Israel Desks - December Edition 2024

There is no doubt these are among the most challenging times in the history of the State of Israel. Few lives or businesses remain untouched by the Swords of Iron War, yet all are united in a fervent hope for peace and brighter days ahead. Against this backdrop, this edition of IsraelDesks magazine turns its lens towards a vital and enduring relationship in Israel’s economic tapestry: its dynamic ties with Japan. Long predating Israel’s statehood, this partnership represents a unique blend of shared innovation and cultural respect, offering immense potential for future growth. With insights from leading legal minds in Tel Aviv, Tokyo, and London—including Herzog, Pearl Cohen, Mori Hamada & Matsumoto, Bird & Bird, TMI Associates, and One Line Group—we illuminate the opportunities to propel collaboration and investment between these two powerhouse economies. This issue also brims with incisive contributions from IsraelDesks members on pressing global topics, each thrusting critical themes to the fore. From EBN’s deep dive into the resilience of Israeli high-tech to Carter Ledyard Milburn’s examination of AI regulations across continents, and A&O Shearman’s Q4 2024 global M&A analysis, this edition is a trove of strategic insights. Other standout features include The Luzzatto Group’s exploration of agricultural patents in the AI era, Gornitzky’s look at proposed tax reliefs for foreign investors, Yossi Ben-Dror’s coverage of Israel’s landmark international arbitration law, and Herrick’s update on New York’s ambitious housing amendment. As always, follow us, share your thoughts, and if you wish to contribute to IsraelDesks magazine, reach out. We’d love to hear from you. Lee Saunders Editor IsraelDesks Recent Market Trends » Israeli High-Tech: Resilience, Innovation, and Opportunities ................14 » Israel’s International Commercial Arbitration Law 2024: A New Era for Global Dispute Resolution ...........................................................20 » Agricultural Patents in the Age of Artificial Intelligence ......................26 » City of Yes for Housing Opportunity” Text Amendment is Approved by the City Council ...............................................................................30 » The AI Regulatory Puzzle — from the EU to the U.S. .........................34 » Global M&A Insights - Q4 2024 .......................................................44 » Proposed Tax Relief for Foreign Investors & Investment Funds in Israeli Companies ...........................................................................48 » US Privacy: So Many Laws; So Little Time ........................................54 Jurisdiction in the Spotlight » Bridging Innovation: Israel and Japan..................................................04 Table of Contents 04 14 4 Jurisdiction in the Spotlight Bridging Innovation: Israel and Japan 5 Bridging Innovation: The Synergy Between Israel and Japan This past May, Japanese ambassador to Israel, ARAI Yusuke reflected on IsraelJapan ties during an extraordinarily difficult war: “Despite these hardships, bilateral relations between Japan and Israel are at a strong point in terms of our political ties, economic cooperation, and cultural relations.” “Israel and Japan, united by their reverence for heritage and family, have built a partnership where tradition fuels innovation and progress,” points out Isaku Uchiyama, Head of the Tokyo office at Nishlis Global Legal Marketing. Rooted in mutual respect, both nations share a commitment to cutting-edge innovation, a strong work ethic, and a deep respect for their historical and cultural identities. In this edition of IsraelDesks magazine, we take a deep dive into the tapped - and untapped - potential between Israel and Japan as both nations strive to forge deeper connections in a changing world. Friendship and Mutual Respect Diplomatic relations between Japan and Israel were established in 1952, built on a bedrock of goodwill. As Ambassador Yusuke stated: “Our friendship with the Jewish people goes back to even before the establishment of the State of Israel.” Indeed, one striking example is Mr. Sugihara Chiune, Japan’s vice consul in Lithuania during World War II, who issued thousands of visas to save Jewish lives during the Holocaust. Declared “Righteous Among the Nations” by the Yad Vashem Museum in Jerusalem, he is the only Japanese national with such an honor and Sugihara’s heroism embodies the spirit that drives the relationship today. Over the decades, this relationship has evolved into a multifaceted partnership, with initiatives to expand cooperation in trade, defense, and innovation, creating a momentum that has seen Japan emerge as one of Israel’s most significant Asian partners. Both countries have also recognized the untapped potential to further reduce trade barriers, especially through the prospective Free Trade Agreement, which would be expected to unlock new opportunities. 6 “The relationship between Israel and Japan has grown substantially, marked by increased collaboration in innovation, technology, and healthcare,” adds Masato Tanaka, partner at TMI Associates and Tokyo-based Vice Chairman of Israel Japan Chamber of Commerce and Friendship Society (IJCC). “Entrepreneurs from both nations are leveraging complementary strengths, with Israeli startups driving rapid innovation and Japanese companies providing robust infrastructure and market access.” Hesitation Easing into Renewed Hope and Optimism Since the October 7th attack on Israel and the subsequent war, there has been an obvious economic impact. “Companies have shown deep concern due to the security situation in Israel, particularly after two Iranian attacks. The outcome is a decrease in the number of investments compared to previous years”, points out Gilad Majerowicz, Chairman of the IJCC, as well as partner and co-head of Herzog’s Asia practice. “The atmosphere is less proactive compared to 3-4 years ago. Back then, many Japanese investors were visiting and actively engaging with Israel,” agrees Akira Ehira, partner at the fullservice Japanese law firm, Mori Hamada & Matsumoto (MH&M). “Since 2022, the global startup ecosystem has also seen a significant slowdown, and this has also impacted investment flows from Japan to Israel.” It was a different story over a year ago. In May 2023, Woven Capital, Toyota’s growth fund, participated in the initial closing of Series C funding for Foretellix, an Israeli company that provides safety-driven verification and validation solutions for Automated Driving Systems and Advanced Driver Assistance Systems. In May 2023, Asahi Kasei decided to invest in Castor Technologies Ltd., an Israeli startup developing industrial 3D printing software. In June 2023, Iino Lines decided to invest in a fund managed by the Israeli maritime VC firm, theDOCK. Resilience in Israel’s DNA Nevertheless, even against the backdrop of war and challenging market conditions globally, resilience is in Israel’s economic and cultural DNA. In the 12 months since Oct. 7, Israeli tech firms raised some USD9 billion - third behind Silicon Valley and New York, according to the Israel Innovation 7 Authority. Despite the ongoing war and soaring interest rates globally, Israeli exits in 2024 have surged to USD13.4 billion up to December 8th, a 78% rise, as PwC explained in a recent analysis in financial magazine Calcalist. As Gilad says: “The commercial collaborations between Israeli and Japanese companies continue in relatively similar numbers as compared to pre-October 7th era.” “Japanese investors contributing to over 40 deals since late 2023, particularly in health-tech and AI,” adds Masato. “Investments by Japanese companies in Israel increased from the late 2010s, reaching a record high of approximately USD3 billion in 2021,” agrees Hiroyuki Iwamura at Bird & Bird, which opened a Tokyo office in September 2024. Hiroyuki adds: “Many investments have been in the field of IT and semiconductor technology, as well as cyber, automotive, pharma, and agri-tech. Notable transactions over the years include Mitsui’s investments into Autotalks, Kalture, Scadafence, Kaiima and Phytech, Mitsubishi Tanabe Pharma’s acquisition of Israeli pharmaceutical firm Neuroderm for USD1.17 billion and Sony’s acquisition of Altair for more than USD200 million. Softbank has also invested some USD200 million in Israeli companies including in OurCrowd.” “The most significant Japan-Israel transaction in recent months was the multi-hundred-million-dollar investment of Japan’s Softbank in the Israeli cybersecurity company Wiz,” adds Gilad. The collaboration with this Israeli company, which rejected a USD23 billion offer from Google, is expected to establish Wiz as a major player in cloud security in Asia. “Entrepreneurs are increasingly eager to partner up, blending Israel’s innovation strengths with Japan’s market stability,” says Yanay Geva, Co-Founder and Managing Partner of One Line Group, a consulting, BD, and investment banking firm specializing in penetrating the Japanese market. “In 2023 Japanese investments accounted for 13% of foreign investments by volume and 5% of all foreign investments in Israel,” he adds, pointing out that “there are over 100 Japanese MNCs operating in Israel engaging in investments, R&D centers, and local offices.” Gilad adds: “All major Japanese trading houses have offices in Israel, such as Mitsubishi, Itochu, Mitsui, Sumitomo, and Toyota Tsusho. Companies such as NEC, Fujitsu, NTT, Sompo and Mitsui Sumitomo Insurance also opened offices in Israel. The number of Israeli companies with offices in Japan is growing, particularly Israeli startups in the areas of cyber and automotive. The most active areas are cyber security, health-tech, fintech, automotive, food-tech and agriculture-tech.” 8 Masato adds: “A wide range of Japanese companies have invested in Israel. These include trading houses, insurance companies, and manufacturers. Many Japanese firms have established R&D centers in Israel or collaborated with Israeli startups to develop innovative solutions in healthcare, pharmaceuticals, and AI-driven medical devices. Numerous Israeli companies have also successfully entered the Japanese market, focusing on fields such as AI, cybersecurity, and healthcare. Prominent examples include Check Point, which addresses Japan’s growing cybersecurity needs, and Medtronic, which partners with Japanese entities to deliver innovative healthcare technologies. Furthermore, until 2023, Japanese investments in Israel had been robust. Partner Guy Lachmann, who co-heads the High-Tech practice and Japan desk at Pearl Cohen, speaks directly from experience. “In recent years I have been occupied by mostly three types of transactions and projects involving Japanese corporations and their Israeli peers.” “The first involves a direct investment by a Japanese VC, CVC or corporation, into an Israeli technology startup. In some of these deals, the Japanese counterpart assumed lead investor position, however in the majority of deals, such investors prefer to be followers and let a local Israeli or US VC fund lead the transaction. The second type of transaction we have seen are those involving a commercial collaboration between Japanese corporations and Israeli tech companies. These include distribution of products or services, licensing or technology, development of technology and other joint ventures. The third prominent type of projects we deal with involved the formation and support to innovation and R&D centers launched by Japanese corporations in Israel. Other than opening an office in Israel, these companies also very actively engage in scouting for new technology solutions, experimenting with such solutions (by way of conducting POCs and entering into design partnerships), and once a business use case is found, entering into a commercial relationship with their Israeli peers. Another fourth type of transactions we customarily see is the acquisition of companies, however this has been less prominent in recent years.” 