Israel Gains as Patent Exporter as Homegrown Hurdles Linger

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By Malathi Nayak

Israel is punching above its weight in developing life sciences and software technologies and generating patents for export—but its evolving image as an innovation hub also depends on refining its own patent system.

Israel has attracted global attention as a fast-growing, high-tech center, and that is expected to accelerate as the government’s research and development incentives and efforts to improve its intellectual property law framework take hold, intellectual property attorneys, patent owners, and industry representatives told Bloomberg BNA.

The government has stepped up the pace and quality of patent examinations, provided incentives to startups to spawn patents, and is working to create a friendly regime for foreign companies filing patents in and out of its territory, they said.

But Israel must demonstrate that it can upgrade a pre-grant opposition system that often delays pending patent applications, they said, and finally ratify pivotal international IP treaties to fully take advantage of global markets and foreign investment. Its growing reputation as a cradle of innovation and intellectual property is at stake.

“Those kind of gaps make investors think twice,” Patrick Kilbride, executive director of international intellectual property group at the U.S. Chamber of Commerce, an industry lobby, said.

Israel is a signatory but has not yet ratified international standard-setting pacts such as World Intellectual Property Organization (WIPO) internet and patent law treaties, Kilbride said. It is not uncommon for some countries to opt to adhere to their own legal standards rather than commit to international protocol. The country is also reviewing its pre-grant opposition process, he said.

Even so, Israel’s IP law framework, educated workforce, and robust government investment are drawing multinational and foreign investors.

Israel jumped four ranks to No. 17 in 2017 from No. 21 last year, remaining No. 1 in the Northern Africa and Western Asia regions, according to the Global Innovation Index report co-published by WIPO. It is the top country in the world in expenditure on research and development as a percentage of its gross domestic product, the research shows.

Such investment has spurred the creation of noteworthy Israeli inventions that have generated an Israeli patent-filing rush in the U.S. and other foreign jurisdictions. Foreign patents can provide defensive protection in IP disputes in overseas markets. And they can attract more investment—or lead to lucrative sales or acquisition opportunities.

“We’re seeing more and more Israeli companies being acquired by large pharmaceutical or technology companies that are not based in Israel,” Joe Siino, president of Via Licensing Corp., which manages patent licensing pools, said.

For instance, Mobli, an Israeli photo-sharing social media startup founded by two brothers, patented its “geofilters”— a technology that creates photo filters based on location in social media apps—in the U.S in 2012. In April, Snap Inc., the messaging app that’s wildly popular among millennials, purchased Mobli’s patents, according to Patent and Trademark Office records. Mobli, a once burgeoning startup now faced with financial difficulties, monetized its patents even as its own products failed to take off.

Mobileye, a well-known Israeli tech company that develops computer vision technology for autonomous vehicles and has patented inventions in the U.S., was acquired by Intel Corp. in August for about $15 billion.

And Israeli medical robotics company Mazor Robotics Ltd., which has patented robotic surgery-related inventions in the U.S., received $20 million from U.S.-based Medtronic Plc. in March in exchange for a 7-percent stake in the company.

The benefits also work the other way, with foreign companies filing patents in Israel to defend against patent infringement suits. Facebook Inc., Dow Agrosciences LLC, and Philip Morris Products SA were the top foreign filers of patents at the Israel Patent Office, according to the agency’s 2016 report. Raytheon Co., Qualcomm Inc., Bayer, and Microsoft Corp. are the foreign applicants with the largest number of Israeli-issued patents.

Patent Exporter with U.S. Focus

Domestic businesses and foreign companies who invest in Israel typically file outside the country in markets such as the U.S., China or Europe, which are crucial target markets for sales, local attorneys in Israel said.

On a global basis, Israel is the 14th largest filer of Patent Cooperation Treaty (PCT) applications. The PCT gives inventors a way to file for patents in multiple countries using one standardized application, the 2016 Israel Patent Office report shows.

Israel has a small domestic market and “always was a net patent exporter,” Michael Factor, director of Rosh HaAyin, Israel-based law firm IP Factor, said. “In many fields, Israeli inventors and companies don’t bother filing in Israel at all. The U.S. is the prime market.”

