As Finnegan, one of the world’s largest IP firms with 11 worldwide offices celebrates its 200th Israeli client, partners Jeff Berkowitz and Gerson Panitch sat down with Calcalist to share observations on differences between how Israeli companies approach patents, and how Israeli companies are destroying their adversaries in a string of recent courtroom victories.
Calcalist: How is it that Finnegan, a U.S.-based IP firm ended up with 200 clients in Israel?
Jeffrey Berkowitz: Thanks for taking the time to speak with us. Fourteen years ago, shortly before Israel was branded the StartUp Nation, Finnegan identified Israel as the world’s up-and-coming tech powerhouse. We saw this boom starting. We already had a few Israeli clients engaged with our Washington, D.C. headquarters, and realized from speaking with them that Israel needed a more sophisticated approach to worldwide patent protection and enforcement. Finnegan, who at the time had a worldwide practice spanning 50 years, jumped at the opportunity.
As we began digging deeply into the patent portfolios of Israeli companies at the time, we noticed a trend. Too many Israeli patents were directed to highly technical features. Competitors could easily get around those patents by adopting alternative features that achieved the same goals. In other words, most patents we encountered were worthless. Bringing strategic patenting to Israel was our vision.
Calcalist: Finnegan seems to be working with many Israeli companies across diverse technologies. Is there a common reason why they choose to work with your firm?
Gerson Panitch (Finnegan’s Israel Practice Group Leader): It is true that Finnegan’s Israeli client list is a veritable who’s-who of Israel’s leading companies--from the leaders in machine vision, cybersecurity, software, SaS, hardware, the metaverse, medical devices, mobility, quantum computing, pharmaceuticals and more. There was a time when Israeli companies seemed most interested in Israeli patent protection. But as Israel transformed into a global high-tech leader, sophisticated Israeli companies recognized that in order to best protect their companies and grow valuation, engaging with an international law firm skilled in developing and enforcing patents across the world is critical.
Few patent professionals say this out loud, but it is pretty easy to obtain a patent. What's more difficult is obtaining a patent strong enough to scare away competitors and attract leading investors. If a company patents a highly technical solution it is likely to get patent protection. But what is the value of such a patent if an alternative technical solution can be used as a substitute? Many Israeli companies didn’t understand the subtleties of their own patents to know they had such a problem, and the ones who did, didn't know how to fix it.
Calcalist: How did Israel companies recognize they had a problem?
Berkowitz: Education was the key. Shortly after we started our Israel practice, the University of Haifa Law School, who at the time offered an advanced patent degree, asked a group of Finnegan partners to teach a course at the core of the curriculum. Gerson and I, along with Darren Jiron and Laura Masurovsky built a 70-hour course. The University saw value in sharing the broader lessons with Israeli executives, and together we developed a month-long seminar series on patent strategy in Herzliya that ran for six years. During these years, around 5,000 Israeli executives attended our lectures, which included guest speakers and Finnegan partners from abroad. For the first time, many Israeli executives learned about the subtleties of patents, and how what looks to be strong patents can be completely worthless. Armed with the knowledge, Israeli executives began to understand that patents are not commodities. To be valuable, patents must be strategically developed from both a business perspective an enforcement perspective. That understanding, conveyed through our work with the University of Haifa, greatly propelled our growth in Israel. While that course is no longer offered, Gerson teaches a similar course to about 100 MBA students each year at Tel Aviv University.
Calcalist: What is it that makes a patent valuable?
Panitch: There are a number of facets to developing powerful patents. First, as we alluded to a few minutes ago, conceptual patent protection is often the most valuable. A technical patent may block competitors from using a particular technical solution but can leave room for other similar technical solutions, leading to worthless patents. A conceptual patent is one that generalizes an innovation in a way to cover many technical solutions. In its most effective form, no room is left for competitors to pass. Also, it is critical to develop patents from an enforcement perspective. There are two sets of rules for patents—patent office rules to get patents granted, and court rules related to enforcement. If both sets of rules aren’t followed during the patenting process as is unfortunately often the case, companies can get patents that the courts will not enforce. This is one of Finnegan’s strengths. As both patent litigators who live and breathe enforcement of patents in court, we use our courtroom experiences to anticipate the attacks that might occur in court and to build-in the immunities as best we can.
Berkowitz: Another way to make patents valuable is to anticipate future revenue streams that may not occur for years to come. Right now, a company’s focus may be on a particular vertical. In such instances, patents are traditionally focused on only that vertical. Working with company management, a patent strategist will try to envision future verticals and seek broader coverage. For example, if a company develops a new display for a fighter pilot, the display might later be applied in road vehicles. So the idea is not only to focus on the current generation of products but to develop IP that can later be licensed to generate added revenue.
Calcalist: So much of Israeli technology is built around software. What can software companies do to protect their innovations?
