For more than a decade, the Luzzatto Group has published national reports on intellectual property, high-tech and technological innovation. Since new technologies pass through the world of intellectual property before they reach the market, our industry enjoys special insight regarding the state of technological innovation in Israel. We present our findings and recommendations in this report as part of our ongoing commitment to corporate responsibility, one of the founding tenets on which our firm is built.
The updated and expanded edition of the 2016-2017 National Technological Innovation Report is comprised of three main sections on intellectual property, high-tech, and economic-technological development in Israel.
This report contains data from numerous sources, including the IVC Research Center, the IMD Research Institute’s annual report, the World Intellectual Property Organization’s (WIPO) annual report, and data from the Israeli Patent Office, economic consultants from Hisunim Financim, the Wall Street Journal, The Economist, and Israel’s Central Bureau of Statistics.
The facts and figures compiled here paint a mixed picture. On the one hand, the Israeli high-tech industry shows demonstrable strengths: 2014-2015 were very good years, with record numbers in capital recruitment and exits, and preliminary data for 2016 indicate that this trend is likely to continue unabated.
However, there are complex challenges on the horizon, among them a serious shortage of engineers capable of producing the next generation of entrepreneurs and inventors and a dramatic rise in the salaries of high-tech employees (which presents a barrier to cash-strapped, early-stage startups seeking their services). Another notable obstacle is the decline in national R&D expenditure, while Israel’s competitors are increasing their investment in this field. The cracks are already making themselves felt: the volume of international patent applications (PCT) originating in Israel is shrinking—and while this trend is not new—it should arouse deep concern, in light of the fact that intellectual property is a harbinger of technological innovation.
Since our previous report, intellectual property has again shown that it has a critical role to play in the global information economy. A significant example can be found in the U.S. government’s decision to change the method for calculating the size of the national economy to include indices such as innovation, R&D and various kinds of intellectual property (updates to GDP measurement only occur once every five years, and amendments to it are not undertaken lightly). America’s newly-calibrated GDP reflects the transition to a knowledge-based economy that must assimilate the value of intangible intellectual assets to understand its full worth. The change, it should be noted, is slated to add 3% to the U.S. economy.
In Israel, too, the subject of intellectual property has taken on macroeconomic importance. The Ministry of Finance has recognized that intellectual property is already the source of billions of dollars in taxable, annual profits from multinational companies operating in the country. As a result, the Ministry of Finance is pioneering a set of far-reaching benefits aimed at incentivizing multinationals to keep to intellectual property in Israel and to pay tax on it locally.
Over the past few years, Israel has made important improvements to its intellectual property regime as well as to the quality of operations in the Israel Patent Office. Nevertheless, enforcement is sorely lacking. Copyright violations in software, drugs, music and more highlight this glaring lacuna.
For Israel, whose relative advantage relies on human capital, and which presents a technologically innovative economy, intellectual property is a strategic national resource. Consequently, developing, maintaining and leveraging it may be deemed a clear-cut Israeli interest. In the same way, creating an environment favoring innovation, both for local inventors and researchers, as well as for multinational companies—which build development centers in Israel—can be seen as a real, existential need.
The Israeli government can learn from the experience of technology powerhouses such as the U.S. and Japan, whose president and prime minister set up special task forces to promote intellectual property matters, recognizing the vital importance and contribution of intangible intellectual assets to their economic growth.
It is my hope that this comprehensive report, prepared by the Research Department of the Luzzatto Group, will assist decision-makers to focus their efforts on technological innovation and intellectual property, which can be mined for significant growth opportunities for the Israeli economy as whole.
My thanks to those who compiled this report, among them Advs. Amir Palmery, Niv Moran and Michal Luzzatto, Patent Attorney Boaz Croitoro, editor-in-chief, Joel Tsafrir, and many others. I congratulate all of them on a job well done.