9 Investments Driving Growth: Limitless Synergies Despite the challenges, the synergies between Israel and Japan remain strong. “Israel’s strengths in cybersecurity, food-tech, climate-tech, healthtech, industry 4.0, agri-tech, and AI align well with Japan’s needs in these sectors, especially in robotics, automotive, and healthcare, making them prime sectors for Israeli entrepreneurs to explore,” adds Arale Cohen, Co-Founder and Managing Partner of One Line Group. Akira at MH&M: “Japanese companies recognize Israel’s comparative strength in pure innovation and see such technology as a necessary driver for growth. They actively integrate innovative solutions of Israel startups into their existing platforms. The technology sector offers significant synergy, especially true in areas like fintech, climate/green tech, agritech, food tech, digital health, cybersecurity, and AI. Automotive or mobility are also critical areas for collaboration.” “Israel is widely regarded as a world leader in cybersecurity, with its startups and established firms developing cutting-edge technologies for intrusion detection, threat intelligence, and data protection,” agrees Masato. “For Japan, where cybersecurity has become a critical priority, particularly in sectors like finance, manufacturing, and public infrastructure, Israeli solutions offer an excellent fit. Japan’s digital transformation and the increasing adoption of IoT and AI technologies create vulnerabilities that Israeli companies can effectively address.” Japan’s aging population – opportunities for Israeli health-tech “Japan’s aging population presents a significant opportunity for Israeli healthtech companies to introduce cutting-edge solutions, such as AI-driven diagnostics, telemedicine platforms, and robotic-assisted healthcare devices. Israeli startups specializing in AI diagnostics, digital health platforms, and wearable devices are well-positioned to address these challenges. Israel’s advancements in AI align with Japan’s leadership in robotics, enabling joint development in areas such as medical robots and automated elder care systems. Partnerships between Japanese pharmaceutical firms and Israeli biotech companies to develop novel treatments. Collaborations in health-tech, 10 such as SOMPO’s investment in digital health platforms and Tokio Marine’s efforts to integrate AI-based healthcare technologies into its services.” “Japanese investors and corporations have been seeking investment opportunities and technological solutions in a wide range of sectors, most of them are those in which Israel is well known for around the world,” adds Pearl Cohen’s Guy. “These sectors include (1) cyber security and defense – impacted by the growing need in Japan for solutions in these areas and the massive increase in Japanese defense budget, (2) fintech and insurancetech – including direct investments by Japanese banks and the formation of innovation centers locally in Tel Aviv by each one of the three large Japanese insurance companies, (3) mobility – Israel provides a wide spectrum of mostly sensor and software solutions in these fields, which could complement the Japanese auto industry, (4) healthcare – from pharma and medical devices all the way to digital health and wellness, (5) enterprise software, (6) agtech and food-tech – including investment in food supplements, materials and more, (7) climate-tech – one of the sectors growing the most in recent years, fueled by Japan’s obligation to become carbon emissions neutral and other ESG objectives.” Japan’s startup ecosystem expanding with government support Gilad: “The startup ecosystem in Japan is growing and expanding mostly due to support of the central government, as well as local governments who initiate open innovation events, support local tech hubs, and provide funding options for startups in various areas. Most notably are the efforts of the Tokyo Metropolitan Government to create a vibrant international startup ecosystem in Tokyo by establishing several tech hubs throughout the city, each designed to focus on a different technological area.” “Japan’s start-up ecosystem, with various tech hubs like Tokyo and Fukuoka, is growing rapidly with government support and corporate interest, while Israel’s ecosystem is mature, particularly in deep tech; both can benefit from each other’s expertise and market access,” asserts One Line Group’s Arale. Shingo Ito, London-based Legal Director at Bird & Bird and part of the firm’s Japan practice, adds: “While investment in startups is growing in Japan, it still lags behind other major countries. Several factors contribute to this, including Japan’s unique practice of hiring graduates all at once and the limited number 11 of successful startup examples. Recognizing the importance of startups for economic growth, the government declared 2022 as the ‘First Year of Startup Creation.’ To foster a thriving startup ecosystem and spark a new wave of entrepreneurship, they launched a ‘Five-Year Startup Development Plan.’ This plan focuses on three main areas: building talent and networks; enhancing funding and diversifying exit strategies; and promoting open innovation. The government has designated Tokyo, Central Japan (consisting of Nagoya and neighboring areas), Osaka/Kyoto/Hyogo, and Fukuoka as Global Hub Cities. In Tokyo alone, the number of new university spin-offs has grown significantly from 533 in 2020 to 1,643 in 2023.” Complementary market dynamics “Israeli companies have a strong presence in the North American and European markets while Japanese companies have a strong business foundation in Asia, including Japan, which creates a complementary market dynamic,” adds Shingo. “The Japanese market is one of the largest in the world, and its unique practices and systems make Japanese companies valuable partners for Israeli companies looking to expand beyond Western markets.” As Masato says: “Israel’s open and collaborative startup culture offers Japanese companies a refreshing alternative to the more closed and competitive environment of Silicon Valley. Japanese investors often highlight Israel’s accessibility, with meetings and introductions to startups and VCs being significantly easier to arrange. This cultural openness makes Israel an ideal destination for Japanese businesses seeking agile partners in the med-tech and health-tech sectors.” Patience and planning are vital While the opportunities are immense, understanding the respective cultural and regulatory landscapes is paramount. Chairman of the IJCC for the past decade, Gilad is well placed to comment on the cultural nuances. “Japan’s business culture is very different from the Western style of doing business which we are more familiar with in Israel through our work with partners in Europe, USA, and Australia. Also, the market entry barriers to Japan are relatively higher than in other places. Processes take much longer time 12 than in other places due to a rigid decision-making process which is based on an internal consensus mechanism (known as ringi) and the need to perfect any product or service to a flawless level .It is also a perquisite to start the business relationship by first building trust relationships with the potential partners in Japan. This means that the decision to enter the market in Japan should be strategic in its essence and requires a thorough market research and allocation of appropriate resources. Despite of the obstacles, Japanese partners are loyal, view the relationship as a long-standing partnership, and invest resources from their side to make sure the partnership is successful.” As Hiroyuki at Bird & Bird adds: “Japanese people prefer subtle rather than direct negotiation. In large Japanese corporations, decision-making often requires multiple approvals, which can slow the process so Israeli companies should be aware that deal making can take longer than they’re used to for this reason. It’s common to prepare detailed answers to anticipated questions in advance for the approval process. As a result, proposals tend to be very detailed to proactively address potential queries.” “Israelis should note Japan’s emphasis on formal relationship-building, patience in business dealings, and strict regulatory standards, especially around data and quality assurance,” Yanay adds. Speed is something to factor into transactions and collaborations. As Hiroyuki points out: “Government filings are particularly slow to move online, and the use of fax machines and personal seals (inkan) is still common. Due to foreign exchange regulations, various types of transaction with a Japanese company such as acquiring shares in a Japanese company, lending money to a Japanese company, or making payments to a Japanese company may require government approval or reporting to the government or the Bank of Japan.” Looking Ahead: Key Events to Build Relationships As both nations look to the future, multiple events offer the chance to deepen relationships. Gilad: “Japan will be hosting the international EXPO exhibition in Osaka during 2025. The Expo is a six-months long exhibition that attracts millions of visitors from around the world. The last EXPO was held in Dubai in 2020 with participation of 200 countries and more than 24 million visitors. Israel will have a national booth within the EXPO and several business and cultural activities are planned. In addition, there are a few tech 13 related delegations headed by the Ministry of Economy and Export Institution that are scheduled during 2025 in areas such as automotive, healthcare, cyber, fintech, HLS and defense, and foodtech and agriculture.” Events such as the SusHi Tech Conference, Asia’s largest startup conference, in Tokyo in May 2025, IVS (Japan’s largest crypto conference) in Kyoto in July 2025, BioJapan Conference in Yokohama in October 2025, and CyberTech Global in March 2025 in Tel Aviv, are among those that offer an excellent platform for collaboration. With shared values, complementary strengths, and a commitment to innovation, the Israel-Japan partnership stands as a proud record of what has been achieved together, and a beacon that can light the way in a changing rapidly changing world. 