The US-Israel legal review 2021

A GLOBAL LEGAL MEDIA & NISHLIS LEGAL MARKETING PUBLICATION THE US-ISRAEL LEGAL REVIEW 2021 IN ASSOCIATION WITH: Startups, Unicorns and the ‘SPAC’ Phenomenon The US-Israel Legal Review 2021 1 Contents THE US-ISRAEL LEGAL REVIEW 2021 2 WELCOME FROM THE PUBLISHERS Global Legal Media and Nishlis Legal Marketing 4 TAKING THE TEMPERATURE In a bite-sized Q&A, The US-Israel Legal Review poses a series of questions to Yigal Arnon & Co. Law Firm on the US-Israel bilateral relationship 8 THE NATURAL BOND BETWEEN SILICON VALLEY AND SILICON WADI The cooperation between Israel, known by many as The Startup Nation, and the world’s leading technological hub of Silicon Valley, is not accidental – By The California Israel Chamber of Commerce 10 THE NEW ISRAELI FRONTIER – THE SOUTHEAST UNITED STATES The U.S. has long been a hotbed for Israeli startups. Now the Southeast region aims to leverage its heavy corporate base to emerge as the new landing ground for Israeli innovation – By Conexx: America Israel Business Connector 14 ISRAEL DESKS LEAGUE TABLES: 2021 In this third annual edition of Israel Desks League Tables, the battle between the magic circle, U.S. powerhouses and other major international law firms for a greater slice of the Israel market continues unabated. 30 ISRAEL IN-HOUSE COUNSEL ROUNDTABLE: FROM START-UPS TO SUPERSTARS Q&A with Vivian Goldstein, Senior Vice President, General Counsel and Chief Compliance Officer at Netafim; and Ronit Bernstein-Avrahams, Senior Vice President and Deputy General Counsel at Playtika Holding A LEGAL GUIDE TO US-ISRAEL INVESTMENT: 36 US – CYBERSECURITY Ransomware Attacks: What You Should Know if You Do Business in the United States – By Carter Ledyard & Milburn 42 ISRAEL – MERGERS & ACQUISITIONS Mergers And Acquisitions 2021: Setting Strong Foundations For 2022 – By Erdinast, Ben Nathan, Toledano & Co., With Hamburger Evron 48 US – LABOR & EMPLOYMENT Startup Snafus and Solutions: Avoiding Unforced Employment Errors – By Fox Rothschild 54 ISRAEL – TAX Ground Breaking International Tax Reform: Significant Influence on Corporations and Individuals – By Gornitzky 60 ISRAEL – FINTECH Fintech: Firing on All Cylinders – By Herzog Fox & Neeman 64 ISRAEL – DIGITAL HEALTH Digital Health In Israel – The Upsurge Of Big Data & Preemptive Medicine: The Role Of The Public Sector – By Lipa Meir & Co. 68 ISRAEL – PRIVACY The Notion Formerly Known as Privacy – One More Aspect of Long COVID– By Lipa Meir & Co. 72 ISRAEL – INTELLECTUAL PROPERTY Israel: The Importance of IP in a Technology-Based Economy – By The Luzzatto Group 78 US-ISRAEL – R&W INSURANCE Representations and Warranties Insurance: Enhancing Returns on M&A Transactions in Israel - By Marsh 84 US - CRYPTO / DIGITAL ASSET REGULATION Digital Asset Regulation in the United States: An Opportunity for Progress or a Threat to Innovation? - By Murphy & McGonigle 90 ISRAEL – HIGH TECH Israel’s High-Tech Sector: Looking Back and Ahead – Interview with Shibolet 94 ISRAEL – CIVIL LITIGATION Civil Litigation in Israel in Theory and Practice – By Tadmor Levy & Co. 100 US – MERGERS & ACQUISITIONS Investment in Israeli Companies Surges – with Help from SPACs – By White & Case 106 ISRAEL – BIO-CONVERGENCE Israel, Bio-Convergence and COVID-19 – By Yigal Arnon & Co. Co-Publishers: Global Legal Media Danny Collins, Deepak Vohra [email protected] [email protected] www.globallegalmedia.com Nishlis Legal Marketing Idan Nishlis [email protected] www.legalmarketing.co.il 2 The US-Israel Legal Review 2021 We are delighted to present the third issue of The US-Israel Legal Review, an annual guide which takes a deep dive into the bilateral commercial relationship between America and Israel and explores the legal and regulatory issues arising from this dynamic. This edition’s cover theme of “Startups, Unicorns and the ‘SPAC’ Phenomenon” was not deliberately planned to be the main feature of the magazine. Rather, it is a theme that runs through several of the articles written by our contributors: the chapters on M&A, Labor & Employment, Fintech, Digital Health and High-Tech are some of those that address these topics. And for the first time ever, the publication includes an article from a non-law firm – Marsh – highlighting the increasing prevalence of representations and warranties insurance on Israeli transactions, further demonstrating the evolution of the Israeli M&A market in-line with the US. We also feature our third annual Israel Desks League Tables which showcase those international law firms involved in Israeli deals and with Israeli clients. Following extensive meetings, data collection and analysis, we would like to thank all the international law firms with an Israel Desk for submitting a range of deals in M&A, high-tech, VC and PE, real estate and more. The Review ranks deals in terms of both volume and value and we look forward to adding more tables in future issues. The Review is a co-publishing venture from the teams at Global Legal Media and Nishlis Legal Marketing. Global Legal Media is a strategic legal and professional services BD and marketing consultancy whose founders have several years’ combined experience working with leading law firms around the world and at the most respected legal publications across the US, UK and Asia. Nishlis Legal Marketing is the premier legal marketing and business development consultancy in Israel, for leading Israeli law firms and foreign law firms venturing into Israel. A truly bilateral relationship for a bilateral publication. We are grateful to our contributing law firms for providing their expertise and insight to illuminate a full range of issues arising from the US-Israeli commercial relationship. The US-Israel Legal Review will be read at law firms, in-house legal departments and in the tech sector across both jurisdictions. If you would like to participate in the next edition, please feel free to contact us at the email addresses below. We hope you enjoy the publication. Danny Collins Idan Nishlis Director / Global Legal Media CEO / Nishlis Legal Marketing [email protected] [email protected] Welcome Dear Colleagues, We want to thank our exceptional partners, Israeli and International law firms, who supported the corporate counsel community in Israel during the challenging times of Covid-19, hosting phenomenal webinars, workshops and meet-ups – we couldn’t do it without you. THANK YOU FOR STICKING AROUND! Agmon & Co. Rosenberg Hachohen & Co AYR - Amar Reiter Jeanne Shochatovitch & Co Barnea Jaffa Lande Erdinast, Ben Nathan, Toledano & Co. FISCHER (FBC & Co.) Goldfarb Seligman Gornitzky GNY Greenberg Traurig LLP Herzog Fox Neeman Lipa Meir & Co. M. Firon and Co. Meitar Pearl Cohen Zedek Latzer Baratz S. Friedman &Co. S. Horowitz & Co. Shibolet & Co. Simmons & Simmons Sullivan LLP Tadmor Levy & Co. Yigal Arnon & Co. Yours truly, Adv. Keren Yachin Doron General Counsel of Big Shopping Centers Ltd. ACC Israel President & Board Member ACC is the Association of Corporate Counsel, a global organization based in the United States with more than 45,000 in-house corporate lawyers in 85 countries around the world. ACCI is the Israeli chapter of the ACC and the only In-House association in Israel with 1,700 legal counsels involved in our intensive activities. 4 The US-Israel Legal Review 2021 ISRAEL: US-ISRAEL BILATERAL RELATIONSHIP Yigal Arnon & Co. partners Barak Platt and Ezra Gross give our readers an overview of the current climate regarding the US-Israeli bi-lateral relationship. Can you give us a sense of the efforts made by Israeli policy makers to stimulate the rebounding economy? It’s safe to say that over the past few years Israeli policy makers have not been able to do very much to stimulate the economy. In fact, the Israeli government just approved a national budget for the first time in three years! But even with the lack of governmental stimulation the investment market has been growing exponentially. Specifically, the Israeli hi-tech industry has broken new funding records, with local startups raising $25 billion in funding from January through November, according to a report published in December by Start-Up Nation Central. This already shows an almost 150% increase from the $10.3 billion raised in 2020. What has been the effect of the transitioning to telecommuting and the impact on cross-border (U.S.) investment? Telecommuting appears to have had a hugely positive impact on the Israeli tech scene. The feeling is that it has levelled the playing ground with startups in Silicon Valley and elsewhere in the U.S. Until recently American tech companies had the advantage of being located geographically close to the large US investors. However, with the new reality of investors meeting tech companies by video conference (even when the tech companies are located down the street from the investors), Israelis have lost that disadvantage. In a way, Israeli companies were already used to long-distance fundraising and have continued to ride that wave quite well. What is the growth potential for companies adapting to this dynamic? The growth potential is enormous. You can live and work in the heart of Israel, and access angel investors, VCs, private equity and even the investment teams at the big technology corporates as well as anyone in the U.S. or Europe. Also, instead of having to incur the costs and time of travel for sales meetings and presentations, Israeli companies are able to stay in Israel and attend those meetings remotely. It’s important not to forget that due to the volatile climate in the Middle East, Israelis have always been good at adapting to new situations and have adopted well to this one as well. And the impact on exit value? The average value of exits has been on a steady rise over the last decade. This is often attributed to a couple of factors – first, the fact that many Israeli companies have begun focusing on growing the company with meaningful revenues and strategic alliances before thinking about an exit, and second, there is a real and immediate worldwide need for many of the of new technologies being developed here. For example, the spread of the pandemic and lockdowns have accelerated worldwide digitization Taking the Temperature In a bite-sized Q&A, The US-Israel Legal Review poses a series of questions to Yigal Arnon & Co. Law Firm. The US-Israel Legal Review 2021 5 and the transition of most businesses online and to the cloud, increasing the demand for fintech, cloud solutions and cybersecurity. In the first quarter of 2021 alone, cybersecurity companies brought $1.5 billion and fintech $1 billion. Can you speak about the long term growth strategies of Israeli startups? Perhaps irrespective of the pandemic, but as a sign of maturity for the Israeli tech scene, the trend has been for Israeli companies to focus more on growth rather than the quick exit. Therefore, Israeli companies have been showing more patience and raising significantly bigger investment rounds allowing them to grow and stay in Israel. It is often said that in the past decade Israel has transformed from the “startup nation” to the “scale up nation”, or now even to the “unicorn nation”. Over the past couple of years, new unicorns in Israel (companies valued at over $1 billion) have been growing at an unprecedented rate. Israel’s unicorn list has recently mushroomed to 68 in total. There were 24 new unicorns announced in the first quarter of 2021 alone. This is twice the number of new unicorns announced in China over the first six months of the year and second only to the U.S. And the impact of VC funding leading to significant exits? There is no question that the large amounts of money that VC funds have been pumping into Israeli innovation have lead to much higher valuations and, hence, huge exits. This may be largely due to the fact that VCs are always looking to get ahead of the game, and the Israeli tech scene tends to focus on the world around it and the next big trends. Ironically, it is often Israel precarious situation that leads to its success. As Israel is surrounded by enemies and is one of the most affected countries by ransomware attacks, the Israeli government has always put a heavy emphasis on the cybersecurity sector. The Israeli army is known for its premier cyber units which often serve as a training ground for many cybersecurity startups. VCs, mainly from the U.S., appreciate the convergence of Israel’s defense spending, entrepreneurship and academia and pour funding into this sector. What incentives are currently available to startups? What has been the effect thus far? The Israel Innovation Authority, previously known as the Office of the Chief Scientist, under Israel’s Ministry of Economy, is the support arm of the Israeli government charged with fostering the development of industrial R&D within the State of Israel. Its main incentives are the early stage financial funding it provides to startups which often helps them get off the ground. The prominence of OCS/IIA was strengthened the development of the VC industry in Israel since the mid-1990s. It’s debatable how much of Israel’s success is attributable to government grants but it has certainly helped create an atmosphere conducive to innovation. How has telecommuting affected your work as leading M&A lawyers working on the deals? Although in the pre-Covid days it was common to travel to face-to-face meetings to help negotiate and close transactions, the majority of our work has always been handled remotely because most of our investor/acquirer clients live overseas. We represented buyers on some of the biggest M&As in Israel in the last decade, including Intel in its acquisitions of Mobileye, an Israeli leader in ADAS (Advanced Driver Assistance Systems) in a transaction valued at $15.3 billion, Habana Labs for BARAK PLATT PARTNER EZRA GROSS PARTNER 6 The US-Israel Legal Review 2021 ISRAEL: US-ISRAEL BILATERAL RELATIONSHIP $2 billion and Moovit, for $900 million, as well as Nvidia in its $7 billion acquisition of Mellanox. In fact, the Moovit transaction began shortly following the pandemic during a time that both California and Israel were in lockdown. The transaction was completed without even one physical meeting. Ironically, with the pandemic and recent advances in the means of telecommunication, the world is adapting well to remote meetings and our communication with clients and foreign counsel has become even more streamlined and intimate. Meetings by videoconference are obviously much easier to coordinate than physical meetings and we now actually get to see our co-deal makers face-toface almost daily and on very short notice. n ABOUT THE AUTHORS Barak Platt is a partner in the firm’s corporate department and specializes in mergers and acquisitions, high-tech, and venture capital and private equity. His clients range from large multinational corporations to early-stage startups and also include venture capital funds and private equity funds. Barak has practiced law for more than 25 years in Israel and the United States. He has served as lead counsel in many merger and acquisition transactions, including the largest transactions in Israel. He addresses all aspects of those transactions, including intellectual property, tax and regulatory matters. Email: [email protected] Ezra Gross is a partner in the firm’s International Corporate Group, specializing in M&A, Banking and Finance, Private Equity, Venture Capital, Hightech and Life Sciences. He represents Israeli and international private equity funds, venture capital funds, angel investors, entrepreneurs, emerging growth companies and multinational corporations. Ezra focuses on domestic and cross-border M&A transactions, corporate financings and complex commercial transactions. His experience includes the largest mergers and acquisitions in the Israeli economy, involving both privately held and publicly traded Israeli and foreign corporations. He also advises high-tech companies in all their ongoing corporate matters and has represented a significant number of clients from inception through their M&A exits. Email: [email protected] Yigal Arnon & Co. Law Firm 1 Azrieli Center, Tel Aviv, Israel Tel: (+972) 3 608 7777 Fax: (+972) 3 608 7724 www.arnon.co.il 317 West Portal St. PO Box 27625 San Francisco, CA 94127 www.ci-cc.org 1:1 INTRODUCTIONS WERE NEVER SO EASY 8 The US-Israel Legal Review 2021 US-ISRAEL TRADE Arecent report conducted by the Bay Area Council Economic Institute on California’s economic ties with Israel brings the story of Israel’s roots in the innovation economy and California’s economic footmark in Israel as we try to foresee future business activities between the two. To understand how Israel became the scaleup nation, it is important to mention Israel’s remarkable economic history. The current success lies on several pillars, including a strong focus on investment in developing weaponry for the country’s defense during 1970s industrialization, with a high percentage of FSU immigrants being scientists and engineers. They later provided strong assistance in enhancing Israel’s technology industries and innovations in electronics, helping to pave a successful pathway in becoming a prosperous post-industrial society. In 1985 Israel and the US signed a bilateral Free Trade Agreement. Right afterwards, the 1990s technology boom marked a shift in the scale of cooperation between Israel and the rest of the global markets. But the business connections go beyond trade, and we see the influence on creating jobs, investing in R&D, academia, tourism and much more. Nowadays, the technological connection between the two countries can be found throughout California, but more intensively than anywhere else in Silicon Valley. The cooperation between Israel, known by many as The Startup Nation, and the world’s leading technological hub of Silicon Valley, is not accidental. Records of the last several years show that Israel invests about 4.95% of the country’s GDP in its R&D, which makes it the highest R&D investmentto-GDP ratio in the world (compared to the average of 2% among the OECD countries.). The domestic R&D investments are truly fruitful: Israel has over 6,000 active startups and an economy dominated by industrial high-tech and entrepreneurship. The small country had produced 71 Israeli-founded global unicorns, many of which were “born” in the last few years. Binational initiatives like “Yozma”, “BIRD Foundation” and the “BARD Foundation” became the foundations for the bridge between Israel and California. These government grants have totalled over $75 million till date. Silicon Valley’s footprints in Israel’s economy can be tracked just by the presence of FDI into Israeli startups. Since the early 2000s till now, we have seen 147 FDI projects led by California-based companies, 127 of which come directly from the Bay Area. California markets are responsible for 20% of all operations of Israeli companies worldwide, and 42% of all acquisitions by US companies. To this day, $76 billion have been invested: 50% of the value of all worldwide acquisitions in Israel, and 70% of the value of US The Natural Bond between Silicon Valley and Silicon Wadi The cooperation between Israel, known by many as The Startup Nation, and the world’s leading technological hub of Silicon Valley, is not accidental. Sharon Vanek reveals a special relationship. The US-Israel Legal Review 2021 9 acquisitions in Israel. For years, Israel has been a leader in the field of cybersecurity. With constant threats of terrorism and a strong militarization approach, the country registered in 2020 a record of $2.9 billion in preIPO investments in domestic cybersecurity firms, up 70% from the previous year. The export of cyber technology by Israeli companies totalled an estimated $6.85 billion in 2020. Don’t be mistaken in thinking that this is not the only field in which Israel leads. You will find innovative and creative Israeli companies in additional areas such as Fintech, Healthtech, Mobility, Agritech, Watertech, and others. Even prior to this, Israel was a leader in developing agriculture and water technologies. Hence, it only makes sense that California and Israel will collaborate on issues such as food security, drought management, sustainability, robotics and field management. People sometimes tend to forget that with all the innovations, investments, impact and buzz that Israel has gained over the years, it is still a small market, which makes it very difficult for companies to grow organically domestically. Therefore, Israeli startups need to explore opportunities in bigger markets such as the US. Nevertheless, Israel is one of the countries that we count as a global hub for technology and innovation. It is only natural that the Israeli market players will collaborate with their counterparts in California. In 2014 an MOU was signed between California and Israel for R&D cooperation between Israel and California. The agreement stresses four main areas: water technologies, energy, storage technologies and cyber security through collaboration between research institutes in Israel and California. In 2016, another agreement between Israel’s Science & Technology Ministry and the California Institute for Regenerative Medicine was signed. The agreement provides a framework for collaboration on stemcell research, which will be jointly funded by both participants. There is no doubt that California firms profit from business with Israel. As the only country with free trade agreements with both the United States and the European community, Israel can act as a bridge for international trade between the U.S. and Europe. Also, as mentioned above, Israel has a pool of talent in high technology areas, which is being utilized by the big corporations who open their R&D centers in Israel. Israel is ranked as the 2nd destination for California business as more than 1500 California headquartered companies have discovered the benefits of doing business with Israel. Jewish philanthropy, nonprofit organizations, accelerators and community based organizations have sprouted over the years to support the growing business activities and provide market education, cross cultural etiquette, mentorship and peer learning. The future cooperation between the two hubs lies in promising fields like biotech, data science, security, sustainability and cryptographic systems. As for now, the priority is building even closer cooperation between the two on a state-level basis, while enhancing the groundwork done by support organizations and individuals. With your support, and as we move into the post-pandemic era, we envision more delegations, networking, closeddoor discussions and conferences to come back, allowing the business ties between Silicon Valley and Silicon Wadi to flourish more than ever. Sharon Vanek is Executive Director of The California Israel Chamber of Commerce. If you would like assistance and relevant information regarding the potential of penetrating the Californian market, please contact the California Israel Chamber of Commerce at: [email protected] n SHARON VANEK EXECUTIVE DIRECTOR 10 The US-Israel Legal Review 2021 US-ISRAELI INNOVATION The New Israeli Frontier – The Southeast United States The Southeast is known for its welcoming people and hospitality but not enough Israelis understand that it is the economic engine for many key industry sectors. Combined, six states in the Southeast region (North Carolina, South Carolina, Georgia, Tennessee, Alabama and Mississippi) of the United States would rank among the top six global economies. Throughout the region, a variety of industries continue to show strength and growth, which supports an overall strong economic picture. Some of the Southeast’s top industries include: • Financial technology • Cyber security • Information technology • Biotechnology and life sciences • Healthcare • Energy; both traditional and renewable • Aerospace and aviation • Automotive • Smart mobility • Smart cities • Smart home • Manufacturing • Logistics • Agriculture • Entertainment • Tourism • Casual Dining • Printing COCA COLA, DELTA, IBM, AND BOA - TO NAME A FEW From Fortune 500 headquarters to large manufacturing operations, the Southeast attracts companies in growth mode that want access to an educated workforce, a favorable tax climate, and access to natural resources and infrastructure that support their business. In addition, individuals follow these companies to Southeast locations because of lifestyle and affordability, in addition to the availability of jobs. The Southeast is home to many superior institutions of higher education including the Georgia Institute of Technology, Duke University, Vanderbilt University, Emory University, University of Alabama, University of Georgia, University of South Carolina, University of North Carolina, Memphis State University, among many others. On a global scale, the Southeast’s geography is ideal for companies seeking a hub for conducting commerce both nationally and internationally. The U.S. has long been a hotbed for Israeli startups. Now the Southeast region aims to leverage its heavy corporate base to emerge as the new landing ground for Israeli innovation. The US-Israel Legal Review 2021 11 Southeast markets are readily accessible by land, water and air, and they are connected by intricate networks of infrastructure. The U.S. Southeast Region and its economic engine finds in Israel a nexus of innovation that propels economic competitiveness. Home to The Coca Cola Company, NCR, Mueller Water Products, HCA Healthcare, InterTech Group, UPS, FedEx, Global Payments, Equifax, Bank of America, McKesson, IBM, First Data, Delta Airlines, Home Depot, The Southern Company, AFLAC, Cox Enterprises, ICE, and Truist. Georgia is a major unsung financial technology (FinTech) powerhouse. 