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ISRAEL: An Introduction to International & Cross-Border Capabilities

Israel: International & Cross-Border Capabilities

Overview 

The Israeli economy is an economy driven by international commerce. With a population of approximately nine million people and neighbouring countries who are not yet receptive to most Israeli trade, Israel can only sustain the level of economic growth necessary for a modern, advanced country by actively and aggressively producing products for export.

As a result, the Israeli legal community has long worked to enable and foster cross-border activity. And while 2020 will always be remembered for the worldwide COVID-19 pandemic, 2020 was also a year of continuing cross-border activity, particularly in the Israeli hi-tech sector. The influence of the technology on Israeli legal practice is felt in many ways. English is the dominant language in virtually all legal matters related to technology enterprises, as a result of the role played by foreign investors, commercial partners, and strategic and financial acquirers. The documentation used by technology companies is likely to look familiar to those who engage in technology transactions throughout the developed world, and particularly the United States. The interpretation of the Israeli Companies Law, a statute built on various common law sources, is increasingly influenced by the decisions of Delaware courts and views of leading US legal scholars.

And yet, Israeli cross-border legal structures also have elements that are uniquely Israeli in style and content, and which require Israeli legal expertise. The Israeli judiciary is generally considered more activist than those in other leading jurisdictions. Accordingly, courts in Israel may feel less bound to the letter of the law or contract and more open to interpretation and findings based on fairness. Courts in Israel are generally considered impartial and without bias to foreign litigants. But proceedings are conducted in Hebrew and litigants can be expected to be available at short notice and to make real time decisions during court proceedings.

With an emphasis on technology also comes an emphasis on the establishment and protection of intellectual property rights. In Israel, intellectual property rights can be influenced by factors that may be less prevalent in other jurisdictions. For example, many young hi-tech companies avail themselves of programs offered by the Israel Innovation Authority (formerly known as the Office of the Chief Scientist), an independent publicly funded agency. The IIA offers funding for research and development programs which are attractive because repayment is by means of royalties on sales revenue only. However, transfer of the resulting IP rights outside of Israel and manufacturing outside of Israel are both restricted and subject to redemption fees. Cross-border players need to be aware of these limitations and guidance in navigating them.

Technology in Israel is also frequently developed by scientists and entrepreneurs who are affiliated with leading universities and medical centres. The IP rights associated with these inventions may be owned by or shared with these institutions or the government and commercial development of the IP rights may require negotiation of licensing and royalty arrangements. The earlier this process is undertaken, the more certainty commercial partners will have with respect to these rights.

Employee rights in Israel may differ from those in the jurisdictions of commercial partners engaging in cross-border transactions with Israeli entities. Israeli labour law includes various rules relating to work days, maximum hours of work, maternity leave, and leave for military reserve duty, for example. Termination of employment has its own rules including a requirement for an internal hearing at which the employee may present his or her position on a potential termination decision. Being aware of the requirements and acting within the framework of the rules will greatly reduce the chances of unexpected delays or obstacles in cross-border transactions.

Cultural differences in negotiating business relationships can also be bridged with the assistance of knowledgeable and experienced counsel. The last two decades have been marked by a significant increase in the number and range of countries in the world with which Israeli enterprises can now engage. While the United States and major European markets have long been open to commercial relations with Israel, the list of active commercial partners engaged with Israeli companies now also includes Russia and Eastern Europe; China, Japan and Korea; India; and, most recently, the Arab Gulf States. Cross-border transactions with entities in each region present their own unique challenges and opportunities.

The impact of the COVID-19 pandemic on cross-border transactions involving Israel has been dramatic, but less so than one might have expected. If common wisdom once stressed the importance of face-to-face meetings and building relationships in person in deal making, this past year has demonstrated that Israeli companies and their advisors can still work effectively even in the absence of real, in-person contact. Firms that prepared themselves for remote working have found that their workforce has largely adapted to the new remote working environment. Videoconferencing has become a staple of law practice as it has in many industries, and lawyers have demonstrated that with use of good information technology, legal work can be performed virtually seamlessly with a portable computing device and a good internet connection. Time will tell whether the new work habits of lawyers will lead to permanent changes in the approach to the practice of law in Israel and worldwide. At a minimum, working under lockdown and quarantine no longer seems as ominous as it would have just a year ago, and the ability to practise law in this environment, at least in the corporate and commercial sphere, has been proven.