14 Israeli High-Tech: Resilience, Innovation and Opportunities Recent Market Trends 15 Roy Caner Head of Hi-Tech and co-head of Corporate and M&A Viva Gayer Senior Partner Corporate and M&A Shay Dayan Partner Corporate, M&A and Hi-Tech Co-head of Telecoms and Media Israel’s high-tech sector continues to thrive in 2024, demonstrating remarkable resilience and adaptability despite ongoing geopolitical instability, war in several fronts and global economic challenges. Over the past year, Israeli startups raised approximately $9 billion, maintaining a steady level of investment similar to previous years, excluding the record-breaking periods of 2020- 2022. This data from the Israeli Innovation Authority underscores Israel’s continued leadership as a global hub for venture capital. Roy Caner, Partner at EBN – Erdinast, Ben Nathan, Toledano, highlights the ongoing opportunities in the market, particularly noting that global investors like Sequoia, Greylock Benchmark and other are reinforcing their commitment to Israel by placing a person on the ground or recruiting Israeli professionals in the Valley. “Placing people on the ground here sends a clear message that Israel remains a hub for groundbreaking innovation and that the best US VCs Israeli High-Tech: Resilience, Innovation and Opportunities 16 want people positioning to enable them to compete on the best ventures and teams,” Roy Caner notes. Active Investment in Seed and Cybersecurity Seed-stage investment remains an active area, with both local and international funds continuing to show interest in Israeli entrepreneurs. This trend is particularly evident in sectors like cybersecurity, which have retained investor attention despite the current challenges. A notable example is Sequoia Capital, the American venture capital firm, which has reaffirmed its commitment to Israel during a period of geopolitical uncertainty. Known for early investments in companies like Apple, Airbnb, and Stripe, Sequoia has appointed Dean Mayer as its representative in Israel. “Cybersecurity has become a critical component of global security, and Israeli startups are leading the charge,” Roy Caner continues. “Investors recognize that strong founding teams, not just ideas, are what make or break a startup in this space. They will invest in teams before a clear product is fully conceptualized.” Despite these continued investments, external funding remains challenging for many startups in certain sectors. While seed-stage investment is active, geopolitical and economic uncertainties have added complexity to the fundraising landscape. In this context, the persistence of intense interest in cybersecurity startups highlights the sector’s resilience even amid external pressures. M&A Activity: Domestic and International Dynamics Notwithstanding existing challenges, mergers and acquisitions (M&A) have prospered, particularly in cybersecurity. Global giants and domestic firms are acquiring innovative Israeli startups, solidifying Israel’s status as a critical player in the sector. According to a recent report by Vintage Ventures, the value of M&A deals in the past year reached a new record high of approximately $10.5 billion, marking a 22% increase from the previous record of $8.6 billion set in 2021. This surge highlights the ongoing strength of Israeli tech companies, with international acquirers continuing to recognize the value of acquiring innovative startups and more mature technology companies across various 17 industries, including cybersecurity, AI, and defense technologies. “Our firm has been involved in significant transactions this year,” shares Roy Caner. “These include, among others, Beyond Trust’s acquisition of Entitle and Permira’s control acquisition of Biocatch.” This activity underlines Israel’s continued appeal to global and local acquirers despite the uncertainties. Navigating Challenges: Operational and Financial Strategies The geopolitical landscape has added operational pressure on companies, especially those with employees on reserve duty. However, Israeli firms’ adaptability has enabled them to maintain minimal disruptions. “Small teams working under tight deadlines are undoubtedly affected,” says Roy Caner. “Yet, Israeli companies have proven their resilience time and time again. This adaptability ensures long-term growth, even when short-term challenges arise.” Financially, many startups find it more challenging to raise funds externally, but existing shareholders are stepping up to support their companies. “In some cases, we are seeing pay-to-play structures designed to incentivize ongoing investments, while, in certain cases, management carveouts are being utilized to ensure employee engagement, even amid down-round valuations,” says Viva Gayer, Partner, Co-Manager of the Corporate and M&A Department at EBN. Defense Tech and Climate Innovation on the Rise The conflict has also catalyzed the growth of defense technology. Shay Dayan, Partner in the Corporate and M&A Department of EBN, says. “The geopolitical tension served as a testing ground for new technologies, accelerating the development of solutions like drones and tunnel-detection systems. Many startups have validated their innovations under real-world conditions, significantly enhancing their credibility with global defense markets.” In parallel, the climate tech sector is gaining momentum. With the global push 18 toward sustainability, investors increasingly focus on companies that offer scalable, impactful solutions. “Climate tech is emerging as one of the next big sectors,” says Shay Dayan. “This is a space where technology can have not only financial returns but also a lasting positive impact on the world.” Diversified Investments: From Seed to Scale As the Israeli high-tech sector continues to evolve, there has been a notable shift in the maturity stage of companies attracting investment. While total investments in Israeli technology companies have remained consistent with previous periods, recent data highlights a change in the investment mix. Approximately 60% of the capital raised by Israeli tech companies from October 7, 2023, to October 6, 2024 — around $5.5 billion — was in rounds exceeding $50 million, targeting more mature, established companies. This trend reflects a preference for investing large amounts in later-stage companies with proven business models and scalability, a theme echoed by Viva Gayer, who points out that investors are increasingly attracted to stable, growth-ready ventures. This shift in focus underscores the market’s resilience and continued confidence in Israel’s high-tech sector, even amid challenging global conditions. Looking Ahead: Opportunities in 2025 and Beyond Despite current challenges, industry experts are optimistic about the future. The Israeli high-tech sector is poised for growth as Israel moves toward a post-crisis period. “2025 holds enormous potential,” Viva Gayer asserts. “We expect a surge in investments as stability returns. Funds that have raised capital recently are under pressure to deploy it, likely triggering a renewed growth cycle in the ecosystem.” Shay Dayan shares a similar outlook. “The global market for Israeli tech remains strong, and the entrepreneurial spirit here is unshaken. With Israel’s proven resilience, the coming year holds immense promise for those ready to seize the moment.” The advice for investors considering the Israeli market is clear: “Do not be deterred by the current situation,” advises Roy Caner. “Israel has weathered many storms before. The strength of its technology and the ingenuity of its people make it a consistently worthwhile investment.” 19 A Future of Resilience and Growth As the Israeli high-tech sector continues to navigate complex challenges, its ability to innovate and adapt remains unmatched. Israel consistently demonstrates why it holds a central place in the global tech landscape, whether through groundbreaking advancements in cybersecurity, AI, or defense technology or by fostering a supportive ecosystem for entrepreneurs and innovators. In 2024, Israel’s high-tech industry attracted $9 billion in investments across various sectors (based on the Israel Innovation Authority), reinforcing continued confidence in its potential. With a foundation of creativity, resourcefulness, and a strong sense of community, the Israeli high-tech ecosystem is poised to shape the future of technology and inspire global collaboration. 