The European Union on Monday said it was 'deeply concerned' about Israel's treatment of intellectual property rights for pharmaceutical products, adding to the growing calls for the country to develop a sufficient IP policy in line with developed countries in the West. "Israel's replies to questions posed by the European Commission on patent and data protection are so far unsatisfactory," said Ambassador Ramiro Cibrian-Uzal, head of an EU Commission delegation to Israel. "An examination by European Commission experts of the actual treatment of innovative medicines in Israel had found that there were some inconsistencies with the official replies from the Israeli authorities." The remarks came in the wake of an October 18 letter from David O'Sullivan, the European Commission's director-general for trade, to Israel's Ministries of Justice and Industry, Trade and Labor. In the letter, a copy of which was obtained by The Jerusalem Post, O'Sullivan outlined clear differences in Israel's interpretation of international standards and gives responses to its arguments. "As Israel has committed itself to enacting IP legislation in accordance with the highest standards, I invite the relevant authorities to reconsider their position with regard to patent and data protection along the lines described in the annex," O'Sullivan wrote. Focusing on the pharmaceutical industry, the paper responds to Israel's position regarding patent term extension, pre-grant opposition, the publication of patent applications, data exclusivity and discrimination against European research-based companies. In response, the Justice Ministry told the Post that Israel upheld all its obligations in the EU-Israel Association Agreement and that the legislation in Israel provides for the suitable and effective protection of pharmaceutical products. "We welcome the opportunity to open a dialogue with the EU regarding their claims and the clarification of the amendments that have been made to the patents law," the ministry said. The Ministry of Industry, Trade and Labor said it was examining the EU's paper in depth and also gave great importance to continuing the dialogue with the EU over the subject. The EU complaint follows a decision by the US Commerce Department to include Israel in its 2006 priority watchlist regarding intellectual property and amid heightened concern in the local business community about the issue. Last week, the Israeli Intellectual Forum presented a report on the state of the local market and called on the government to align its policy for the protection of IP rights with that of the modern western world. "We have a simple defined goal that the level of protection of intellectual property in Israel should be the same as that of the US and Europe and other key trading partners," said Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, at the first annual gathering of the Forum in Tel Aviv last week. "The report and the experiences related by the business sector reveals that we are lagging behind the western world when it comes to intellectual property protection." While the report focused on four sectors within the business community - software, pharmaceuticals, music recording and movies - Lynn appealed to other affected sectors to join the battle. As a follow-up to the report, the FICC said Monday it has joined forces with the World Intellectual Property Organization to work towards bringing Israel in line with world standards. The report urged the government to set up a ministerial committee under the Justice Ministry to work with various government offices to advance the law in favor of IP owners as well as govern the enforcement and education about the protection of IP in Israel. "There is a definite need to develop a clear policy on intellectual property," Justice Minister Meir Sheetrit said at the Forum event. "The government sees great importance in the matter and is working intensively to enforce the protection of IP." Sheetrit identified the government's role in IP as policy decisions that should be in line with legislation; providing the tools to ensure enforcement of ownership rights; and the need for organized products and the protection of developers rights. Meanwhile, the Forum reported that IP fraud is costing the Israeli economy "hundreds of millions of dollars a year" in direct damages. It quoted a separate report by the International Intellectual Property Alliance which said that in 2005 the music industry in Israel lost $28 million, software businesses $33m., the movie industry $30m. and that publishers lost out on approximately $1m. in book sales. Other international bodies have given less conservative estimates of the losses. The Business Software Alliance, an international software organization, estimated that the Israeli software industry was losing out on $84m. a year from the use of pirated software and the Recording Industry Federation of Israel said damage caused by illegal recordings amounted to NIS 40m. last year. The Association for the Protection of Cinematography Products said local distributors are losing NIS 170m. a year because of forged goods. Hardest hit, however, has been the pharmaceutical industry, which has a strong emphasis on research and development and has suffered damages of $332m. a year because of the low local protection standards. All these amounts, the Forum noted, resulted from the violation of product rights but did not include breaches of patent and trademark rights "which alone add up to hundreds of millions of dollars," it said. Esther Luzzatto, managing partner at patent attorneys Luzzatto-Luzzatto which prepared the report, said the state of the market was testimony to the changing face of the Israeli economy. "The situation is not terrible but definitely has to improve," she said. "Because we have such a technologically driven economy, Israel has among the most to lose [from IP fraud]." That vulnerability, the report showed, comes from the high level of technological development in Israel and the high number of patents registered there. It noted the high percentage of engineers per population - 135 per 10,000 people - and that 24% of the work force is employed in academics. In addition, The Patent Authority reported a "significant" rise in the number of patent registrations by Israelis both in Israel and abroad. In 1997, there were 540 patent requests in Israel and last year there were 5,290. Similarly, the number of patent requests by Israelis abroad grew from 197 in 1996 to 1,400 in 2005. "Israel's total 6,841 patent requests in 2005 placed it in third position in terms of patent requests per population," the report said. While the high level of hi-tech activity has not only attracted strong foreign investment in Israel - in 2005, 378 Israeli start-up companies raised $1.34 billion in funding - but also influenced the likes of Intel, Motorola, Microsoft, Google and Hewlett-Packard to establish research and development centers in the country, Luzzatto warned that the insufficient protection of intellectual property may discourage continuation of the trend. "The result may be that international companies won't set up their R&D centers here and that venture capital funds will stop investing here," she said. Emphasizing the point, the report said a number of proposals have recently been placed before the Knesset, which would likely prove harmful to industry and in turn the protection of IP, thus moving against global trends where Western countries have passed various reforms aimed at strengthening IP ownership rights. "There is no clear policy aimed at strengthening IP ownership in Israel and no central body working towards this," the report concluded. "Therefore the Forum is of the opinion that the State should work with urgency towards developing a policy on the matter advocating IP and blocking the attempt by others to advance laws which weaken the protection of the property."