70% of global payments comes thought Atlanta. In fact, the region dubbed by the financial world as “Transaction Alley” is beginning to rack up an impressive list of FinTech credentials: • 7 of the 9 largest U.S. card acquirers are based in Georgia.i • 6 of the 10 largest U.S. payment processing firms are headquartered in the state. • The top 20 Georgia-based FinTech companies generate annual revenue of more than $72 billion.i • More than 38,000 professionals in Georgiai (and over 130,000 globally) are employed by Georgiabased FinTech firms. • These companies process over 128 billion transactions (over $5 trillion) per year.i • There are over 20 blockchain companies based in Georgia and at least 10 of Georgia’s large corporations, such as Coca-Cola, UPS and Cox Enterprises are experimenting with blockchain.ii Atlanta is riding the wave of this digital reinvention of payment processing to become a quiet FinTech powerhouse. Developing and being part of vibrant digital ecosystems is the name of the game. ISRAELI INNOVATION IS NO STRANGER TO THE SOUTHEAST The Southeast is a hotbed for prominent Israeli companies with over 150 Israeli companies calling the Southeast their Americas headquarters. The Israeli digital printing industry is housed in metro Atlanta (Indigo, Scitex, Landa Nanotechnology, Highcon, Massivit3D). The Israeli non-woven manufacturing industry is found in North Carolina. Israeli companies Nice, Verint and Amdocs operate in metro Atlanta. There are four Israeli manufacturing operations in South Georgia (Ceasarstone, Haifa Group, Tosaf and Bram Industries). The aerospace/defense industry is anchored in Huntsville, Alabama with Elbit Systems as an industry leader. Research Triangle Park (RTP) in Durham, North Carolina, is the largest research park and premier global innovation center in the United States and houses hundreds of companies, including science and technology firms, government agencies, academic institutions, startups and nonprofits. Anchored by IBM, Cisco, Fidelity Investments, GlaxoSmithKline and RTI International, the RTP houses companies in pharma, logistics, enterprise software, agritech, biomanufacturing, data management, life sciences, sustainable building materials, smart home tech, software development, medical devices, blockchain, cloud, alternative energy and The Southeast is the new frontier for Israeli economic opportunity RANDALL FOSTER CHAIR BARRY R. SWARTZ VICE PRESIDENT 12 The US-Israel Legal Review 2021 US-ISRAELI INNOVATION many more. The Medical University of South Carolina has welcomed Israeli innovation in healthcare including neuroscience. Mississippi has cooperated with Israel around ship building, homeland security, aerospace and vocational training. A number of deals between Israeli companies and Southeast U.S. companies have set milestones in bi-national economic activity. Just a sampling highlights the Southeast as a hub for deals. In 1994 Bellsouth (now AT&T Wireless) became a partner in Israel’s second cellular telephone network Cellcom. In 1995 Blades Technology entered into a joint venture with Pratt & Whitney. Jacada established their North American Headquarters in 1995. Following a Georgia Governor lead trade mission to Israel in June 2000, six Israeli companies including Given Imaging established their Americas headquarters in Georgia. In 2000, Delta and El Al established a code share agreement. In 2001, Gulfstream began a 20 year plus relationship with Israel Aerospace Industries. UPS developed an outsourcing relationship and strategic partnership with Motorola Israel to assure competitive advantage in, at that time, the turbulent courier service industry. HP acquired Scitex Vision for $230m and is now headquartered in Alpharetta, GA along with Indigo. McKesson acquired Medcon for $105m in 2005 and is now Change Healthcare. Delta began direct flights from Atlanta to Israel in 2006. Witness Systems was acquired by Verint for $950m in 2007. Cox Communications acquired much of its broadband cable technology in Israel beginning in 2007. In 2012 IDEA Bio-Medical was sold to the Medical University of South Carolina. Endochoice merged with Peer Medical in 2013. NCR purchased Retalix for $650m in 2013. Most recently, Mueller Water Products acquired Krausz Industries for $140m in 2018 and Clearwave acquired Odoro in 2020. Many Israel startup companies have resided in incubators and accelerators in the Southeast, pioneering construction technology, legal referral technology, healthcare instruction software and remote physical therapy, to name a few. There have been over 10 Southeast – Israel projects awarded Binational Research and Development Foundation (BIRD Foundation) grants in diverse industry sectors. Working in partnership, the Consulate General of Israel to the Southeast, and Conexx: America Israel Business Connector collaborate with State economic development agencies, municipalities, Chambers of Commerce, trade associations, global companies, communal organizations and many other partners/channels to bridge the Southeast to Israel’s dynamic innovation and entrepreneurship ecosystems and to open doors for Israeli companies wishing to enter the Southeast U.S. marketplace. The Southeast is the new frontier for Israeli economic opportunity. n ABOUT CONEXX Conexx: America Israel Business Connector is a non-profit, non-governmental agency committed to connecting Southeast Americans (NC, SC, GA, TN, AL, MS) and Israelis through the vehicle of business. Conexx is one of most successful and effective bi-national business organizations in North America. Since its founding almost 30 years ago, Conexx continues to deliver great value to Israeli companies seeking U.S. market entry and to American companies/institutions/ organizations seeking entry into Israel and access to groundbreaking technologies. Conexx offers a powerful network to help our members promote their products or services to the entire Southeast and beyond. Conexx is uniquely qualified to provide individual, tailored services to companies and individuals looking to do business in Israel or seek expansion or partnerships in the U.S. Working with companies in every industry and vertical, Conexx works with over 150 Israeli companies residing in the Southeast, helps drive investments, deals and employment gain in the region and in Israel. For additional information, please contact Barry Swartz, Vice President, Conexx (bswartz@ conexx.org). NOTES [i] TAG FinTech and the Financial Services Innovation Lab at the Scheller College of Business at Georgia Tech, 2018 State of Georgia’s FinTech Ecosystem, May 2018. [ii] TAG and the Scheller College of Business at Georgia Tech, 2019 Blockchain Ecosystem Flash Report, State of blockchain ecosystem in Georgia, 2019. LET CONEXX PLUG YOU IN You maybe be missing a great business opportunity in Israel, and Conexx can help you discover and develop it. For a quarter century, Conexx has introduced the right people and cultivated the right relationships to a  ect billions of dollars in economic development in the Southeast U.S. and Israel. Many of the Southeast’s biggest economic engines and employers have been cultivating business with Israeli companies for years, making use of Conexx’s broad and deep connections. Southern Company, Hartsfi eld-Jackson International Airport, Coca-Cola, IBM, and AT&T understand that if you want a source to all that is Israeli innovation, Conexx is the organization to work with to create relationships and results! ABOUT CONEXX Conexx: America Israel Business Connector is the premier America Israel business connector connecting businesses, investors, and infl uencers with business opportunities and technological developments in Israel. Conexx organizes business exchanges, networking events, and corporate business expeditions to Israel, all designed to inspire and support binational business. CONNEX OFFERS • Scouting in Israel • Industry Sector Expertise and Research • Connections to the Startup Nation • An Israel Advisory Board for connections • Expeditions to Israel DISCOVER THE BEST IN ISRAELI INNOVATION Conexx is uniquely qualifi ed to provide individual, tailored services to companies and individuals looking to do business in Israel. For 25 years, Conexx has successfully helped US companies navigate Israel in every industry and vertical. YOUR BRIDGE TO ISRAELI OPPORTUNITIES It might comes as a surprise that Israel is ranked second by Forbes as best country for innovation. The small, desert country is a hub for technology and its making waves with improvements that touch every industry from healthcare and cyber security to agriculture and artifi cial intelligence. Contact Conexx today to learn more and get plugged in with the best in Israeli business! conexx.org | [email protected] | 404-843-9426 14 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES We are pleased to bring you the 3rd Israel Desks League Tables, showcasing those law firms that are not only involved in Israeli deals and with Israeli clients, but also with a deep understanding of market trends, of their clients’ opportunities, and the challenges to overcome. After an extensive period of meetings, data collection and analysis, and a challenging 2020 for businesses, we would like to thank more than a third of all Israel Desks around the world for submitting a range of deals in M&A, high-tech, VC and private equity, real estate, and more - all helping to showcase their immense expertise to a hungry Israeli audience with a healthy appetite for international deals.With 2020 especially challenging, international law firms remained involved in M&A transactions relating to Israeli companies than ever before, with notable examples including the USD1. 4 Billion Innoviz SPAC merger. We reviewed the firms’ submissions, collected feedback and votes from the highest profile lawyers in Israel, and looked at factors including visits to Israel, local representatives, and relationships with domestic firms. This allowed us to identify those Leading, Prominent, Recognized, and Notable practitioners abroad, who take a proactive, instrumental and hands-on role with respect to Israel. Find out how the magic circle, U.S. powerhouses and other major international law firms fared in this, the 3rd edition of Israel Desks League Tables, as they battled for a greater slice of the Israel market. We are now compiling the 2021 data and the new rankings, featuring the 2021 league tables, will be published in April 2022. ALLEN & OVERY Having been active in the Israeli market for well over two decades, Allen & Overy (“A&O”) has one of the most formidable Israeli practices, which thrives under the leadership of Lee Noyek. This year, the firm took joint top spot in banking and commanded respect for its roles in some of the most striking M&A deals in the market. Highlights included advising XIO on the USD 1.2 Billion sale of Lumenis and acting for Bridgepoint’s €5.8 Billion buyout fund on its acquisition of Qualitest - an Israel-based AI-powered provider of quality engineering and testing solutions. A pillar of the firm’s Israeli offering is its deep experience advising across the energy and infrastructure sector. In 2020 the firm saw Ed Moser represent the lenders to the successful bidder for Israel’s largest desalination plant – the Sorek B desalination plant. The firm also showcased its strength in capital markets through a number of high-profile debt offerings in London and further afield, notably represented by Peter Crossan in the London office. A&O’s Israel offering also included litigation and arbitration - having acted for Keshet Broadcasting on its High Court victory against Black Cube, as well as on a string of arbitration matters globally. Lee Noyek acts as the firm’s presence on the ground in Tel Aviv, bringing significant experience of corporate finance, strategic M&A, divestments, joint ventures, public takeovers, refinancings and IPOs. ASSERSON UK-headquartered law firm Asserson continues to enjoy a strong presence in the Israeli market, with Israel Desks League Tables: 2020-21 The battle between the magic circle, U.S. powerhouses and other major international law firms for a greater slice of the Israel market continues unabated. The US-Israel Legal Review 2021 15 its largest office in Tel Aviv and a team comprising UK, U.S. and Israel qualified lawyers. Under the leadership of the well-known shining light, Tel Aviv-based Trevor Asserson, the team thrives in its provision of UK legal services to Israeli clients, particularly in the realm of litigation and real estate, taking pole position in both and flying high in employment law. Jointly heading the Dispute Resolution practice is Baruch Baigel, whose track record includes several high profile and high value claims in the UK High Court, three of which were listed by the Lawyer among the top 20 UK cases for the year, each of those cases for Israeli citizens, or people based in Israel. The team, includes Yisrael Hiller and Elliot Lister, earns widespread recognition for its expertise in commercial, real estate and construction-related litigation, while Trevor Asserson acted in a USD 50 million claim regarding a cyber security business. In real estate, David Prais leads the Israeli Real Estate team, after setting up the practice when he joined in early 2008. The team acts in acquisitions and disposals, forward purchases and funding, bank financing, site redevelopment and leasing work for property companies, pension funds, retailers, banks, developers, and private clients. Other key lawyers include Howard Rubinstein, head of the Business Law group, who has been substantially growing the Israel M&A and employment practices. Rachel Shaw, Oliver Harris and Hadie Cohen are involved in a raft of employment agreements and ongoing advice for Israeli companies. BERSAY Founded in 1995, Paris-based law firm, Bersay brings together a highly qualified 26-lawyer Israel Desk, which supports French and Israeli companies in their respective jurisdictions, with comprehensive expertise addressing the legal needs of businesses. The Tel Aviv office – opened since 2008 – is headed by Israel-based partner, Stéphanie BenmoussaMolkhou. A specialist in M&A, corporate law and commercial contracts, she and the team have been active on both buyer and seller side over the past 12 months. She also serves as Vice President of the Chamber of Commerce and Industry Israel-France. The team has been involved also in advising on employment contracts for Israeli companies, as well as IP, litigation, which is part of the practice of Jérôme Bersay, another integral figure in the team, who is also involved in corporate acquisitions, private equity, litigation and arbitration. BRYAN CAVE LEIGHTON PAISNER With over 35 years’ experience in the Israeli market, Bryan Cave Leighton Paisner (“BCLP”) has one of the longest standing and most extensive practices offering a raft of services to Israeli clients and Israeli-owned businesses across multiple sectors. Since the April 2018 merger between Bryan Cave of the U.S. and Berwin Leighton Paisner of the UK, the firm has further enhanced its offering to Israeli clients, today advising more than 150 Israeli/Israelrelated corporates and financial institutions (as well as family offices and their advisers) across a wide range of sectors. London-based Jonathan Morris and Tel Avivbased Paul Miller serve as Co-Chairs of the firm’s Israel Desk, alongside Ken Henderson in the New York office. Partner in the firm’s M&A and Corporate Finance team in London, Morris advised Amiad Water Systems on the purchase of a controlling stake by FIMI, one of the leading private equity firms in Israel, while Miller, with more than 25 years international experience, is a consultant in BCLP’s Tel Aviv representative office. They are well supported by more than 50 fee earners in the Israel Business Group, with 11 of BCLP’s offices regularly working with Israeli and Israel based clients. As well as flying high in M&A, the firm is prominent in litigation involving Israeli clients, with Oran Gelb and George Burn key figures in a team that has lately been supporting Israeli tech companies on a raft of employment, contract, real estate and IP disputes. CARTER LEDYARD & MILBURN Built on the foundation of 160 years of legal service, one of New York’s oldest law firms, Carter Ledyard Milburn (CLM) has been representing Israel-based companies for over 20 years in corporate, securities, M&A, as well as litigation, intellectual property, employment, real estate and more. The Israel practice group includes key figures Steve Glusband, who also chairs the firm’s Corporate department and Securities practice group, and Israel-born Guy Ben-Ami, a leader of the firm’s 16 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES Israeli Cross-Border practice. Both are regularly involved in a raft of commercial matters for clients, notably, over the past year, in the capital markets space – offering strategic advice in relation to a number of offerings, such as for global defense technology company, Netanya-based RADA Electronic Industries Ltd., in its USD 25 million public offering on the NASDAQ. CHARISH LAW GROUP U.S. boutique law firm Charish Law Group specializes in representing Israeli and U.S. companies and individuals as lead counsel in complex business litigation, international arbitration, and defense of white-collar and regulatory matters. The team thrives under the first-rate experience of its founder Michael Charish, in Jerusalem, who has spent 20 years handling complex litigations and investigations for clients ranging from individuals to Fortune 100 companies. With affiliates in New York and Israel, the team is a prime choice for the full gamut of complex civil and white-collar-criminal matters, as well as particular expertise in disputes relating to contracts and business torts. Having previously advised the New York subsidiary of Gett (previously known as GetTaxi), an Israel-based, global leader in on-demand mobility in a contract/tort dispute in the New York Supreme Court, this past year has seen the firm involved for a publicly traded Israeli real-estate company in New York Supreme Court litigation and appeal regarding corporate-governance and contract issues related to investments in a New York property. CLEARY GOTTLIEB Headquartered in New York, international firm Cleary Gottlieb (“Cleary”) wins striking acclaim for its experience in high-profile M&A, capital markets and high-tech transactions and litigation. During the past year, the firm advised on International Flavors & Fragrances’ merger agreement with DuPont for the merger of IFF and DuPont’s Nutrition & Biosciences business in a Reverse Morris Trust transaction, with Benet O’Reilly leading in the transaction. A member of the firm’s Israel Group, David Gottlieb has represented numerous Israeli clients throughout his legal career, including: Bank Hapoalim, Bank Leumi, Retailors and Israel Chemicals, and is very involved in capital markets transactions. Together with Pierre-Marie Boury, he represented Bank Leumi in a USD 750 million debt offering. The firm’s pedigree in litigation continues and had previously been underlined by its representation of D.B.S. Satellite Services (1998) Ltd. (“Yes”) and certain officers in a putative securities fraud class action brought in the United States District Court for the District of New York. CLIFFORD CHANCE A hugely active participant in the Israeli market for many years, Clifford Chance successfully harnesses its global reach to help Israeli clients reach international markets, and international clients access Israel. David Metzger, Michael Sabin, Adrian Cohen and Sam Clinton-Davis are big-hitters in an Israel group, which works across many practice areas to offer clients immediate access to one of the widest international professional networks around. Co-head of Clifford Chance’s US Funds & Investment Management Group, Hebrew-speaking Michael Sabin has an active Israel practice, advising Israel-based sponsors and investors on their fundraising and global investment activities. David Metzger, global head of Clifford Chance’s Construction Group, has been advising bidders and lenders on light rail projects in recent years. Having set up the firm’s Israel practice in the early 1990s, Adrian Cohen is a partner in Clifford Chance’s international restructuring and insolvency practice and has established a roster of strong relationships with Israeli institutions, companies and firms, With strong relationships with the world’s banks and financial institutions, the team is renowned for banking and finance work, energy and infrastructure, technology – recently providing regulatory advice to clients in the tech sector, and well versed in a raft of disputes, acting on disputes relating to construction and financing during the past year. Bettina Steinhauer led on the advice provided to J.P. Morgan in relation to TASE-listed ADO Properties’ £3.7 billion acquisition of Adler Real Estate. CMS CMS is one of the only European-focused major international law firms with senior equity partners [email protected] BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 130 international law firms with an Israel desk are competing for clients in a country the size of New Jersey. We know the market and we know how to make you succeed. We work with you closely to drill down to your specific objectives, draft and implement a strategy that produces results, in order to build a long-term strategic plan that positions you prominently in the eyes of buyers of legal services. SERVICES TO INTERNATIONAL FIRMS LOOKING TO INCREASE THEIR PRESENCE AND BRAND AWARENESS IN ISRAEL: Strategy and Business Development On the ground marketing Highly targeted round tables Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing [email protected] T. + 972-72-338-7595 BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 130 international law firms with an Israel desk are competing for clients in a country the size of New Jersey. We know the market and we know how to make you succeed. We work with you closely to drill down to your specific objectives, draft and implement a strategy that produces results, in order to build a long-term strategic plan that positions you prominently in the eyes of buyers of legal services. SERVICES TO INTERNATIONAL FIRMS LOOKING TO INCREASE THEIR PRESENCE AND BRAND AWARENESS IN ISRAEL: Strategy and Business Development On the ground marketing Highly targeted round tables Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing [email protected] T. + 972-72-338-7595 WWW.LEGALMARKETING.CO.IL YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 130 international law firms with an Israel desk are competing for clients in a country the size of New Jersey. We know the market and we know how to make you succeed. We work with you closely to drill down to your specific objectives, draft and implement a strategy that produces results, in order to build a long-term strategic plan that positions you prominently in the eyes of buyers of legal services. SERVICES TO INTERNATIONAL FIRMS LOOKING TO INCREASE THEIR PRESENCE AND BRAND AWARENESS IN ISRAEL: Strategy and Business Development On the ground marketing Highly targeted round tables Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing GLOBAL LEGAL MARKETING 18 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES on the ground in Israel and has been instrumental for Israeli clients looking to invest or grow abroad, as well as those businesses and investors looking to enhance their business in Israel. Within the Israel group, Andrew Besser and Louis Glass are key figures in the 25+ strong team, which has been busy in the past year in a range of fields, flying high in banking and active in corporate, employment, real estate, as well as in protecting IP. Together with Louis Glass, María González-Gordon has been advising the world’s leading online casino and e-games provider Group 888 Holdings on the prosecution strategy and filing of an opposition against an application that conflicts with its iconic trademark 888. She has also advised Israel’s Adama Group, in drafting the strategy for protecting their global trademark in court proceedings, while London-based Gareth Morgan acted for Teva in relation to an action commenced in the Patents Court in August 2020 against Sanofi. Clients also benefit from the firm’s fluent Hebrew speakers and key relationships with Israeli banks and corporates, prominent start-ups, and well-known lawyers and accountants for more than two decades. DECHERT Having built a global platform across 26 locations, the Philadelphia-born firm Decherts has been involved in the M&A field, notably through Adam Levin, who co-heads Dechert’s Corporate group in London. In an extensive roster of international corporates, private equity groups and high net worth individuals, he has advised on a slew of VC investments by Israeli investors in the tech space. DLA PIPER The global knowhow and resources of DLA Piper ensure that it is regularly involved in the Israeli market. From the U.S. to Latin America, Europe to Asia, the firm’s Israel country group comprises more than 100 lawyers who advise global clients on M&A and other transactions in Israel and Israeli clients with their strategic objectives abroad. Jeremy Lustman helps lead the Israel group and spends significant time in Israel having developed a strong international network of Israeli companies, investors, entrepreneurs, bankers, accountants and local lawyers. Nowhere has this global experience proven more valuable than in the high-tech sector, intellectual property and employment law, securing first place in all three fields, with the team advising household names in Israel on their employment needs abroad, including recruitment, terminations, policies and procedures, and much more. In the last year, DLA represented Haymaker Acquisition Corp. II., a publicly-traded special purpose acquisition company, in its USD2 Billion business combination with ARKO Holdings Ltd., an Israeli public holding, with New York partner Stephen Alicanti leading, while Toronto partner Noam Goodman acted for the lead underwriter in connection with the financing of the Israeli company, Innocan Pharma Corporation. FOX ROTHSCHILD A bridge between Israel and the U.S., Fox Rothschild‘s 31-strong nationwide Israel practice group is a prime destination for Israeli clients launching or expanding into U.S. markets. The group’s work is driven by Sarah Biser, Mark Hess (now retired) and Michael Sweet in the New York, Los Angeles and San Francisco offices respectively, with technology and innovation at the heart of the firm’s extensive client roster. The firm’s transactional and regulatory expertise has stood out in the past year, with clients also turning to the firm’s depth of resources and talent in relation to employment, intellectual property, litigation and arbitration, and real estate. Heavily involved in litigation involving Israeli parties, the firm is also involved in compliance work, with Philadelphia-based partner Odia Kagan, the Chair of GDPR Compliance & International Privacy group, and now co-chair of the Israel group, advising Israeli clients on such key issues over the past year. FRESHFIELDS BRUCKHAUS DERINGER As one of the most impressive names in the Israeli market, Freshfields’ Israel group is one of the pacesetters and emerges with two top spots – in banking and energy and infrastructure. Adir Waldman is on the ground in Israel, leading a multijurisdictional team of Freshfields lawyers dedicated to advising Israeli clients and businesses with interests in Israel. Among the team is New York partner Menachem Kaplan, whose practice encompasses IP, licensing, joint ventures, and emerging technologies, and Tel Aviv based Chaim home away from home, your launch pad to the North American market www.NEIBC.org [email protected] +1.617.320.1862 New England Israel Business Council g g _y g 20 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES Seligman, who is fronting the Tel Aviv office’s tech initiative and brings clients a background of Private and Public International Law. With the Israeli banking sector undergoing a transformation, Freshfields advised U.S. private equity giant Warburg Pincus on its acquisition of Leumi Card (Max) and follow-on matters including their first milestone payment in February 2020. Both Adir Waldman and London-based Patrick Ko were involved. The firm’s London office also advised Leumi Partners on their first investment outside of Israel, a co-investment alongside Blackstone in the Dutch bank NIBC. Simon Orton and James Smethurst, who heads the firm’s financial institutions regulatory practice in London, were involved in the €1 billion investment. Freshfields is also active in providing M&A, capital markets, energy and infrastructure, regulatory advice, and much more. For example, Freshfields also provides ongoing regulatory advice to Israeli-owned and headquartered, SodaStream on its operations in key European jurisdictions. The Group flies high in the Litigation and Arbitration table, with a successful track record in some of the highest-caliber dispute resolution matters in the Israeli market. Among a raft of matters, the team advised VW on claims brought against it by the State Prosecutor’s Office of Israel in relation to the Israeli aspects of the global emissions scandal and advised Sotheby’s, in which we advised them on the L.A. Mayer Museum of Islamic Art dispute. GOODWIN Attorneys in Goodwin’s Israel Practice have significant experience working with Israeli businesses as well as internationally-based investors in Israeli companies. The firm’s position in the IsraelDesks rankings owes much to its track record in a number of areas, especially private equity, venture capital and technology. With a successful track record in relation to emerging companies, Goodwin advised on the flagship USD 900 million acquisition of Moovit by Intel in May 2020, an acquisition that will enable Intel to develop self-driving robotaxis that could take to the streets in early 2022. Goodwin also advised on a string of investments and capital markets transactions. San Francisco-based Brian McPeake advised on the investment by Bain Capital into Israeli startup BioCatch, as it raised USD 168 million of Series C venture funding; Washington DC partner Alese Bagdol acted as counsel to U.S. VC firm, Sequoia Capital Global Equities in its USD 267 million Series F Preferred Stock investment of Israel-founded Sentinel Labs; and Boston-based Mitchell Bloom, who chairs the firm’s Life Sciences practice, advised on the NASDAQ public offering of Israel’s Vascular Biogenics. GOWLINGS Multinational law firm Gowling WLG takes the Patent crown this year, respected by Israeli law and patent firms for its trademark and patent filing practice in Canada, Russia and elsewhere. The 42-strong Israel desk is co-led by Susannah Fink and Jason Saltzman. Clients benefit from Fink’s experience as a commercial and insurance litigator in complex and multi-jurisdictional disputes, while Saltzman advises, inter alia, on M&A transactions by or of Israeli companies, IPOs and listings of Israeli companies on international stock exchanges, and more. An expert in IP, Dubai-based Jon Parker acts for numerous clients in Israel and has been involved in a number of trademark applications. During the past year, the firm advised PlantX Life Inc. with respect to its USD 11.5 million non-brokered private placement of units of the company, co-led by the client founder and Psagot Investment House Ltd., an Israeli investment firm and Israel’s largest pension fund manager. Gowlings was formed from the merger of Canada-based Gowlings and UK-based Wragge Lawrence Graham & Co in February 2016, in the first multinational law firm merger co-led by a Canadian firm. GREENBERG TRAURIG With a multidisciplinary office in Tel Aviv, Greenberg Traurig’s 100-plus Israel Practice is one of the larger gateways for outward-looking Israeli businesses and entrepreneurs, as well as for nonIsraeli clients looking to expand their presence in Israel. Active for more than 15 years in the market, the team is led by Managing Shareholder of the Israel office, Joey Shabot, who has represented key local players, including Harel Group on the USD 250 million acquisition of a 10% interest in a building in midtown Manhattan, one of the largest real estate A leading provider of legal intelligence Do you want to receive a tailored legal newsfeed relevant to your work area and jurisdiction? 