20 Recent Market Trends Israel’s International Commercial Arbitration Law 2024: A New Era for Global Dispute Resolution 21 Introduction In today’s developed global markets, international arbitration plays a crucial role in resolving complex commercial disputes efficiently and in a relatively short period. This publication highlights Israel’s recent enactment of the International Commercial Arbitration Law 2024, a transformative process aligning Israel’s arbitration framework with global standards, including principles under the UNCITRAL Model Law and the New York Convention. In Israel, the Arbitration Law of 1968 primarily established the framework for arbitration, whether local or international. However, the 1968 Law has become outdated and does not suit the specific characteristics of current international arbitration proceedings. The International Commercial Arbitration Law 2024 (the “New Law”) enhances legal clarity, promotes efficiency, and will result in the reduction of costs of cross-border disputes, positioning Israel as a credible and attractive jurisdiction for international arbitration. By fostering a business-friendly environment, the New Law aims to support international commerce, offering a streamlined, confidential, and reliable mechanism for dispute resolutions. Significant Provisions of the New Law International arbitration under the New Law is defined (i) the parties’ operations are located in different jurisdictions, or (ii) the arbitration venue, the significant Israel’s International Commercial Arbitration Law 2024: A New Era for Global Dispute Resolution Yossi Ben-Dror Founding Partner, Y.Ben-Dror Law Firm 22 contractual obligations, or the physical sites related to the dispute are outside the parties’ jurisdiction, or (iii) the parties agreed in writing that the arbitration involves more than one jurisdiction. The New Law limits Court intervention in arbitration proceedings to specific powers such as summoning witnesses upon the arbitral tribunal’s request or refusing to stay legal proceedings if the arbitration agreement is invalid, unenforceable or not applicable. Additionally, powers previously granted to Courts under the 1968 Law, such as annulling arbitrators’ decisions or witnesses summoning, resolving fee disputes and correcting deficiencies in arbitral awards, are no longer included within the New Law. The New Law regulates the powers granted to arbitrators regarding interim measures and their enforcement. It allows the parties to request Israeli Courts to recognize and enforce interim measures, even if such measures were granted in arbitration proceedings conducted outside of Israel. According to the New Law, it is required to submit a request to the Court to have an arbitral award recognized and declared enforceable, whether it was issued in Israel or abroad. If a party seeks to appeal an arbitral award issued outside of Israel, such party will be required to file its objection in response to the enforcement submission. The New Law contains several different grounds upon which the Court may refuse to recognize or enforce an arbitral award. These include matters such as defects in the parties’ capacity, failure to provide notice of the proceedings, arbitrators acting beyond their authority, as well as grounds related to public policy or the inability to resolve the dispute through arbitration under Israeli law. An application for permission to appeal is only available for four types of cases, those concerning the appointment of an arbitrator, the disqualification of an arbitrator, the arbitrator’s incapacity or failure to act, or the arbitration panel’s power to determine its own scope of authority. The Ability of the New Law to Balance between Continuity and Innovation The New Law applies to arbitration proceedings initiated on or after its enactment, regardless of when the arbitration agreement between the parties was signed. The New Law states that the provisions of the 1968 Law, do not apply to international commercial arbitration. By extending the scope of the New Law to all arbitration agreements entered into post-enactment, the 23 Legislation seeks to remove potential disparities and inconsistencies that may arise from the application of different legal systems regarding similar disputes. This ensures that parties involved in international transactions can operate with confidence, knowing that disputes will be resolved under a modern and internationally recognized legal framework. The New Law generally allows ongoing arbitration proceedings initiated before its enactment to continue under the previous legal framework. This ensures continuity and stability for ongoing disputes, allowing parties to proceed with arbitration without disruption. Consequently, the New Law strives to balance between preserving the continuity of ongoing arbitration proceedings and promoting a forward-looking regulatory environment that aligns with the evolving dynamics of international standards. The New Law not only ensures certainty and predictability for the parties engaged in arbitration but also provides a sense of trust in Israel’s legal system as a reliable forum for dispute resolution. Online Arbitration in Israel The increasing global reliance on technology enhances the potential of online arbitration as a tool to advance Israel as a leading international arbitration hub. By incorporating online dispute resolution (ODR) platforms into its arbitration framework, Israel can offer innovative solutions suitable to the evolving needs of the business world. These platforms offer enhanced flexibility, lower costs, and reduced delays, making arbitration more accessible and efficient for both domestic and international parties. Furthermore, the adoption of ODR has the potential to significantly increase the application of the New Law. By offering a more accessible and userfriendly framework, ODR can encourage businesses that might otherwise avoid arbitration due to logistical or cost concerns to engage in this efficient dispute resolution mechanism. Embracing digital innovation enhances Israel’s attractiveness as a leading forum for resolving cross-border disputes, aligning with global trends and the expectations of the international business community. Comparative Analysis of International Arbitration Laws 24 United States As mentioned, the New Law is largely based on the UNCITRAL Model Law of International Commercial Arbitration. Major similarities can be seen, such as the adoption of the UNCITRAL Model Law’s definition of “international arbitration”. However, despite aligning with international standards, the New Law introduces innovative and unique approaches suitable to the Israeli context and its specific business needs. The Israeli Law differs from the UNCITRAL Model Law in several aspects, yet it upholds the core principles of the Model, ensuring consistency with its underlying framework. Unlike the Model Law, which prohibits appeals of certain court decisions such as the appointment or disqualification of arbitrators and the tribunal’s jurisdiction, the New Law permits parties to request court approval for appeals in these cases. Additionally, the Israeli Law limits arbitrators to issuing interim orders rather than preliminary ex-parte orders, unless the parties explicitly agree otherwise. These adaptations aim to provide a balance between procedural flexibility, party autonomy and the integrity of arbitration proceedings. The New Law also includes provisions that enable the recognition and enforcement of foreign arbitral awards, in accordance with the 1958 New York Convention. For example, Section 44(a) of the New Law reflects Article III of the Convention, treating foreign arbitral awards as binding and enforceable under local law. Similarly, Section 43 matches Article V of the Convention, outlining grounds for refusing recognition or enforcement of arbitral awards, whether foreign or domestic. However, the Israeli Law goes further by including procedural adaptations, such as clear deadlines for submitting requests and granting Courts the authority to suspend annulment proceedings. Article 3 states that matters addressed by the New Law, which are also governed by an international treaty to which Israel is a party, such as the New York Convention, will be regulated and resolved in accordance with the provisions of the particular treaty. Europe Europe has a lengthy tradition of arbitration, influenced heavily by the principles laid out in the UNCITRAL Model Law on International Commercial Arbitration and 1958 New York Convention, which many European countries have adopted or used as a reference for their own laws. Key features in the European Laws relate, among others, to the ability of arbitrators to decide on their own powers, the limited scope of Court intervention and the recognition 25 and enforcement of arbitral awards. Such principals are adopted across European jurisdictions, providing a uniform framework for international commercial arbitration. The New Law closely aligns with European arbitration models yet introduces certain tailored provisions to address specific local needs, particularly in areas such as the appointment of arbitrators, interim measures and the enforcement of arbitral awards. Conclusion The New Law marks a significant step in aligning Israel’s arbitration framework with international standards. Replacing the outdated Arbitration Law of 1968, the New Law incorporates principles from the UNCITRAL Model Law and the New York Convention, empowering Israel with modern tools for resolving cross-border commercial disputes. The New Law bolsters confidence in Israel’s ability to sustain stable business operations, offering a reliable and advanced legal framework that enhances its appeal to international investors. Compared to arbitration laws in jurisdictions like the United States and Europe, the New Law blends global principles with unique adaptations. Complementary initiatives, such as adopting online arbitration platforms, further aim to position Israel as a global hub for commercial dispute resolution. As outlined in the explanatory notes to the New Law, any ambiguities in its provisions will be interpreted in alignment with international legal standards rather than Israeli law. This approach aims to ensure uniform application of the New Law and strengthen its global relevance. The New Law is expected to enhance the integration of Israeli businesses into the international market while significantly reducing costs associated with resolving cross-border disputes. The New Law is expected to strengthen economic stability, trust among international businesses, and establishes Israel as a leading player in the global arbitration landscape. It supports the growth and global competitiveness of Israeli businesses while reaffirming Israel’s commitment to fairness, efficiency, and integrity in dispute resolution. 