A client comes to your office claiming that a competitor copied his product. Examining the fact, you realize that he does not have a recognised intellectual property right to prevent the copying of its product. Is it a lost case? According to a unique Supreme Court judgment (LCA 5768/94 A.SH.Y.R v. Forum)1, concerning the interrelations between the Law of Intellectual Property and the Unjust Enrichment Law, the answer is "not necessarily".

According to the Israeli Unjust Enrichment Law, the plaintiff in a claim for unjust enrichment has to prove three elements:

(i) enrichment on the part of the defendant;

(ii) that the enrichment of the defendant emanates from the plaintiff; and

(iii) that the enrichment of the defendant is unlawful.

In several Supreme Court decisions, it has been held that the question of whether the enrichment is lawful or not will often be decided by the answer to the question of whether the enrichment is just, and not only by the question whether the enrichment is expressly prescribed or expressly denied by the law.

As to the question of whether the enrichment is or is not unjust, it was held that this question will be determined by various considerations, including the extent of the plaintiff’s right, the nature of the injury to his interest, the behavior of the parties and the nature of the activity by which the plaintiff obtained the profit.

Furthermore, it was held that a claim for unjust enrichment can be used to protect, not just proprietary or obligatory rights, but also "expectations". The Supreme Court held that interference with a commercial expectation in itself does not constitute unjust enrichment. However, in certain circumstances, where an "additional element" exists, it may be so considered. The "additional element" may be:

"(a) wrongful and unfair conduct of the competitor, including conduct lacking good faith;

(b) other circumstances which render the enrichment unjust."

According to these elements, the Supreme Court (in a majority decision) held in the A.SH.Y.R. Decision that the specific laws establishing intellectual property rights do not, in themselves, exclude the possibility of granting relief based on the Unjust Enrichment Law, even where the plaintiff does not meet the requirements for the establishment of the specific intellectual property rights, or where the plaintiff applies for a remedy where no recognized intellectual property right governs the subject-matter.

The Court reiterated the three elements mentioned above which are necessary to establish a claim of unjust enrichment. The Court focused on the last element ("the question whether the enrichment is unjust"). In general, the Court classified the category of cases where the plaintiff does not enjoy a recognised intellectual property right, as cases in which the defendant’s right to the enrichment is neither expressly prescribed nor expressly denied by the law. Therefore, while the plaintiff would not be able to show that the enrichment is unlawful, he could show that the enrichment is unjust.

In the majority’s opinion, a mere copying of a product, by itself, does not constitute a violation of a "legitimate expectation", and does not establish a claim under the Unjust Enrichment Law. The majority tried to define what is the "additional element", the presence of which is deemed necessary in order to establish the basis for unjust enrichment in circumstances to which the Decision refers.

According to the majority’s opinion, the existence of an "additional element" is crucial and determines the outcome of the case. Assuming the plaintiff overcomes the factual difficulty of proving the copying of its products, he shall be deemed entitled to a remedy on the basis of unjust enrichment only if he proves that "additional element" accompanying such copying.

In President Barak’s opinion in the Decision, the "additional element" exists where the copying amounts to "unfair competition". Without presuming to offer a complete and final list of considerations, President Barak referred, inter alia, to the following criteria:

(a) The more the work that has been copied is important, novel, unique and has substantial contribution (to the public interest), the stronger the tendency shall be to consider the copying or imitation thereof as unfair competition.

(b) The efforts invested by the creator and by the copier—one should consider, on one hand, the efforts invested by the creator in creating the product and, on the other hand, the efforts invested by the competitor in copying the product.

(c) The intensity of the copying, that is, whether it was systematic or sporadic.

d) The mental state of the copier, that is, whether he was aware of the copying.

(e) The existence of alternatives for copying—when reasonable alternatives exist for the manufacturing of a product, similar in function and different in its appearance, there should be stronger tendency to see the copying of the appearance as unfair competition.

(f) The result of the copying, that is, when copying results in the potential deterrence of manufacturers from investing in new products and technologies, the tendency to consider such a copying as unfair competition shall be stronger.

Justice Barak further developed the last of the above mentioned criteria, and described several circumstances in which manufacturers might be discouraged from investing in new products or technologies. These circumstances may establish a finding of unfair competition. Such shall be the case: (i) when the competitor did not invest in research and development of the product and for that reason is able to sell the copied product for a low price; (ii) when the manufacturer invested in the development of several models of the product knowing that only a few would become successful and the competitor has copied the successful model; (iii) when the manufacturer expects to recoup his investment in a complex product by selling supplementary parts and the competitor has copied only the supplementary parts; and (iv) when the manufacturer expect to enjoy a minimal period of exclusiveness in sale of the product, in order to recoup his investment. With regard to the last example, President Barak held that the Court should take into consideration the life span of the product and the relative speed during which the competitors may copy the product and start marketing it.

An important question which was not clearly answered in the framework of the Decision, is the following: how does a failure to register a recognised intellectual property right affect the plaintiff's entitlement to a remedy against unjust enrichment?

One of the majority judges held that usually, a remedy (under the Unjust Enrichment Law) should not be granted, where one can register a right and fails to take the necessary measures to do so. Such a remedy may be granted, however, where the laws of intellectual property deal with products of the same kind, but do not provide protection to the product, or where they provide the product with ineffective protection. A remedy may also be granted when the product does not meet the substantial requirements for protection under the laws of intellectual property, but still possesses a sufficient degree of uniqueness and novelty, which make it protectable under the Unjust Enrichment Law.

Another majority judge held that a plaintiff who could have registered his right should be expected to provide the Court with adequate explanation for not doing so. Failure to register a recognizable right does not "shut the door" for receiving a remedy based on unjust enrichment, but it shall be a relevant consideration in the eyes of the Court, and allows the Court more room for refusing to grant such a remedy. On the other hand, when the laws of intellectual property do not imminently allow the registration of an intellectual property right, or when such registration does not provide the product with effective protection, failure to register the right shall not be detrimental.

It is important to remember that although the question raised in the Decision was general in nature, the discussion related, primarily, to the copying of design features. The Court did not analyze the correlation between patent protection, copyright protection and trademark protection on the one hand, and unjust enrichment protection on the other hand.

As to the remedies provided by the Unjust Enrichment Law, President Barak emphasized that, in his opinion, the protection offered by the Unjust Enrichment Law is limited and considerably weak in comparison to the protection offered by the laws of intellectual property. President Barak stressed that protection against unjust enrichment shall be given only for a limited period, which does not come close to the periods of protection offered by the specific laws of intellectual property. In this respect, President Barak mentioned that he assumes that the typical case in which protection within the framework of unjust enrichment would be sought (and acknowledged) would be with regard to products which have short shelf-life, and which cannot be protected adequately be registering a design.

The boundary of the Decision is still to be determined. Nevertheless, it is interesting to note that, based on that Decision, Smithkline Beechem p.l.c. has filed a statement of claim in which it argued, inter alia, that the copying of a patent application constitutes an unjust enrichment and, therefore, it is entitled to remedies despite the fact that the patent is not yet granted. Other scenarios that could lead to litigation based on the cause of action of unjust enrichment are to a large extent a matter of the imagination and creativeness of lawyers. It would, undoubtedly, take a number of years until the courts define the boundaries for the A.SH.Y.R. Decision and its implication.

Tal Band , Adv.

1 P.D. 52(4), p. 289

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.