1 June 2011PatentsDr Michael Factor and Jeremy Ben-David

Israel: an essential part of a patenting strategy

Although there appears to be little justification for registering patents in Israel in terms of market size, if the strength of Israel’s economy is considered, and its trading status with regards to the US, Europe and the Far East, it becomes clear that filing patent applications in Israel should be part of any international IP strategy.

Two recent publications—The Israel Test, by George Gilder and Start-up Nation: The Story of Israel’s Economic Miracle, by Dan Senor and Saul Singer—make a case for Israel being the world leader in terms of research, development and entrepreneurship. Many of the largest and most successful multinational corporations have found themselves—sometimes contrary to their preexisting policies—either setting up development centres in Israel or purchasing Israeli companies.

For example, Intel set up its first and flagship R&D centre in Israel in the 1970s and is now active in four different Israeli cities. In addition to R&D, much of the company’s chip manufacturing takes place in Israel. Warren Buffett bought the Israeli company Isscar, which makes hard-metal cutting tools, for a multi-billion dollar sum during the second Lebanon war in 2006, despite the Galilean company being in the war zone.

Each book has its own reasoning as to why Israel has achieved this leadership role in just a few years, despite many disadvantages. However, as stated by James Glassman, in his Wall Street Journal review of Start-Up Nation: “In the end, it is not easy to discover why Israel, a tiny nation of immigrants torn by war, has managed to become the first technology nation. It may be enough, as this fine book does, to shine a spotlight on its success.”

Per capita venture capital investment

As shown in Start-Up Nation venture capital investment (VCI) per capita in Israel in 2007 was $225. This is more than twice the VCI per capita of $100 for the US, which came second, ahead of Ireland, Denmark, the UK, the UAE, France, Singapore, China, Korea and India.

With the exception of the UAE, the only country to show growth in venture capital investment from 2007 to 2008 was Israel, with a VCI of more than $250 per capita.

Civilian R&D expenditure (2000- 2005) as percentage of GDP

Civilian R&D expenditure as a percentage of gross domestic product (GDP) is an indication of private sector activity in fuelling the economy. Start-Up Nation looks at this statistic over a six-year period, including the post Internet fizzle.

Israel’s civilian R&D expenditure for this period was 4.5 percent of its GDP. By comparison, in this period, the US showed an investment of 2.7 percent of its GDP, while Germany and the UK showed an investment of 2.5 percent and 1.9 percent respectively; Japan’s civilian R&D expenditure of 3.2 percent is nearly 20 percent more than that of the US, but Israel’s is 40 percent higher than Japan’s and 67 percent higher than that of the US.

Non-US companies on NASDAQ (2009)

In 2010, excluding the US itself and the 72 companies headquartered for tax purposes in the Cayman Islands, Bermuda and the British Virgin Islands, Israel, with 60 companies, had the largest number of companies traded on NASDAQ of any foreign country.

While that may not sound terribly impressive, in comparison, Japan had only four. The rest of the list includes the following: Ireland (7), UK (5), Singapore (4), India (3), Korea (1), France (2), Germany (1), China and Hong Kong (3). Even Canada, which may have been expected to have a large presence on NASDAQ, and which does indeed have a presence that far exceeds that of the above list of countries, had only 45.

Patent activity

In developed economies, the ability to stake out intellectual property rights in general, and patent rights in particular, is a necessary part of doing business. It is a good indicator of economic activity.

Israel patent filings

In the WIPO report entitled World Intellectual Property Indicators 2009, it is shown that 8,009 patent applications were filed in Israel during 2007. Of these, 1,615 were ‘resident’ filings by Israeli companies or individuals; and 6,394 originated from outside Israel.

“Trends in foreign-originating patent applications filed in Israel indicate the attractiveness of Israel as a destination market, generally, and particularly in specific industries.”

