Originally published with Funder in January 2026.

Why the Israeli tendency toward informal trust can lead to the loss of intellectual property in U.S. courts

Israeli companies are exceptionally innovative. Unfortunately, they often demonstrate far less discipline when it comes to protecting that innovation once they begin operating in the United States. What works culturally and commercially in Israel, such as speed, trust, and informal understandings, often fails spectacularly when exposed to the American legal system.

U.S. law protects a wide range of information as trade secrets, including algorithms, source code, manufacturing processes, customer lists, pricing models, internal data, and R&D roadmaps. However, protection is not automatic. A company must prove it took reasonable steps to keep the information secret. If it cannot, the inquiry ends there. Courts will not retroactively impose a discipline that did not exist at the time of the alleged theft.

In the United States, intellectual property that is not actively protected can be deemed as never having been worth protecting in the first place. Courts do not intervene to save companies from their own informality. This gap alone has cost Israeli firms millions of dollars.

For example, in Gal-Or v. United States, an Israeli scientist claimed the U.S. government misappropriated his aerospace trade secrets. The court dismissed his claim, ruling that Gal-Or had lost any protectable interest in the trade secret long before the case began because he repeatedly disclosed the information to third parties without adequate confidentiality protections. This included meetings and correspondence not subject to enforceable non-disclosure obligations. The court emphasized that under U.S. law, trade secret protection depends on the owner taking reasonable steps to maintain secrecy. Once information is shared freely or informally, it ceases to be a trade secret.

At the federal level, the Defend Trade Secrets Act (DTSA) provides powerful tools, including access to federal courts, injunctions, damages, and in extreme cases, the seizure of stolen materials. But these remedies are only available to companies that can prove they treated their information as truly secret. Judges scrutinize access controls, written agreements, internal policies, onboarding and offboarding procedures, and the consistency with which these measures were enforced. Negligent practice is not forgiven, it is punished.

Many Israeli companies assume a Non-Disclosure Agreement (NDA) solves the problem. It does not. Courts regularly strike down NDAs that are overly broad, outdated, or poorly drafted. They look skeptically at agreements signed years prior that were never updated as roles evolved. An NDA is evidence of intent, and it is not a substitute for actual controls.

In some cases, Non-compete agreements were used to bolster trade secret protection. This landscape is shifting, especially given the patchwork of inconsistent state laws governing these contracts. Non-competes are no longer a reliable safety net. Courts increasingly expect companies to protect confidential information through internal discipline rather than post-employment restrictions.

Israeli founders often share sensitive information too early, delay formal agreements, and assume that everyone understands what is confidential. In U.S. litigation, these shortcuts are exploited by opposing counsel to prove the information was never considered a secret at all.

The lesson is simple: If your competitive advantage matters, protect it early, intentionally, and consistently. In the United States, trade secrets are only protected if the company acts as if they are worth protecting.

Michael Ehrenstein, Esq., is a founding partner at the U.S. law firm Ehrenstein|Sager, specializing in commercial law, complex litigation, and high-stakes international arbitration.

Legal Disclaimer: This article does not constitute legal or tax advice. Its purpose is to raise awareness of U.S. compliance issues. Israeli businesses should consult qualified U.S. legal and tax professionals for advice tailored to their specific operations.