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Please keep providing it.” Monique Boutet Senior Corporate Lawyer Canon Australia Pty Ltd 22 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES transactions to close in New York City this past year. The Israel Group is packed with instrumental figures, such as Tel Aviv-based Lawrence Sternthal, who leads the International Real Estate department in Israel, which took top spot. The firm was also involved in M&A and advised Israeli company ARKO Holdings Ltd., on its SPAC merger with Haymaker Acquisition Corp. II. Miami-based co-chair of the firm’s Corporate practice, Alan Annex led on the landmark transaction in 2020, one of deals for the firm that total more than USD 25 billion. A key player in banking, regulatory, commercial litigation and employment, Greenberg Traurig’s team also includes Meira Ferziger, who brings more than 25 years’ employment law experience as it relates to Israeli companies operating in the U.S., and Adam Snukal, who has worked with Israel’s leading start-ups, representing over 30 hi-tech clients this past year alone. HERRICK FEINSTEIN New York-based law firm, Herrick boasts a vibrant Israel practice group that is an integral part of the firm’s broader global experience. Connected with major Israeli law and accounting firms, the group is especially recognized by IsraelDesks rankings for a depth and diversity of experience in the real estate sector. Co-chairing the firm’s Israel practice group is Real Estate partner Yariv Ben-Ari, who ats for real estate lenders, trustees, servicers, owners, operators, developers and contractors on a variety of sophisticated matters. An Israeli-American, he also helps foreign developers and investors in their U.S. real estate transactions, as well as U.S. clients seeking outbound investments in Israel. He and the team advised Migdal Insurance Company Ltd. and Menora Mivtachim Insurance Ltd., two of the largest Israeli insurance companies, in the negotiation of a joint venture with Silverstein Properties to acquire the U.S. Bank Tower in downtown Los Angeles for USD 430 million. The team also represented Bank Hapoalim in the workout of multiple loans secured by assisted living and licensed nursing home facilities in the U.S., as well as in the workout and foreclosure of loans secured by unsold condominiums in the U.S. HOGAN LOVELLS Even before the official formation of the Israel Practice Group in 2012, Hogan Lovells has been involved in the Israeli market. With almost 3,000 lawyers across almost its global office network, the group comprises Israeli Bar Association members, citizens, and fluent Hebrew speakers. From life sciences and energy, technology and healthcare, Hogan Lovells helps companies to expand in Israel or Israeli companies do more business abroad. Performing well in real estate, highlights include the representation of Israel-based Fattal Hotel Group on its acquisition of four Grange hotels in central London from real estate investment firm Queensgate Investments, as well as Salesforce in its definitive agreement to acquire Bonobo. The firm has a regulatory practitioner based in Rehovot, who is dedicated to providing local and real-time support for Israeli medical device and life sciences companies seeking U.S. Food and Drug Administration (FDA) approval. HOWARD KENNEDY Howard Kennedy is recognized for its strong track record of advising Israeli clients across real estate, capital markets and private wealth. London-based Charles Maxwell heads the team and is supported by a network of strong connections. The firm’s Israeli clients are made up of highnet-worth individuals and families, entrepreneurs and corporates, which instruct the firm on corporate, real estate, litigation, private client and family issues. Last year’s workload includes a string of high profile commercial and residential acquisitions in the real estate sector – for a particular flagship Israeli investor client, but the firm is attracting a wider client base investing in the UK real estate market. KOBRE & KIM Focused exclusively on disputes and investigations, Kobre & Kim enjoys a commanding reputation for representing Israeli clients in cross-border disputes involving Israel, the U.S., Europe, Asia and other jurisdictions. As the only firm with a former U.S. federal prosecutor based full time in Israel, Robert Henoch, heads the group, which specializes in assisting Israeli clients in complex international government investigations. Michael Rosen and Jeremy Bressman also feature prominently in a compact, tight-knit team, which earns significant roles in sensitive and high-profile litigation and also helped Israeli start-ups through the launch of a Litigation fund in 2018, in partnership with litigation finance firm IMF. While much of the work remains confidential, the team has been representing Israeli tech companies in a raft of commercial disputes, as well as HNWs in disputes over assets held abroad. LATHAM & WATKINS Latham & Watkins’ (“Latham”) Israel Practice leverages its global reach to provide strategic advice to Israeli clients on some of the highest profile and highest value M&A and capital markets transactions in the Israeli market. In 2020, few transactions matched the headlines written by Israeli-U.S. company Mellanox Technologies – represented by Latham - which was sold for USD 7 billion to NVIDIA Corporation. In capital markets, Latham advised Vroom on its NASDAQ IPO – valued at over USD 530 million; Lemonade on its NYSE IPO – valued at over USD 360 million; and Wix on its 0% Convertible Senior Notes - valued at USD 575 million. Latham also acted for Owl Rock Capital in relation to the term loan and revolving credit facility in connection with Hellman & Friedman LLC’s USD 300 million acquisition of Checkmarx Ltd., an Israel-based enterprise software development company. Joshua Kiernan and Stuart Kurlander in the London and Washington D.C. offices are instrumental figures in the team, which regularly advises on initial public, follow-on and private offerings, as well as a string of SPAC transactions. MCDERMOTT WILL & EMERY Backed by the multidisciplinary resources of the firm’s 20 offices, McDermott Will & Emery (“McDermott”) is known for extensive transactional advice, particularly capital markets transactions. In this category, the firm emerged at the head of the pack for the third year after a string of capital markets instructions and regular day-to-day work involving Israeli clients across many cutting-edge sectors, especially technology, bio-tech and life science. McDermott also showcased banking and M&A advice, as well as employment counsel for Israeli parties with regards to U.S. employment law The Israel Desk is headed by New York corporate and securities partner Gary Emmanuel, who brings clients more than 20 years’ experience, especially in relation to capital raising, IPOs, registered direct and follow-on offerings, private placements, and much more. Fellow New York partner Mark Selinger is another key figure in the team having represented Israeli companies doing business internationally since 1994. While most of his Israeli clients are NASDAQ-listed public companies, he also represents emerging private companies, primarily in the technology and life sciences sectors. Emmanuel recently advised Israeli company, My Size Inc., the developer and creator of smartphone measurement solutions, on its public offering on NASDAQ, while Selinger represented Israel’s Check-Cap Ltd., a clinical stage medical diagnostics company, in its registered direct offering, also on NASDAQ. Delaware partner, Ben Strauss is another instrumental figure, often acting as special Delaware and U.S. counsel for Israeli based clients in connection with mergers and acquisitions, private placements, investment rounds and public offerings involving Delaware corporations and alternative entities. MEMERY CRYSTAL Founded over 40 years ago, London-based Memery Crystal is recognized as one of the UK’s leading law firms in its specialist areas. Memery Crystal’s Israel Desk helps Israeli businesses and entrepreneurs to the London markets, to raise capital and supports Israeli investors, especially in relation to real estate. During the past year, the team, led by partner Daniel Tunkel, advised on the acquisitions and sales of apartments, mixed-use developments, leases and much more. SQUIRE PATTON BOGGS The spotlight shines brightly on the 35-strong Israel Desk at Squire Patton Boggs, which is widely recognized by Israeli clients for its comprehensive advice in the employment field. Led by London’s Miriam Lampert, who brings clients more than 17 years’ experience of working in the Israeli market and an understanding of the UK ecosystem, with her role co-leading 1,370-member, Israeli Tech Parliament, one of the main networking groups for the Israeli tech community in London. Recognized for its expertise in the hi-tech sector, the team advises high profile Israeli corporates, 24 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES particularly in the tech and financial services sectors, and showcases a wealth of experience in understanding the issues facing companies operating in the cybersecurity, fin-tech, med-tech and smart transportation sectors, recently expanding its Israeli client base and including a tech unicorn. This technology expertise is also shared by Sungbo Shim, one of few lawyers in China with a track record of advising Israeli companies doing business in the region, especially in corporate, commercial and labor and employment matters throughout China, Japan and South-East Asia. TAYLOR WESSING Entering this year’s rankings is the Israel Desk of international law firm Taylor Wessing, which has made an impact with its focus on dynamic sectors, including high-tech, life sciences and healthcare, real estate, and banking. The firm has made impressive strides under the guidance and experience of London-based Josef Fuss and Israel-based Nathan Krapivensky, who co-head the Israel group. The Israel group has taken a prominent role advising on a string of investments and venture capital transactions, with its corporate technology team acting for Israeli investors, companies, entrepreneurs and management teams on all aspects of venture capital, M&A and joint ventures. While the firm is visible also in litigation, banking and IP, there are significant real estate and employment matters, with the team advising on acquisitions, sales, corporate and residential leases involving Israeli parties, as well as providing a wide array of employment, immigration, contracts and policy advice. WHITE & CASE One of the most preeminent firms with a commitment to Israel spanning several decades is White & Case, which, this year, took the M&A crown, for the second successive year. Through the depth of its expertise in the firm’s London and New York offices, the team is a go-to group for sophisticated and high-quality instructions and is one of the go-to law firms in Israel related M&A. The team thrives under the leadership of New York-based Colin Diamond – one of the lead lawyers on U.S. IPOs by Israeli issuers - and London-based Daniel Turgel, committed to the Israeli market for more than a decade. We also make special mention of Tali Sealman, who together with Dan Turgel, represented dual-listed NICE Actimize in a definitive agreement to acquire Guardian Analytics, a leading AI, cloud-based financial crime risk management solution provider. Previously with FBC and Cooley, she acts for Israeli companies, companies formed by Israeli expats and US companies with their dealings in the Israeli market. The wider team is regularly immersed in a broad range of industries in Israel, including high-tech, healthcare and medical devices, clean-tech, agriculture, real estate, energy and oil and gas, chemicals, consumer products and financial services. With deep roots in M&A and capital markets, White & Case has been advising the State of Israel on its offering of USD 1 billion 2.500% bonds, due 2030, and USD 2 billion 3.375% bonds due 2050, under its U.S. registered shelf program. ZEK Founded in 1980, Zeichner Ellman & Krause LLP (“ZEK”) has more than 40 lawyers spread across its New York, New Jersey, Connecticut, Washington DC, as well as a foreign office in Tel Aviv. In fact, ZEK was the very first law firm to be certified as a foreign attorney’s office by the Israel Bar Association. Daniel Rubel heads the Israel Group, which has been representing Israeli clients on a wide variety of U.S. legal issues including corporate and securities matters, commercial litigation, bankruptcy, banking regulations, U.S. government investigations, as well as Israeli businesses who have opened new operations in the U.S. Rubel handles multiple cross-border disputes for Israeli clients, including disputes over control of large U.S. assets and corporations, commercial disputes over contractual agreements and enforcement of loan agreements in favor of Israeli lenders against US based borrowers. He frequently acts alongside the firm’s executive partner, Stuart Krause, who also leads cross-border litigation, while Bruce Goodman has worked with multiple Israeli clients who are publicly traded companies in the US in complex litigation and has also represented Israeli companies in cross-border mediations. The firm has been involved in representing a number of Israeli companies previously affiliated with prolific businessman Eliezer Fishman, whose bankruptcy became one of Israel’s most landmark cases. FIRM RANKINGS BY PRACTICE M&A Volume Position Law Firm M&A 1 White & Case 14 2 Greenberg Traurig 10 3 Bryan Cave Leighton Paisner 9 3 DLA Piper 9 4 Freshfelds Bruckhaus Deringer 7 4 Latham & Watkins 7 5 Pearl Cohen USA 6 6 Allen & Overy 5 6 Goodwin 5 7 Asserson 2 7 Clifford Chance 2 7 Hogan Lovells 2 7 McDermott Will & Emery 2 Real Estate Position Law Firm Volume 1 Greenberg Traurig 24 1 Asserson 24 2 Herrick 14 2 Taylor Wessing 14 3 Howard Kennedy 9 4 DLA Piper 8 5 Memery Crystal 6 6 Bryan Cave Leighton Paisner 5 7 CMS 4 M&A Value Position Law Firm M&A Value ($M) 1 White & Case 14 9,900 2 Clifford Chance 2 5,950 3 Freshfields Bruckhaus Deringer 7 2,754 4 DLA Piper 9 2,231 5 Latham & Watkins 7 2,169 6 Greenberg Traurig 10 2,130 7 Goodwin 5 1,436 8 Allen & Overy 5 985 9 Hogan Lovells 1 900 10 Bryan Cave Leighton Paisner 9 804 26 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES Litigation Position Law Firm Volume 1 Asserson 37 2 Freshfelds Bruckhaus Deringer 28 3 DLA Piper 18 4 Greenberg Traurig 10 5 Bryan Cave Leighton Paisner 8 6 Kobre & Kim 7 7 Taylor Wessing 6 7 ZEK 6 8 Bersay 5 8 Fox Rothschild 5 8 Clifford Chance 5 8 McDermott Will & Emery 5 9 Allen & Overy 4 9 Charish 4 9 Cleary Gottlieb 4 Employment Position Law Firm Volume 1 DLA Piper 63 2 Greenberg Traurig 47 3 Asserson 33 4 Squire Patton Boggs 23 5 Taylor Wessing 10 6 Bersay 8 7 Fox Rothschild 7 7 McDermott Will & Emery 7 8 CMS 6 9 Bryan Cave Leighton Paisner 5 Patents Position Law Firm Volume 1 Gowling WLG 17 2 CMS 7 2 Fox Rothschild 7 3 Greenberg Traurig 6 4 DLA Piper 5 IP Position Law Firm Volume 1 DLA Piper 23 2 Greenberg Traurig 12 3 CMS 5 3 Freshfelds Bruckhaus Deringer 5 3 Taylor Wessing 5 4 Bersay 4 Capital Markets Position Law Firm Volume 1 McDermott Will & Emery 19 2 Latham & Watkins 14 3 White & Case 10 4 Goodwin 9 5 Greenberg Traurig 8 6 Carter Ledyard & Milburn 6 7 Freshfelds Bruckhaus Deringer 4 8 Allen & Overy 3 8 Cleary Gottlieb 3 8 Gowling WLG 3 9 Bryan Cave Leighton Paisner 2 The US-Israel Legal Review 2021 27 Hi-Tech Position Law Firm Volume 1 DLA Piper 66 2 McDermott Will & Emery 47 3 Greenberg Traurig 39 4 Goodwin 31 5 Fox Rothschild 28 6 Taylor Wessing 26 7 Latham & Watkins 17 8 Squire Patton Boggs 16 9 Freshfields Bruckhaus Deringer 15 10 Allen & Overy 8 10 Dechert 8 11 Bersay 7 12 ZEK 6 Banking & Finance Position Law Firm Volume 1 Allen & Overy 11 1 Freshfields Bruckhaus Deringer 11 2 CMS 10 3 McDermott Will & Emery 8 4 Clifford Chance 6 5 Greenberg Traurig 5 6 Fox Rothschild 3 6 Latham & Watkins 3 6 Taylor Wessing 3 7 Bryan Cave Leighton Paisner 2 7 Bersay 2 7 Cleary Gottlieb 2 7 ZEK 2 Energy & Infrastructure Position Law Firm Volume 1 Freshfields Bruckhaus Deringer 16 2 Allen & Overy 8 3 Clifford Chance 4 4 CMS 2 5 Bryan Cave Leighton Paisner 1 INDIVIDUAL RANKINGS Leading Name Firm Lee Noyek Allen & Overy Jonathan Morris Bryan Cave Leighton Paisner Jeremy Lustman DLA Piper Adir Waldman Freshfields Bruckhaus Deringer Josh Kiernan Latham & Watkins Prominent Name Firm Jason Saltzman Gowling WLG Joey Shabot Greenberg Traurig Mark Selinger McDermott Will & Emery Ben Strauss McDermott Will & Emery Miriam Lampert Squire Patton Boggs Nathan Krapivensky Taylor Wessing Daniel Turgel White & Case 28 The US-Israel Legal Review 2021 ISRAEL DESKS LEAGUE TABLES Recognized Name Firm David Metzger Clifford Chance Louis Glass CMS Michael Sweet Fox Rothschild Robert Henoch Kobre & Kim Stuart Kurlander Latham & Watkins Gary Emmanuel McDermott Will & Emery Josef Fuss Taylor Wessing Colin Diamond White & Case Tali Sealman White & Case Daniel Rubel ZEK Notable Name Firm Trevor Asserson Asserson Steven Glusband Carter Ledyard & Milburn Adam Fleisher Cleary Gottlieb Daniel Ilan Cleary Gottlieb Michael Sweet Fox Rothschild Odia Kagan Fox Rothschild Susannah Fink Gowling WLG Yariv Ben-Ari Herrick Feinstein Michael Rosen Kobre & Kim Daniel Tunkel Memery Crystal With a long history of providing legal services to Israeli-based companies coupled with the expertise to steer clients through the legal landscape of the cybersecurity industry, we work with clients who are keenly focused on the future and offer sophisticated advice within a culture that provides innovative problem solving. At Carter Ledyard, WE ARE YOUR PEOPLE WWW.CLM.COM 2 WALL STREET NY, NY 10005 T: 212.732.3200 ANTITRUST ART LAW CANNABIS CAPITAL MARKETS CORPORATE CYBERSECURITY EMPLOYMENT LAW ENVIRONMENTAL AND LAND USE FINANCIAL SERVICES INSOLVENCY AND CREDITORS’ RIGHTS INTELLECTUAL PROPERTY WHITE-COLLAR AND INTERNAL INVESTIGATIONS INTERNATIONAL BUSINESS LITIGATION M&A REAL ESTATE SECURITIES TAX TAX-EXEMPT ORGANIZATIONS TRUSTS & ESTATES 30 The US-Israel Legal Review 2021 IN-HOUSE COUNSEL ROUNDTABLE Global Legal Media conducts a roundtable discussion with Vivian Goldstein, Senior Vice President, General Counsel and Chief Compliance Officer at Netafim; and Ronit BernsteinAvrahams, Senior Vice President and Deputy General Counsel at Playtika Holding. Global Legal Media: Vivian, as we conduct this interview, the world is meeting at COP26. Netafim was started in 1965, trying to grow crops in the Negev desert in Israel, way before climate change was pushed to the forefront of the global political agenda. You are now the world’s leading irrigation company. Can you summarise for us how you transitioned from farmers to a billion dollar enterprise today? Vivian Goldstein: Netafim was established to answer a critical necessity – to grow crops in the desert. Over the years we gradually grew, first in Israel, serving farmers all around the country, and then, starting from the 1980’s, all around the world, with 33 subsidiaries and serving farmers in more than 110 countries, in all continents of the world. As an Israeli company, innovation was always a main driver for our success- first in the revolutionary introduction of drip irrigation to the world, which enables significant yield improvement while saving water, energy, carbon emissions etc. in fact, our mission as a company was and is to “help the world grow more with less”. Later on, our innovation kept leading the way for us in other aspects as well, as in our leading agronomic knowledge of how to improve and optimize crop growing, new business models as our “community irrigation”, which brings drip irrigation to large communities of smallholders in one large-scale projects (>10K farmers in a single project) or in our most recent revolution of leading the digital farming arena, by introducing the most advanced smart systems of monitoring, analysing and controlling irrigation, fertigation and much more. Except leading by innovation, a key contributor of our success, was the understanding of farmers’ needs, while having the leading capabilities and knowledge to answer those needs. With that said, sustainability was always in In-House Counsel Roundtable: From Start-Ups to Superstars Israel is famous as the world’s Start-Up Nation, but its start-ups are now transforming into billion dollar global corporations. We take a closer look at two of these companies, Netafim and Playtika Holding, through the eyes of their General Counsel and Deputy General Counsel respectively; and we find out what makes these GCs tick. The US-Israel Legal Review 2021 31 our DNA, long before it was a popular theme in the world, as our solutions contribute directly to major problems as increasing food security, significantly reducing GHG emissions, empowering communities and other key aspects needed to contribute to the sustainability of the world and the communities all around it. Global Legal Media: And Ronit, Playtika was founded in Israel in 2010 as a digital entertainment company specializing in free to play mobile games. Can you trace for us the company’s meteoric rise from start-up to an IPO listing at the beginning of 2021 with an $11billion valuation, the largest in Israeli history? Ronit Bernstein-Avrahams: Playtika is led by our CEO & co-founder, Robert Antokol, who has managed it since its inception in 2010, transforming the company from a small games business, through numerous acquisitions and steady organic growth, to becoming one of the largest mobile games companies in the world that creates gaming experiences and reshapes the global gaming landscape using cutting-edge technologies in LiveOps, Data Analytics, and Performance Marketing. Playtika was acquired by the US-based Caesars Interactive Entertainment, Inc. a year following its establishment. I joined Playtika in 2012 as its first in-house counsel, and together with a gradually growing team we have experienced and supported the company’s global expansion, including the sale by Caesars of Playtika in 2016, and its IPO in January 2021 where our common stock began trading on the NASDAQ Global Select Market. Through successful M&A and strategic recruiting efforts, we have grown to over 4,000 employees in over 19 sites around the world. Hand in hand with the extensive product and business expansion, the legal department has expanded from one person to today’s impressive, international group of over 20 talented inhouse counsels, working in tandem to support the different departments’ needs, protect the company’s interests, and minimize its legal risks, while taking into consideration the player’s experience as well. Global Legal Media: Vivian, Netafim is now spread across 110 countries, and you are in charge of all legal affairs for the whole group. That’s a huge responsibility. Can you tell us about the structure of your legal department in dealing with the various local legal issues? Vivian Goldstein: Sure, I am in charge of the entire Netafim Group Legal support. Being an SVP and part of the Company’s senior management group gives me a wide, updated, and deep understanding of the company and business. We are 11 lawyers located in Tel-Aviv (HQ), India, China, Brazil, Peru, Colombia and Mexico. One of our lawyers is a full time compliance manager. Netafim, as part of the Orbia Group, puts its ethics norms and compliance with anti bribery and corruption laws and regulations, anti-Trust laws and more – as a very high priority. The legal team is fully integrated into business and support, its business development activities, procurement, IP, R&D, HR, corporate and more. Global Legal Media: Vivian, you started your career in private practice before moving to senior in-house roles. Can you tell us about your decision to go in-house? Vivian Goldstein: Yes, I have always found it more interesting and enriching, being part of a business and not being a “Consultant”. Understanding the VIVIAN GOLDSTEIN RICHTER SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CHIEF COMPLIANCE OFFICER RONIT BERNSTEINAVRAHAMS SENIOR VICE PRESIDENT AND DEPUTY GENERAL COUNSEL 32 The US-Israel Legal Review 2021 IN-HOUSE COUNSEL ROUNDTABLE business and organization culture is, I believe, the basis for the best legal counselling possible. It is an opportunity to be part of a multidisciplinary group, thinking, challenging and problems solving. This is the best way to implement our experience and knowledge in law. Global Legal Media: And Ronit, what prompted your move in-house? Ronit Bernstein-Avrahams: Following my international LLM studies and practical experience at the European Commission in Brussels, I returned to Israel and joined Herzog, Fox & Neeman law firm (Herzog) as a junior associate in the international high-tech & online gaming department, providing commercial & regulatory multilingual legal advice to international gaming clients. My inspirations were less about becoming a partner in a law firm, but more about becoming a true partner of the business. During my practice at Herzog, my involvement with clients was limited. I never knew if certain legal advice was adopted and if so, whether it was implemented within the company. Even though the firm’s clients were happy with the deep businessoriented legal analyses and quick responses, I wished to be more involved, and provide my legal perspective while having all relevant data at my disposal, both business and product-wise. In addition to the above professional interests, I do believe that a character component needs to be recognized as well with respect to such a career shift. I have a high level of loyalty, sense of identification, and a strong integrity core. Together with agility and passion to my profession, it allows me to provide business-oriented legal advice, enabling the wheels of the business to continue spinning while acting as a true gatekeeper of the company, protecting it and its management. Such inspiration could have been fulfilled by turning to the in-house practice. In essence, being an in-house counsel provided me the ability to give a precise relevant legal service to a sole client and allowed me to be a true BLP (Business Legal Partner) integrated into the business, the product, the team members, and the management. In my vision, an in-house counsel has a bigger role as a counsel, having a more meaningful place within the organization, building a legal backbone within the company, and introducing legal processes close-knitted to all the business departments. I will not disregard the notion that being in-house limits the professional perspective of a counsel and the variety of legal issues one encounters, but I do recognize the growth which arises from the business and organizational aspects. Being an in-house counsel is a mindset. Balancing legal risks while considering the needs of the business and at the same time pursuing compliance with laws, may often be a challenge and this is the essence of the role. While building the legal department and recruiting other attorneys to our team, most of them coming from law firms, I have observed the inherent conflict which accompanies them from the start until they have transformed their mindset into working in-house; this is a wonderful challenge for me as a manager and a passionate in-house counsel. I encourage counsels to address the in-house practice as a career path, but I repeatedly state that such a career shift should be done after practicing law in a law firm for a significant number of years. Nothing can replace the experience and legal professionalism one obtains by working for several years in a law firm with a variety of clients, encountering a range of practices and industries. I will always be thankful for the experience and tools obtained at Herzog while working there. The “Herzog school” gave me the foundation to excel once I chose to be an in-house counsel, first at Logia Group and now at Playtika. Global Legal Media: Vivian, what range of work Being an in-house counsel is a mindset. Balancing legal risks while considering the needs of the business is the essence of the role The US-Israel Legal Review 2021 33 does your role as General Counsel and Chief Compliance Officer cover, and how varied are the legal issues that Netafim faces from country to country? Vivian Goldstein: As mentioned, we cover the entire “Legal Service” and Compliance training and implementation in Netafim. Naturally, this is very diversified. The countries which do not have an Inhouse Netafim Counsel, are supported by the team at HQ. In my position, I manage the