The cyber trap: When exporting your IP becomes a crime

Startup founders and directors in the cyber sector targeting U.S. funds should take into account that Israeli law prohibits filing patent applications outside Israel for inventions with possible military or national security value.

In recent years, the cyber sector in Israel has experienced dramatic growth. The number of Israeli cyber companies has risen from 272 in 2014 to 505 in 2024 – an increase of approximately 86%. Although the cyber sector accounts for only about seven percent of all high-tech companies in Israel, it received a disproportionately large share of investment: approximately 38% of all high-tech investment in 2024 was allocated specifically to them. The scope of cybersecurity investments is particularly impressive: in 2024 Israeli cyber companies raised approximately four billion dollars – twice the amount raised in 2023. International investors recognize the vast potential; for example, the United States has dedicated funds specifically for investment in Israeli cyber. The entire sector serves as a central growth engine for the Israeli economy and the local innovation industry.

Andrey Vapniarsky.

Precisely against this backdrop of success, it is important to raise awareness of a legal and security constraint that many are unaware of: the prohibition on filing a priority patent application abroad for inventions with possible security implications. Section 98 of Israeli Patent Law prohibits filing a priority patent application outside Israel for inventions with possible military or security value, unless: (1) six months have elapsed since filing the first patent application in Israel and no secrecy order has been issued, or (2) approval has been obtained from the Minister of Defense before filing. Anyone who violates this prohibition commits a criminal offense that may result in a fine or even imprisonment for up to two years.

Managers in the cyber sector may mistakenly assume that the restriction applies only to inventions of a distinctly offensive nature, such as hacking tools or digital attack methods. In reality, however, the law covers any invention that could be regarded as having security value, and therefore defensive solutions are relevant as well. For example, intrusion-detection systems, cloud-monitoring and security tools, as well as solutions for protecting critical infrastructure may indeed be deemed as bearing relevance to national security and thus fall under the prohibition of Section 98. In other words, for the purpose of this restriction, there is no substantive distinction between an offensive and a defensive invention.

The upshot is that any startup or company operating in the cyber arena that wants to file a patent application in the United States could inadvertently breach the restrictions of Section 98 if it does not first conduct the appropriate legal clearance in Israel. The speed with which cyber companies act to secure their competitive advantage can itself become a vulnerability, if it leads to a breach of the restrictions of Section 98 – even if committed unwittingly.

This arrangement is not unique to cyber; similar restrictions exist in other sensitive domains – most notably atomic energy and nuclear processes. Special government authorization is required to publish or file patent applications outside Israel, for an atomic or nuclear invention. The logic is clear: the state seeks to retain control over information and technologies that may affect national security.

To determine whether the product falls within the scope of Section 98, it is advisable to seek professional counsel rather than decide alone and risk unintentionally violating the law and incurring serious criminal and administrative consequences.

In an age where lines between civilian and defense technology blur, ignorance of Section 98 is not an excuse – it’s a liability.

Andrey Vapniarsky is an attorney and patent attorney, of counsel to the Intellectual Property Litigation Group at Pearl Cohen law firm.