Israel’s Army, a High-tech Powerhouse Without the Sense to Cash In

When veterans set up companies, they have few obligations to the military as far as property rights are concerned.

Graduates of Unit 8200, the IDF's technological spearhead.
Moti Milrod

Israeli firms based on their founders’ army experience inject hundreds of millions of dollars into the private sector. In good times, they cash in big by selling their companies.

So it’s no surprise that veterans of the Unit 8200 signal intelligence unit are hot properties when they get out of the army. The unit not only produces intelligence analyses, it produces engineers, technicians and code developers for the private sector.

High-tech companies such as Nice Systems, Check Point Software Technologies and Comverse have all been boosted by Unit 8200 technology.

But when newly discharged soldiers set up companies based on their knowledge of network and information-security tech, the startups have few obligations to the Israel Defense Forces as far as property rights are concerned.

State Comptroller Joseph Shapira has chided the Defense Ministry and IDF for “neglecting to deal with their intellectual-property assets.”

“The Defense Ministry and IDF are the largest developers of intellectual property in the economy, and the defense establishment is on technology’s front lines, with its R&D and human resources among the leaders in Israel and around the world,” Shapira wrote in a report released in March.

Shapira noted the technology crafted by Israeli defense contractors with knowledge developed in the intelligence division. He didn’t quantify the damages to the state based on its failure to protect military intellectual property, but the numbers are large enough.

“Exploiting the economic potential of intellectual-property assets could provide the Defense Ministry with many additional financial resources that could significantly boost the state budget in general and the defense establishment in particular,” he wrote.

Zeev Pearl, a partner at the law firm Pearl Cohen Zedek Latzer Baratz and an expert on intellectual property, has many clients who use their IDF expertise to set up startups.

Pearl, whose firm has offices in Israel, the United States and Britain, spends most of his time in New York. “Not a week goes by when an Israeli company or a company with an Israeli connection doesn’t come in for advice,” Pearl said.

Pearl agrees military intellectual property needs to be sorted, but he says red tape shouldn’t be applied to prevent entrepreneurs from setting up companies.

If the army wants to protect intellectual property, it should set up commercial entities, as the universities have,” he said. The state could thus “ensure that the inventions are registered as patents and decide what’s secret and what can be commercialized.”

According to Pearl, one must distinguish between knowledge developed for the military and the accompanying general knowledge that “can be used for any purpose that doesn’t harm state security.”

“There’s an issue here involving human freedom. You can’t put the responsibility on the young guy who finishes 8200. He’s full of energy and initiative, sets up a startup and then gets blamed,” Pearl said.

“You can require that he not create a military application, but you can’t demand that he not use the toolbox he acquired during his military service. If the government wants to, it should feel free to regulate this area.”

Efforts have been rare to regulate the sector outside a failed attempt by Ilan Cohen, director general of the Prime Minister’s Office under Ariel Sharon, Pearl says.

“One reason there’s no regulation is that security considerations lead to a preference not to disclose know-how,” he said. “They trump considerations involving the commercialization of know-how.”