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How to turn high-tech patents into money

When drafting the patent, one must think about its commercialization in the future through a well-written set of claims and a well-written specification; Broad designation, the possibility of a continuation patent, as well as aspects of taxation, as well as the consequences of the amendment to the R&D law that allows, although does not always become worthwhile, the sale of intellectual property created with the funds of the chief scientist

Adv. Naomi Asia. Photo: People and Computers
Adv. Naomi Asia. Photo: People and Computers

Realization of intellectual property can be done by the following commercialization options:

  1. Produce and sell under monopoly conditions.
  2. grant another to make authorized use (license).
  3. Sue violators (TROLL FACTOR).
  4. sell the intellectual property.

We will discuss the fourth option - the sale of intellectual property, with an emphasis on the sale of patents (mainly registered, but not only), to the USA.

There are inventions that have a higher "strategic" value than "Prathian": the inventions that compete with those that exist owned by super-corporations. These inventions will often be purchased and "swallowed" by the super-corporations in order to ensure that they do not end up in the wrong hands.

In addition, high-tech companies will purchase patents that are not necessarily related to the technology they are developing, in order to "sit on the shelf" in case of need (in a legal proceeding - as a bargaining tool or as an asset of financial value; in raising capital - selling it and making a profit from buying it, or presenting it as part of the company's portfolio as a strategic bargaining point for increasing the company's value, etc.).

Today, intellectual property assets are commercialized in various fields. As property passes to the merchant, patents are now offered in an auction procedure that requires two preliminary steps: submitting the patent and setting a minimum value for its purchase.

When drafting the patent, one must think about its commercialization in the future through a well-written set of claims (multiple independent claims, multiple types of claims - device, method and also a system if possible, a variety of purposes, and everything - with a strategic view as to the destination countries in which the patent registration is desired); Well written detail; Broad designation (adapting a patent to international markets); Possibility of continuation patent.

A major factor to be considered - the taxation of the transaction: internal transactions (between related parties), unlike external transactions, allow flexibility and the option to transfer the transaction to a country where taxation is significantly lower, thereby increasing its profitability.

A very important issue for Israeli sellers is the R&D Law, 1984-, and especially the amendment to section 19. Before the amendment of the law, publishing knowledge developed with the support of the chief scientist outside of Israel was completely prohibited without any consideration by the research committee. This is stated in section 19 of the law: "Knowledge resulting from research and development according to an approved plan, which is not the product developed as part of that plan, and any right arising from it, shall not be transferred to another outside of Israel."

The meaning: an Israeli company was not allowed to export knowledge created with the investment of the chief scientist, and in particular an Israeli company supported by the chief scientist cannot be sold. This is in light of the fact that knowledge is the main product of R&D, and its accumulation in the country is the reward for the R&D providers of the chief scientist.

In the global business world, a significant part of the companies supported by the chief scientist are international companies. Hence, the limitation of the release of knowledge makes it difficult for Israeli companies to cooperate with these companies. Beyond that, the ban creates a limit on the recruitment of foreign investors, who are reluctant to invest in companies supported by scientists because of the ban on taking knowledge out of the country. Also, as a result of the ban, it was not possible to sell the intellectual property created with the support of the scientist to parties abroad, even when they were the only buyers available.

Amendment number 3 to the law, 2005

On March 31, 2005, the Knesset approved amendment number 3 to the law, which refers, among other things, to providing the possibility of exporting knowledge outside of Israel under certain conditions and regulating it in the legislation of transferring production outside of Israel. In addition to this, the amendment proposes to allow increased collaborations between multinational companies and Israeli companies supported by a Chief Scientist.

Transfer of knowledge outside of Israel

The new wording of section 19 b regarding the transfer of knowledge outside of Israel:

"(b) Notwithstanding the provisions of section 19 (b 1), the research committee may, in special cases, approve the transfer outside of Israel of knowledge as defined in the aforementioned section, at a reduced fee according to subsection (d) provided that it is submitted as part of one of the following applications, in the manner and under the conditions as detailed below".

The amendment to the law allows the transfer of knowledge developed with the assistance of the Office of the Chief Scientist outside of Israel, provided that the Research Committee of the Chief Scientist approves it. The release of the knowledge requires the recipient of the approval to pay royalties to the state according to a fixed formula. The formula includes the ratio between the grants the company received from the scientist and the total financial investments invested in the implementation of the approved plan, and the result is multiplied by the amount of the sale to the company issuing the knowledge. This amount will not be less than the total of the grants she received from the scientist plus annual interest. Regulations were also established that regulate the issue of depreciation of the grant over a period of 7 years.

The problem in section 19b: apparently, when selling a patent, the scientist can demand at least the total of all grants plus annual interest, and this amount can make the whole sales transaction unviable. For example, if a grant of half a million dollars was received in a certain program, and the amount of the grant, and the financing of the patent was only 5%-10%, then apparently the scientist can demand the entire amount of the grant plus the interest.

This situation is illogical and may lead to the unprofitability of the transaction for the seller, and a disadvantage for the state treasury, which will not be entitled to a refund of part of the grant, which it could have received.

In our opinion, the law should be amended immediately or a directive should be issued, according to which, in the case of selling a patent, and not "exporting knowledge", the refunds for the grant should be limited.

* Naomi Ami Asia is a lawyer, Office Naomi Asia & Co. The office of attorney, patent editors and notary serves, among other things, as the representative of the BSA organization (the organization of software companies that deals with copyright issues of software companies) in Israel.

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