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Protecting your Innovation: the Israeli Factor

Israel – the land of milk, honey, innovation, and… Patents? Here are a few fun facts:

  • Israeli economy conquered 5th place in Bloomberg's 2019 innovation index, passing countries such as Japan, Singapore, US, China, and others

  • More than 550 multinational corporations have local activity in Israel

  • Multinational corporations file about 90% of local patent applications in Israel, trying to secure their interest in the local R&D market

Innovation deriving from multinationals R&D centers located in Israel is at the heart of their next generation products, hence – international conglomerates are running an IP strategy in which Israel fills an important part at the beating heart of their core practice. But is this strategy a game of chess, or calculated poker?

Since its creation - May 14, 1948 - Israel is an innovative country. While at its early days, Israeli innovation revolved mainly around matters related to its survival, such as military and agricultural innovation - along the years it has matured into a technological powerhouse, with second to none Hi-Tech innovation.

VC investment USD per capita in Israel is 674$ (2018), the highest in the world. Data shows that 4.3% of Israel’s GDP is spent on R&D, once again - the highest in the world. There are more than 6,500 start-ups operating in Israel, and the country is ranked 3rd at the number of NASDAQ listed companies, after US and China only.

This unique status was not overlooked by multinational corporations, and over time, more and more of them generate presence in the Israeli market. This presence can be in the form of partnerships with local startups or academia, but many multinationals choose to establish local R&D centers in Israel.

Some simply bought Israeli start-ups with technology that fitted their needs, while others started an operation in Israel from scratch. In either case, they were hiring the brightest local talents to develop technologies for their next-gen products (a phenomena which is criticized by many local employers that now have to compete with those corporations, which have much deeper pockets, for high quality personnel).

Apparently, their strategy paid off. Local Israeli innovation developed at the local R&D centers is at the heart of some of the best-selling products around the world. Intel’s processors are developed at its local Israeli R&D center, Samsung’s phone camera technology is based on its local R&D center’s technology, IBM’s storage solutions include Israeli technological innovation, and many more.

Those multinational corporations operating in Israel attribute great value to their local operation. This value is obviously not related to the local market size, but to the local partnerships and/or the local R&D centers importance to their global activities.

One way of estimating the value of the local partnerships and/or local R&D centers to the multinational corporations is to look at the share of patents with Israeli inventors - out of the total number of patents of the multinational corporations operating in Israel.

When looking at patents granted over the last decade, one could see that:

  • 12.5% of Intel’s patents have an Israeli inventor

  • 13% of Sandisk’s patents have an Israeli inventor

  • 6% of Cadence patents have an Israeli inventor

  • 5.5% of Applied Material’s patents have an Israeli inventor

  • 4% of Motorola patents have an Israeli inventor

  • 3.5% of IBM’s patents (noting that IBM is the largest patent filer in the US) have an Israeli inventor

  • 3.5% of General Motors patents have an Israeli inventor

And out of the patents granted during 2018 (partial list):

  • 3.5% of Microsoft’s patents have an Israeli inventor

  • 3% of Facebook’s patents have an Israeli inventor

  • 3% of Qualcomm’s patents have an Israeli inventor

But why do these multinational corporations (and others) file patent applications in Israel?

Israel’s is a small country with a relatively low market value when compared with other economies. There seem to be several reasons for this.

  1. Since many competing multinationals operate in Israel, it has become a place where each would like to establish a monopoly over certain technologies, thereby preventing others from developing the same technologies in Israel, possibly using manpower that developed those technologies while working for their competitors.

  2. For multinationals having local partnerships, filing local patent applications establishes the ownership of those parts of the partnership each side brings to the table. In many cases, knowledge is transferred between partners, and it is absolutely mandatory to establish the ownership of such knowledge prior to sharing it with partners.

  3. For multinationals having local R&D centers, there is an understanding that the next role of your current employee, which is exposed to your most advanced technology, may well be working for your competitor. Various attempts to limit employees from working for competitors via employment agreements have been aggressively limited by local labor courts, which safeguard the constitutional freedom of employment. An engineer working for Google’s local R&D center, may find herself working for Microsoft’s local R&D center. Clearly such employees have access to state-of-the-art technologies, which even if they do not intend to share with their next employer - it naturally occurs as the knowledge they’ve gained while working for their previous employer does not - and cannot - simply disappear. Marking the boundaries with patents reduces some of that risk as employees which are aware of the fact that certain technology is patented (or patent pending), will more likely make a stronger effort to avoid using it while working for their next employer.

  4. Some multinationals also manufacture in Israel, and in these cases, clearly, they aim at protecting their Intellectual Property (IP) locally, aiming to prevent others from manufacturing competing technologies, while competing over the local manufacturing manpower.

  5. Litigation costs in Israel are substantially lower than litigation costs in the US or in the European Parliament for example. This can enable enforcing patents at relatively low costs, which in turn reduces the risks when starting litigation in other territories, where litigation costs are substantially higher. So, Israel can serve as a test case for future more expensive litigation.

  6. The Israeli Patent Office offers a fast track for examination of patent applications whose first filing is made in Israel at a low cost.

In many cases, a patent application can be granted within less than 12 months, which enable filing corresponding patent applications via Patent Prosecution Highway agreements to which the Israeli Patent Office is party, including the US, EP, CN, CA and others.

These are some key points which exemplify the importance (and benefits) for multinationals to consider Israel as part of their global IP Strategy while noting the importance of the Israeli eco-system and its characteristics.


About the Author

Adv. Asaf Shalev is founding partner at Shalev Jencmen & Co., an Israeli well-known patent attorneys and advocates firm.

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