26 Agricultural Patents in the Age of Artificial Intelligence Recent Market Trends 27 Artificial Intelligence (AI) is revolutionizing the way things are done in many fields, including agriculture. However, the effect of AI on how to draft an agricultural patent is much less dramatic. A patent can be granted in four categories: device; system (a collection of devices working in concert); method; and composition of matter. Compositions per se are unchanged by AI so we don’t need to consider them here. With regard to the other three categories, the claimed invention needs to be (I) novel and (II) inventive, (III) be directed to statutory subject matter, and (IV) be fully enabled by the patent application as filed. (I) Novel and (II) inventive are easy to understand. Novelty means there needs to be one feature of the claimed invention that is new when compared to any single prior publication. Inventive means that the claimed invention, taken as a whole, must be non-obvious with respect to all prior publications considered as a group. Typically these are the things that make an inventor decide to file a patent application, but novelty and inventiveness alone are not sufficient to get a patent granted. It is important to remember that by the time something has a name that has been used in publications, it is no longer new. This means that buzz words Agricultural Patents in the Age of Artificial Intelligence Dr. Sinai Yarus Partner, The Luzzatto Group 28 like AI, machine learning, neural network , and Internet of things (IOT) are not sufficient (by themselves) to impart novelty to a patent claim. (III) Statutory subject matter and (IV) enablement are more difficult to understand but no less worthy of an inventor’s attention when preparing a patent application. Statutory subject matter is most easily explained as how well the claimed invention fits into one of the three categories we are considering (device, system, and method). Looking at statutory subject matter in the context of AI inventions, the question we need to ask ourselves is “What’s special about the hardware?” Let’s consider a first invention where a system analyzes data from sensors in a field using an AI algorithm. The inventor has studied the relevant prior publications in depth and is convinced that the AI algorithm is novel and inventive. Is that enough to get a patent granted on the claimed system? The answer is maybe. It depends on what the system does with the data generated by the AI algorithm. If the system only presents the compiled data generated by the AI algorithm to the user in a way that is easy to comprehend (e.g. a heat map), the claimed invention is probably not patentable. The reason is that the AI algorithm itself is excluded from patentability as a matter of law, and generation of a heat map (in 2024) is relatively simple data manipulation which the Examiner will dismiss as “insignificant post solution activity”. On the other hand, if the system uses the compiled data generated by the AI algorithm to do something, the claimed invention may very well be patentable. The reason is that the AI algorithm is now functioning to exert a real-world effect. This integrates the AI algorithm into the system in a way that contributes to the utility of the system, independent of human intervention. This distances the claimed system from a “general-purpose computer”, although the AI algorithm may be running on a general-purpose computer. Of course, the best case for the inventor is if the system includes a new hardware component (e.g. a new sensor type or a new type of switch) in addition to the inventive AI algorithm. These considerations are worthy of an inventor’s time because patent examiners (especially in the US) are anxious to reject an application as being directed towards non-statutory subject matter. If you wait until you see the 29 rejection in an office action, it is too late to prepare a defense. Turning now to the enablement requirement, it means that the claimed invention must be described in the application with sufficient detail that a person of ordinary skill in the art will be able to make and use the invention without undue experimentation. Going back to the example discussed above, the claimed invention is for a system that analyzes data from sensors in a field using an AI algorithm and then opens one or more switches to deliver something to those portions of the field that need it. Let’s consider three major variables in agriculture: water, fertilizer, and insecticides. Let’s say the inventor actually built and tested a system that uses an AI algorithm that analyzes output from sensors in the soil that measure humidity and open water delivery devices in areas of the field that are too dry. The results of a pilot study using the claimed system to control irrigation water delivery are presented in the application and compared to results using a conventional irrigation system. Is the inventor entitled to patent protection on similar systems that control delivery of fertilizer and/or insecticides to specific areas of the field that need them? Again, the answer is maybe. If the application just mentions that the system can be adapted to deliver fertilizer and/or insecticides, that will probably not be sufficient. However, if the application explains relevant sensor types for different types of fertilizers and different types of insecticides, explains how each sensor type should be deployed, and explains how the AI algorithm should be modified to consider these additional parameters, then a claim covering all of these possibilities may be allowed by a fair Examiner. This is true even if there is no actual data for the other parameters. In summary, using your real intelligence, augmented by your better understanding of legal requirements as explained above, when preparing your AI-based agricultural patent application can increase the chances that your application will be granted as a patent. Synergistic cooperation between a technologically savvy inventor and a legally savvy patent attorney can greatly increase the chances of achieving a granted patent that incorporates AI into an agricultural context by explaining in the application how the use of AI contributes to an improvement in the technology. 30 “City of Yes for Housing Opportunity” Text Amendment is Approved by the City Council Recent Market Trends 31 Mitchell A. Korbey Partner at Herrick; Chair, Land Use & Zoning Group Robert Huberman Partner at Herrick Vinh Van Vo Planning and Development Specialist at Herrick’s Land Use & Zoning Group Herrick’s Land Use & Zoning Team updates on sweeping changes that will impact real estate development and investment opportunities for all working in NYC, including Israeli investors. Herrick’s Land Use & Zoning Team has learned that the New York City Council has voted to approve the City of Yes for Housing Opportunity (COYHO) zoning text amendment. This is the third “City of Yes” text amendment that has been approved in the last year – the others being City of Yes for Carbon Neutrality and City of Yes for Economic Opportunity. Taken together, these text amendments include the most comprehensive and sweeping zoning changes since the adoption of the Zoning Resolution in 1961. “City of Yes for Housing Opportunity” Text Amendment is Approved by the City Council 32 Today’s City Council approval includes modifications to the COYHO text that was approved by the City Planning Commission in September. A list of the City Council’s modifications can be seen here. See below for a summary of some – but not all – of the COYHO text amendment: Medium and High-Density Areas (R6-R12 districts) • Create new residence districts that allow for 12+ FAR: COYHO creates new R11 and R12 districts (and commercial equivalents), which allow for residential FARs to reach 15.0 and 18.0 respectively if affordable housing is provided in accordance with the “Mandatory Inclusionary Housing” program. Note that COYHO did not map any of these new districts – they will have to be mapped through separate rezoning actions. • Additional FAR and building height for affordable housing (UAP): Where residential uses are permitted and a certain amount of affordable housing is provided, the maximum permitted residential floor area on any site – City-wide – may be increased by up to 20% (depending on the underlying zoning district) and the maximum permitted building heights may be increased. • Residential Conversions: Pre-COYHO regulations limited the applicability of zoning’s liberal conversion rules to buildings: (i) built pre-1961 (or pre-1977 in lower Manhattan); and (ii) located in certain areas of Manhattan, Brooklyn and Queens. COYHO expands the applicability of these regulations to pre-1991 buildings located anywhere in the City where residential uses are permitted. • Floor Area Deductions: COYHO extends the “Quality Housing Floor Area Deductions” – for amenity space, corridors, refuse disposal, etc. – to all multi-family buildings. • Partial elimination of the maximum dwelling unit cap: COYHO will eliminate the maximum dwelling unit cap for new residential buildings located below 96th Street in Manhattan and in Downtown Brooklyn. In all other areas, a maximum dwelling unit cap will apply. 33 Modifications to Parking Requirements • Elimination of Parking Requirements: No residential parking spaces will be required in portions of: Manhattan, Long Island City, Western Queens, and Brooklyn. • Reduction of Parking Requirements: Residential parking requirements will be reduced, but not eliminated, in areas with access to transit but longer commute times. • Maintain Parking Requirements: Parking requirements will be largely maintained in areas outside of the above geographies. Low Density Areas (R1-R5 zoning districts) • Enable campus infill: COYHO modifies existing zoning rules (e.g. minimum distance between buildings, yard, and height requirements) to enable existing large campus sites to add new housing units. • Allow intended densities and housing types: Pre-COYHO zoning rules limited certain permitted housing typologies through onerous and often-times outdated bulk regulations. COYHO attempts to remove these obstacles by modernizing zoning regulations affecting, among things, floor area and open space. • Enable multi-family buildings at appropriate locations: COYHO will allow apartment buildings to be provided on sites that meet specific criteria in low-density residence districts by providing such qualifying sites with additional FAR, modified yard requirements, and other zoning relief. • Accessory Dwelling Units (ADU) Program: COYHO will allow ADUs for certain 1-2 family homes in low-density residence districts by providing such units with certain zoning relief. The above list of changes is not all-inclusive and only scratches the surface of the proposed changes. We’re excited for the opportunity to help clients understand how COYHO will affect (and likely improve) your ability to use and develop your property. 