Under Israeli patent law, the government may authorize the use of a patented invention without the patent owner’s consent for national defense or the maintenance of essential supplies and services. Such authorization does not ordinarily eliminate the patent owner’s right to remuneration. The Israeli Patents Law, 5727-1967, establishes a statutory mechanism for determining royalties payable for authorized government use and compensation for certain restrictions imposed on inventions for national security reasons.
Consider a foreign technology company holding an Israeli patent for medical equipment. The Israeli government authorizes a local manufacturer to produce the patented equipment to maintain essential supplies. In another situation, an inventor is prevented from disclosing an invention or pursuing patent protection abroad because Israeli authorities have imposed national security restrictions.
Although both situations may affect the commercial value of patent rights, the legal remedies differ. Authorized government use may give rise to royalties under Section 108 of the Patents Law, while restrictions imposed for national security reasons may entitle the owner of an invention to compensation under Section 107.
Where the parties cannot agree on the amount payable, the dispute falls within the jurisdiction of Israel’s Compensation and Royalties Committee, a specialized statutory body.
Government Authorization to Use Patented Inventions: Sections 104-105
Section 104 of the Israeli Patents Law authorizes the minister designated by the government to permit the exploitation of an invention by government departments, state enterprises or state institutions where such exploitation is necessary for national defense or the maintenance of essential supplies and services.
The authorization may apply to an invention protected by an issued patent or to an invention for which a patent application has been filed but a patent has not yet been granted.
This provision does not confer an unrestricted right on the Israeli government to use any technological information available to it. The statutory conditions must be satisfied, including the existence of an applicable patent or patent application and the prescribed public purpose.
Section 105 extends this authority to persons or entities performing contracts with the State of Israel. A government contractor may be authorized to exploit an invention where necessary to ensure or facilitate performance of the government contract, but only for the requirements of the State.
For example, a defense contractor authorized to manufacture patented technology for the Israeli Ministry of Defense does not thereby acquire a general license to manufacture or sell the same technology to commercial customers or foreign governments.
The scope of the authorization is therefore significant. Activities that exceed the authorized purpose or permitted use may raise separate questions of patent infringement and legal remedies.
Under Section 106, the relevant minister must notify the owner of the invention, patent holder and exclusive licensee of the authorization and its scope, unless national security considerations require otherwise.
The absence of notification does not necessarily establish that no authorization was granted, particularly where classified defense projects are concerned.
For foreign patent holders and their legal counsel, determining whether a government authorization exists, identifying its precise scope and establishing the extent of actual exploitation are essential preliminary steps in assessing a potential claim.
Royalties for Authorized Government Use: Section 108
Section 108 provides that where authorization has been granted under Sections 104 or 105, the Israeli State Treasury must pay royalties to the owner of the invention, the patent holder or the exclusive licensee, as applicable.
The royalty amount is determined by agreement between the parties. If no agreement is reached, the Compensation and Royalties Committee determines the amount payable.
The distinction between authorized government use and ordinary patent infringement is fundamental. Where a valid statutory authorization exists, exploitation within its scope is permitted. The dispute concerns the remuneration payable under the statutory scheme rather than liability for an unauthorized act.
Identifying the proper claimant may nevertheless require a detailed examination of patent ownership and licensing arrangements.
For international patent portfolios, the original inventor, the applicant named in the Israeli patent application, the registered patent holder and an exclusive licensee may be different legal entities. Corporate restructuring, patent assignments and cross-border licensing agreements may further complicate the analysis.
A foreign parent company, for example, may own the underlying technology while its Israeli subsidiary or another group entity holds the relevant registered rights. The entitlement to statutory royalties cannot be determined solely by identifying the developer of the technology.
The relevant ownership records, assignment agreements, licensing arrangements and statutory rights must be examined to establish who is entitled to payment.
The existence of a foreign patent covering the same technology does not, by itself, establish entitlement under the Israeli statutory mechanism. The analysis must address the relevant patent rights and applications in Israel.
It is equally necessary to distinguish government use within the authorization from exploitation outside its limits, which may require a different cause of action.
Compensation for National Security Restrictions: Section 107
Section 107 addresses a separate form of interference with patent rights.
Where restrictions are imposed under Sections 94 or 99, concerning national security or inventions relating to nuclear energy, or permission to file a patent application abroad is refused under Sections 98 or 103, the State Treasury is required to compensate the owner of the invention.
The amount is determined by agreement or, failing agreement, by the Compensation and Royalties Committee.
Unlike a royalty claim under Section 108, a compensation claim under Section 107 does not depend on proving that the government used the invention or derived commercial benefit from it.
The alleged damage may arise from restrictions on disclosure, patent prosecution, development, licensing or commercialization.
These restrictions can have significant consequences for international patent strategies. A prohibition on filing abroad may affect the ability to pursue protection in commercially important jurisdictions, secure investment or negotiate technology licensing arrangements.