people as well as the legal work, while enabling our team to grow. We empower our employees, and part of this is giving our lawyers the highest position possible, within the business unit they work in. Not all subsidiaries have the same business models. Also, part of them are also manufacturing companies. Thus, the issues we deal with are varied. We also support the Board of Directors activity. Global Legal Media: And Ronit, what range of work does your role as Deputy GC and Senior Vice President Global Legal Affairs cover? Are you dealing with more or less the same legal issues as you were on the law firm side of the table – internet, e-commerce and gaming regulatory practice, etc.? Ronit Bernstein-Avrahams: The legal issues concerning internet, e-commerce, and gaming regulatory practice have remained relevant in the in-house practice since I have remained in the same technology-driven gaming industry. However, my role at Playtika has significantly evolved over the last decade in direct correlation to the growth of the company, the shift from private company to a public listed one and the industry’s challenges. Playtika’s growth happened at a fast pace and the legal team have grown along according to the needs of the business. The legal team expanded globally as a hybrid team of both expert in-house counsels mainly in the Israeli HQ, together with offshore professional generalists in our large sites. I am a true believer in strong in-house practices, managing legal risks while understanding the big picture, and obtaining all relevant data that can enable the business to achieve its goals while minimizing legal exposure. Today, as Playtika’s Deputy General Counsel, my role encompasses three main core responsibilities: First and foremost, I am the right hand of the General Counsel, Michael Cohen, on site at HQ. I am in charge of integrating the department’s vision, strategy and decisions into our internal legal practices and externally to the onsite business teams in a coherent and clear way. At the same time, I act as the most senior and veteran legal focal point to the senior management and the shared services management with respect to out of the ordinary, strategic legal assignments. Together with the legal managerial team we make sure we are all strategically planning the global team expansion, working in tandem vis-à-vis the business and the global legal team, and pursuing our department guiding themes focusing on “PROTECT - COOPERATE - EDUCATE - VALUE”. We provide legal services for the sake of protecting the business, doing so by cooperating with the business and at the same time educating the business teams to enable them to make educated decisions. By doing so we bring value to the company. We are here not to say “No”, but to say “How”. Secondly, I act as a professional legal manager, directly supervising the Israeli legal team that practices global employment projects, global intellectual property strategic expenditure, global commercial work, new product approval, marketing engagements, B2C legal challenges, and different projects of legal product analyses. In addition, I oversee the in-house legal practice in our growing Romanian site. Regulatory aspects of the gaming industry have occupied me significantly in my previous law firm practice and continues to occupy me these days as well. I represent Playtika on the board of the International Social Gaming Association (ISGA). We empower our employees, and part of this is giving our lawyers the highest position possible, within the business unit they work in 34 The US-Israel Legal Review 2021 IN-HOUSE COUNSEL ROUNDTABLE - a non-profit trade association for social games companies. As the legal team expanded and the mutual update and flow of information withing the teams became more of a challenge, I started focusing on legal tech and legal innovation projects aiming to produce efficient work streams and updates internally within the legal department. My third responsibility, which I see as the most challenging and meaningful one, is the legal mentoring, team development, and personal growth and career path planning for each counsel in my team. It can be easily understood that I am a long-distance runner (as a professional and as a private person) and I strive to run fast and for long distances with my legal team in Playtika. Retaining talented, professional counsels in today’s legal recruiting market, and the Y generation ramification in the working sphere, especially in Israel, is a true challenge and cannot be achieved solely with benefits and compensation. Together with each counsel in my team we plan individual growth channels, consider internal mobility options to keep professional interest and develop organizational behaviour skills and tools to better service the business. In the framework of the ACC Mentoring Programs, I act as legal mentor for junior in-house counsels and GCs of small\medium size companies. I see the unique advantages such a mentoring process provides. My role as Deputy General Counsel and the way I perform it is very well tailored to fit Playtika’s needs and our legal department structure, but at the same time it represents my beliefs, motivation and my passion to my work, company, and the industry. Global Legal Media: Vivian, what type of work do you refer to outside counsel, and what are your criteria in selecting a law firm panel? Vivian Goldstein: We usually don’t manage litigation in house. Also, specific specialization area as Antitrust are consulted with external lawyers. I don’t like to use a high number of law firms. Loyalty, good service, and reasonable fees are crucial. I like to work with a big law firm which has a deep knowledge of the Company, its business and Legal Team. Global Legal Media: And Ronit, what about you? Ronit Bernstein-Avrahams: I believe in performing most of the legal work in-house within the framework of the legal department, and we have a specialized professional team to do so. Having said that, we reach out to our permanent specialized outside counsels on case-by-case basis. First and foremost, we reach out to outside counsel for the effective operation of our offshore entities, our sites and our employees. Our outside counsel in the jurisdictions in which we have an operating site without a local in-house counsel are my “counsel on the ground” and as such I expect them to be well familiar with the operation of the local site, knowing personally our local management, who are my right hand and the focal point for any legal issues which concern the site. These outside counsels constantly update the relevant team member with respect to new regulations or governmental decrees, mainly around employment law, corporate law and privacy regulations which may affect the entity, the operation of the site and its employees. Secondly, our outside counsel in the countries mainly targeted by the business act as our consultant with respect to a variety of additional regulations which are relevant to us as a B2C company, such as consumer protection, advertising, privacy and gaming laws. Third, we would reach out to outside counsel with respect to legal domain specializations which we do not possess internally since those are not ongoing legal matters and do not justify recruiting in-house. Fourth, on the rare occasion of a significant workload in a specific legal domain, and to meet the department’s SLA committed to the business, we reach out to our outside counsel. Due to the long-term relationships we have built with several law firms, those specific counsel we work with are familiar with our way of advising the business and can assist us in an efficient way, reducing the internal work we need to perform on their derivatives. Our criteria for selecting a suitable law firm are varied. I have vast relations with international firms due to my international experience working in Brussels and from my years of work in Herzog. The US-Israel Legal Review 2021 35 Hence, some outside counsels were chosen in view of past working relations and ongoing satisfaction, however some were chosen following an RFP process. In addition, we would usually choose to work with industry-experienced counsels, familiar with the Playtika business, business-oriented adviser and capable of quick turnover. Bigger doesn’t mean better, but we do have relationships in some jurisdictions with large law firms, since it is convenient to have several legal domains dealt with under one roof. Additional criteria for consideration would focus on cost, time zone, modern legal approach, legal business creativity and most important – kindness. We consider our outside counsel to be a true partner of the in-house legal team. Outside counsel can be a great partner for problem-solving that extends deep knowledge related to each company issue, while being objective without the business influence. The in-house legal team is the one responsible for balancing and fencing the legal risk, though. We have a high respect and excellent working relationship with our outside counsel partners, based on friendship, mutual professional appreciation, and a basic understanding of what it means to assist the legal team in Playtika, which is a high level of professional service at a super high pace of turnover. Global Legal Media: Vivian, you are also a member of Netafim’s senior management team. To what extent are you involved in corporate strategy aside from the legal aspect? Vivian Goldstein: I am certainly involved in the strategic discussions and building. I am part of the leading team and involved in different projects, such as preparing the company for “The Next Normal”, post Covid-19 time, what are the company’s next growth pillars and more. I have also mentor women managers in the organization and happy to see their promotion. Global Legal Media: Ronit, Vivian gave us an overview of the structure of her legal department. Can you tell us about yours? You have offices worldwide, including the US, UK, EU, Eastern Europe & Australia. How does your department deal with the various local legal issues? Ronit Bernstein-Avrahams: Yes, as I mentioned above, the Playtika legal team is structured in a hybrid form including specialized in-house counsels that globally manage a certain legal domain such as employment, IP, Privacy, corporate, legal tech projects and marketing. In addition, onsite local generalist counsels specialize in local laws of significant large offshore sites. The global legal team includes over 20 in-house counsels, led by Michael Cohen, our GC who is located in the US. The legal management team is spread from the US to Israel and Germany. The rest of the team includes the HQ specialized experts’ team mainly located in Israel, and the local specialized team spread in Germany, Finland, Romaine, Ukraine and Belarus. The significant strength of Playtika’s legal team derives from the ONE TEAM notion which comes into effect with daily constant collaboration and a variety of internal updates and forums, making sure that assistance is provided between team members, and that relevant legal domains and personnel are involved in every project and assignment. As most strategic business decisions and projects, including those affecting offshore sites, are being operated from the Herzliya HQ where most of Playtika’s management sits, the ongoing collaboration of team members is crucial for the successful completion of tasks. Also, the relevant expert from HQ will coordinate and work with the local counsel on-site to perform the relevant task. Although Playtika is headquartered in Israel and has most of its senior management and decisions made in Israel, we are still an international company with offices worldwide, employees, customers, and commercial engagements with international suppliers. The legal team is a microcosm of the company. Hence, we strive to bridge the distance and create a unified legal team, which operates as one unit internally and externally. Global Legal Media: Thank you both for a fascinating look at your companies, your legal work and your legal careers! n 36 The US-Israel Legal Review 2021 US: CYBERSECURITY Companies and governmental authorities worldwide have been grappling with the growth of cybersecurity attacks over the past several years, and ransomware attacks have been particularly on the rise. Ransomware is a type of malware deployed by hackers who threaten to publish the victim’s data or perpetually block access to its systems unless a ransom is paid. The U.S. government reported a 21% increase in ransomware attacks and a 225% increase in ransomware-related losses from 2019 to 2020. Ransomware criminals do not discriminate—with attacks being carried out against small companies, non-profits and charities, government agencies, school districts, hospitals, critical infrastructure facilities such as pipelines, as well as large global companies in key industries. The average ransom demand in the first half of 2021 was reportedly up to $570,000 from an average of $312,000 in 2020. In two high profile cases in the past year, Colonial Pipeline paid a ransom of $5 million and JBS SA, the world’s largest meat supplier, paid an $11 million ransom. The ransom costs are typically only a small fraction of the total costs to organizations from such attacks. Israel has a rich history of cybersecurity knowledge, and Israeli cybersecurity companies are currently at the forefront of the industry. Many of the founders of the leading Israeli cybersecurity companies have previously served in the Israel Defense Forces’ Unit 8200 (the equivalent of the NSA) or in related units. Notwithstanding the depth of Israeli cybersecurity experience, Israel and Israeli companies are victimized by cybersecurity and ransomware attacks on a consistent basis. In particular, Israeli governmental entities have experienced a significant increase in the number of attacks carried out by hostile elements, including Iran and its affiliates, seeking to disrupt or access Israel’s national infrastructure IT systems. In October 2021, the Hillel Yaffe Medical Center in Hadera, Israel was the victim of a highly-publicized ransomware attack. This article will explore various U.S. government responses to the growing cybersecurity threats, and provide legal and practical considerations for properly preparing for and responding to the threat of ransomware attacks for Israeli companies doing business in, or with any nexus to, the U.S. As the Mishnah says, “he who foresees events to come is truly wise.” I. HOW THE U.S. GOVERNMENT IS RESPONDING TO RANSOMWARE ATTACKS In May 2021, a Russian hacker gang calling itself “DarkSide” inserted malware that froze the Ransomware Attacks: What You Should Know if You Do Business in the United States This article explores various U.S. government responses to the growing danger of cybersecurity breaches, and provides Israeli companies with legal and practical considerations for dealing with the threat of ransomware attacks. The US-Israel Legal Review 2021 37 operating systems of the Colonial Pipeline; the hackers demanded a very large ransom in Bitcoin to disable the malware. Colonial paid a ransom of almost $5 million in order to restart operations, but its pipeline service was disrupted for days, resulting in shortages, panic buying and gas hording at the pump, and significant gas price increases for customers along the route of the Colonial pipeline between Houston, Texas and New York City. While Colonial, aided by software security firms and government experts, was able to resume operations, it incurred significant financial costs and losses as well as damage to its reputation and consumer confidence. It also broadly affected businesses and governmental operations in the United States. In the wake of this well-publicized attack, on May 12, President Biden issued an Executive Order in an effort to improve cyber security at federal government agencies and at private companies that supply software and other goods and services to the government. The Executive Order required the following immediate initiatives: • Increased sharing of information about cyber threats and risks amongst service providers and federal agencies in order to accelerate incident deterrence, prevention, and response efforts. • Standardization of procurement contract language across federal agencies to require service providers to keep records in a standardized format about cyber events, detection and responses to those events, and investigation thereof, to require providers to share that information, and to require that providers collaborate with each other and with federal agencies in cyber breach cases. • Federal agency adoption of several security measures including using cloud technology to prevent, detect and assess and remediate cybersecurity incidents, multifactor authentication, and encryption to protect data at rest or during transmission. • Federal agency evaluation of the security practices of software and IT service providers and requiring service providers to attest to compliance with cybersecurity best practices. Federal use of software and services that don’t conform will be discontinued. • Standardization of the federal government’s playbook for responding to cybersecurity risks and incidents while also allowing for necessary flexibility to deal with different incidents as they arise. Several agencies were required to collaborate with private sector players. • Standardization of the logging of cyber incidents, with rules governing encryption and retention of logs. • Early detection of cybersecurity vulnerabilities and incidents on federal agency networks. • Establishment of a Cyber Safety Review Board, comprised of federal officials and representatives from private-sector entities. • The National Institute of Standards and Technology (“NIST”) was directed to publish security ratings for commercially available software. In November 2021, NIST released draft criteria for a cybersecurity labeling system focused on consumer software. Released for public comment, the proposals set out baseline security standards that vendors would have to meet to earn certification. Companies that do business with the U.S. government should immediately assess, with the help of U.S. counsel, how these mandated practices and requirements affect them. Further, some of these mandates for government agencies will likely be adopted as best practices in the private sector, such as the “seal of approval” that agencies will grant to software and IT services that are accepted for government procurement, and standards MATTHEW DUNN PARTNER GUY BEN-AMI PARTNER 38 The US-Israel Legal Review 2021 US: CYBERSECURITY for incident logging and response. Insurance companies, for example, may consider whether customers adopted those steps before honoring claims for hacking incidents. Thus, the private sector should monitor these initiatives. In addition, private sector businesses should be taking steps to respond to this heightened cyber threat environment, such as the following: • Review cybersecurity processes and procedures in-house and with security experts. This review should include consideration of the steps that the Executive Order addresses: multifactor authentication, protocols for access to data, using cloud technology as a security tool, encryption, and a comprehensive review of cyber security safeguards and procedures, including installation of all software upgrades and patches and reviews of cybersecurity practices of service providers. • Review cybersecurity insurance coverage. It is likely that carriers will tighten their coverage requirements as claims increase. • Employee training. Employees and service providers are often the weakest link in cybersecurity, inadvertently granting access to bad actors who are phishing and spoofing. Personnel training should be refreshed on an urgent basis. II. RISKS OF PAYING RANSOMS OR FACILITATING RANSOM PAYMENTS For companies doing business in the U.S., beware of paying ransoms. On September 21, 2021, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued an Updated Advisory reminding and clarifying that it may seek sanctions against those who facilitate ransomware attacks, as well as those who make or facilitate ransom payments to cyber criminals and malicious cyber actors that OFAC has designated under its cyberrelated sanctions program and other sanctions programs. OFAC has designated several cyber entities under its cyber-related sanctions program and other sanctions programs, including its Specially Designated Nationals and Blocked Persons List. OFAC has designated foreign criminal organizations known to have perpetrated cyberattacks, as well as entities that support and facilitate such attacks. U.S. persons are generally prohibited from engaging in or facilitating transactions with entities and individuals that have been designated on OFAC sanctions lists or those located in embargoed and sanctioned countries and regions (such as Cuba, Iran, North Korea, and the Crimea region of Ukraine). While the U.S. government and its law enforcement agencies have openly discouraged the payment of ransoms to ransomware criminals, the government now warns that it may impose civil penalties based on strict liability if such payments are made to an entity or person designated under one of its sanctions programs. OFAC may take enforcement action against those ransomware victims that pay ransoms to listed persons or entities and against those that facilitate such payments, including cyber insurance providers, cybersecurity forensics and incident response firms, and financial services firms that process ransom payments. OFAC indicates that this aggressive step is warranted because ransom payment proceeds are often used to fund other criminal activity and activities that threaten national security and U.S. foreign policy. Such ransom payments incentivize additional ransomware attacks, and the payments do not guarantee that the criminals will restore access to lost or frozen data or prevent further attacks. As a way to avoid or mitigate the risk of ransomware attacks, OFAC suggests that entities do the following: • Implement a risk-based sanctions compliance program with procedures to minimize and avoid transactions with entities or individuals on sanctions lists. • Implement a robust cybersecurity compliance program, which includes cybersecurity training, incident response plans, authentication protocols, and antivirus and anti-malware OFAC may take enforcement action against those ransomware victims that pay ransoms The US-Israel Legal Review 2021 39 software. • Self-report ransomware attacks as soon as possible to law enforcement and other appropriate U.S. government agencies, such as the Cybersecurity and Infrastructure Security Agency (CISA) and Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP). The contact information for the relevant federal agencies is included in the Updated Advisory. • Cooperate fully with law enforcement and other government agencies, sharing all relevant information. • If a ransom payment to a sanctioned entity is contemplated, apply to OFAC for a license to engage in a transaction that otherwise would be prohibited. OFAC indicates in its Updated Advisory that these actions will be considered mitigating factors in deciding on any enforcement action, while also increasing the likelihood of recovering data that was lost or frozen, holding cyber criminals accountable, and preventing future attacks. OFAC and the U.S. government are serious about curbing ransomware attacks and will take action against those entities and individuals that facilitate such attacks. Financial institutions, virtual exchanges, and other entities involved in processing or receiving ransomware payments should have a sanctions compliance program which includes procedures to assess how their services are being used, and by what entities, in order to ensure that they are not involved in facilitating ransomware payment transactions. Entities should implement effective customer due diligence (CDD) and know your customer (KYC) processes and procedures. Ransomware victims (including sophisticated corporations) may decide that paying ransoms is necessary or advisable to avoid the costs and burdens of business disruptions associated with a ransomware attack. However, victims of ransomware attacks and those that advise victims on such payments, including insurance companies and cybersecurity forensics and incident response firms, should ensure that ransom payments are not being made to entities or individuals that are designated on the OFAC lists. This can be checked on OFAC’s website. In addition, the U.S. government encourages victims of ransomware attacks to self-report attacks in a timely manner to, and cooperate fully with, applicable government agencies and law enforcement. Victims should consider whether they should disclose ransomware attacks to the public and whether there are any data breach reporting obligations. All entities should implement a comprehensive cybersecurity program designed to prevent cyberattacks and mitigate damage from such attacks. This program should involve training and procedural and technological safeguards. III. SEC CYBER-RELATED DISCLOSURE REQUIREMENTS Many Israeli issuers whose securities are traded on U.S. exchanges such as the NYSE or NASDAQ may wonder how to comply with disclosure requirements relating to cybersecurity preparedness and the occurrence of incidents and attacks. Issuers should make sure their disclosures are accurate, tailored to the specific threat and continuously updated. On June 11, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced that it would focus on cybersecurity disclosures made by public companies as part of its regulatory agenda, and it may issue a final rule soon. While there is not yet a standard language requirement for cyberrelated disclosures, SEC enforcement actions over the last few years have served to provide insight on what the SEC requires and what is insufficient. The following are some lessons learned: • Issuers must consider both the occurrence of prior cybersecurity incidents, including their severity and frequency, and the probability of occurrence and potential magnitude and cost (including insurance costs, if applicable) of future cybersecurity incidents. • It can be very problematic to describe cybersecurity and data privacy breaches as hypothetical risks in SEC filings or to the media if an issuer has already experienced an incident. • Reportable events are not limited to breaches or attacks. An exposed vulnerability alone can trigger the requirement for disclosure even if there is no evidence that third parties actually accessed any information. • Issuers should establish policies and procedures 40 The US-Israel Legal Review 2021 US: CYBERSECURITY to ensure their internal controls are efficient and that information about cybersecurity risks and incidents is communicated to the appropriate disclosure personnel. IV. STATE CYBER AND DATA PRIVACY LAWS While the U.S. does not have a federal cybersecurity or data protection law, several U.S. states have laws and regulations that require companies doing business in such states and/or which collect personal data of its residents to, among other things, institute data protection and security programs and safeguards and notify various parties of certain cyber incidents. In many cases, the monetary penalties for violations can be severe. Notification may be required to applicable regulators, law enforcement, or other authorities, as well as to affected individuals. If an applicable breach of personal information occurs, companies may have to prepare and distribute notifications to affected individuals. In addition, a few states have enacted data privacy laws which, like the EU’s General Data Protection Regulation (“GDPR”), provide consumers with certain rights with respect to their personal data and place significant obligations on entities that collect such data. As with the GDPR, there can be potentially significant penalties for violations. Many other states have proposed such legislation thus it is important to monitor developments in this area. For Israeli-affiliated companies doing business in the U.S., it is important to assess which state laws may apply. For example, businesses that collect personal data of New Yorkers might be subject to New York’s Stop Hacks and Improve Electronic Data Security (SHIELD) Act. The SHIELD Act was passed in July 2019, amending the existing data breach notification law and imposing more stringent data security requirements on companies which collect information on New York residents. It requires that covered entities have sufficient administrative, technical, and physical safeguards in place and imposes reporting requirements on these entities when there has been a data breach. While New York has not yet passed a comprehensive GDPRlike data privacy law (such as those in California, Virginia, and Colorado), a proposed