Who Makes Millions Off Israel's Top Cyber Spy Agency?

Why Israel's army can’t profit from all the tech developed by its soldiers

A suspected uranium-enrichment facility near Qom, Iran. Unit 8200 specializes in telecommunications and cyber-security.
A suspected uranium-enrichment facility near Qom, Iran. Unit 8200 specializes in telecommunications and cyber-security. Reuters

Check Point Software Technologies is one of Israel’s biggest high-tech success stories. Founded nearly a quarter of a century ago, it pioneered computer firewalls, today employs more than 3,000 people and has a market cap of some $18 billion.

What’s less known is that Gil Shwed, the company’s cofounder and CEO, learned the ins and outs of network security while serving in the Israel Defense Force’s vaunted 8200 intelligence unit. But the army – and the Israeli taxpayer who paid for Shwed’s education – has never received a share of the profits.

In fact, a good part of the tens of billions of dollars of intellectual property that Israel’s high-tech sector has generated over the years came in the areas where 8200 specializes – telecommunications and cyber-security.

No less than nine committees over the last decade have looked into how the IDF could be retaining rights to intellectual property developed and share in profits, but they have been confounded by questions about how to map the progress of an idea to a commercial product, how to share any profits and about who should benefit.

The high-tech industry, of course, thinks it would be a mistake to try. Creating a government administration to monitor IP and collect royalties would cause investors and even engineers to flee.

A military intelligence base in central Israel, the headquarters of the 8200 Unit.
David Bachar

“It would be the death blow to the industry,” says Arik Kleinstein, a founding partner of the venture capital firm Glilot Capital. “Investors would be afraid to invest in startups founded by 8200 veterans. High-tech is a competitive industry and we’re on the same level as American startups that don’t need to get approvals from the U.S. army. No one who understands the industry and lives in it could ever support the idea.”

Many in the industry downplay the contribution of military technology altogether. “It’s exaggerated,” says Ronen Nir, a partner at Carmel Ventures, who served 13 years in 8200. “A startup is like a marathon running for years with ups and down. Combat experience – with its focus on goals, leadership and teamwork – is no less critical for success than the technology edge.”

Yet, the fact is 8200 and the IDF’s other technology units have been the classroom for large numbers of Israel’s top tech leaders. They include people like Adam Singolda, the founder and CEO of Taboola; the five founders of Nice Systems; Zohar Zisapel, the serial entrepreneur and head of Rad-Binet Group; Avishai Abrahami, the cofounder and CEO of Wix; and Nir Zuk, the founder of Palo Alto Networks – to name a few.

Etai Shay, an attorney with the Tel Aviv firm Gross, Kleinhendler, Hodak, Halevy, Greenberg , distinguishes between the training the army gives it tech recruits and any technology they develop while on the job.

“A software course, for instance, is not IP that belongs to the army,” he says. “The legal framework of IP doesn’t prove an answer to commercializing the [intellectual] tools the army provides soldiers, which they can take with them.”

Gil Shwed - Ofer Vaknin
Ofer Vaknin

But one entrepreneur who served in 8200 and asked not to be named says the distinction isn’t so simple.

“The most valuable asset tech people take from their service in great knowledge about technology problems and their solutions and the ability not to repeat mistakes when they’re developing a specific technology,” he says. “These are commercial secrets. It’s not for no reason that cyber-security companies love to recruit only 8200 vets.”

The government’s right to IP developed by soldiers or civilians working in the defense sector is anchored in a 1969 patent law and a 1992 directive by the Defense Ministry. It requires them to appeal to a committee to decide what rights accrue to the state.

However, no one was appointed to the panel until 2012 and since then it has met just three times to discuss five applications. In every case, the committee decided that in every case the IP was developed outside of service and the state had no rights to it.

As to private businesses that took army IP, the Defense Ministry says that in 2015 it opposed one patent that was being registered and reached a compromise with the other side. It currently has two others being adjudicated.

Ronen Nir, a partner at Carmel Ventures.
Gil Lavi

Several years ago, the government cracked down on doctors employed in government hospitals developing products and selling the commercials rights to companies after the giant U.S. medical electronics company Medtronic acquired the Israeli startup Ventor Technologies for $325 million.

The problem was the Ventor’s IP was developed by Dr. Ehud Shvemental, who worked at Sheba Medical Center Tel Hashomer. The government entered into intense negotiations and eventually settled on a 30% take of the profits, not counting taxes. Since then, the Knesset has regularized the rules.

Nava Swersky Sofer, who was formerly head of the The Hebrew University IP-commercialization company Yissum, says the IDF should follow the lead of the universities. There, they distinguish between learning and investing, so that academic institutions only demand rights to IP developed by those getting a master degrees or higher.

“We assume someone getting a bachelors is at the training stage. You could do the same things vis a vis soldiers by distinguishing between enlistees and those in the professional army,” she says.