Bags of Diamonds, Kidnappings and Private Eyes: Israeli Firm Fights Copycat in India

An Israeli diamond tech company sells hardware that can map any diamond in 3D. In India, an entire cottage industry has arisen based on pirated versions of their tech. A small glimpse into India’s fraudsters and the Israelis fighting them

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Sarine's tech can create a 3D model of a rough diamond's internal structure. Their machine has been copied and hacked in India.
Sarine's tech can create a 3D model of a rough diamond's internal structure. Their machine has been copied and hacked in India.Credit: Ofer Vaknin

The 20,000 pages of the lawsuit filed by Sarine against Indian company DBC contain all the elements of a good thriller film: Private investigators, sacks of diamonds, the abduction of a witness’s father, incriminating videos, and even machines stored in an office in India that were copied in full from their original, down to the redundant screw.

In recent years Israeli diamond tech firm Sarine’s principals – CEO David Block, Deputy CEO Roni Ben Ari, and Indian subsidiary CEO Ben Finkelstein – have spent long hours suing Indian copycats. Most of their battles are waged against DBC (Diyora Bhanderi Corporation,) which according to Sarine’s legal claims, being adjudicated in India, has based its entire operation on copying Sarine’s hardware and hacking its software, reaping millions in the process.

Ben Ari shows us his zoom conversation with Ashish Diyora, one of DBC’s owners, where Ashish tells him that he pays hackers in Russia a million dollars a year to hack Sarine’s software: “We’ve reached the stage where they don’t even deny their criminal activity,” says Ben Ari. “They’re claiming that they’ve established a client base and want to work with us.”

Sarine, a publicly-traded tech company active in the diamond industry, has developed machines and software for the diamond cutting and polishing process. Its machines know how to map the unpolished diamonds mined from the earth to create a 3D model in its software. The software optimizes diamond cutting process, and sends instructions to the machine that marks the rough diamond with lasers, instructing the artisans where to cut. The internal modeling machine, Galaxy, is the company’s biggest moneymaker, creating an MRI-like scan for rough diamonds. About 100 million rough diamonds go through Sarine’s systems each year - and some 30 million of them are processed by Galaxy.

One Indian company created their own version of Sarine's Galaxy, while another just tried to hack it so they wouldn't have to pay for its full usageCredit: Sarine

The company is traded on the Singapore and Tel Aviv stock exchanges at half a billion shekels. Over the past decade it has been exporting machines and software worth 50-80 million dollars a year, and a significant part of its revenue comes from India, where 90 percent of the world’s diamonds are produced. Sarine invests over 10 million dollars per year in research and development. The damage caused by copycats is hard to assess, but Sarine claims it reaches around 10 million dollars annually as well, not to mention time and resources spent fighting them in the courts.

“Over the past four years we’ve made a lot of lawyers and private investigators rich,” Block laughs. He estimates the legal and intelligence costs surrounding the suits at over 5 million dollars. “Sometimes I feel like we’re running a cyber and investigations company, rather than developing technologies,” he says. Sarine’s story may be exceptional in its scope, but also serves as a warning sign for Israeli tech firms operating in India.

Sarine’s efforts to fight pirating have not been devoid of triumphs. In 2017, for instance, after several Sarine employees were approached on LinkedIn by an Indian individual who offered them a million dollars to reveal the company’s patent, the company hired the Wizman-Yaar company (a leading civilian intelligence firm in Israel). The investigator impersonated a Sarine employee and conducted the negotiations with the Indians, until their arrival in Israel. “The Indians came to Israel with a bunch of orders of what they hadn’t obtained yet,” the investigator told Channel 12 at the time. They asked for the machine’s blueprints and a list of spare part suppliers, explaining that they had already built a duplicate, but their machine doesn’t work accurately. The moment the Indians took out a box with envelopes containing a 200,000 dollar advance, officers from the Israeli police’s fraud investigations unit entered and arrested them. One of them served eight months at an Israeli prison.

In another case, Indian manufacturers tried to hack the Galaxy machine after purchasing it legally, in order to alter the reports about its usage and thus reduce their pay. Sarine sued them and others. In one case, one of the companies that lost in court and had to pay Sarine couldn’t get a loan from a bank until Sarine certified that it had no further pending claims.

1,200 exact replicas

DBC appears to be Sarine’s biggest headache to date. The company operates several websites providing services based on the stolen technology. DBC currently has 1,200 machines constructed as precise replicas of the original system, down to cosmetics such as redundant screws. They also have at least 1,500 workers operating them – more than all of Sarine’s workforce, which numbers some 500, including the R&D department. At times, the theft is only part of the work: DBC workers do the actual mapping using their replica machine, and then deliver to the client a file that opens on the client’s legally purchased Sarine’s software.

Finklestein, CEO of Sarine’s Indian subsidiary, tells us that for six months the company’s private investigators were posted in shifts across DBC’s headquarters in Surat, considered the world’s diamond manufacturing capital. “They were vegetable stall workers, a biker, all sorts of cosplay. They all took pictures of cars passing by and identified irregular ambulance activity coming in every day. They say DBC employees load them with sacks – either cash or diamonds – to transfer them to a bank.”