However, Israeli restrictions on foreign patent filings do not apply indiscriminately to every foreign applicant. Sections 98 and 103 contain specific requirements concerning the subject matter of the invention and the applicant’s legal connection to Israel. These requirements must be examined before determining whether a particular international filing is prohibited.
The existence of a security restriction does not automatically establish the amount of recoverable compensation. A claimant must substantiate the alleged damage and demonstrate the causal connection between the restriction and the resulting loss.
For example, an assertion that an invention would have generated substantial licensing income in the United States or Europe is insufficient without evidence supporting the anticipated commercial opportunity and showing how the Israeli restriction caused its loss.
A further distinction must be made between challenging the restriction itself and seeking compensation for its consequences. The legality or continuation of a security restriction may be subject to a separate statutory review procedure. The determination of compensation under Section 107 is entrusted to the Compensation and Royalties Committee.
How Are Government-Use Royalties Calculated in Israel?
Section 110 directs the Compensation and Royalties Committee to consider the scope and nature of the authorized exploitation when determining royalties.
The Committee may also consider royalty rates agreed upon in licenses containing conditions comparable to those of the government authorization.
Israeli patent law does not establish a fixed royalty percentage for government use. There is no universal statutory rate calculated by reference to defense expenditure, government procurement budgets, product sales or the price of each manufactured unit.
The calculation must reflect the circumstances of the authorized exploitation.
A license restricted to a particular government project, production volume or period may have a different commercial value from an unrestricted license permitting worldwide manufacture and sale.
The distinction between authorized and actual exploitation may also be relevant. Where a government authorization permits production of a specified quantity but fewer units are actually manufactured, both the authorization and its implementation may affect the assessment.
Comparable commercial licenses may provide useful evidence, but their terms must be evaluated carefully.
Relevant differences may include responsibility for research and development expenditure, manufacturing costs, regulatory approvals, commercialization expenses and commercial risk. These factors may influence the comparability of licensing arrangements; they are not independent statutory formulas for calculating royalties.
In proceedings under Section 107, the valuation exercise is different.
The claim may concern development expenditure, lost contractual opportunities, restrictions on investment or the inability to commercialize technology during a particular period.
Contemporaneous financial records, proposed licensing agreements, investment documents and evidence of negotiations with potential customers may therefore be more useful than a theoretical valuation of the invention in isolation.
For foreign companies, documents maintained outside Israel may be central to establishing the claimed loss. Their relevance depends on demonstrating the connection between the Israeli restriction and the alleged financial consequences.
The Peles Engineering Case: Commercial Loss Must Be Proven
The evidentiary requirements associated with national security restrictions were considered in the Peles Handasat Hadshanut case, discussed in Yonatan Drori’s Hebrew treatise Patent Law (2023). The case concerned claims for financial losses allegedly resulting from security restrictions affecting a patent application.
The claimants sought compensation for expenditure associated with developing and promoting the invention, commercial arrangements that allegedly failed to materialize and the loss of an opportunity to participate in a technology incubator.
They also argued that admission to the incubator could have generated income even if the underlying invention had ultimately failed to become commercially profitable.
The Court declined to award the claimed amounts because the evidentiary foundation was insufficient.
The claimants had not adequately substantiated their alleged development and marketing expenses, demonstrated the cancellation of commercial arrangements because of the security restriction or established a sufficiently probable opportunity to enter the incubator.
The decision did not categorically exclude compensation for losses unrelated to profits ultimately generated by an invention.
Rather, it illustrates the difference between a plausible commercial scenario and legally established damage.
Where a patent applicant alleges that government restrictions prevented a commercial opportunity, the applicant must provide evidence of the opportunity, its financial significance and the causal connection between the restriction and its loss.
This distinction is particularly relevant to technology companies seeking compensation for unsuccessful funding rounds, abandoned licensing negotiations or interrupted international commercialization programs.
The Compensation and Royalties Committee: Jurisdiction and Procedure
Section 109 of the Patents Law provides for the appointment of the Compensation and Royalties Committee by the Israeli Minister of Justice.
The Committee comprises a Justice of the Supreme Court of Israel, the Israeli Registrar of Patents and an academic member from an institution of higher education.
Under Section 111, the Committee has exclusive jurisdiction over matters assigned to it by the statute, and its decisions are designated as final.
Consequently, an ordinary civil action before an Israeli court is not the prescribed procedure for determining compensation or royalties under Sections 107 and 108.
The proceedings are governed by the Patents Regulations (Office Practice, Rules of Procedure, Documents and Fees), 5728-1968, particularly Regulations 171-187.
Under Regulation 172, the principal application is filed with the Israeli Registrar of Patents. It must identify the applicant and respondent, provide sufficient particulars to identify the invention, set out the facts relevant to the amount claimed, specify the legal grounds and state the relief requested.