New York law is in the legislative process. V RANSOMWARE ATTACKS: IMMEDIATE STEPS AND BEST PRACTICES While individual circumstances of a ransomware attack will dictate the proper response, the following are some general tips and best practices: • follow your internal Incident Response Plan (draft such a plan if you don’t have one). • secure the IT systems. • limit communication to and from the impacted systems and do not commit any action which might erase clues, contaminate evidence, or otherwise inadvertently aid the attacker. • conduct an initial investigation of what happened and the cause, what information was accessed, what systems were compromised, and which accounts may have been utilized. • notify management and communicate with firm employees and/or clients (as necessary) on a regular basis about the status of the incident. • consider contacting law enforcement. • report incident to your insurance provider to ascertain whether preferred cyber service providers are required and to assess the scope of insurance coverage. In some cases, policies will cover costs associated with breach response, including mitigation/recovery expenses, extortion/ransom payments, investigation expenses, and crisis response expenses, reporting/notification expenses, reputational harm mitigation expenses, victim reimbursement or credit protection expenses. There may also be a deductible. • if there is no preferred/required vendor list from the insurance company, companies should contact a recommended cyber forensics service Reportable events are not limited to attacks. An exposed vulnerability alone can trigger the requirement for disclosure The US-Israel Legal Review 2021 41 provider to help with a forensic investigation of the scope and severity of intrusion, origin of attack, and remediation. • consult lawyers to advise on risk mitigation and legal reporting obligations. • conduct a thorough and in-depth investigation in conjunction with a cyber service provider and legal team. • document the steps taken. • preserve (and do not delete) emails or documents that might be relevant to an investigation or remediation, or that might be relevant to the breach in any way. If there is litigation, relevant documents should not have been destroyed. CONCLUSION Cybersecurity should be a primary concern for all companies today. Ransomware and other attacks continued to grow in frequency and sophistication in 2021, with severe economic and financial effects. Cybersecurity readiness entails having organization and technical programs and systems in place, while also being aware of applicable laws and regulations. Companies doing business in the U.S. must assess applicable cybersecurity laws and legal considerations, including OFAC policies and prohibitions, SEC disclosure requirements, and applicable state cybersecurity and data protection laws. In addition, companies should implement organizational cybersecurity programs and incident response plans which include processes for breach management and reporting, detail cybersecurity compliance measures (including organizational and technical safeguards), and incorporate best practices. If you have any questions or need assistance in connection with these U.S. law issues, or cybersecurity or ransomware generally, it is recommended that you speak with a cybersecurity law attorney. n ABOUT THE AUTHORS Matthew Dunn is a partner in the Cybersecurity and Data Privacy Group, as well as the Litigation Department. Matt is active in the cybersecurity and data privacy arena, counseling clients on best practices and the security risks and consequences they face under the always-evolving regulatory frameworks, such as the EU’s General Data Protection Regulation (GDPR) and the various state cyber and data private laws in the U.S. He frequently writes articles on timely cybersecurity and data privacy issues. Matt also maintains an active litigation and counseling practice, primarily focused on complex litigation matters, breach of contract and commercial tort litigation, and trusts and estates litigation, among other areas. Email: [email protected] Guy Ben-Ami is a partner in the Cybersecurity and Data Privacy Group, as well as the Corporate Department. Guy represents overseas and domestic companies doing business in the United States, helping Israeli and other offshore clients navigate the many securities issues, as well as a variety of other corporate matters and transactions. Guy has represented funds, REITs, startups, venture capital firms and both issuers and investment banks in IPOs and SPAC transactions. A leader of the firm’s Israeli Cross-Border practice, Guy is admitted to practice in both New York and Israel. Email: [email protected] NOTES 1 https://www.federalregister.gov/documents/2021/05/17/2021-10460/ improving-the-nations-cybersecurity 2 https://home.treasury.gov/system/files/126/ofac_ransomware_advisory.pdf 3 https://sanctionssearch.ofac.treas.gov/ 42 The US-Israel Legal Review 2021 ISRAEL: MERGERS & ACQUISITIONS I t is true that in many respects, for many people and corporations, 2021 was a year that they would like to move on from and forget, as it was void of much excitement and offered limited growth. This has not been the case in the world of mergers and acquisitions. In fact, we have seen quite the opposite, despite the market’s predictions in 2020. Upon examining 2021 retrospectively, one may find that from a macroeconomic view, 2021 may be considered as a merely “nutritional period”, in which the foundations were placed for an even better year of growth and development, bursting with M&A transactions. This may be the case not only in the thriving Israeli market, but in fact globally as a whole. We currently find ourselves, for a number of distinct reasons, faced with an overflow of potential and ever-increasing opportunities. There is now more competition than ever before, thus igniting the passion and the drive toward M&A even further. In 2021, in Israel alone, we saw more than $28.7billion in deal value in just the first six months of the year. Now more than ever, Israeli companies, including start-ups, mid-size companies and well established industrial or technology companies, are looking for new acquisition targets in order to further their horizons. Due to a lot of unutilized energy and focus, as well as pre-pandemic funding ready to be deployed in the market, many corporations now have substantial amounts of money available in need of an investment opportunity that will produce growth and wealth for their shareholders, both now and in the near future. We are also witnessing a phenomenon under which multiple startups that had previously decided to remain private have now taken the plunge and joined the path to Wall Street. In 2021, a total deal value of $63billion was completed through the completion of 175 SPAC mergers. With over 400 SPACS (Special Purpose Acquisition Companies) internationally, currently searching for their acquisition target, one must act fast and with precision, in order to seize the moment and avoid regret. In 2021, more than 274 new SPACs listed in the first quarter, and more than $80 billion was raised during the first half of the year alone. Israel is known to have a greater number of startups per capita than any other country on the globe, so it is befitting that the level of interest in and the investor demand for tech-targeting SPACS is naturally consequential. In contrast to 2020, where Israel saw only 19 IPO offerings with a total value of $9.3 billion, the dramatic increase to 72 IPOs (inclusive of a number of SPAC deals) in 2021, with a value exceeding $71 billion, cannot simply be ignored. “THERE IS A WORLD OF OPPORTUNITY JUST WAITING TO BE SEIZED” Never before has such a feeding frenzy occurred, Mergers And Acquisitions 2021: Setting Strong Foundations For 2022 2021 took the world of M&A further than it has ever been before. Should we be gearing up for an even better 2022? The US-Israel Legal Review 2021 43 where targets that were once seen as backstage fill ins, now find themselves as the lead actors within the production of a major international M&A transaction. Everybody wants to be a part of this play and to benefit from the current economic climate, and why shouldn’t they? With the low interest rates at hand and to one’s benefit, it makes sense that one would be looking to inorganic means to try and exercise one’s potential in finding growth opportunity wherever it lies. Notwithstanding many cross-border restrictions still in place, cross border transactions have increased from an annual average of $480 billion for the 5 years prior to the Covid-19 pandemic to an impressive $688 billion. We have also seen a rise in the 5 year average in M&A transactions in Israel as it increased to $15 billion, a steady climb from the previous $10 billion average over the same length of time. Today we see a resurgence in successful startup companies in multiple industries taking shape and reaching new heights in the business and tech arena. Industry data has revealed that there were 2044 deals closed in Q3 2021 for an aggregate deal value of $231.6 billion, and this was made up largely in the field of technology and financial services. There is an excitement in the air that is palpable, and one does not want to miss out on this modern revolution of growth and wealth in the making. It requires both focus and haste to reach success, but if one commits, then there is a world of opportunity just waiting to be seized. Whilst the majority of SPACs that are targeting Israeli tech startups have been US-registered cash shells, we may soon see a shift due to the Israel Securities Authority recently laying down its own set of ground rules to opening up the Israel Stock Exchange to local SPACs. This helps to balance the demand for private companies to gain access to the fundraising route with investor protections. “DIGITALIZATION HAS LED TO INCREASED PRODUCTIVITY WITH GREATER ACCURACY AND SATISFACTION” We have seen more recently that there is an uptick in the speed at which a transaction reaches its completion. This is due to a variety of reasons. As a result of the new age digitalization that we see all around us, and the continual development within the Israel Hi-Tech nation, we find that previously manual tasks, that slowed down processes and often created stumbling blocks, have now forced increased productivity with greater accuracy and satisfaction. The introduction of artificial intelligence and analytics, as an example, have totally revolutionized the deal sourcing process, thus leading to increased efficiency in accurately determining the suitability of a prospective target. Owing to the strides made in data transfer EYAL WIESEL PARTNER IRINA (IRIS) KUSHEL PARTNER ALON BERMAN SENIOR ASSOCIATE 44 The US-Israel Legal Review 2021 ISRAEL: MERGERS & ACQUISITIONS capabilities, and the management thereof, we have seen a reduction in the time taken to complete due diligence processes by almost 30%. All of these advances have led to transaction documentation negotiation reaching fruition in far less time than could ever have been anticipated by either of the parties. This is also due largely to improved communication between the parties, coupled with the introduction of digital means of communication. Up until recently, it was believed that the only way of achieving a stimulating and effective negotiation, was to face one’s prospective partners across the shiny oak boardroom table, surrounded by the smell of the fresh leather chairs. However, for the first time ever, partially driven by the Covid -19 pandemic, we are finding virtual meeting rooms and collaboration tools hosting more global participants than previously possible, and this had led to a change in approach in multiple industries. Following a recent KPMG Global CEO Outlook survey, where it was found that 37% of global and UK executives have implemented a hybrid model of working for their staff, in terms of which most of the staff only attend the office two or three times a week, we are eager to see how 2022 fairs up in its productivity as a result. In addition to the benefits of working from multiple collaborative environments, both prior to a target being confirmed, as well as thereafter as the deal progresses into the next stage, there are a number of digital tools available throughout the entire deal life cycle, to optimize the entire process. These range from target screening engines, data integration and both contract and project management tools, all of which empower the parties concerned in the facilitation and integration of strategic processes, cultural differences, and their business focus in its entirety. “THERE IS A COMMON FOCUS ON THE SEARCH FOR EQUITY HIRE” We all know how tedious and, at times, allconsuming the process of finding good human capital can be. It is not something that happens overnight, and this too requires stimulating and challenging negotiation. These negotiations have been found to be even further tested due to the onset on Covid-19. Meeting in person for the interview process has been largely prohibited, and many new staff members have found themselves working from home from the very first day of their newfound employment. This poses even further discomfort in learning new processes, meeting and getting to know one’s new employer, as well as the inability to fully integrate with the culture of the business. There is now, therefore, a common focus on the search for equity hire. A company that saves itself the effort of having to individually interview and process one hundred new recruits, and simply acquires the target, thus absorbing those new recruits inward, has surely succeeded in the test of productivity. The acquiring company has not only grown in their numbers and in their capabilities, but hopefully gained skilled employees who will share their common goals and growth strategies for the benefit of all involved. There is a growing understanding in the market today that, if one wishes to increase profitability and wealth accumulation, one needs to look further than traditional cost cutting exercises. Companies have shown a willingness to pay a higher price for revenue synergies that will ultimately boost the long-term growth of the business. The acquisition of Tapjoy by the Israeli Ironsource, a platform that helps app developers with their monetization, engagement and analytics, with a $400 million paycheck, is a good example where we see synergies meet, to the benefit of both parties. The acquisition is expected to strengthen Ironsource’s platform with the addition of multiple strategic additions for its customers, while at the same time allowing Tapjoy to reach its marketplace services to a far greater scope of consumer. “A HIGH SYNERGY BETWEEN TWO COMPANIES MAKES FOR A GOOD PARTNERSHIP IN A FORESEEN MERGER” As a result of the Covid-19 pandemic, executive leaders were forced to re-assess their businesses and, specifically, their growth strategies. In many cases, there has been a recent shift in thinking, as well a focus on assessing one’s capabilities as a company. The constant strategic review has led to a number of both acquisitions and divestitures in an effort to redirect company resources and funds to those parts of the business where the competitive advantage can be found, while yielding greater growth potential at the same time. Those who have The US-Israel Legal Review 2021 45 certain strengths in some areas become attractive targets for companies that are deficient or lacking in some of those domains. A high synergy between two companies, who bring different strengths, and areas of success and focus to the relationship, will surely make for a good partnership in a foreseen merger. Suffice to say that those who meet the requirements will be sought after and may find themselves party to a hot pursuit within the business market. While the bar is set at a high level, more and more companies are meeting the standard, and they are finding themselves party to the chase. It is no secret that we have two generations today, being the millennials and Generation X, who have earned for themselves the reputations of being the technological and digital natives of the world. These generations have been able, more than any other, to recognize and extract value out of technology, and they have enjoyed the ability of working remotely. They have been known to move from one employer to the other far more frequently and seamlessly than one would have seen from previous generations. This also fuels the competition between corporates, in the procurement of top employees in their field. Company leaders, too, have come to realize that as we head into 2022, it is imperative to incorporate the digital and technological focus into their businesses and not to fall too far behind their peers, for fear of losing the momentum on offer. Suffice to say that this too has generated a sudden thirst for certain skills, resources and abilities, commonly found in today’s generation, altogether feeding the current emphasis on the search for a target acquisition to meet their needs. “PRESSURE IS MOUNTING TO LOOK TO INORGANIC MEANS OF DEVELOPMENT“ Unlike in the past, companies are now, more than ever, thinking out of the box. The historical source of funding and focus has shifted, and the pressure is mounting to look to inorganic means of development and expansion. In the KPMG Global CEO Outlook survey, it was found that more than 86% of chief executive officers globally, are of the belief that their companies will grow mainly through focusing on inorganic means, such as mergers, acquisitions, joint-ventures and other strategic alliances, and that they are now ready, more than ever, to make an acquisition in the next 3 years. A business that may previously have seen itself only in one area of manufacture, could nowadays see itself as a full-scale manufacturer as well as a distributor and, to further this notion, in some cases even an ongoing service provider thereafter. All companies share a common goal, and that is to hold the largest percentage of market share as possible. Using the M&A process to grow inorganically allows one to expand into new product lines, servicing new demographics of customers, and even finding themselves operating in jurisdictions never contemplated until now. All three of these modes of expansion will ultimately lead to the acquisition of a greater share of the market. Once again, Ironsource surprised the market when it announced that it was looking to purchase Israeli marketing software company Bidalgo. The company believes that together with Luna Labs, their current creative management solution, they are now able to offer a far wider spectrum of marketing focused products to app marketers around the world. There is a fresh understanding that the way we used to create wealth is not necessarily the way that we shall do so going forward. This requires forward thinking, and sometimes pushes one out of the comfort zone to which one is so accustomed. Even corporates, with very delicate palates for risk, are slowly moving away from their previously conservative approach, and are now more than ever desirous to step into unknown territories. The fact that there is more money available allows one to take a higher risk commitment, and it will be interesting to see where this takes them in 2022. “WARRANTIES AND INDEMNITIES POLICIES TAKING CENTER STAGE” We have also seen the insurgence of warranty and indemnity insurance policies taking center stage. This has seen many benefits for the industry. Historically speaking, we saw sellers having to make contractual undertakings and promises in relation to the target company. All of these representations and warranties required sellers to indemnify the acquirer for any losses that result from a breach thereof. In addition, an acquirer often had to meet very high standards, set by itself, prior to concluding a transaction with an acquisition target. 46 The US-Israel Legal Review 2021 ISRAEL: MERGERS & ACQUISITIONS Nowadays, on account of the inclusion of warranty and indemnity insurance, which is becoming more common and more familiar in the industry, one can meet the standards of the insurer far sooner than those which would have traditionally applied. The Israeli market remained skeptical of these policies for quite some time, possibly for fear of the unknown as well as the historical reliance upon the seller, and the fear of tempering such reliance, but we are now seeing a large increase in transactions where they are present. Both strategic acquirers as well as buyers in the private equity sector are becoming increasingly comfortable with the use of such insurance, and they are seeing the benefits for all parties concerned. With the addition of such insurance policies, we are no longer required to hold back a portion of the purchase price in escrow to cover losses in the case of a breach. Sellers are now seeing the full benefit in the way of immediate funds in their pockets, making any bid seem far more attractive, while the acquirer has the ability to progress the transaction efficiently, gaining peace of mind, all the while relying on the insurer for comfort. The inclusion of a reliable warranties and indemnities insurance policy further allows for a reduction in the traditional indemnities sought by the acquirer from the seller. It also allows for a cleaner exit with fewer contingent liabilities remaining following the closing of the transaction. In addition, in the event of a dispute, parties can now focus on what they do best, which is the running of their businesses and taking them forward in the industry, while leaving the dispute to the hands of the insurer to settle. This prevents further friction between the parties in an all too often newly established relationship, where building common ground should be the focus, and there is no room or desire for a dispute between them. In a newly established merger where the parties have not yet had the time to finalize the synergies between one another, the last place that they wish to find themselves is focusing their energies and resources on the mediation of a difficult dispute arising out of a breach by the seller of a warranty or indemnity upon which the acquiror placed his reliance for the conclusion of the transaction, or any other breach as it happens. WHERE DOES THE INDUSTRY TAKE US AS WE LAUNCH INTO 2022? In conclusion, we have seen that there are numerous factors that give rise to the sudden, intensely rapid pace at which mergers and acquisitions are taking place nowadays. The fear of missing out (“FOMO”) also appears to contribute to some extent to this intense race for a slice of the pie at hand. It is clear that 2021 was an extremely progressive year, bringing with it a lot of excitement. It is no surprise, given that Israel is at the forefront of technology development and for good reason carries the name of the Hi-tech nation, that the spotlight will certainly shine brightly upon them in the year to come. The Israeli market has a world on offer, especially in so far as startup businesses is concerned, and for any acquirer looking for a target acquisition, Israel is a very good place to begin, and most often, end the search. With the introduction of digitalization as well that of warranties and indemnities insurance, coupled with a potential “FOMO” and the constant desire to grow further into untapped markets, we wait eagerly to see where the industry takes us as we launch into 2022. n ABOUT THE AUTHORS Eyal Wiesel is a partner in the corporate and M&A department. He specializes in M&A transactions, corporate and commercial law, high-tech companies, and venture funding transactions. Eyal provides ongoing corporate counseling to corporations through all stages of development on a wide variety of corporate and commercial matters, including venture funding transactions, commercial agreements and corporate advice. Email: [email protected] Irina (Iris) Kushel is a partner in the firm’s departments of corporate, M&A, Securities and Capital Markets. She specializes in securities and capital markets, corporate and commercial law, M&A transactions, and financial services and capital markets regulation. Iris also provides advice on various financial services corporate and regulatory matters. Email: [email protected] From high-tech to energy and infrastructure, real estate to telecoms and media, “they are very business-oriented, provide full attention and care regardless of the size of the deal” (Legal 500) and “won't just fight for you as a client, they will predict where future issues may lie and help you get through them by planning in advance” (Chambers Global). Distinguished by the pedigree of our lawyers, EBN & Co. with Hamburger Evron clients benefit from departments of top-notch corporate lawyers involved in major domestic and cross-border M&A transactions, as well as those with an impressive track record of involvement in the market's most valuable, most sensitive, and landmark commercial disputes. ffAs one of Israel’s most experienced, innovative and dynamic law firms, with a strong cross-border practice and a national reputation as one of the elite firms in real estate projects that are transforming the landscape, Erdinast, Ben Nathan, Toledano & Co. with Hamburger Evron is fully immersed in all sectors of the economy and well versed in all the issues affecting you. 48 The US-Israel Legal Review 2021 US: LABOR & EMPLOYMENT Startups of all sorts are led by dynamic, visionary alpha-trailblazers moving at light speed. Too often in this race to the top certain fundamental, employment-related issues fail to receive the attention they require. This is especially true in cross-border enterprises where the home office is not at all familiar with U.S. employment law. This article identifies, examines and offers some strategies for avoiding snafus that can cause unnecessary legal headaches (and concomitant legal fees) and adversely impact the trajectory of a burgeoning company on the rise. WE’RE TOO SMALL TO WORRY ABOUT HR In the early stages of development, founders can be tempted to deemphasize HR issues that don’t seem pressing. But failure to ensure that their workforce foundation is solid, and can support future growth without having to be dug up and rebuilt, can be very costly and disruptive. Certain HR functions are obviously critical. Hiring and training employees and insuring compliance with applicable laws are, of course, the bread and butter of a quality HR department. However, too many startups fail to fully appreciate that HR is often the first interface between the company and new talent. The company’s ability to attract and secure quality candidates can rise and fall on the effectiveness of HR. Choosing to decentralize HR functions can also prove to be an Achilles heel for startups. Often, staff in a young company wear more than one hat and HR responsibilities are shared among various personnel ranging from executives to assistants. Without a unified, focused message from HR, the company risks failing to effectively inculcate company culture across the workforce. As soon as possible, young companies should invest time (and maybe even some money) in a designated head of HR who possesses the skills to interact effectively with employees – even if there are only a few – and to speak with “one voice” to current employees and candidates alike. WE DON’T NEED NO STINKIN’ CONTRACTS Many founders rely on their understanding of the concept of “at will” employment to try to avoid the hassle of spending time and money entering into contracts with employees. After all, if the company can terminate an at-will employee for any lawful reason, or even no reason at all, why bother with the formality? Nonetheless, there are some good reasons for employment contracts, even in the form of an offer letter: 1. A contract gives the employer an opportunity to define the employment relationship by detailing job responsibilities. Clarity about the specifics of the employee’s responsibilities, with a provision that allows the employer discretion to modify the job as needed, is never a bad thing. Moreover, if the contract sets performance standards and/or grounds for termination, it may be easier for an employer Startup Snafus and Solutions: Avoiding Unforced Employment Errors Strategic Advice for Spending Less Time With Your U.S. Employment Lawyer The US-Israel Legal Review 2021 49 to terminate an employee who demonstrably does not meet articulated standards. 2. Putting a notice requirement in a contract may also help employers regulate an employee’s departure and avoid disruption of workflow. To be sure, an employee cannot be compelled to remain at a job against their will; but requiring an employee to provide sufficient notice of departure can afford an employer ample time to hire and train a replacement and avoid costly downtime. 