34 The AI Regulatory Puzzle — from the EU to the U.S. Recent Market Trends 35 While artificial intelligence (AI) has been around for many years, the technology has exploded in both its use and development across virtually all industries in recent years. Although AI has the potential to be used in innovative and positive ways, it also can be used to perpetrate fraud and crime, cause discrimination and bias, promote and disseminate disinformation, violate personal privacy, and threaten national security. Thus, the rapid growth of AI technology and its associated risks has created an urgent need for regulation. Similar to data privacy laws, the European Union (EU) has led the way in efforts to regulate AI. In the U.S., there is no uniform federal law regulating AI nor is any such framework on the horizon. Thus, in addition to data privacy laws that apply to AI, individual state and local governments have begun enacting laws and regulations specifically addressing AI systems. These various laws, which differ in applicability and scope, create the possibility of there being a patchwork of overlapping and conflicting regulations and laws. It is important that entities doing business in the U.S. be vigilant about the various AI laws that may be applicable and ensure compliance. This advisory is intended to provide a broad summary of the AI regulatory landscape. European Union AI Act The EU’s Artificial Intelligence Act (the EU AI Act) was the first comprehensive legal framework for the regulation of AI systems, and is already becoming a The AI Regulatory Puzzle — from the EU to the U.S. Guy Ben-Ami Partner, Carter Ledyard 36 model for other jurisdictions.1 It went into effect across all EU Member States on August 1, 2024, and the enforcement of the majority of its provisions will begin on August 2, 2026. It applies to any AI System which is defined as “a machine-based system designed to operate with varying levels of autonomy, that may exhibit adaptiveness after deployment and that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.” The EU AI Act applies to providers, developers, importers, and users/deployers who place or put into service AI systems in the EU market, irrespective of where they are established or located, but does not apply to AI systems used solely for scientific research, development, and testing. The EU AI Act features a risk-based approach to regulation which requires an initial assessment of the risks each AI system can generate. The EU AI Act completely bans certain AI practices that present an unacceptable risk to fundamental rights, such as those that manipulate human behavior or exploit individuals’ vulnerabilities (e.g., age or disabilities). High-Risk AI systems are the most highly regulated and include AI systems used in critical infrastructures, in medical devices and safety products, and in ways that affect access to educational and employment opportunities. The EU AI Act imposes a wide range of obligations on entities using high-risk AI systems, including implementation of a risk management program, data training and data governance, technical documentation, recordkeeping, transparency, human oversight, and cybersecurity. High-risk AI systems also must be registered in an EU database before such AI systems are released in the EU market, thus the assessment of whether an AI system is high-risk must be done in advance. Limited-risk AI systems, such as chatbots, must merely ensure that users are provided notice that they are interacting with an AI system. There are no restrictions on minimal-risk AI systems, such as spam filters or video games. Penalties for non-compliance include a maximum financial penalty of up to EUR 35 million or seven percent (7%) of worldwide annual turnover, whichever is greater. 1 Council Regulation (EU) 2024/1689 (amending Regulations (EC) No 300/2008, (EU) No 167/2013, (EU) No 168/2013, (EU) 2018/858, (EU) 2018/1139, and (EU) 2019/2144, and Directives 2014/90/ EU, (EU) 2016/797, and (EU) 2020/1828 (Artificial Intelligence Act)) (June 13, 2024), https:// eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32024R1689. 37 U.S. — Federal While there currently is no comprehensive federal law regulating the use of AI, various federal agencies have issued pronouncements, frameworks, and guidelines on the subject of AI. • In October 2022, the White House Office of Science and Technology Policy (OSTP) issued an AI Bill of Rights, which essentially is a set of guidelines for the responsible design and use of AI and the result of collaboration between the OSTP, academics, human rights groups, nonprofits, and large technology companies.2 • In October 2023, building off the AI Bill of Rights, the White House issued an Executive Order entitled “Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence” which directs federal agencies to develop standards and regulations that will allow for the responsible use and expansion of AI while mitigating its risks.3 • In May 2023, the Equal Employment Opportunity Commission issued guidance concerning employers’ use of AI tools, making clear that employers may be held responsible for using AI in a manner that has an adverse or disparate impact on people in a protected class.4 Several other agencies, including the Department of Commerce, National Institute of Standards and Technology, Department of Defense, Department of Homeland Security, Department of Energy, Department of Labor and others have issued guidelines or draft rules on AI. U.S. States — Comprehensive AI Laws As occurred with data privacy regulations, individual U.S. states have begun enacting AI legislation to fill the void caused by the lack of a federal framework. 2 Blueprint for an AI Bill of Rights, White House Off. of Sci. & Tech, Pol’y (last visited Nov. 7, 2024), https://www.whitehouse.gov/ostp/ai-bill-of-rights/ 3 Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence, 88 Fed. Reg. 75, 191, EO 14110 (Nov. 1, 2023), https://www.federalregister.gov/documents/2023/11/01/2023-24283/ safe-secure-and-trustworthy-development-and-use-of-artificial-intelligence 4 Title VII and AI: Assessing Adverse Impact, U.S. EEOC, Title VII, 29 C.F.R. Part 1607 (May 18, 2023), https://www.eeoc.gov/laws/guidance/select-issues-assessing-adverse-impactsoftware-algorithms-and-artificial 38 Utah Utah became the first U.S. state to enact a broad statute specifically governing AI. The Utah Artificial Intelligence Policy Act (AIPA), which became effective May 1, 2024, regulates the use of Generative AI (“Gen AI”) technologies by businesses or individuals to interact with Utah consumers.5 • Gen AI is AI used to interact with persons using text, audio, or visual communication. When a business or person uses Gen AI to interact with an individual, they are required to disclose that the individual is interacting with Gen AI if the individual asks. • If Gen AI is used in providing services of “regulated occupations” (those that require a license or state certification, such as accountants and physicians), a prominent mandatory disclosure must be clearly and conspicuously provided. • The Utah Division of Consumer Protection may impose a fine of up to $2,500 per violation; there is no private right of action. • The AIPA also creates a new AI regulatory body, the Office of Artificial Intelligence Policy, tasked with establishing an AI “Learning Laboratory Program” which will assist with analyzing risks and benefits and will allow participants to test and develop AI technology with limitations on liability. Colorado In May 2024, Colorado enacted its own comprehensive AI regulation, the Colorado AI Act, which will become effective on February 1, 2026.6 Colorado’s AI Act, like the EU AI Act, adopts a risk-based approach to AI regulation, and applies to developers and users of AI systems who are doing business in Colorado. • It imposes notice, documentation, disclosure, and impact assessment requirements on developers and deployers of any “high-risk” AI system, defined as an AI system that “makes, or is a substantial factor in making, a consequential decision” (i.e., any decision that “has a material legal or 5 https://le.utah.gov/~2024/bills/static/SB0149.html 6 Consumer Protections for Artificial Intelligence, S. 205, 74th Gen. Assembly 2nd Regular Session (2024), https://leg.colorado.gov/bills/sb24-205 39 similarly significant effect on the provision or denial to any consumer, or the cost or terms, of” education or employment opportunities, financial or lending services, essential government services, healthcare services, housing, insurance, or legal services). • It requires that developers and entities that deploy “high-risk” AI systems use reasonable care to prevent algorithmic discrimination. There is a rebuttable presumption that reasonable care was used if they meet certain requirements, such as having a risk management policy and program, and providing notice to consumers of the use of AI in making a consequential decision and notice of consumer rights (such as the right to correct inaccurate personal data and the right to appeal a decision). • Colorado’s Attorney General has exclusive authority to enforce the Colorado AI Act and issue penalties of up to $20,000 per violation. There is no private right of action. California On September 19, 2024, California enacted the California AI Transparency Act, which goes into effect January 1, 2026.7 • It will require providers of Gen AI systems to make available an AI detection tool, at no cost to users, that will allow users to check whether images, video, or audio content has been created or altered using a Gen AI system. Providers must include latent disclosure in AI-generated content (i.e., in metadata) that can be detectable using the AI detection tool. Also, users must be provided the option of having a manifest disclosure, clearly conveying that content is AI generated. Providers that license their Gen AI systems to third parties must have agreements with the licensees requiring that they maintain these disclosure requirements. If covered providers know that third-party licensees are not capable of including such disclosures, they will be required to revoke their licenses within 96 hours. • It applies to any “covered provider,” defined to mean “a person that creates, codes, or otherwise produces a generative artificial intelligence system that has over 1,000,000 monthly visitors or users and is publicly accessible” within California. 