During an unannounced raid, enabled by an Indian court order, Sarine received access to DBC offices to collect evidence on the scope and nature of the copycat operation. Ben Ari arrived at a six-story building. “In the ten minutes between the knock on the door and entering the offices, a long trail of employees left the back of the building. We found 600 computers without hard drives. There were water bottles and car keys next to workstations and the chair seats were still warm, but the hard disk on the computer was missing. Then there was a sudden power shortage at the site.”

He says that, “they had a protocol for what to do once a police or court representative shows up: The workers pull out the hard drives and the vacuum pumps – which are a main component in the machines – and leave through the back entrance. The security footage was all deleted too. But we still managed to find enough evidence.”

When DBC's offices were raided, it was empty, though the chairs were still warm and all the computers were there - just without their hard drives which were takenCredit: Courtesy

The most incriminating piece of evidence they found was a detailed, step-by-step explanation about the replica machine: ‘He goes through the machine’s operation detail by detail, until adding that: ‘the only difference between us and Sarine is that we don’t need a vacuum pump’,” Ben Ari tells us.

“We realized that they have lawyers who explained to them that the pump is a major part of our patent, and they thought that if they remove it – they’re not exposed to violating (our IP rights). But once they admitted that the machines are completely identical except for that component, they showed us the way to pass the court’s burden of proof and show that they’re lying. We identified that their machine includes pipelines and wiring for attaching the vacuum pump.”

Additional evidence obtained was a demonstration of the software that converts what the machine produces to enable it to be opened using Sarine’s legal software. DBC’s representative acknowledges in a video that they encoded the files so that Sarine’s software opens them, but Sarine has a special encoded format – which means that the demonstration actually constitutes evidence that Sarine’s software was hacked.

The offices of DBC, which Sarine is suing for repeatedly stealing its tech, in India: 'They aren't even trying to hide it anymore'Credit: Courtesy

“India is a huge market but some Indians compete and bring the market down into such a price war that it’s not worth anyone’s while to continue producing the product. We are finding ourselves investing capital to protect the product instead of innovation,” Ben-Ari said.

The Indian front

In January, Israel and India celebrated the 30th anniversary of the establishment of diplomatic relations. Ties have grown warmer in recent years with billions in bilateral deals, but for Israeli business people, India is not an easy place to work.

China may be considered the international capital of intellectual property infringements, but as one entrepreneur told us, “Expectations from undemocratic China are low, whereas India, the largest democracy in the world, is finding it difficult protecting foreign entrepreneurs.”

Over the years, major Israeli firms such as Rad Data Communications, Nefatim Irrigation and Teva Pharmaceuticals have suffered from copycat activity in India. Medium-sized companies that don’t have the resources to engage in complex litigation have an even harder time coping.

“Israeli companies prefer not to talk about this publicly and many times also don’t lodge complaints. It’s not just over concern of being viewed negatively by the Indian authorities but also concern that getting into litigation could be an endless process,” said Anat Bernstein-Reich, a lawyer who is CEO of the BDO Israel-Indian Investment Banking. She also chairs the Israel-India chamber of commerce.

Anat Bernstein-Reich, a lawyer and CEO of the BDO Israel-Indian Investment BankingCredit: Courtesy

Nir Kozlovsky, the owner of Waves Audio, which develops digital sound processing software for the music industry, claims that India is like Israel was 30 years ago. “It’s a place where copying is accepted, as it was in Israel at one time.”

“We are selling software online at a uniform price around the world that is considered high in India. If an Indian were to earn what an American does, then maybe they wouldn’t copy our software. In any event, in my opinion there’s a difference between our situation in which the software is copied by an anonymous end-user, and a situation in which a company copies from another company that works with it in the same market.”

G., who has been an entrepreneur in India since 2009 and asked not to be identified, has recently been trying to deal with a copycat incident, one of four that he said he has faced: “Usually, it involves distributors who try to copy,” he said. “There are some shameless people in India in this regard - they even copied my YouTube video explaining the product,” he said.

However, the recent case is something new: “Someone who had been a distributor for an Israeli competitor of ours copied the technology that we use and registered a patent for it,” G. recounted. “It’s something in the public domain in the energy saving field, and it’s absolutely impossible to patent.”

G. contacted the Indian patent office to appeal the decision and freeze the patent, but the story is far from over.

“It’s no accident that the only success stories involving Israeli companies are mainly major firms and defense industries rather than medium-sized companies,” he said.

“Once someone at Israel Aerospace Industries told me: ‘What luck that a crooked missile doesn’t fly well. Otherwise, they would copy us too.’ Israeli entrepreneurs who are successful all over the world get screwed in India. People get hit in India and don’t talk about how they’ve been cheated. The government describes a rosy picture of 30 years of Indian-Israeli relations, but it's more complex.”