Panitch: Someone started a rumor in Israel that software patent protection is hard to get and is not valuable. Both are untrue. A good counter-example is one of Israel’s leading SaS companies and Finnegan client, monday.com, for whom in the last year and a half, we’ve obtained about 40 strategic patents, We have another leading Israeli client who didn't have any patents when we started working together, because it thought patenting software was “silly." Then it got sued for patent infringement in the U.S. The company had great innovations that others, including the aggressor in the patent suit were using, but the Israeli company still didn’t patent, because again, it saw no value in patents. Then, when the company got sued a second time, it woke up and realized that without patents of its own, it lacked the leverage to reach reasonable settlements. A Finnegan patent acquisition team was called in, we identified great patents for sale in the market, and with our guidance, our Israeli client acquired them and is now using those patents as leverage. We completely turned the tide.” Since then, our client became a believer and is filing many of its own patents. It no longer has the all-too-common patent blind spot.
Calcalist: Why is it that companies have IP blind spots?
Berkowitz: The biggest blind spot for start-ups is a lack of appreciation for how strategic IP contributes to valuation. Today, non-tangible assets such as patents, make up more than 85% of a tech company’s value. And yet, as is widely reported, 95%-97% of patents are worthless—not because patents as a class are worthless, but because companies relegate the patenting function to technical staff and the result is highly technical patents covering what techies view as cool, but which is lacking from a business perspective. The lesson to be learned is that while techies need to be involved in the patenting process, the process needs to be driven by businesspeople working with a patent strategist. When all three work hand-in-hand, – magic happens.
Calcalist: How can a company make magic happen with its patents?
Panitch: We developed a highly effective patent strategy process that works well for startups and that we also use with Israel’s leading mature companies. During a Finnegan strategy session, our patent strategists sit at the table with corporate management and technical staff. We learn the business goals, the actual and expected competition and the pressure points. And then, we strategize together and test our theories through a proprietary process that we developed. New clients may start skeptical, but when they see the results, they become our most effective advocates, telling their colleagues at other companies about us. That’s why our Israeli business is growing so nicely.
Calcalist: What role do investors play in the patenting process?
Berkowitz: Sometimes the pressure to build a solid patent portfolio comes from VC investors. In Israel and the rest of the world, nobody wants to be a 'frayer' (Yiddish slang for "sucker"). The investors' biggest worry is that they will invest in a company and someone else will come along and be able to take the technology without paying for it. For this reason, there are investors heavily involved in the Israeli market who direct their portfolio companies to us.
Calcalist: Isn’t it difficult for small companies to go up against larger competitors?
Berkowitz: Patents can have value, even if not enforced. Just having powerful blocking patents can be enough to scare competitors away. And if patents are strong enough, there are plenty of law firms who will handle patent infringements on a contingency basis for companies who could otherwise not afford litigation. Size of an adversary is a lot less important than the strength of the case. David can still beat Goliath, as happened when Finnegan sued Amazon on behalf of Israel’s Maglula.
Maglula, who develops and sells tools for loading and unloading firearm magazines, found that its products were illegally copied by Chinese manufacturers and sold on Amazon. After Maglula's complaints to Amazon did not help, we sued the retail giant.
Amazon tried to convince the judge that the case had no merit, and I led a team of Finnegan lawyers who argued the opposite. The judge then sent strong signals to Amazon that it would likely lose, and when that happened, Amazon backed down and settled the case in a manner highly favorable to Maglula. The settlement marked a precedential victory for not only Maglula but other companies who have been tied up in litigation with Amazon.
Calcalist: What should a company do if it is accused of violating a U.S. patent?
Panitch: There are many defenses to patent infringement suits. Just because you are sued does not necessarily mean the case has merit. We regularly invalidate patents when our clients are accused of infringement. For example, in the last year, Finnegan defended Playtika against a suit claiming it infringed five U.S. patents. It usually costs $5-8M to defend such a case. But with our experience in the U.S., we convinced a Las Vegas judge to rule all five patents invalid and dismiss the case just months after the suit was filed and at a very low cost. The other side appealed, and Finnegan’s now Managing Partner Erika Arner led the appeal and upheld our trial court victory. With a team of U.S. patent experts, we out-lawyered the other side.
Finnegan has a unique skill set that very few firms who can match have. Almost all of our patent professionals hold science/engineering degrees in addition to being U.S. lawyers. And because we focus solely on IP and are viewed as leaders in the field, we are able to attract the top talent in the industry. Top law students often work for judges for a year or two following law school. Afterwards, many know Finnegan’s reputation and apply to work for us, which further helps to grow our reputation.
Calcalist: What's your advice to companies who wish to best position themselves with patents?
Berkowitz: Just as every startup has a yearly business plan that addresses R&D, regulation, human resources, resource allocation, and fiscal budget, the company should have a strategic patent plan as well. That plan should include envisioning future generations of products and putting the patents in place in advance to accomplish business goals.
Calcalist: What is Finnegan's vision for the next 200 Israeli clients?
Panitch: Israeli companies now offer some of the world’s most innovative solutions, and Israeli innovators have the right to exclusivity for their inventions. Our goal is to be the protector of as many top Israeli companies as possible, to help them develop, patent, license, and enforce the IP necessary to maximize profitability.
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