7 California AI Transparency Act, Sen. 942, Ch. 291 (adding Ch. 25, Sec. 22757 to Div. 8 of Bus. & Prof. Code) (2024), https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_ id=202320240SB942#:~:text=This%20bill%2C%20the%20California%20AI,detection%20 tool%20is%20publicly%20accessible 40 • It will be enforced by the California Attorney General, a city attorney, or a county counsel, and provides for civil penalties of $5,000 per day. Also, in September 2024, California enacted several other AI-related laws in various areas, including health care, data privacy, watermarking content (provenance data), robocalls, deepfake pornography, election deepfakes, and entertainment industry use of voice or likeness replicas.8 Other States Many other states have proposed similar legislation, and it is expected that 2025 will see more states enact comprehensive AI laws. AI Laws in Employment Context Those that use AI technology in employment-related decisions are subject to some of the above-referenced laws but also certain employment-specific laws enacted by U.S. states and cities. Regulators are seeking to prevent the use of AI algorithmic systems that make decisions about candidates based on factors like race, ethnicity, and gender. Many companies use AI systems in screening resumes and sorting and analyzing employment applications, in some cases with the systems predicting the success of candidates based on individual characteristics. New York City enacted the first employment-specific AI law in the U.S., which became effective in July 2023.9 As discussed in our July 2023 advisory, it requires employers or employment agencies that use automated employment decision tools (AEDTs), located in New York City or involving NYC employees, to submit those AEDTs to periodic bias audits, to make information about the bias audit publicly available, and to provide certain notices to job candidates or employees. An AEDT is defined as technology that “is used to substantially assist or replace discretionary decision making” in hiring or other employmentrelated decisions by relying on factors generated by a machine (likely using artificial intelligence algorithms). Employers and employment agencies who 8 Governor Newsom announces new initiatives to advance safe and responsible AI, protect Californians, Governor Gavin Newsom (Sept. 29, 2024), https://www.gov.ca.gov/2024/09/29/ governor-newsom-announces-new-initiatives-to-advance-safe-and-responsible-aiprotect-californians/ 9 Automated Employment Decision Tools (AEDT), NYC Consumer & Worker Protection (last visited Nov. 8, 2024), https://www.nyc.gov/site/dca/about/automated-employment-decisiontools.page 41 use AEDTs must adhere to audit and disclosure requirements. Failure to do so runs the risk of enforcement actions. In August 2024, Illinois enacted a law that will go into effect on January 1, 2026.10 Under this law, employers will be required to notify employees when they use AI for employment decisions which include recruitment, hiring, promotion, renewal of employment, selection for training, discharge, discipline, tenure, or the terms, or conditions of employment. It prohibits employers from using AI in a manner that discriminates against employees that are within protected classes in Illinois. Illinois also has a law, which took effect in January 2020, that requires employers who use AI to analyze video interviews of applicants to, among other things, provide notice and obtain consent. Other states have also introduced bills to specifically regulate the use of AI in the employment context, while several state privacy laws currently in effect also provide some overlapping coverage, as discussed below. In addition, employers may be subject to liability under long-standing federal discrimination laws, such as Title VII of the Civil Rights Act of 1964 (Title VII), if their use of AI leads to discrimination or disparate impacts on protected classes of people, as discussed in our July 2024 advisory. State Data Privacy Laws Often overlooked is the fact that many existing state data privacy laws have AI regulation components. Specifically, such laws regulate the use of automated decision-making technology (ADMT) in processing personal data. ADMT generally refers to the use of automated processes with personal data to make decisions around financial or lending services, housing, insurance, educational enrollment, criminal justice, employment opportunities, health care services or access to essential goods or services. Common examples include the use of AI to process personal data in connection with determining loan qualifications or in hiring and employment decisions (like AEDT described above). Profiling generally means the automated processing of personal information to assess and predict a person’s economic situation, health, personal preferences, interests, reliability, behavior, location, or movements. A common example of AI-related profiling is the widespread use of targeted 10 Limit Predictive Analy tics Use, HB 3773, 103rd General A ssembly ( Ill. Pub. Act 103-0804) (2024), https://www.ilga.gov/legislation/BillStatus. asp?DocNum=3773&GAID=17&DocTypeID=HB&SessionID=112&GA=103 42 advertising by websites. In general, state privacy laws require notice to consumers and the opportunity for consumers to opt out of such processing of their personal data in these contexts. States with currently effective data privacy laws that regulate the use of AI technology, such as ADMT, involving personal data include California, Colorado, Connecticut, Virginia, Utah, Texas, Oregon, and Montana. Other states have similar laws that will go into effect in 2025. Takeaways Given the various laws applicable to AI that are currently in effect and those on the way, and the somewhat uncertain regulatory future, it is important that companies immediately assess their use of AI and evaluate their compliance obligations. Once an organization has mapped its AI uses, it should assess what laws may be applicable and develop programs for compliance. Organizations should consider whether to address AI uses in its privacy policies and terms of use, employee manuals and policies, vendor agreements, and information security programs. And, of course, organizations should continue to closely monitor regulatory developments. 43 IsraelDesks.com YOUR FIRST DESTINATION IN ISRAEL Israel Desks is the largest multimedia platform for international law firms to network with Israeli law firms and raise their profile in Israel’s legal market. LAW FIRM DIRECTORY Featuring international law firms with an Israel desk LEGALLY ISRAEL100 IsraelDesks league tables MEDIA CENTER News, Updates and Events LEGALLY ISRAEL Weekly news roundup from leading Israeli and international law firms IsraelDesks MAGAZINE Bi-monthly digital magazine LEGAL NETWORK Highly targeted distribution WEBINARS Hosting webinars through IsraelDesks platform 44 Global M&A Insights - Q4 2024 Recent Market Trends 45 In our biannual M&A trends report we explore the possible impact of the new U.S. administration on dealmaking, the dynamics of transatlantic M&A, private equity exits, and Mario Draghi’s proposals to reshape the European merger review landscape. Welcome to the latest edition of M&A Insights, where we bring together partners from across the A&O Shearman network to explore the themes shaping the global dealmaking. Global M&A Insights - Q4 2024 David Broadley Partner, A&O Shearman Scott Petepiece Partner, A&O Shearman Dirk Meeus Partner, A&O Shearman 46 THE TRUMP EFFECT: How will the new administration Impact m&a markets? Our first article focuses on the impact of Donald Trump’s decisive election victory on M&A. Our Partners provide an initial assessment of how the new administration is likely to affect dealmaking, foreign investment screening, trade tariffs, antitrust enforcement and taxation. Increase In U.s./U.k. Public M&A Next up, we examine the resurgence of transatlantic public M&A. There has been an uptick in U.S. acquisitions of U.K. listed companies in 2024, with deals worth USD15.2 billion recorded in the year to mid-October, nearly double 2023’s total. We expect this activity to continue to increase in 2025. Our Partners explain the rise is driven by increased corporate confidence, the pursuit of scale and synergies, and a more favorable financing market. But a high number of failed bids is a sign that the unique features of the U.K. takeover regime require careful navigation. The State Of Private Equity Exits In our third article, we provide a global perspective on private equity exits. PE firms have faced challenges over the past 12 months in realizing their asset valuations, but as we reveal, there’s cause for optimism as we head into 2025. Will draghi’s merger control reforms succeed? Finally, we dissect the ambitious proposals from Mario Draghi to reshape Europe’s merger control landscape. Draghi’s recommendations include an “innovation defense” to justify deals in strategic sectors that might otherwise be prohibited, alongside a raft of other recommendations to foster growth and competitiveness. We explore the likelihood of his vision becoming a reality. Click here to read the Global M&A Insights - Q4 2024. 47 48 Proposed Tax Relief for Foreign Investors & Investment Funds in Israeli Companies Recent Market Trends 49 Recently, a memorandum to amend the Income Tax Ordinance (the “Memorandum” and the “ITO“) was published as part of a series of amendments expected to be enacted in the Israeli state budget for 2025. The published Memorandum addresses, among other things, the provision of relief for foreign residents’ investments in Israeli companies and the activities of investment funds with foreign investors operating in Israel. The background for this proposed amendment is based on the recognition of the significant contribution of the high-tech sector to the Israeli economy, alongside growing criticism from the business sector regarding the low level of tax certainty in Israel, which deters many foreign companies and investors. Therefore, the Memorandum aims to strengthen Israel’s business environment by establishing an attractive, certain, and stable tax regime, with an emphasis on foreign residents’ investments and investment funds operating in Israel. Below are the main proposed amendments. Exemptions and Reliefs for Foreign Investors in Securities of Israeli Companies (including through Investment Funds) In general, a foreign resident is exempt from capital gains tax in Israel on investments in Israeli companies, unless the investment is considered part of Daniel Paserman Head of Tax Gornitzky Proposed Tax Relief for Foreign Investors & Investment Funds in Israeli Companies 50 a business activity in Israel or if such capital gain is attributed to a permanent establishment in Israel. However, if a foreign resident’s investment is managed from or made by a representative in Israel, such as through investment funds with representation in Israel, the profit from realizing shares in Israeli companies might be classified as ordinary business income, or alternatively attributed to a permanent establishment in Israel. As a result, the capital gain tax exemption may not apply, even if the investor is a passive limited partner in the fund. Furthermore, income from dividends and interest received from such investments is subject to tax in Israel and may be classified as business income, subject to higher tax rates (compared to tax rates on passive income). Since foreign residents may be exempt from capital gains tax in their countries of residence and are typically subject to lower tax rates on passive income, the higher taxes that apply in Israel can create a barrier to investment. Currently, eligible investment funds such as venture capital or private equity funds, may receive a