3. Valuable confidential employer information can also be protected through employment agreements. Confidentiality clauses that restrict the disclosure or misuse of proprietary information (Non-Disclosure Agreements) can be invaluable for a startup with new technologies or protectable processes they have developed and upon which the success of the business depend. Similarly, carefully drafted restrictive covenants – preventing employees from soliciting clients or other employees after their departure – can be included in employment agreements to protect the employer’s legitimate interests from the outset of the employment relationship. One final note. If only I had a bitcoin for every time a founder said to me: “Don’t you just have form I can use?” In some circumstances, using a template for multiple employees makes sense. Other times, employers are squeezing a size-12 foot into a sizeeight shoe and the expected pain will follow when you start to make a move. Efficiency is paramount. Shortcuts can be fatal. NOT EVERYONE CAN GROW UP TO BE AN INDEPENDENT CONTRACTOR Too many startups assume, and insist, that workers can be treated as independent contractors across the board. This approach is frequently a prescription for disruption and unnecessary costs. Simply calling an employee an “independent contractor” will not carry the day if a company’s payroll practices are challenged or audited. To the contrary, nothing about the independent contractor analysis is simple. For starters, there is more than one test to determine if a worker is properly classified as an independent contractor. INTERNAL REVENUE SERVICE For taxation purposes, the IRS has established what can be described as a “control” test; whether a worker is properly classified as an independent contractor turns on how much control the employer exercises over the worker in connection with the performance of job responsibilities. The IRS test centers on 20 factors grouped in three categories: (a) Behavioral: Factors include the level of instruction and training the employer provides to the worker. It also includes an assessment of whether the worker is integrated in the core business, the flexibility of the worker’s schedule and the requirement for the worker to provide the employer with reports. (b) Financial: Factors include the method by which the employee is paid, whether business or travel expenses are reimbursed and whether the employer provides the worker If only I had a bitcoin for every time a founder said to me: ‘Don’t you just have form I can use?’ RICHARD SCHARLAT PARTNER 50 The US-Israel Legal Review 2021 US: LABOR & EMPLOYMENT with the tools and equipment to perform the job. (c) Type of Relationship: Factors include how long the worker has had a relationship with the employer, whether the employer can terminate the worker’s employment and whether the worker can provide services to multiple companies. THE “ECONOMIC REALITY” TEST The Department of Labor (DOL) requires employers to use this test for worker classification in connection with the Fair Labor Standards Act (FLSA). The “core” factors around which this test centers are: (1) the nature and degree of the employer’s control over the work; and (2) the worker’s opportunity for profit or loss based on their own initiative and/or investment. If an assessment under these two factors does not yield a clear classification, the DOL provides three more facts to consider: (1) the amount of skill required for the employee to perform the work; (2) the permanence of the working relationship; and (3) whether the work is part of an integrated unit of production. THE “ABC” TEST Further complicating matters, many states use the “ABC test” for certain classification determinations. The three factors under the ABC Test are: A. The worker is free from the control and direction of the employer in connection with the performance of the work, both under the contract and in fact B. The worker performs work that is outside the usual course of the hiring entity’s business C. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed Notably, not every state applies the ABC Test the same way. Many states consider all the factors and weigh them in light of the particular circumstances of each case. California, however, requires all three factors to be present to classify a worker as an independent contractor. Although there is some overlap among these tests, each has its own application in different circumstances. Employing the wrong standard or misapplying the right one carries significant risks for employers, including fines, civil and criminal penalties (for intentional misclassification), restoring back pay and benefits (with interest), and compensatory and punitive damages in the event of a civil lawsuit. In sum, employee classification is not an issue to be ignored. Fines and penalties can mount quickly and overwhelm a startup. Paying due attention to the appropriate test or tests and their application can be the difference between smooth sailing and rough waters at the beginning of a startup’s voyage. I FOUGHT THE LAW AND THE LAW … WAIT, THERE’S MORE THAN ONE LAW? Even those not fully familiar with U.S. employment law may have heard of the Fair Labor Standards Act (the FLSA) and the Family Medical Leave Act (FMLA). These federal laws cover most of the employee compensation and leave considerations for most employers, whether it be requirements for overtime, meal breaks, and time off for family and other medical issues. These federal laws do not, however, end the analysis for employers with plans for operations in one or more states in the U.S. Indeed, the FLSA establishes minimum obligations for employers, but many states raise the bar for employers and require additional benefits for their employees. For example, the federal minimum hourly wage is $7.25. Currently, only 19 states match the federal rate, with New Jersey (2021 – $12; 2022 – $13); New York (2021 – $12.50; 2022 – t/b/d); and California (2021 – $14; 2022 – $15) mandating far higher hourly rates for employees. Even within a state, local laws may differ and employers must take these disparities into Employee classification is not an issue to be ignored. Fines and penalties can mount quickly and overwhelm a startup. The US-Israel Legal Review 2021 51 account as well. In New York, state law defines a “disability” to include any mental, physical or medical impairment that prevents the exercise of a normal bodily function. New York City law goes further, protecting even “perceived” mental, medical, physical or psychological impairments as a “disabilities.” Employers must comply with the law based on both these definitions in connection with their employees, in addition to federal law. And (in another plug for early appointment of HR personnel) employers must keep abreast of changing state laws. A timely example of this ongoing need is New York’s new Whistleblower Law (Labor Law 740). Before the new law, employees could only establish a viable claim for retaliation against an employer if the employee – (not including independent contractors) – could prove that the conduct about which the employee complained (leading to an adverse employment action) was an actual violation of the law and that the conduct presented a “substantial and specific danger to public health and safety.” This all changes as of January 26, 2022, when the New York whistleblower law will protect employees – now including independent contractors – who merely have a good faith belief that a law has been violated. And, there is no longer a need for the employee to demonstrate that the violation could endanger public health and safety. Additionally, employees who prove retaliation will now be entitled to receive front pay, punitive damages and a $10,000 civil penalty (in addition to reinstatement, back pay, and legal fees) – and employers must post notices to this effect. CONFUCIUS MUST HAVE FOUNDED A STARTUP “He who will not economize, will have to agonize.” – Confucius That quote sounds more like the late Johnnie Cochran, but it was Confucius who sagely forewarned founders of the perils of failing to prioritize and minimize costs. To avoid the agony of unnecessary costs arising from avoidable complaints, investigations, audits and – in the worst case – litigations (even class actions!) that waste the precious resources startups need to survive and to scale, foreign founders should dedicate people power on the ground in the U.S. and allocate necessary funds up front to sidestep employmentrelated snafus, stay out of their lawyer’s office, and allow their businesses to flourish to their full potential. ABOUT THE AUTHOR: Richard I. Scharlat is a New York-based Partner in the Labor & Employment Department at Fox Rothschild LLP, a U.S. law firm with 950 attorneys covering more than 70 practice areas from 28 offices coast to coast. He has spent more than 25 years defending management in a broad range of industries in employment litigation, class actions and ERISA matters, as well as providing proactive counsel on critical workplace issues. Richard is an experienced trial lawyer with particularly strong knowledge of health care employment issues, and has experience overseeing global employment projects for multinational corporations. Pretty fluent in Hebrew (his 12-year old son says Richard is not completely fluent yet), Richard is a graduate of Yeshiva University, where he was a Belkin Scholar, and Rutgers Law School-Newark where he was the Managing Notes & Comments Editor of the Rutgers Computer and Technology Law Journal and a member of the Order of the Barristers. n Fox Rothschild’s Israel Practice provides innovative legal services that help growing Israeli companies convert on business opportunities and reach their goals. Our Israel Group is one of the largest among U.S. firms, consisting of more than 30 attorneys based in major business hubs across the United States, covering key practice areas including Emerging Companies & Venture Capital, Intellectual Property, Privacy & Data Security, Labor & Employment, Immigration and Litigation. Nimble. Entrepreneurial. Resourceful. Our Israel Group provides top-tier services to Israeli companies with U.S. operations or plans to expand into the United States, through a team of attorneys who combine extensive experience advising Israeli companies with in-depth knowledge of U.S. markets and law. Individuals and businesses – public, private and nonprofit; startup, family-run and multinational – receive our unwavering commitment to client satisfaction. Why Fox With 950 attorneys in more than 70 practice areas, Fox provides clients with efficient, cutting-edge service from 28 offices located across the U.S. Our clients operate in a wide range of industries and practice areas including: • Information Technology • Biotechnology & Life Sciences • Legal Cannabis • Defense • Cybersecurity • Entertainment • Financial Services • Health Care • Import/Export • Manufacturing • Retail • Real Estate • Immigration • Infrastructure and Construction • Licensing of Entities Involved in Infrastructure and Construction Projects • Government Contracts • Taxation • Estate Planning • Employee Benefits • Executive Compensation YOUR GATEWAY TO THE U.S. Sophisticated Legal Counsel for Israeli Companies Michael A. Sweet [email protected] +1 415.364.5560 Sarah B. Biser [email protected] +1 862.576.1354 Odia Kagan [email protected] +1 215.444.7313 Richard I. Scharlat [email protected] +1 646.601.7668 Key Contacts The attorneys of Fox Rothschild’s Israel Practice Group provide comprehensive advice on U.S. employment law to Israeli firms and Israeli-owned businesses. Our team includes fluent Hebrew speaking attorneys who help companies with U.S. operations craft workplace policy, avoid regulatory pitfalls and mitigate litigation risk. We understand the nuances of Israeli culture, and help clients navigate the complex U.S. workplace safety, immigration, wage-and-hour and anti-discrimination landscape. In short, we’re a one-stop shop. Life is easier when your attorney understands your needs. YOU WANT LAWYERS WHO UNDERSTAND ISRAELI BUSINESSES AND U.S. EMPLOYMENT LAW WE HEAR YOU. www.foxrothschild.com 54 The US-Israel Legal Review 2021 ISRAEL: TAX The Israel Tax Authority (the “ITA”) is currently attempting to enact a major international tax reform (the “Reform”), which may have a great influence on corporations as well as individuals, either Israeli residents or foreign residents, with economic operations in Israel or personal ties to Israel. The Reform includes the following main tax proposals related to individuals and corporations. Below is a brief summary of the main amendments proposed: A. CHANGE IN DETERMINATION OF TAX RESIDENCY OF INDIVIDUALS • As of today an individual is considered an Israeli tax resident if her/his “center of life” is in Israel, a facts and circumstances test, which examines the individual’s family, economic and social ties. In addition, there are two rebuttable presumptions measuring the number of days the individual has spent in Israel. In essence, the presumptions examine whether an individual spent more than 183 days in Israel in a tax year, or whether s/he spent 30 days or more in a tax year in Israel and the total period of her/his stay in Israel in three consecutive tax years tax year was 425 days or more. • The presumptions can be rebutted, by both the individual and the Israel Tax Authority, and the party that wishes to rebut them is subject to the burden of persuasion of proving that the center of the individual’s life is not in Israel. In accordance with the generally accepted approach, the numerical presumptions are onesided positive presumptions. In other words, an individual who does not fall under these presumptions is not automatically deemed to be a person whose place of residence is abroad. • The Reform introduces new conclusive (irrebuttable) presumptions in order to determine the tax residency of individuals in Israel. Essentially, it is proposed to determine that an individual will be considered an Israeli tax resident if one of the following applies: a. S/he stays in Israel for more than 183 days each year over the course of two consecutive tax years; or Ground Breaking International Tax Reform: Significant Influence on Corporations and Individuals The Israel Tax Authority is currently attempting to enact a major international tax reform, which may have a great influence on corporations as well as individuals with ties to Israel The US-Israel Legal Review 2021 55 b. S/he stays in Israel for more than 100 days in a current tax year, and more than 450 days over the course of the three recent tax years. This presumption will not apply if the individual stays 183 days or more in a country with whom Israel has signed a tax treaty (“Treaty Country”), and obtains a certificate of residency therefrom; or c. S/he stays in Israel for more than 100 days in a current tax year, and her/his spouse or individual with whom s/he maintains a mutual household is an Israeli tax resident. • At the same time, the Reform also introduces conclusive presumptions determining that an individual is a foreign tax resident, namely if: a. S/he spends less than 30 days per tax year in Israel, during each of the recent 4 tax years – s/he will be a foreign tax resident from the beginning of the 4 year period; or b. S/he spends less than 30 days per tax year in Israel, during each of the recent 3 tax years, s/he will be a foreign tax resident starting at the beginning of the second tax year. The conclusive presumptions provided in subsections a and b will apply under the condition that no more than 15 days are spent in Israel during the first month of the first tax year or during the last month of the last tax year. c. An individual and her/his spouse spend less than 60 days per tax year in Israel, during each of the recent 4 tax years – they will be foreign tax residents from the beginning of the 4 year period; or d. An individual and her/his spouse spend less than 60 days per tax year in Israel, during each of the recent 3 tax years, they will be foreign tax residents from the beginning of the second tax year. The conclusive presumptions provided in subsections c and d will apply under the condition that no more than 30 days are spent by the couple in Israel during the first two months of the first tax year or during the last two months of the last tax year. e. An individual and her/his spouse spend less than 100 days per tax year in Israel, during each of the recent 4 tax years – they will be foreign tax residents from the beginning of the 4 year period, only if they spend more than 183 days in a Treaty Country, and obtain a certificate of residency therefrom; or f. An individual and her/his spouse spend less than 100 days per tax year in Israel, during each of the recent 3 tax years, they will be foreign tax residents starting at the beginning of the second tax year, only if they spend more than 183 days in a Treaty Country, and obtain a certificate of residency therefrom. • The conclusive presumptions provided in subsections e and f will apply under the condition that no more than 50 days are spent by the couple in Israel during the first 100 days of the first tax year or the last 100 days of the last tax year. • The “center of life” test will remain relevant for cases where the conclusive presumptions DANIEL PASERMAN ADV. (CPA), TEP HEAD OF TAX INBAR BARAK-BILU ADV. (CPA), TEP PARTNER 56 The US-Israel Legal Review 2021 ISRAEL: TAX (mentioned above) will not apply. B. TAX BENEFITS TO NEW ISRAELI RESIDENTS AND RETURNING RESIDENTS • Since 2007, an individual who has become an Israeli tax resident, whether for the first time or after spending considerable time outside Israel as a foreign tax resident, is entitled to material tax and reporting benefits. • New Israeli residents and veteran returning residents are entitled to tax and reporting exemptions with respect to foreign income and assets for a period of 10 years, commencing on the date they became Israeli tax residents. • The Reform is expected to abolish the exemption from reporting with respect to foreign income and assets, but to date, there is no suggestion to implement changes to the substantial tax exemption. C. EXIT TAX • Israeli tax law imposes an exit tax on an individual or an entity that ceases to be a tax resident, which means that the assets of an Israeli who terminates his residency are considered to have been sold on the day prior to the day on which they ceased to be an Israeli tax resident. According to the current law, there is an option to postpone the tax payment to the actual sale event (instead of paying on the date of leaving Israel). • The Reform includes additional reporting obligations and depositing guarantees on taxpayers that wish to postpone the tax payment to the sale event, and cancels the option to postpone the tax payment under certain circumstances, and regarding different assets; whereby: a. If the value of the assets subject to exit tax, as of the date of the terminat lower than NIS 3 M ion of the Israeli residency, is, the taxpayer may postpone the tax payment to the realization date. However, the taxpayer will be obligated to file financial reports relevant to the year the exit tax was to apply, which shall include the scope of assets and the deemed income which would have derived from their sale. In addition, the taxpayer must file a capital declaration listing all of the assets upon which the exit tax is levied. b. If the value of the assets, subject to exit tax as of the date of the termination of the Israeli residency, is higher than NIS 3 M, then the assets will be split into categories, each of whom will be treated separately with respect to the exit tax: i. Tradable securities will be regarded as though they have been sold on the date of the termination of the Israeli residency, and will be taxed and reported accordingly; ii. Real estate located abroad, will entitle their owner the choice between two tracks: the immediate payment of exit tax and the postponed payment. Should the taxpayer choose to postpone the payment, it will have reporting obligations. In addition, if the tax is estimated to exceed the total of NIS 1.5 M, it may be required to deposit the foreign real estate by an Israeli nominee. iii. Other assets, will entitle their owner to the choice between immediate payment of exit tax and the postponed payment. Should the taxpayer choose to postpone the payment, it may be required to deposit the assets by an Israeli nominee, and to meet additional reporting requirements. • The Reform also includes additional provisions whose main purpose is to prevent tax avoidance. These provisions will impose an “exit tax” in cases that are not taxed under current law, such as dividend income received from a foreign company to a taxpayer who The US-Israel Legal Review 2021 57 ceased to be an Israeli tax resident before the date of the distribution of the dividend, and until the period of the realization of entitling shares, assuming the taxpayer chose to postpone the payment on the exit tax. • Another recommendation is to impose taxes on assets that were sold during a limited period commencing from the day the taxpayer ceased to be an Israeli resident and ending 4 years thereafter, and the tax will be calculated as though the taxpayer was still an Israeli tax resident, meaning the taxpayer will be subject to a “full” tax payment as if has never left Israel. • Another recommendation is to impose “exit tax” on the transfer of intangible assets of an Israeli company or an Israeli permanent establishment of a foreign resident to the headquarters or to another entity abroad. In such a case, there will be no option to postpone the tax payment to the realization date. • The Reform suggests imposing exit tax on the accumulated earnings of a company that was classified as an Israeli tax resident by virtue of its control and management from Israel, without the option of postponing the tax payment. The accumulated earnings will include the earnings that will be derived from the deemed sale of the company’s assets. • It is clarified that the provisions of immediate payment of exit tax will be applied also in cases where an Israeli company transfers its assets or business activity outside Israel. D. CONTROLLED FOREIGN CORPORATION (“CFC”). • Controlled Foreign Corporation (CFC) rules, as they apply in Israel today, provide, under certain conditions, that passive income of a foreign corporation controlled by Israeli residents is considered “deemed dividend”, distributed to the Israeli shareholders. • The Reform will expand the definition of passive income to include, inter alia, income derived from proceeds (interest, insurance, or royalties, all under specific conditions) received from related parties, income generated from business activity served for-profit shifting, and capital gain derived from intangible assets. • The Reform will reduce the passive income threshold to 1/3 of the total income or profits of the foreign company (instead of the current threshold of 1/2). • The Reform includes stricter conditions in order to apply the CFC rules for cases in which the corporation is a resident of a country that is in the “black” and “gray” lists of the EU (excluding Treaty Countries), or a resident of a country that does not have an agreement with Israel that allows the exchange of information. These stricter conditions include the reduction of the Israeli ownership share to 30% (instead of 50%), and the application of the CFC rules to all passive income, regardless of their share in the total income or profits. • As part of the Reform, the holdings of new residents and veteran returning residents will be considered holdings of Israeli residents (as opposed to the situation which applies today where their holdings are considered of foreign residents) and will be taken into account while determining whether a foreign corporation is a CFC. This provision will apply only with respect to assets purchased after the move/return to Israel. F. FOREIGN TAX CREDIT • As of today Israel grants direct foreign tax credit for taxes paid on foreign income. • It is suggested to narrow the current number of “baskets”, so that foreign income will be classified according to the following 5 baskets: 1. Passive income; 2. Active income; 3. Capital gains; 58 The US-Israel Legal Review 2021 ISRAEL: TAX 4. Controlled Foreign Corporation (“CFC”); 5. Professional Foreign Corporation (“PFC”). • It is suggested to tighten the rules concerning the receipt of credit for taxes paid abroad in certain cases and in certain countries, for example, in countries that are included in the “black” or “gray” lists of the EU. • As of today, a taxpayer can use the credit through the following 5 years. It is suggested to abolish the option to use excess credit in the following years, except in specific cases. • Today where an Israeli company receives dividends from a non-resident company in which it holds at least 25%, the Israeli company is entitled also to an “indirect” credit for foreign corporate tax paid by the non-resident daughter company on the profits from which the dividend was paid (“indirect tax credit”), subject to certain conditions. An indirect tax credit is also available where the daughter company holds at least 50% of a subsidiary of its own (a granddaughter company of the parent company). • The Reform will expand the indirect tax credit rules so that they will apply also where an Israeli company holds indirect subsidiaries (two additional tiers down the chain of holdings in addition to the daughter and the granddaughter companies), provided that the effective holding rate will be at least 12.5% in each indirect subsidiary (in the third-tier subsidiary and fourth-tier subsidiary) and the holding rate between the third-tier and fourthtier subsidiaries will be at least 50%. • The Reform includes adding a provision stating that the holding condition for applying the indirect tax credit will be carried out for the last 12 months prior to the dividend distribution date. LLC • As of today, the Israel Tax Authority’s approach allows an Israeli shareholder of a US LLC, which is treated in the US as a look-through entity, to attribute the LLC’s taxable income to the Israeli holder, only for the purpose of allowing the holder to receive a tax credit in Israel for taxes paid in the US. The ITA’s approach explicitly states that the LLC will not be regarded as a look-through entity for all tax purposes such as for the offset of losses. • It is proposed to change the ITA’s approach in the manner that losses from an LLC will be offset against the income of the Israeli holder from US sources and assets only, which the Israeli holder owns and was also offset in the US. It is emphasized that the election of the ITA’s approach is irrevocable and should be done in the first year of submitting a return. G. TAXATION OF EXERCISE OF OPTIONS AND WORK INCOME THAT WERE PARTIALLY VESTED WHILE THE INDIVIDUAL WAS A FOREIGN TAX RESIDENT • According to the ITA’s approach, an employee’s income is calculated on a cash basis so that on the date the employee receives the income, the tax treatment is determined according to her/ his tax residency (also with respect to options that were granted and/or vested while the employee was a foreign tax resident). • It is recommended to introduce a temporary order intended to encourage the return to Israel, according to which the employee will be exempt from tax in Israel in respect of the portion that was vested abroad, even if the income was received after the return of the employee to Israel. H. STEP UP • As of today, the ITA allows a “STEP UP” in the basis of foreign assets received from a foreign tax resident to an Israeli tax resident by way of gift or inheritance. The US-Israel Legal Review 2021 59 • It is suggested to choose one of the following options: (i) abolish the existing “STEP UP” mechanism regarding foreign assets entering the Israeli tax net; or (ii) add a “STEP IN” mechanism with respect to assets bequeathed to a foreign tax resident by an Israeli deceased (meaning a capital gain tax payment upon inheritance to a foreign tax resident), and at the same time to legislate the “STEP UP” mechanism in relation to foreign assets entering Israel. I REPORTING OBLIGATIONS • It is suggested to impose reporting obligations on foreign companies that fulfill the following conditions: i. at least 50% of the company’s shares are held by Israeli tax residents; ii. the applied foreign tax rate is not more than 15%; while the company is (a) not a resident of a treaty country or; (b) not taxed in its residency country on income accrued from abroad; iii. At least one of the following conditions applies: (a) More than 50% of the board members (or equivalent body), directly or indirectly, are Israeli tax residents; (b) The main activity is in Israel and/or most of the company’s value derives, directly or indirectly, from Israeli assets; (c) The average annual number of days spent