Fraudster central

Officials in the Foreign Trade Administration at the Israeli Economy and Industry Ministry note that over the past 30 years, overall trade between the two countries has grown from $200 million a year to more than $4 billion (although Israeli exports to India have dropped a bit over the past five years).

While entrepreneurs who spoke to us reported outright fraud, the officials at the ministry describe what they term a difference in mentality. Succeeding in business in India, they say, also requires an understanding of cultural nuances.

“There are fraudsters in every country. India is a very, very big market, so the number of fraudsters is bigger, but as a percentage of the population it’s equal to its extent in Israel,” said Dana Nahari, who until 2019 was an Israeli trade attaché in Mumbai. “During my time, for example, I promoted sales of Israeli television show formats in India. A format is something that’s very easy to steal. What problem is there in stealing a script from ‘Homeland’?” she asked. “But they didn’t do that. They broadcast these two series while adapting them to the reality in India.”

Daniel Carmon, who wrapped up his stint as Israel’s ambassador to India in 2018, acknowledged hearing from time to time about problems and disparities when it comes to respect for intellectual property rights in India, but he said it isn’t a widespread phenomenon.

Daniel Carmon, Israel's former ambassador to India

“It’s possible that there are regulatory disparities between the two countries in the process of registering patents, and it’s possible that there are problems stemming from differences in expectations, from a different culture in how business is done and different languages on both sides,” he said.

“Generally, Israelis are quick and impatianinet, they want the deal to be done by the time they are on their flight back home. So of course there are cases in which this person stole that patent, or someone stole some technology, but it happens everywhere. The issue is perhaps the enforcement is very slow and some lose patience.”

The issue of patents in India is also a challenge some face. “Most Israelis register their patent in the U.S. or Japan and not in India, Israeli business people need to learn because many end up regretting not filing a patent there.” Experts also explain that an Indian patent serves as a gateway to a number of other smaller auxiliary markets.

In 2015, “Invest India” was set up - an Indian initiative to to help foreign firms do business in the country. Set up by the best and the brightest of India’s bureaucracy, they answer directly to the prime minister’s office and help foreigners navigate India’s red tape. It has over 400 workers, but despite its power, in the case of Sarine their help did little to solve the problem.

Bernstein-Reich, the banker, “the law is one thing, and reality another. Enforcement is slow and the courts are backlogged. In India, enforcement can seem somewhat selective. There were calls during the coronavirus pandemic to allow local drug firms to ignore international patents to develop local versions of drugs. Prime Minister Modi prevented this, despite public pressure, to send a message that India is serious about intellectual property.”

Pumps and undercover ops

Israelis doing business there say Israeli representatives also can’t help. The attache tried to help Sarine in 2016 and reached out to local police to inquire about the case. “This is a sensitive issue - what can and cannot be done - so we helped in this specific issue,” they say.

However, high court costs and lengthy litigation processes are what actually scare Israelis doing business in India: “You can trust the courts, but it takes a lot of time - there’s a lot of red tape - and you need to pay very big sums to get good serious lawyers,” G. says.

“Sometimes there are surprises, but generally it is very slow”, says a lawyer working in India. “One time we flew in together with a group of lawyers from Israel and the U.S. and we had hearings all morning and were expecting a ruling that day. After we came back from lunch, we were told the judge didn't feel well and the next hearing was postponed for two months from now. The courts are not corrupt, just very very slow”.

There’s also the issue of trust in the local police. G. recalls how during the coronavirus, a vendor in India who believed he was owed money just showed up at one of the factories and took equipment to get their back pay. “My workers went to the police and were asked why they didn't stop the thieves from leaving the factory themselves. I had to use Invest India to get all the way to the Prime Minister’s Office that then called in the thieves and told them not to mess with the Israeli factory and return what they had taken.”

Sarine's GalaxyCredit: Ofer Vaknin

Block recalls how, with the help of private investigators, they flipped to DBC workers and got them to go undercover and record the vacuum pumps that the copycat system purportedly does not require. The videos the workers filmed undercover were submitted to the courts but the workers had to be transferred to safe houses in Nepal amid credible concerns they and their families would be threatened so they would not testify in court.

“There people have influence with the police and they managed to stop our investigators and force them to sign blank papers [for forging documents], or get the police to ask for their IDs. They are also connected to local politicians, and in a raid on one of their factories, thousands of diamonds were confiscated - only to have a politician intervene on their behalf and solve the problem. They even bought an ad in the local papers thanking them.”

“We were working with the assumption that the local police will prevent our witnesses from coming to court to testify, using false claims to delay them,” Ben Ari adds. “DBS is actually suing those workers for stealing diamonds, which is simply false. In one of the cases, the father of one of our witnesses was kidnapped for 24 hours in an attempt to pressure their son not to testify. They only let the dad go after learning the son didn't have a mobile phone” and didn’t know his father was taken, he explains.

It is unclear what will be the end of DBC and Sarine’s wars, but the Israeli firm is also dealing with other copycats: Just last November they received payment from another Indian company called Rudra Diam that used a pirated version of its software. In the meantime, they are investing - but not in India. “India,” Block says, “is just too big a risk.”

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