Regulation 173 requires supporting affidavits verifying the relevant facts, together with copies of the applicable restriction order or permit, as appropriate.
A claim cannot be adequately substantiated merely by asserting that the invention is technologically important or relevant to national security.
The applicant must present evidence supporting the claimed royalties or compensation.
Particular attention should be given to the procedural requirements governing the submission of documents.
Regulation 172(b) requires applications under Sections 107 and 108, together with other documents in those proceedings, to be submitted under Regulation 11 in three copies. Regulation 174(b) separately provides that the response and its annexes must be submitted in four copies.
These specific provisions should be distinguished from general filing arrangements applicable to other proceedings before the Israeli Patent Office.
The State’s Response, Evidence and Examination of Witnesses
Under Regulation 174(a), the respondent may file a reasoned response supported by affidavits within one month of the filing of the principal application.
Regulation 174(c) provides that failure to submit a response is deemed consent to the relief requested.
Following submission of the application and response, the documents are referred to the chairperson of the Committee.
Under Regulation 176, the chairperson determines the hearing date, with at least ten days’ advance notice to the parties.
A party wishing to cross-examine an opposing affiant must notify the Committee and the other party at least seven days before the hearing, pursuant to Regulation 177.
The parties should not assume that additional legal grounds or factual allegations can be introduced freely during the hearing. Regulation 180 permits additional grounds in specified circumstances, including where the omission was not attributable to the party or their consideration is necessary in the interests of justice.
The preparation of evidence is particularly important because relevant information may be distributed unevenly between the parties.
The government or its contractor may possess the principal records concerning the actual exploitation of an invention. The patent holder may possess the development records, commercial licensing history and financial information needed to establish value.
Section 115 gives the Committee broad powers to obtain evidence, summon witnesses and require the production of documents. The Committee may also consider material that would not necessarily be admissible in ordinary civil proceedings.
Section 115(b) further permits the Committee to order advance payment of all or part of an amount that is not disputed.
This is not a general authority to award an arbitrary interim amount where the underlying entitlement or quantum remains unsubstantiated.
For foreign claimants, preparing evidence held in multiple jurisdictions and establishing a reliable financial basis for the claim can be decisive to the proceedings.
Confidentiality and Limited Judicial Review
Proceedings before the Compensation and Royalties Committee are generally not public.
Under Section 114, hearings are conducted in private unless the Committee orders otherwise. Information concerning proceedings conducted behind closed doors may not be published without the Committee’s permission.
This statutory framework has particular significance where the dispute concerns military technology, classified procurement or national security restrictions.
Regulation 183(c) also permits the withholding of written reasons for a decision where national security considerations justify doing so.
Parties must therefore exercise care when submitting technical materials, preparing evidence and communicating information about the proceedings, including to foreign parent companies, investors or professional advisers.
Section 111 provides that decisions of the Committee are final and that courts and tribunals may not hear matters within its exclusive jurisdiction.
Although this provision does not necessarily eliminate every possibility of exceptional judicial review, it does not create an ordinary appeal on the merits.
A party should not assume that an unfavorable decision can be followed by a complete rehearing of technical evidence, financial calculations or expert testimony before a civil court.
The statutory framework makes careful preparation of the initial proceedings especially significant.
Government Use, Compulsory Licensing and Employee Inventions Are Different Procedures
Government authorization under Sections 104 and 105 must be distinguished from compulsory licensing under Section 117.
The former concerns exploitation authorized for national defense or essential supplies and services. The latter forms part of a separate statutory framework addressing circumstances in which patent rights may be restricted in the public interest, including specified forms of abuse of monopoly rights.
The identity of the government as the user does not, by itself, establish whether the applicable dispute concerns authorized exploitation, unauthorized patent use or another statutory mechanism.
The Compensation and Royalties Committee also has jurisdiction over certain claims involving service inventions under Section 134.
However, a claim by an employee seeking remuneration for an invention made in the course of employment is legally distinct from a claim against the State Treasury for royalties arising from government authorization or compensation for security restrictions.
Although the same statutory Committee may exercise jurisdiction, the applicable legal grounds, relevant parties and required evidence differ.
Where the dispute concerns exploitation outside a government authorization, the availability of infringement remedies must be considered separately. These questions form part of the broader framework of Patent Litigation in Israel.
For foreign patent owners, the critical starting point is to identify the relevant Israeli patent rights, determine whether a statutory authorization or security restriction exists and establish the appropriate basis for claiming remuneration.
The principal statutory provisions are Sections 94, 98-99 and 103-115 of the Israeli Patents Law, 5727-1967, together with Regulations 171-187 of the Israeli Patents Regulations.
A more detailed discussion of government exploitation of inventions, compensation for security restrictions and the Peles case appears in Yonatan Drori, Patent Law (Hebrew, 2023), Chapter 15, Sections 15.3 and 15.6.