in Israel by the company’s officers is higher than 183 days; (d) At least half of the company’s officers are Israeli tax residents; (e) The location of half of the company’s officers is in Israel. • It is suggested to impose a reporting obligation on Israeli shareholders who hold, directly or indirectly, more than 50% of a foreign corporation’s means of control, including a requirement to attach the foreign corporation’s financial statements and to present details on income, expenses, gain, assets and its directors, management members, and shareholders. • It is suggested to add a reporting obligation on an individual who received a payment or a gift from abroad in an amount above NIS 500,000. To complete the picture, it should be noted that the Reform includes complicated and broad recommendations regarding hybrid entities based on Action 2 report of the OECD. A this point it is unclear whether this chapter will be promoted as part of this Reform. n ABOUT THE AUTHORS Daniel Paserman, Adv. (CPA) TEP heads Gornitzky’s Tax practice. He is involved in intricate corporate tax planning – both domestic and international. His broad experience includes negotiations with the ITA regarding tax regulatory issues, seeking and obtaining tax rulings for both Israeli and global companies operating in Israel, as well as handling wide-scope tax assessments for both global and Israeli corporations operating in Israel. Daniel represents global companies and leading Israeli corporations in complex tax disputes before various judicial bodies, including the Supreme Court. He serves as the co-chair of Society of Trusts and Estate Practitioners Israel (STEP) and is a lecturer on Corporate & International Taxation at Tel Aviv University. Email: [email protected] Inbar Barak-Bilu, Adv. (CPA) TEP, is a partner at Gornitzky. She is involved in complex corporate and individual tax planning – both domestic and cross-border, and advises the firm’s clients regarding tax and commercial aspects thereof. She is also involved in representing the firm’s clients in a wide range of tax related litigation before the Israeli tax authorities. Additionally, Inbar represents private clients in familial aspects of trusts, wealth management and estates. She also advises clients on personal matters pertaining to family wealth planning and its preservation. Inbar has experience dealing with new immigrants and returning residents that are contemplating moving back to Israel, regarding the implications of such a move on their global assets and business activity. Email: [email protected] 60 The US-Israel Legal Review 2021 ISRAEL: FINTECH Fintech: Firing on All Cylinders Fintech deal-making has never been hotter. Coming out of the pandemic, fintechs have proven their value in a changed world for consumers and business, with online preferred to face-to-face transactions, building on a decade of advances in mobile payments, online lending, digital banking and back-office innovation. There is a powerful mix of factors converging this year - breakout business fundamentals, strategic M&A by traditional financial services players, high-profile IPOs, growing interest by private equity firms and blank-check acquisition vehicles together with historic levels of venture capital funding to form and develop hundreds of new fintech innovations. Dependent on private capital fundraising in its formative years, the emerging sector is now the locus of competitive factors that make it both the target for mergers by traditional financial institutions and aggressors themselves, at least among the larger, more mature fintechs. Witness the cross-border firepower of payments player Square, which recently agreed to acquire1 Australian "buy now, pay later" company Afterpay for US$29 billion. M&A volumes in 2021 have reached record highs in terms of deal values and the sheer pace of activity. Global M&A hit $1.52 trillion in the third quarter and $4.33 trillion for the first nine months of 2021, both all-time record levels, according to Refinitiv data.2 Classic tech, healthcare and traditional financial services consolidations are leading the way. But fintechs, for a decade the proverbial outsiders knocking on the door of established institutions, are posting growth other sectors only dream about, with no sign of slowing down, which in turn attracts a wide range of buyers and investors. Now, no other sector is seeing the frenetic volume of deals in terms of IPOs, M&A, spin-offs and big VC rounds. Boutique investment bank FT Partners estimates3 there was $135 billion in fintech deal volume in first half 2021 and the pace hasn’t slowed in Q3. Deloitte’s corporate finance advisory service, hails this as the “second wave of fintech”4. IPO STANDOUTS Setting the stage for the fintech merger craze has been the success of recent high-profile fintech IPOs in public markets. Recent fintech IPO Crypto exchange Coinbase is worth north of $50 billion, while commission-free stock broker Robinhood, is valued at $36 billion, and money transfer firm Wise has a market cap of $15 billion. There have been 30 fintech IPOs in 2021 in just the U.S., according to FT Partners tally5. Meanwhile, PayPal, the granddaddy of fintechs at nearly 23 years old, now commands a market cap of $310 billion, greater than that of Exxon Mobil, Coca-Cola or Oracle6, while rival payments players Shopify and Square are both worth over $100 billion a piece. And there’s a line-up of promising IPOs, including payments phenomenon Stripe, the most highly valued private U.S. startup, worth around $95 billion7 , which reportedly has hired lawyers to gear up for a possible 2022 IPO. Indian fintech leaders Paytm and Policybazaar are poised to IPO8, while Israel’s stock and crypto trading broker Fintechs, for a decade the proverbial outsiders knocking on the door of established institutions, are posting growth other sectors only dream about. The US-Israel Legal Review 2021 61 eToro is waiting to close9 its own previously announced IPO via a blank-check sponsor. ESTABLISHED BUYERS In response to this flood of increasingly deeppocketed fintechs, big financial institutions are snapping up smaller fintech players. The main driver is the need to diversify their portfolios and make their own services more flexible and consumer friendly, in segments ranging from payments or crypto offerings to wealth management, insurance or back-office services. Goldman Sachs last month agreed to acquire GreenSky,10 a home improvement loan platform, for $2.7 billion, while JP Morgan snapped up robowealth adviser11 Nutmeg for close to 700 million pounds or nearly US$1 billion. Meanwhile, centuryold American check printing firm Deluxe Corp. paid nearly $1 billion12 to acquire merchant payment services firm First American Payment Systems LP and Visa has agreed to pay £700 million13 (around $960 billion) to acquire cross-border forex player Currencycloud. As a case in point, broad-based payments service provider Nuvei recently paid $250 million in cash14 to acquire Simplex, one of Israel’s best funded private crypto companies, a transaction on which I advised. Simplex is a fraud and risk detection gateway which enables larger financial institutions to accept payments in 45 digital currencies, allowing users to buy and sell crypto using credit or debit cards, while simplifying the conversion between government-backed currencies and crypto ones. Nuvei (renamed from Pivotal Payments a few years ago) was the largest technology IPO in Canadian history when it listed on the Toronto Stock Exchange a year ago. This month, it begins listing on Nasdaq as well15. I wrote a column about the crypto trend16 in Globes a few months back. We are also evidencing a wave of fintech spin offs by tech companies to focus on their own business. Silicon Valley venture firm a16z sums up this angle17. FRESH FUNDING SOURCES Not just strategic buyers but also traditionally gunshy private equity money has begun competing for fintech deals. KPMG calculates PE players invested $5 billion in fintech firms18 during the first half of 2021, a new high. Take, for example, Thoma Bravo buying cloud-based asset tracker19 Calypso Technology, or the buyout of wealth management software player InvestCloud20 by Motive Partners and Clearlake Capital. Similarly, blank-check firms, or Special Purpose Acquisition Companies (SPACs), have raised unprecedented amounts of capital this year, with high-growth fintechs many of their top targets. One big attraction for financial engineering vehicles is that many of these bigger fintech targets have not only achieved scale but are on the verge of delivering consistent profits. In the first nine months of 2021, 35 blank-check companies announced plans to merge with fintech firms, according to data from investment banking boutique FT Partners21, more than double all of 2020, when 15 SPACs agreed to merge with fintech companies. At least five fintech SPAC deals have been completed this year, including Payoneer22. EToro, when its deal closes, would be the biggest of the bunch. SPAC deal activity dipped in the spring, when regulators toughened their stance in the spring, but has since come roaring back. I’ve been involved in a few SPAC transactions this year, including Pagaya’s plan last month to go public through a merger23 with EJF Acquisition Corp., in a deal with an enterprise value of $8.5 billion. Pagaya offers a fast-growing loan origination tool for financial firms, but I’m YAIR-GEVA PARTNER, HEAD OF TECH DIVISION 62 The US-Israel Legal Review 2021 ISRAEL: FINTECH restricted in what more I can say until that deal closes, sometime early in 2022. Here’s what I had to say on SPACs24 earlier this year. Further stoking this merger craze are historic levels of venture funding pouring into fintech start-ups at all levels. Overall, VC funding reached $160 billion in the third quarter, continuing the pace of the second quarter, and was up 78% from a year ago, according to Crunchbase data25. While Q3 fintech data isn’t available yet, all signs are for another record quarter, building on Q2, when there were more than 650 VC-backed deals globally. Q2 fintech deals raised a total of $30.8 billion and some $54 billion during the first half of 2021, per CB Insights data26. Put together, this will create dozens of promising IPO and takeover candidates for years to come. n ABOUT THE AUTHOR Yair Geva heads Herzog Fox & Neeman’s Tech Division. He is a corporate transactional lawyer whose practice includes extensive representation in cross border mergers and acquisitions, private equity and venture capital investments, and general corporate counselling. Yair is admitted to practice in New York and Israel. Prior to joining Herzog Fox & Neeman, he practiced at the M&A groups of two of the prominent firms in New York – Gibson Dunn and Davis Polk. He is ranked among the top Mergers and Acquisitions and tech lawyers in Israel by international ranking guides, and has led some of the most notable recent transactions in the country, including PepsiCo in its $3.2 billion acquisition of Soda Stream, Checkmarx in its $1.15 billion acquisition by Hellman & Friedman. Yair advises many of the most prominent early stage startups and growth companies in Israel in a range of industries including e-commerce, cyber, fintech & blockchain, biotech, and digital health. He works closely with entrepreneurs, CEOs and Boards of Directors on transactions, investments and other strategic matters. Tel: +9723 -6922861 Email: [email protected] NOTES 1. https://squareup.com/gb/en/press/square-announces-plans-to-acquireafterpay 2. https://www.reuters.com/business/finance/pandemic-recovery-fuels-dealcraze-third-quarter-ma-breaks-all-records-2021-09-30/ 3. https://www.ftpartners.com/views/images/almanac/q2-2021feature4.png 4. https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/financialservices/deloitte-nl-fsi-fintech-report-1.pdf 5. https://ftpartners.docsend.com/view/myeftw5nc54pvwdv 6. https://companiesmarketcap.com/usa/largest-companies-in-the-usa-bymarket-cap/ 7. https://www.reuters.com/article/us-stripe-financing-valuationidUSKBN2B60NZ 8. https://inc42.com/resources/what-do-we-need-to-learn-from-fintechstartup-ipos/ 9. https://marketing.etorostatic.com/cache1/pdf/eToro-Press-Release.pdf 10. https://www.goldmansachs.com/media-relations/press-releases/2021/ goldman-sachs-to-acquire-greensky.html 11. https://www.reuters.com/technology/jpmorgan-chase-buys-uk-roboadviser-nutmeg-2021-06-17/ 12. https://www.businesswire.com/news/home/20210601005699/en/ Deluxe-Completes-Acquisition-of-First-American-Payment-Systems 13. https://investor.visa.com/news/news-details/2021/Visa-to-AcquireCurrencycloud/default.aspx 14. https://www.globenewswire.com/news-release/2021/09/01/2290414/0/ en/Nuvei-Completes-Acquisition-of-Simplex.html 15. https://nuvei.com/company/press-releases/nuvei-announces-pricing-ofupsized-initial-public-offering-in-the-united-states/ 16. https://en.globes.co.il/en/article-crypto-enters-adolescence-1001376401 17. https://a16z.com/2021/08/26/every-company-will-spin-out-a-fintechcompany-august-fintech-newsletter 18. https://assets.kpmg/content/dam/kpmg/xx/pdf/2021/08/pulse-offintech-h1.pdf 19. https://www.thomabravo.com/press-releases/thoma-bravo-to-acquirecalypso-technology-from-bridgepoint-and-summit-partners 20. https://www.prnewswire.com/news-releases/motive-partners--clearlakecapital-invest-for-growth-in-next-generation-saas-wealth-solutions-platformwith-investcloud-301220033.html 21. https://ftpartners.docsend.com/view/myeftw5nc54pvwdv 22. https://www.businesswire.com/news/home/20210628005252/en/ Payoneer-and-FTAC-Olympus-Acquisition-Corp.-Complete-BusinessCombination 23. https://www.businesswire.com/news/home/20210915005669/en/ Pagaya-Technologies-Ltd.-to-Become-Publicly-Traded-Company-ThroughCombination-With-EJF-Acquisition-Corp. 24. https://medium.com/@geva.ny/making-sense-of-spac-mergers-in-anisraeli-context-fafc8ee2e447 25. https://news.crunchbase.com/news/q3-2021-global-venture-capitalreport-record-funding-monthly-recap/ 26. https://www.cbinsights.com/research/report/fintech-trends-q2-2021/ 62 The US-Israel Legal Review 2021 R E N O W N E D FOR A REASON Herzog Tower, 6 Yitzhak Sadeh St. Tel Aviv 6777506, Israel ___________________________ [email protected] Tel: +972 3 692 2020 Fax: +972 3 696 6464 ___________________________ Visit our website: www.herzoglaw.co.il “Cross-border issues are complex and require a high level of skill and creativity – they never fail to deliver” (Chambers Global) Ranked Band 1 in nine different categories by Chambers Global 2021 64 The US-Israel Legal Review 2021 ISRAEL: DIGITAL HEALTH I n this light, the Israeli healthcare ecosystem provides some of the most unique opportunities to apply and envision the future of digital health. This is due, among others, to the remarkable availability of health data within the Israeli public health sector, as the State subsidizes, on the basis of a per-capita capitation formula that includes age, gender, area of residence and compensation for a small number of severe diseases, universal health coverage to all Israeli citizens through four closely regulated Health Maintenance Organizations (HMOs). Although frequently criticized as being inadequate, a tremendous benefit of this system is that it results in a public health sector that can offer 25 years of accumulated, identified and digitalized personal health data across all healthcare service providers.2 An instance of this is the largest HMO in Israel, “Clalit Health Services”, with electronic data on integrative health care (primary care, specialty care and secondary/tertiary care in hospitals owned by Clalit) of 4.7 million people (which represents circa 53% of Israel’s population). Moreover, this unique structure ensures that these organizations have an incentive to keep their customers healthy, one facet of which is an increasingly steady growth in emphasis on preventative care. This is to be compared to the US system which rewards all the factors in the chain – hospitals, physicians and pharmaceutical – for consuming services; thus, the sicker the individual, the more revenue he/she generates, according to Tori, partner at Triventures.3 Data in Israel is thus historical, abundant and in institutions such as Clalit, also integrated. Additional notable advantages of Big Data in Israel are a combination of significant Governmental incentives; together with the fact that institutions are very much interested in embracing innovation4 , what with the continuous effort to innovate and improve being a very strong part of the Israeli culture. REGULATING USE OF HEALTH DATA In brief, personal data can be seen as protected under Israeli Law by a myriad of different legal Digital Health In Israel – The Upsurge Of Big Data & Preemptive Medicine: The Role Of The Public Sector In this era of global fascination with the potential of AI and digital health, digital health investments exceeded $20B in less than a sixmonth period this year (2021) alone1 , and the future of this sector is seen, by many, in utilizing and mastering Big Data and AI capabilities for algorithmic predictive care. The US-Israel Legal Review 2021 65 rights: First, the Right to Privacy, as framed under the Israeli Basic Law: Human Dignity and Freedom, the Israeli Protection of Privacy Law – 1981 (PPL), and the Privacy Protection Regulations, where individual health data is defined as “sensitive information”, thereby meriting a higher level of privacy protection.5 Health data is also subject to the protection of the Patient Rights Law – 1996 and of the Genetic Information Act – 2000. These legislations regulate collection, storage, transmission and usage of health information by practitioners or institutions. Finally, secondary use of health data is governed directly by the Israeli Ministry of Health, most importantly of which – by its Circulars No. 1/2018 and 2/2018, aiming to align with EU standards. A key principle in these Circulars is the restriction of secondary uses of health information to deidentified or anonimyzed data only. The need to strike the right balance between the unarguably tremendous benefits of big-data utilization, on the one hand, and the need to have sufficient safeguards in place to protect patients’ privacy, on the other, has been extensively deliberated worldwide. Focusing on the specific aspect of digital healthcare and preemptive or preventative medicine, this paper will not attempt to navigate this minefield; suffice to say that the disparity between the two opposing views is here to stay. OPPORTUNITIES FOR AI IN ISRAELI HEALTHCARE The digital health sector is one of the most promising areas in terms of global growth. Numbers have demonstrated a worldwide increase in digital health investments, as global sector funding exceeded $20B only in the first half of this year (2021), Start-Up Nation Central study says. In Israel, high-tech companies enjoyed the wave of capital investments, crossing the $1B threshold for the first time ever in the first half of 2021.6 Notably, the Diagnostics and Decision Support subsectors were the most funded subsectors of 2021, raising $564M. Indeed, recent extensive research7 by Viola Ventures concluded that the number of Israeli ‘techunicorns’ has grown at an unprecedented rate of 24 new ‘unicorns’ announced in the first half of 2021 alone.8 With Israel being a major force in global hi-tech, and specifically, with over 500 active digital health ventures, opportunity calls.9 PREVENTIVE CARE Over the past decade, enabled by data-driven innovative tools, organizations such as Clalit have made a strategic decision to move from a reactive paradigm, to what is termed predictive, proactive or preventive care. Thus, to an increasing extent, innovative services are put into practice on its patient population to identify early subtle signs, symptoms and signals within the patient’s electronic data, and attempt to identify what future illnesses, or deterioration of existing conditions, can be predicted. The next step is to proactively approach the patient to address his/her issues early on (often at a stage as early as a patient being completely asymptomatic) in order to prevent future illness. In certain arears, for instance kidney disease, through this approach Clalit is demonstrating a significant reduction in the progression of the disease and the inevitable ensuing dialysis. Notably, aiming to delay or even prevent the onset of diseases by using prediction analysis as the basis for preventive actions, pre-emptive medicine sits well with the HMOs’ aforementioned incentives for preventative interventions. GARY COPELOVITZ PARTNER 66 The US-Israel Legal Review 2021 ISRAEL: DIGITAL HEALTH SUMMARY It is inevitable that slowly but steadily, the age of relying solely on human clinical knowledge and experience will be replaced by algorithmic predictive care. Indeed, the availability and ability of strong computing power and advanced analytics, including machine learning and artificial intelligence tools, to scan and analyze vast quantities of health data in huge repositories, is changing the world of healthcare for the better. This incredible tool cannot, however, be applied without human touch and empathy, thus the future holds promise for physicians most apt in combining both. Israel is among the leaders of the pack in this field due to decades of electronic medical records being embedded in our institutions and in integrated datasets, strong economic incentives to keep patients healthy over the long-term, and because Israel has prioritized digital innovation in healthcare. It is hoped that the interests of care providers and patients can be aligned. We, as customers, simply want better medicine = better quality of life; whereas care providers are looking for better patient value. Accordingly and simply put, if one is to believe that getting better outcomes translates to better patient value, we can expect a rather exciting and bright future for healthcare. ABOUT THE AUTHOR Gary Copelovitz is a Partner in Lipa Meir and Head of the International Department. Gary is instructed by a variety of clients in corporate and commercial matters, with a focus on cross-border M&A and providing strategic legal advice in the fields of Healthcare and Life Sciences, to Israeli and international clients alike. Email: [email protected] NOTES 1 https://www.timesofisrael.com/israel-digital-health-startups-raise-700min-q1-nearly-equal-to-all-2020/. 2 Invest in Israel Ministry of Economy and Industry “Digital Health: The Israeli Promise”, March 2020. 3 https://www.calcalistech.com/ctech/articles/0,7340,L-3887233,00.html. 4 “Israel has been an early adopter of digital health technologies in clinical practice for decades, with big data analytics, telemedicine, and online patient engagement widely incorporated into daily clinical care. At the core of Israel’s 20-year-long digital health transformation are four key enablers described as Israel’s 4 I’s: Information technology infrastructure and expertise, Integration of data ‘by design’, Innovation-supporting ecosystem, and Incentives aligned with prevention and care improvement. (Health systems under a global stress test: Digital health as a pandemic mitigation enabler; by Professor Ran Balicer, Head of Clalit’s Research Institute April 7, 2021). https://www. governinghealthfutures2030.org/category/blog/ 5 Protection of Privacy Law - 1981. 6 https://www.startupnationcentral.org/wp-content/uploads/2021/08/SNCDH_Sector-H12021_Digital_Final.pdf. 7 Viola’s State-Of-The-Unicorn Report: Israel’s Unique Example, published September 1, 2021. Available online at: https://www.viola-group.com/ violanotes/violas-state-of-the-unicorn-report-israels-unique-example-2/. 8 https://www.calcalistech.com/ctech/articles/0,7340,L-3916983,00.html. 9 Digital Health: The Israeli Promise, supra note 2. "Lipa Meir & Co is well acquainted with the international business community, and has extensive experience in international transactions" (The Legal 500) YOUR PARTNER IN ISRAEL As one of the most reputable and dynamic Israeli law firms, Lipa Meir & Co. is a prime destination for multinational clients searching for personal, professional and creative legal services. PERSONAL. PROFESSIONAL. CREATIVE Antitrust & Competition Arbitration & ADR Banking & Finance Capital Markets & Securities Class Actions & Derivative Cleantech & Clean Energy Commercial Cooperative Societies & Agriculture Corporate Defense Industries, Security & Cyber Employment Law Environmental Protection Healthcare & Life Sciences High-Tech & Technology Insolvency & Restructuring Insurance Intellectual Property International Transactions Internet & e-Commerce Investment Funds Litigation & Dispute Resolution Medical Cannabis Mergers & Acquisitions Planning & Construction Proceedings Project Finance, Infrastructure & Energy Real Estate Regulation & Administrative Litigation Telecommunication & IT Technologies Tenders Urban Renewal WWW.LIPAMEIR.CO.IL | | | 68 The US-Israel Legal Review 2021 ISRAEL: PRIVACY As we move into 2022, it appears that COVID is here to stay – at least for a while, and with it – the continuing erosion of our privacy. Despite some good news (from the legal, pro-privacy, point of view), many of our (and our children’s) daily activities are still being supervised, monitored and recorded. With all due respect and appreciation to the Israeli Privacy Protection Authority (the “PPA”) and to the privacy activists, it appears that they are all fighting an uphill battle. In this article we will discuss some of the main COVID-related privacy issues which kept us busy in 2021. SUPREME COURT RULING The main achievement of the privacy advocates in 2021 is probably the Supreme Court’s ruling in HCJ 6732/20 The Association of Civil Rights in Israel, et al. vs. The Knesset et al. This ruling is yet another chapter in the continuing saga of petitions submitted against the use of the GSS (the General Security Service, commonly referred to as the “Shin Bet”) phone tracking system for the conduct of epidemiological investigations. The use of such system started as early as April 1, 2020, initially based on emergency regulations promulgated under the Basic Law: The Government1 ; then by a government resolution, relying on Section 7(b) (6) of the General Security Service Law, 20022, and after the Supreme Court ruled that such authorization should be granted by a statute and not by a government resolution3 , by a specific law4 . Ostensibly, the GSS-COVID Law was to be implemented for short periods of time, subject, each time, to strict governmental scrutiny and to governmental approval. In reality, the government repeatedly (and automatically) approved the use of the GSS, twelve times in a row. The Supreme Court (with an extended bench of 7 justices) ruled that the GSS-COVID Law severely impairs citizens’ rights to privacy as it allows the GSS to collect and share information about their health situation and geo-location and that there is no transparency with regard to the processing, storage and sharing of such personal information. Having said that, the court noted that, given the imminent risk of the COVID pandemic, the law is constitutional and valid, yet the government’s discretion with regard to the implementation thereof and the periodical (and consecutive) extensions of the authorization of the GSS (irrespective of the fluctuations in The Notion Formerly Known as Privacy – One More Aspect of Long COVID The COVID pandemic has challenged many basic notions of privacy and human freedoms since March 2020. While certain rulings of the Israeli Supreme Court may be encouraging, the overall privacy situation is still under constant attack. the general health situation, the disagreements with regard to the effectiveness of the GSS’ tools and the expedited vaccination campaign) was lacking, unreasonable and non-proportional, and hence voidable. Thus, the court ruled that: (i) the government should set specific and transparent criteria for the use of the GSS for the conduct of non-voluntary epidemiological investigations (e.g., based on number of patients, contagion rate, etc.); and (ii) even upon meeting such criteria, the use of the GSS’ tools should be limited only to cases where sick people refuse to cooperate with the epidemiological investigations or otherwise fail to cooperate with same. LEGISLATION ANNULMENT In another case, prompt legal action caused the de facto annulment of legislation which allowed the Ministry of Health to transfer personal details of anti-vaxxers (or COVID sceptics) to their respective local councils and municipalities, to the Ministry of Education (with regard to teachers) and to the Ministry of Welfare (with regard to social workers and care givers), so that the recipients of such data may “encourage” such persons to get vaccinated5. The Association of Civil Rights in Israel (“ACRI”) petitioned against such legislation, the Supreme Court issued an interim order, suspending any transfer of information under such law6 and the legislation in question expired (and was not renewed) before the Supreme Court ruled on the merits. With that, and notwithstanding the temporary remission between March and July 21, the “Fourth Wave” (the Delta variant) took its toll: • The continued remote learning and remote working patterns invaded the privacy of (practically) every household, turning each living room into a recording studio and exposing the participants’ domestic environment. • Moreover, many academic institutions required that their students who take remote exams install two web cams, allow access to their computers and take further measures to diminish their privacy7 . • The extensive use of the “Green Pass”/ COVID Certificate requires us to present such certificates (with our ID and passport numbers) in theatres, concert halls, hotels, government offices, etc8. The regulations governing the presentation and scanning of such certificates are silent about the use and protection of such information, and thus such information may, or may not, be kept, used, transferred, or remain protected9 . • Moreover, certain arenas and theatres have started using face-recognition technologies in order to screen and identify holders of green passes – again without any clear regulations governing the use and protection of the biometric data acquired by such systems10. CURRENT STATUTORY THREATS ON PRIVACY But the threats on privacy are not limited to COVID related matters (yet, the general “erosion” of the right to privacy caused by same may serve as a hotbed for additional measures). In July this year the Israeli government published a Memorandum of Law for Amendment of the Police Ordinance [New Version] (Amendment No.