colleague Justice N. Hendel, and I agree to granting the appeal in LCA 8127/15 such that the period of the extension order that had been granted to Merck has expired.

                                                                                     

 

Decided in accordance with the opinion of Justice N. Hendel.

 

Given this 9^th  day of Sivan 5776 (June 15, 2016).

 

 

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 18^th 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 (2^nd 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 (7^th 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 (2^nd 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 27^th day of Elul 5773 (Sept. 2, 2013).