In 2016, the total number of PCT applications out of Israel filed by foreign patent filing and patent search service provider RWS inovia was greater than those filed out of other fast-growing countries such as Singapore, Brazil, and India, Justin Simpson, the company’s founder, said.

“Depending on the year, Israel even sends out more work than Canada,” he said.

Startup Nation

In comparison to other countries its size, Israel stands out in education and R&D spending. The Israeli government shells out more than $100 million every year to support research and development, particularly in the biomedical industry, Simpson said. “For a country of 8 million that’s a huge amount.”

Another advantage is Israel’s educated workforce. U.S. multinationals like Medtronic have set up specialist research labs in Israel and can tap into Israel’s high-quality workers for a lower price than they would pay in the U.S., Simpson said.

“Israel is now well-established as a high-tech hub and it’s only going to improve as awareness builds for that clever little nation,” Simpson added.

In addition to supporting multinationals, Israel has been looking out for its homegrown startups with research and development incentives, including funds to encourage patent protection. It’s often compared to Singapore and Switzerland in terms of increased research and development investment.

“Israel is startup nation whereas in Singapore or Switzerland both those countries are more of a hub for larger technology companies,” Siino said.

The Israel Innovation Authority, which promotes research and development, has a program that allocates funding for startups so they can file patent applications in Israel and overseas to protect their inventions.

“When the government comes to you and says, ‘Here’s the money, use some of it to submit patent applications,’ you don’t think twice,” said Aziz Kaddan, the founder of Tel Aviv-based brain health technology startup Myndlift.

Foreign Filers

Even as many companies investing in Israel seek foreign patents, the domestic system is welcoming and accessible to outsiders. The Israeli patent legislation system is “very friendly” toward foreign filers who can file patents in English, Roy Melzer, an attorney who heads up the software and information technology practice at Ramat-Gan, Israel-based Ehrlich & Fenster, said.

“You can have a patent relatively cheaply without translation costs that you can enforce to get a fast interim injunction,” to protect against infringement, Melzer said.

The Israeli patent office has improved the quality and sped up patent examination and searches, experts said. If a filer has a patent issued by authorities in certain recognized jurisdictions, including the U.S., Japan and Canada, Israeli patent law allows the patent office to grant a corresponding patent without substantial examination.

IP Weaknesses

Despite Israel’s strengths, there’s widespread agreement that its patent examination procedures need improvement.

Melzer would like the government to hire judges with subject-matter expertise or set up designated courts to deal with IP matters “to assure a predictable outcome of court procedure.” U.S. courts, too, could offer “more stability and clarity” in terms of their rulings on software patents. “That’s what bothers Israeli patent owners,” he said.

Recent U.S. Supreme Court rulings on patent issues, especially on patent eligibility, have made it harder for patent filers to get certain types of software patents granted at the PTO. For instance, the Supreme Court’s 2014 ruling in Alice Corp. v. CLS Bank Int’l resulted in the invalidation of hundreds of software patents for covering ineligible abstract ideas.

Closer to home, the pre-grant opposition allowed for in pending patent applications can cause delays up to 16 months, imposing unnecessary costs on inventors, experts said. Other areas of IP also need change. For example, Israel’s copyright law framework currently lacks provisions for the enforcement of infringing online content, they said.

The government is taking small steps. The Israeli Ministry of Justice and its patent office conducted a study of patent pre-grant opposition procedures and called for public comments in late 2016. To help the biomedical industry thrive, in 2014, it introduced a five-year term of patent extension for biopharmaceuticals in the event some of the patent term was lost due to bureaucratic delays in the regulatory approval process. The general patent term in Israel is up to 20 years. It also rolled out regulatory data protection for submitted clinical data to enhance the environment for patent protection.

“While it’s encouraging to all the steps Israel has made, there are still a few areas where they can still improve their performance and send a stronger signal still to international investors,” Kilbride said.

To contact the reporter on this story: Malathi Nayak in Washington at mnayak@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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