In 2007, the PCT Israel receiving office handled a total of 1,882 international applications. This is a good indicator of the number of domestically originating inventions with opportunities overseas. (The difference between the 1,882 Israeli-originating international applications and the 1,615 resident filings can be explained mainly by the fact that Israeli companies sometimes make their initial filings overseas, typically in the US, and may not file in Israel until the end of the PCT process, two and a half years after their first filing).

When evaluating these statistics in relation to economic activity in terms of GDP, and also in terms of population, an interesting picture emerges.

GDP and population rankings

In 2008, the Israeli economy was 53rd in the world, with a GDP of $53.4 billion (compared to a US GDP of $14,440 billion) and was the world’s 97th most populous country, with a population of 7.24 million (compared with China’s 1.34 billion).

Nevertheless, according to WIPO statistics, Israel’s mere 1,615 resident filings during 2007 place it in 12th place in the world when evaluated as a function of its GDP.

Israeli technology for export in 2008

When considering the number of PCT filings per billion dollars of GDP, Israel comes 4th, with 9.3 applications per billion dollars, behind Switzerland (12.0), Sweden (11.9) and Finland (10.9), but ahead of fifth-ranked Japan, which has a third fewer filings, at 6.6, and the US, which has a mere 3.7. China and India have a way to go still, standing on 0.8 and 0.2 respectively.

Evaluating the number of PCT filings per capita provides a similar picture, showing Israel with 260 filings per million inhabitants in fourth place, behind Switzerland (504), Sweden (454) and Finland (404). By way of comparison, Japan is in seventh place with 226, and the US has 174. China and India hold 24th and 25th place, with five filings and one filing respectively per million inhabitants.

Israel as a patent destination

Trends in foreign-originating patent applications filed in Israel indicate the attractiveness of Israel as a destination market, generally, and particularly in specific industries.

6,394 foreign-originating patent applications were filed in Israel in 2007, placing Israel in seventh place as a destination market, in terms of non-resident patent applications per billion dollars of GDP, behind Switzerland, Finland, Sweden, Japan, the Netherlands and South Korea. However, when entering the ‘national phase’ of PCT applications, European countries are not considered as separate entities, but sit under the umbrella of the European Patent Office (EPO).

By substituting ‘Europe’ for the individual country designations of Finland, Sweden and the Netherlands (Switzerland not being part of the EPO), Israel moves up to fifth place in the rankings, after Europe, Switzerland, Japan and South Korea, generally consistent with the other indicators presented above.

In relative terms, Israel is more attractive as a patent jurisdiction than most other countries, including Canada, the US, Spain, China and Russia.

Country of origin

According to figures released by the Israel Patent Office for 2006, fully 45 percent of all patent applications filed in Israel originated in the United States, and 26 percent originated in Israel. The remaining 29 percent were divided between Germany (10 percent), Switzerland (6 percent), the UK (5 percent), Japan and France (4 percent each).

Largest filers

In the period of 2006 to 2010, the largest patent filers in Israel were Qualcomm with 442 applications, Hoffman La Roche with 350 applications, BASF with 175 applications, Astra Zeneca with 173 Applications and Novartis with 152 Applications.

Local applicants with large numbers of local filings included Yeda, the tech transfer arm of the Weizmann Institute, with 89 applications; Isscar, a hard-metal cutting tool manufacturer, with 87 applications; Teva Pharmaceuticals and various daughter companies, with 83 applications; military technology company Rafael, with 67 applications; and Israel Aircraft Industries, with 64 applications.

Israeli companies are world leaders in terms of software development, encryption, image analysis, medical devices, telecommunications, fashion, pharmaceuticals, military equipment and agriculture. Companies operating in any of these fields cannot afford not to file patents in Israel.

Dr Michael Factor is a partner at JMB, Fa©tor & Co. He can be contacted at: mfactor@israel-patents.co.il

Jeremy Ben-David is managing partner at JMB, Fa©tor & Co. He can be contacted at: jmb@israel-patents.co.il

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