On July 29, 2015 the Knesset passed the 7th Amendment to the Encouragement of Research and Development in the Industry Law.

The purpose of the amendment is to allow the State of Israel to effectively and efficiently continue its support of the various companies which promote technological innovation and address the current challenges this industry faces in light of the importance of the high tech industry to the Israeli economy.

The amendment establishes the National Authority for Technological Innovation (NATI), which is intended to replace the Office of the Chief Scientist (OCS). Prior to the amendment, the OCS is entrusted with the operation of the various state incentive programs pursuant to the Encouragement of Research and Development in the Industry Law 1984 (R&D Law).

In order to achieve the required flexibility, the NATI will be authorized to establish the various government incentive programs and to manage the incentives system pursuant to the R&D Law.  

NATI will be headed by the Chief Scientist, and will be entrusted with the establishment of various incentive programs. This would replace all the existing programs either pursuant to the R&D Law, and those promulgated by the General Manager of the Ministry of Economy, such as the incubator programs.   

Transfer of Know-how

The amendment cancels the existing provisions of the R&D Law, and its regulations, regarding transfer of manufacturing outside of Israel and transfer of know-how outside of Israel. The NATI Council will be authorized to promulgate relevant provisions for each of the incentive programs.

The existing provisions related to transfer of know-how outside of Israel will remain in force with respect to the current incentive programs and funding received thereunder for an interim period.

Although the amendment emphasizes the need to retain know-how in Israel, this may lead to a more tailored approach to transfer of know-how requests with respect to existing incentive programs and address some of the difficulties encountered in cross border transactions.

NATI

The Research Committees will remain the entity in charge of the granting of the incentives, the day to day administration and the decisions related to transfer of know-how and production.

The NATI Council will be comprised of 8 members, including 3 representatives of the public. The inclusion of public representatives is intended to increase the dialog between NATI and the private sector and to ensure that NATI is responsive to market needs. However, the Council will not be able to approve any incentive programs without the presence of all the government representatives.

NATI will be funded through the state budget and the royalty repayments due to the state treasury will be used to encourage technological innovation by NATI. In addition, in rare cases and if professionally justified, NATI may issue bonds for the purpose of funding certain incentive programs.

The Amendment will enter into force on January 1, 2016 and all the incentives granted pursuant to the current R&D Law will be deemed as granted by the NATI. NATI will also assume the Chief Scientist's obligations under any international research agreements.

The Amendment holds a promise for more flexibility and new types of government incentives for innovative technologies. It remains to be seen whether the restructuring and the establishment of NATI will be executed as planned and whether the promise for transparent innovative governmental support will be fulfilled.