Misrepresentations of patent ownership contributed to tax evasion conviction

A recent case demonstrates how patent ownership issues can come to bear on tax evasion, thus going far beyond the typical context of patent infringement actions and ownership disputes. The judgment shows that misrepresentations as to inventing and owning an invention may result in criminal tax proceedings.

In The State of Israel - Tax Authority v Avidor (Criminal Case 10284/00) the Tel Aviv Magistrates Court convicted an inventor and his daughter of fraudulent tax evasion. The court determined that the inventor had wilfully concealed income derived from the sale of certain patents by registering those patents in his daughter’s name and had evaded reporting income to the tax authorities. The court further held that the inventor's daughter had, at the inventor's instigation, fraudulently misrepresented herself as the inventor and owner of the patents in the applications to the registrar of patents and in agreements for the sale of the patents. The court found the inventor's explanations for registering the patents in his daughter's name (eg, avoidance of his creditors, the daughter’s advanced academic degree and reliance on professional advice) to be self-contradictory and untrustworthy.

The inventor was charged with and convicted of fraudulent tax evasion. His daughter was charged with and convicted of aiding and abetting him in concealing his identity as the inventor and seller of the inventions and in evading tax, as she had falsely signed the patent applications and made fraudulent misrepresentations in the patent assignment agreements by holding herself out as the inventor and owner of the inventions with the full knowledge (or wilful blindness to the fact) that her father, the inventor and owner of the patented inventions, intended to avoid paying tax on any income derived from those patents. The daughter’s defence that her role was a passive one of lending her name to the patent applications was rejected.

Unlike in the United States, where patent applications require an oath executed by the inventor, the Israeli Patent Law 1967 does not require a patent application to be filed by, or with the active involvement of, the actual inventor. A patent application may be filed by the owner of an invention (Section 2), who may be the inventor or his or her assignee or successor in law (Section 1) (eg, the inventor's employer); the applicant is deemed to be the owner if there is no proof of the contrary (Section 76). Rights in an invention are assignable by way of written assignment (Section 82).

However, in the event that the applicant is not the inventor, the patent application should explain how the applicant acquired title (Section 11(b)); in principle, failure to comply with this requirement makes the application ineligible for acceptance (Section 17(a)(2), 20 and 21). Furthermore, misrepresentation as to the ownership of an invention is one of the grounds for opposing an accepted patent application within the opposition period (Sections 31(1) and (3)), and thereafter lays a granted patent open to cancellation at the request of any person (Section 73B). However, the registrar may amend rather than cancel the patent in such proceedings and furthermore has the discretion to amend inaccurate registration details at the request of an interested party or sua sponte (Sections 170 and 172).

The Patent Law also provides for a duty of ongoing disclosure until the acceptance of the patent application. However, this duty is not as extensive as in, for example, the United States. The Israeli Patent Office requires applicants to disclose a list of materials relied upon by the patent authorities in any foreign country in examining a patent application for the same invention filed in that foreign country by the applicant or his or her predecessor in title to the invention (Section 18(1)). Although the Patent Office has power to ask applicants to disclose a list of publications published before the application date, in practice it does not do so. Failure to meet the disclosure duty may result in the cancellation of the patent or the shortening of its term, or in the grant of a compulsory licence. It remains unclear whether misrepresentation as to the inventor's name is grounds for similar penalties.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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