tax ruling from the Israeli Tax Authority (the “ITA“). This ruling can regulate and reduce the tax liability in Israel for foreign resident investors in relation to capital gains, interest, and dividends derived from certain “qualified investments”. However, the tax ruling mechanism creates uncertainty and may change according to the decisions of the administrative authority, making it insufficient to accommodate foreign investors. Therefore, the Memorandum proposes to authorize the Minister of Finance, with the approval of the Finance Committee of the Knesset, to set regulations granting tax exemptions and reliefs for foreign residents under certain circumstances of investment in securities or other financial assets. Regarding capital gains, the proposal suggests amending the ITO to determine that capital gains derived from certain investments defined in the regulations will be exempt from tax, even if the gain is derived in connection to a permanent establishment in Israel, such as in the case of an investment fund with an office in Israel. Additionally, the amendment aims, among other things, to regulate in legislation tax benefits for foreign investors regarding interest and dividend income resulting from investments of the type specified in the regulations. In enacting such regulations, consideration will be given to promoting specific types of investments and the economic benefits they provide, considering the goals of encouraging capital investments and economic initiative, developing the production capacity of the economy, enhancing the business sector’s competitiveness in international markets, and creating a sustainable employment infrastructure. Regarding concerns of classifying passive income (including capital gains) as a business income, particularly in cases involving investment funds with Israeli managers, the proposal includes an amendment to the ITO concerning 51 the taxation of partnerships. This amendment would ensure that income from securities or financial assets, including capital gains, received by a passive limited partner from investments in specified securities, will not be considered ordinary business income. This applies equally to both foreign and Israeli investors. These changes are also positive for Israeli resident investors, since the specific tax rulings issued to date for investment funds have only addressed income classification for foreign investors. Taxation of Carried Interest Currently, the position of the ITA is that income from carried interest in an eligible investment fund is considered ordinary business income. However, within the framework of the specific tax ruling, the ITA is willing to provide reduced tax rates on carried interest as follows: (i) for foreign managing partners, a flat tax rate of 15% (concerning carried interest derived from the disposition of Israeli companies); and (ii) for Israeli managing partners, the tax rate is calculated based on a formula that weighs the rates of foreign resident investors out of the total investors in the fund (“IVA Arrangement”). The Memorandum proposes amending the ITO to stipulate that carried interest income related to investments specified in the regulations, when attributed to Israeli managing partners, will be subject to a fixed tax rate of 32% (instead of the IVA Arrangement). This proposal serves as a compromise between the full ordinary income tax rate (up to 50%) and the capital gains tax rate (25% before surtax). The goal is to create certainty and uniformity, eliminating the need for special tax rulings or reliance on formulas that depend on the specific circumstances of each investment fund. Regarding carried interest paid to a foreign resident managing partners, the tax relief is expected to be provided as part of the amendment to the ITO within the new regulations. VAT on Management Fees and Carried Interest The Memorandum also proposes resolving the long-standing dispute between the ITA and the fund industry in Israel, regarding the applicability of VAT on management fees and carried interest in investment funds. It is proposed that carried interest (which qualifies for benefits under the provisions of the ITO) will be exempt from value-added tax (rather than being subject to a 0% VAT rate). This implies that, under the VAT Law provisions, 52 VAT outputs related to income from carried interest will not be deductible. Regarding management fees, the proposal aims to provide certainty by stipulating that management fees attributed to the investment of foreign limited partners in funds meeting the criteria to be determined in the regulations, will be subject to a 0% VAT rate. This will be based on the portion of foreign investors in the fund (like the current arrangement regulated in specific tax rulings of the Israeli VAT Authority). As indicated above, if and when the proposed legislation is adopted, it will significantly contribute to encouraging foreign resident investments in the Israeli economy, particularly through investment funds. Daniel Paserman, Head of Tax Dr. Eyal Raz, Partner Gila Ponte-Shlush, Partner Dvir Hollander, Associate 53 54 US Privacy: So Many Laws; So Little Time Recent Market Trends Pic by Chat GPT making a mess of things... :) 55 The US Privacy landscape is... complex.. What do you need to know for a basic overview of where are we and where are we headed? Below are the key points (with lots of links to deeper dives) from my Presentation for the DPO Course in the Technion, led by Eyal Roy Sage 

The background for this proposed amendment is based on the recognition of the significant contribution of the high-tech sector to the Israeli economy, alongside growing criticism from the business sector regarding the low level of tax certainty in Israel, which deters many foreign companies and investors. Therefore, the Memorandum aims to strengthen Israel’s business environment by establishing an attractive, certain, and stable tax regime, with an emphasis on foreign residents’ investments and investment funds operating in Israel. Below are the main proposed amendments. Odia Kagan Co-Chair of the Israel Practice Group and Chair of the Data Privacy Compliance and International Privacy, Fox Rothschild US Privacy: So Many Laws; So Little Time 56 Privacy Ghost of Christmas Past: Sectoral laws The US Privacy Scene has been regulated by Federal Sectoral laws: Financial data: » GLBA, FCRA: If you are a financial institution. » Enforced by FTC and CFPB » CFPB has been very vocal: expanding the scope of credit reports to AI for employees; chatbots; unfair and deceptive for pricing; surveillance Health Data: HIPAA BUT » HIPAA is strictly enforced for security and privacy (new OCR Notice of Proposed Rulemaking issued » Big fines for breaches » Recent focus on trackers and cookies; even unauthenticated » Focus on reproductive info - new amendment requires oversight of data sharing Kids data (on federal level) » Children’s information is a big point of focus among all regulators. » COPPA - strictly enforced by FTC and will continues » Multi million dollar fines » Includes third party trackers » Targeted to kids (but also teens) » Scope expanding into teens - KOSA and COPPA 2.0 likely to pass Kids data (on state level) » State laws: mostly under 13; considered sensitive (i.e consent; DPIA) » New AADC type laws in MD and CT - require detailed disclosure and DPIA + apply to “likely to be accessed by under 18s”. » Colorado on Minor’s information and here Biometric data - BIPA, CUBI » Laws requiring consent; written authorization (see: here) » High fines » Apply to service providcers too Federal Privacy Law: » TBD but not likely in 2025; new FTC Commissioner supports it » Two attempts: ADPPA (here and here) and APRA 57 State level: New State Privacy Laws - 19 and counting » Laws in effect in 2024: CA, CO, VA, CT, UT, TX, OR, MT » Laws going into effect in 2025: : TN; DE, IA, NJ NH, NE, MD MN » Washington My Health My Data - with a private right of action » Similar but different - need to check and consult a lawyer » Main differences: State UDAP: » Unfair and deceptive acts and practices; in all 50 states » NY guidance stating that it is coming after website privacy Class action litigation (see here) » Website pixels (Wiretapping causes of action, CA, PA, etc) » Email pixels How to approach? Start with CA: » High standard for privacy notice [CPPA enforcement; now also seen in Texas enforcement] » Focus on sale: what is sale; what is share - Sephora, Doordash » California is the only state law to comprehensively apply to employees = employee sweep (more on employee here) » Focus on rights: similar to GDPR BUT: sale; limit use of sensitive data; opt out of AI profiling TBD » Definition of service providers (every GDPR processor is a service provider but not every service provider is a data processor) » Extra requirements for C2P contracts (Need to amend your Art 28 agreement) » Extra requirement for C2C contracts (Need to have one) » Definition of de-identify requires extra actions not just no reidentifiability » “My DPIA is bigger than your DPIA” - more cases than GDPR in which DPIA is triggered and more requirements for what is needed in a DPIA (see here and here) » ADMT regs: Regulations on DPIA and additional requirements for automated decision making. » Data brokers (need to register; provide an opt out and information and enforcement) and here » Employer sweep; connected vehicle sweep » Neural privacy » Dark patterns 58 Continue with Colorado: » Opt in for sensitive data » AI Act (similar to EU AIA but with focus on discrimination) » Profiling - requires a DPIA- for “legally significant decisions” - this includes decisions that impact employment » Includes Non profits » Detailed regulations on how to conduct DPIAs » Special provisions on biometrics Continue with Texas and and Connecticut and other » Strict enforcement - see here, and here and here » Biometrics, kids, privacy disclosures » Oregon: AI enforcement » Michigan: data minimization FTC That was then: » De-facto regulator » Strong Focus on sensitive information and sharing » Location information (Premom ); InMarket ( ); X-mode (here and here) » Health information (BetterHelp, GoodRx); » Browsing data (Avast) » Biometrics and genetics (here and here) » Employee surveillance » Connected vehicles: » Children’s information (here and here) » Data clean rooms » Hashing » Chatbots This is now: Chair of the Commission: Republican Andrew Ferguson and a Republican Majority. Expected changes: (see here for deep dive) » more choosy enforcement » no more regulation by blog or guidance; » continued enforcement of deception including in AI » continued enforcement of unfair within the bounds