___) (Special Photographic Systems), 5721-2021. This memorandum seeks to mandate, through primary legislation, the use of special photography systems, including systems for photographing license plates (LPR) and biometric face recognition (FR). The memorandum also allows the Minister of Internal Security to allow the use of additional systems and optical surveillance measures without the obligation to publish such use. So far, this AMIR ZOLTY PARTNER 70 The US-Israel Legal Review 2021 ISRAEL: PRIVACY memorandum was met by vehement opposition – both from governmental agencies, among others, the Israeli Cyber Authority (who assert that the use of face recognition techniques in the public domain is not only contrary to the basic rights to privacy, but also poses a material security risk)11 and the PPA12, and from public interest groups, such as the Israeli Tech Policy Institute13 and the ACRI14 – among others – due to its vagueness with regard to the data collection methods, the types of data collected and the use thereof, due to the uniform treatment of various types of data (e.g., license plates registration versus facial recognition), due to the “blank check” given to the Minister of Internal Security to approve and implement additional data collection measures and due to the creation of a huge database which may not be subject to judicial oversight. On December 13, 2021 the Knesset (the Israeli Parliament) has approved (upon first reading, as part of a three-steps legislation process) a governmental bill, allowing police officers to conduct searches in private premises without a court warrant, if the failure to conduct such search immediately may undermine the purpose of such search, and a search warrant could not have been obtained beforehand, provided that one of the following conditions is met: (i) the possessor of the premises or a person who is present at the premises calls for the help of the police and there is a reasonable suspicion that a crime is being committed; (ii) there is a reasonable suspicion that a felony is being committed or has been recently committed in such premises; or (iii) there is a reasonable suspicion that an object who may serve as an evidence to the commitment of a serious felony15 and the search is immediately required, in order to prevent the destruction of, or tampering with such evidence, provided that such search shall be: (a) approved by a commanding police officer; and (b) duly recorded; or (iv) there is a reasonable suspicion that a suspect of a serious felony which has been recently committed or a person who escaped from or evaded an arrest, imprisonment or legal detention is present at such premises.16 As noted above, it appears that COVID is here to stay, at least for the first half of 2022, so that it is yet premature (to say the least) to conclude the discussion about the long-term impact of COVID on privacy. As we are currently struggling with the Omicron variant, and as the Israeli government is considering further preemptory measures, we should probably follow the British WW2 advice and “Keep Calm and Carry On” (protecting public health and safety, while safeguarding the right to privacy). n ABOUT THE AUTHOR Amir Zolty is Partner and Head of Lipa Meir’s High-Tech Practice. Since 2001, Amir has been extensively engaged in high-tech and biotech/ pharmaceutical transactions, and he represents a considerable number of private and public hightech and biotech companies with regard to their day-to-day activities, as well as corporate finance, M&As, privacy, compliance, etc. Email: [email protected] NOTES 1 The Emergency Regulations (Authorization of the General Security Service to Assist in the National Effort to Limit the Spreading of the New Corona Virus), 2020. 2 The Section provides that the GSS may engage in “any other activity in any other domain, designated by the government, with the approval of the Knesset Committee for the GSS matters, which activity is intended to uphold and promote state interests which are crucial to the state’s national security. 3 HCJ 2120/20 Ben Meir et al. versusThe Prime Minister et al. 4 The Law for the Authorization of the General Security Service to Assist in the National Effort to Limit the Spreading of the New COVID Virus and the Facilitation of the Use of Civil Technologies for the Location of Persons Who Were in Close Contact with Sick People (Temporary Provision), 2020 (the “GSSCOVID Law”). 5 The Law for the Amendment of the People’s Health Ordinance (No.36 – Temporary Provision – the New Corona Virus) 6 HCJ 1441/21 The Association of Civil Rights in Israel et al. versusThe Knesset et al. 7 See the PPA White Paper: “Major Points and Recommendation for the Protection of Privacy in Remote Tests which Includes Measure for the Protection of the Dignity of Exams in Advanced Education Institutions (in Hebrew) https://www.gov.il/he/Departments/publications/reports/privacy_academic_ studies_corona 8 Regulations Governing Special Powers for the Engagement with the New Corona Virus (Restrictions of Activities of Public or Business Places and Additional Provision) (Temporary Provision), 2021 9 Orly Halpern, In Israel, we happily gave up privacy to get our pre-covid lives back, Washington Post, April 23, 2021 (https://www.washingtonpost. com/outlook/in-israel-we-happily-gave-up-privacy-to-get-our-pre-covidlives-back/2021/04/22/3d300ad4-a2bf-11eb-85fc-06664ff4489d_story. html). See also the White Paper of the Italian Privacy Protection Agency in this regard: https://gpdp.it/web/guest/home/docweb/-/docweb-display/ docweb/9578203#english_version 10 Nitzan Shafir, “The use of face recognition technology with regard to holders of green passes in Habima Theatre and in Bloomfield Arena is contrary to privacy and is illegal”,Globes, May 20, 21 (In Hebrew) https://www.globes.co.il/news/ article.aspx?did=1001371568 11 https://www.haaretz.com/israel-news/.premium-top-israeli-cyberauthority-opposes-police-plan-to-install-face-recognition-cameras-1.10073304 12 https://www.law.co.il/media/computer-law/ppa_comments.pdf 13 https://techpolicy.org.il/blog/itpi-comments-on-the-draft-bill-to-authorizelaw-enforcements-use-of-special-photography-systems-lpr-fr/ 14 https://www.english.acri.org.il/post/__344 15 A “Serious Felony” is defined, for the purposes of this bill, as a felony whose punishment is at least ten years of imprisonment, unlawful possession of firearms, use of firearms in residential areas or in a manner that may endanger persons and extortion. 16 The Bill to Amend the Criminal Procedure Ordinance (Arrest and Search) (Causes for Search Without a Court-Issued Warrant) (Temporary Provision), 2021. 72 The US-Israel Legal Review 2021 ISRAEL: INTELLECTUAL PROPERTY IP IN ISRAEL We live in a technological era of innovation, where intellectual property (IP) plays a crucial part in the economic growth of corporations and countries. In many cases, IP assets, such as patents, trademarks, designs, and copyrights, are the most lucrative assets of the corporation, as well as trade secrets; therefore, IP laws (and commercial torts laws) are of great importance in the world of modern law, and especially in the Israeli technology-based economy. Intelligent management of IP rights is the key to creating incentives for inventors and fostering a significant growth engine in the country’s economy. But this cannot happen without proper legislation and regulation. For that reason, the Israel Innovation Authority (formerly known as the Office of the Chief Scientist) has advanced many reforms, together with the ILPTO, to lower regulatory barriers, also regarding COVID-19 solutions specifically. In Israel, like in most countries, some IP rights, such as patents and breeder’s rights, cannot be created without registration, while other IP rights, such as trademarks and designs, should be registered to receive as broad a protection as possible. Still, such registration is not mandatory, and some protection is available for unregistered rights. In addition, there are rights, such as copyright, for which registration has primarily an evidentiary purpose. Enforcement of IP rights in Israel can be done on several levels: The first is in certain proceedings before the Patent and Trademark Office (the ILPTO), such as oppositions. The second is in court proceedings, in various claims such as IP rights infringement, an application for Preliminary/ Permanent Injunction, and more. The third is by seizing and confiscating counterfeit goods by the Customs Authorities and the police. Unlike ILPTO proceedings, where cases are heard by someone who specializes in IP, there are no judges in the courts who officially specialize in IP (although some judges have already gained experience in the field). Therefore, there is an increased tendency to divert disputes to mediation or arbitration as an alternative dispute resolution route. IP IN ISRAEL DURING COVID-19 There’s no doubt that the past year and a half have created many challenges, as the COVID-19 pandemic entered our lives and impacted almost every aspect of it. When it comes to IP in Israel, the pandemic has created both challenges and opportunities, and while the pandemic took everyone by surprise, it didn’t find us unprepared, as Israelis are early Israel: The Importance of IP in a Technology-Based Economy Israel’s extensive experience in dealing with crises has proven itself during the COVID-19 pandemic. Kfir and Michal Luzzatto review the unique characteristics of IP in Israel, as well as the steps that Israel has taken to grow in times of crisis. The US-Israel Legal Review 2021 73 adopters and fast adapters by nature. The day COVID-19 hit us, we realized that we had to learn to live with lockdowns and social distancing, so we simply switched to full-time remote operation, which proved itself well. As in other organizations, the activities of the Israeli Patent Office (ILPTO) in 2020 were impacted by the coronavirus, when the employees of the ILPTO worked on a part-time basis, and 50% of the ILPTO employees were on leave. In addition, since the beginning of the outbreak and until the end of 2020, ILPTO employees worked almost full-time from home. Despite these challenges, and thanks to the significant investment made in the past in providing services online, throughout 2020-2021 all the ILPTO services were provided almost as usual, except certain legal proceedings which, during lockdowns, could not be conducted online. In addition, in May 2020, the patent division of the ILPTO began using artificial intelligencebased software to search for prior art, which is used in the initial search by the examiner who completes the search if necessary, using additional searching capabilities. The search results and their reliability are believed to be improved, although this endeavour is too new for an observer to reach a final conclusion. In general, it can be said that COVID-19 did not significantly affect the submission of applications for registration of intellectual property rights in Israel and may even have had a positive effect. IP practitioners in Israel were amazed to see that the pandemic did not slow down IP activity. On the contrary, the activity level had increased. In 2020, for the first time, the number of patent applications filed in Israel exceeded the 8,000 threshold, when more than 8,100 new patent applications were filed in Israel, an increase of about 5% compared to 2019. Working from home is unlike office work in many respects, and it seems that inventors, creators, and entrepreneurs found more time to pursue projects previously set aside or delayed because of time and work constraints. Additionally, some new projects were postponed, allowing the handling of previous backlogs. Thus, despite the shortage of manpower in the ILPTO in 2020, approximately 6,700 Israeli patent applications and 1,470 PCT applications were examined – more than in any other year. The trademark division issued the first examination report in 22,238 applications, and the designs division examined close to 1,900 applications. In addition, there was a significant decrease in the average waiting time for a patent, trademark, and design examination and a reduction in the total examination duration. RECENT DEVELOPMENTS In addition to the required changes that COVID-19 has brought with it, such as enabling online discussions and proceedings, improving regulation, and providing online services, there have been some interesting developments in the various areas of intellectual property that are reviewed below. A SUPREME COURT RULING WILL IMPROVE LITIGATION EFFICIENCY In April 2021, the Israeli Supreme Court rendered a decision of principle in intellectual property, which has far-reaching implications for the entire industry (CLA 6161/20 Ayala Plast Ltd. V. Photex Molds Ltd.). This decision stipulates that intellectual property lawsuits can be filed in the District Court, even if the requested monetary relief is less than NIS 2.5 million (which is the subject-matter jurisdiction’s limit under the Israeli Courts Law), provided there is a provision in the specific law DR. KFIR LUZZATTO PRESIDENT THE LUZZATTO GROUP MICHAL LUZZATTO MANAGING PARTNER LUZZATTO LAW FIRM 74 The US-Israel Legal Review 2021 ISRAEL: INTELLECTUAL PROPERTY regarding authority so that these cases will not be filed in a sweeping way in the Magistrate’s Court as stipulated in the earlier Gabriel’s ruling. Gabriel’s ruling, which was given in the matter of copyright about a year ago by the Supreme Court, ruled that in the case of a lawsuit under NIS 2.5 million, the Magistrate’s Court has jurisdiction, as in an ordinary civil lawsuit. This ruling, as stated, was changed in the decision given in the case Plast V. Photex. This case dealt with a lawsuit for designs infringements filed by Photex Templates Ltd. in the District Court in November 2019 against Ayala Plast Ltd. Between the years 2014-2016, Photex, which was represented by The Luzzatto Law Firm of The Luzzatto Group, registered 10 designs concerning boxes for electrical connections. In the statement of claim, Photex petitioned for a permanent injunction to secure its rights in the designs and prevent their continued infringement by Ayala Plast and requested a financial relief of less than NIS 2,500,000. The district court first sought to apply Gabriel’s ruling to the case, which was given after the lawsuit was filed, and to transfer the case to the Magistrate’s Court. Photex disagreed with this position and argued for the existence of a specific provision of law, section 51 of the Designs Ordinance, by virtue of which the authority to hear such a claim is given to the district court only. The district court accepted Photex’s position and held that according to section 51 of the Designs Ordinance, the claim should be heard in the District Court. In respect of this decision, Ayala Plast filed an appeal to the Supreme Court based on Gabriel’s ruling. At the court’s request, the Attorney General announced his appearance at the Supreme Court, submitted his position, and agreed with Photex’s claim that the court was correct in its decision to leave the hearing in the District Court. In the judgment that was rendered, the Supreme Court ruled that Gabriel’s ruling could not be applied broadly and sweepingly to all intellectual property lawsuits. When there is a specific provision in the legislation regarding a unique substantive authority, which determines in which court the case will be heard, it should be preferred over the remedy test (which relies on the monetary amount of the claim). The Supreme Court further ruled that “in order to save unnecessary litigation in the future, we will clarify that the same analysis also applies to other cases where there are special legal provisions in the field of intellectual property law that relate to the issue of subject-matter jurisdiction.” “It has been determined that the court competent to hear a claim for patent infringement is the District Court. Therefore, such claims must be submitted to the District Court, without requiring a remedy test at all.” This is a precedent-setting decision of the court, which will affect all litigation in the field of intellectual property. There is a considerable advantage to litigating in the District Court in light of the professionalism, proficiency, and experience of the judges in general, and for some judges also regarding their expertise in the complex and complicated field of intellectual property, gained over years of practice in the field. Moreover, when it comes to the field of intellectual property, these are lawsuits involving a considerable amount of money (sometimes the financial remedy does not represent the actual value of the lawsuit, which is embodied in a restraining order, the economic value of which is difficult to estimate). The fact that in some cases, these are matters of principle, in which a final ruling of the Supreme Court is sometimes required, also gives an advantage to litigation in the District Court, from which the path to the Supreme Court is shorter. CONTINUOUS DEVELOPMENT OF INTERNATIONAL COOPERATION Israel is known to be the “Startup Nation” but is also a small country (a population of a little The Supreme Court’s decision is precedent-setting and will affect all litigation in the field of intellectual property The US-Israel Legal Review 2021 75 more than 9 million people) that has to confront a particular situation (a perpetual state of danger from declared enemies). Therefore, developing international cooperation is of high importance in all aspects, including, of course, IP. Israel is a member of many multilateral international treaties, such as the Patent Cooperation Treaty, The Paris Convention for the Protection of Industrial Property, the Madrid Protocol, The Berne Convention for the Protection of Literary and Artistic Works, and more, and just of last year Israel also joined The Hague Agreement Concerning the International Deposit of Industrial Designs. It is expected that the number of design applications filed by Israeli applicants via the Hague Agreement will continue to grow. “The Abraham Accords,” the peace agreement signed initially between Israel and the United Arab Emirates, is one of the most significant developments in this area in recent times. Briefly known as “the Accord,” it resulted in further peace and cooperation agreements with Bahrain, Sudan, and Morocco. These agreements have far-reaching positive implications for the region’s economic development, both for Israel and the Gulf states. This formal peace agreement is a natural evolution of the relationships that Israelis have maintained with Arab states “under the radar” for many years. The moment the agreements were out in the open, a deluge of connections began, cementing business and personal relationships. As is natural, IP firms were among the first to openly reach out to each other, and they found professional, warm, and eager business partners at the other end. It may seem incredible that strong relationships could develop spontaneously in a matter of days after years of disconnect between the Arab world and Israel. Still, the truth is that the divide between the people was never a real one, and it was only incited by the atmosphere created by politicians. ALIGNING WITH INTERNATIONAL LEGISLATION The Ministry of Justice published a new draft bill to amend the Israeli Patents Law regarding Patent Term Extension (PTE). The purpose of this amendment is to allow drug manufacturing and stockpiling during the extension term, to adapt the situation of Israeli companies to that of foreign companies in foreign markets. This new draft bill answers the need to adjust the Israeli law in respect of the patent protection period to the changing market conditions, as these actions have recently been allowed in the European law (Regulation (EU) 2019/933 of The European Parliament and of the Council of May 20, 2019). The proposed exceptions: The draft bill proposes adding exceptions for the following actions that would not be considered an infringement of the Patent during the extension period: 1) the manufacture of patented medical equipment or medical preparation containing the substance, for the purpose of marketing them outside of Israel, including any necessary action for this purpose; 2) the production during the six months before the end of the Patent Term Extension period for the purpose of marketing the patented product in Israel after the expiration of the extension order, including any necessary action for this purpose; The draft bill is projected to apply to PTE applications, which will be filed after the formal publication of the Law, and from July 2, 2022, to PTE applications pending at that time. Additionally, it would apply to any granted PTEs for which the extension period has not started (i.e., for which the Basic Patent is still in force). Since this is only a draft bill, the Ministry of Justice will have to review objections filed by third parties, and then the bill will be presented to the Knesset (the Israeli Parliament) for approval, so amendments can still be introduced if and before it is finally approved. CONCLUSION The brief review presented above illustrates the vibrant, always-evolving IP environment that characterizes Israel; the COVID-19 pandemic emphasized the resilience of the Israeli IP environment. Many essential technologies are developed in Israel every day in various fields, such as cyber security, medical devices, biotech, agritech, environment, and much more. The world benefits from those technologies, most of the time without knowing their origin. This technological environment could not thrive without the robust IP 76 The US-Israel Legal Review 2021 ISRAEL: INTELLECTUAL PROPERTY infrastructure that exists and develops constantly, taking into account the deep connection of Israel’s industry with the world at large. ABOUT THE AUTHORS About The Luzzatto Group The Luzzatto Group offers clients a range of complementary services to maximize the value of their IP. Our IP division, which includes Luzzatto and Luzzatto Patent Attorneys and The Luzzatto Law Firm, helps individuals, start-ups, companies, and multinational corporations protect their intellectual property. Our Business Division includes Luzzatto Consulting, Luzzatto Software, and Luzzatto BizDev. Luzzatto Consulting provides professional, technical, and scientific consulting. Luzzatto Software develops software for the Group’s needs. Luzzatto BizDev develops business opportunities for the Group and, in some cases, for the Group’s clients – creating growth opportunities. Dr. Kfir Luzzatto, President of The Luzzatto Group Kfir is the fourth generation of his family to work in intellectual property. The firm he heads was founded by his great-grandfather in Milan, Italy, in 1869 and moved to Israel more than 50 years ago. Kfir has vast experience in drafting and prosecuting patent applications in different fields, but nowadays, he mainly directs and participates in IP litigation and oversees complex portfolios requiring sophisticated strategy planning. Kfir’s multi-disciplinary experience ranges from pharmaceuticals and life science to software and defense. His extensive experience in litigation allows him a unique perspective on the development of strong IP protection for start-ups and multinational companies alike. Kfir holds a Ph.D. in Chemical Engineering. He is known, among other things, for his work in litigation on important products such as PROZAC, VIAGRA, and less generally-known yet important projects in the life science, defense, and software fields. Kfir is a recipient of the Landau Award for Research, the inventor of patented inventions, the author of many articles on intellectual property, and a member of multiple professional organizations in the field of intellectual property. Michal Luzzatto, Managing Partner at The Luzzatto Law Firm Michal is a fifth-generation member of The Luzzatto Group and the managing partner of The Luzzatto Law Firm. As a photographer and an artist herself, Michal devotes a significant portion of her time promoting the protection of intellectual property rights with an emphasis on copyright and trademarks and works closely with entrepreneurs, creators, artists, and inventors. Michal’s primary practice areas are Intellectual Property – Copyright, Patents, Trademarks & Designs, Commercial Law, Communications Law, and Internet Law. Michal has a great love for working with people and developing meaningful relationships. Contrary to the stereotype about lawyers, Michal believes one should strive to resolve disputes outside of court. Therefore, in many cases, she helps her clients reach creative and effective solutions without conducting expensive and exhausting legal proceedings. After graduating from the Interdisciplinary Center Herzliya (IDC) with two degrees, LL.B, Summa Cum Laude (2010), and B.A. in Business Management, Summa Cum Laude (2010), and passing the Israeli bar, Michal joined The Luzzatto Group. She currently manages The Luzzatto Law Firm, established a century and a half ago by her great-grandfather as a law firm specializing in intellectual property. n 78 The US-Israel Legal Review 2021 US-ISRAEL: R&W INSURANCE OVERVIEW Buyers and sellers that use representations and warranties insurance (RWI) recognize the unique benefits it can bring to a transaction. These include bridging the gap in negotiations, increasing deal efficiency, providing a genuine source of recourse for the buyer, and the ability for the seller to have limited liability after closing for breaches of reps and warranties, without the need to hold funds in escrow (i.e. the much coveted “clean exit”). RWI is estimated to be used on over 50% of all M&A transactions in the US, and a significantly higher percentage on transactions involving a financial sponsor. However, for those involved in M&A transactions in Israel, the question has been: When will RWI make its way to the “Start-up Nation?” Over the past 12 months, this has been answered with a significant increase in the use of RWI on Israeli deals, both by US investors acquiring assets in Israel and by Israeli buyers acquiring assets domestically and internationally. Insurer appetite for RWI in Israel is growing as the US, UK, and European insurance markets gain familiarity with Israeli transactions, noting their similarity in form and style with US M&A. This article sets out the key characteristics of RWI in Israel, including details of the coverage, pricing, and process; how it compares to the process in the US; and the future of M&A insurance in Israel in 2022 and beyond. GROWTH IN M&A HEIGHTENS AWARENESS OF RWI Most Israeli M&A activity consists of local companies being acquired by buyers from the US, UK, Europe, and Asia. The structure of these transactions follows international standards, with the closest comparison being to the US as Israeli acquisition agreements generally follow their form and style. The disclosure process mirrors that of the US, and Israeli due diligence reports and transaction documents are almost always in English. In addition, Israel’s corporate and securities laws are similar to those in the US, and Israeli courts often look to Delaware as a source of influence for new case law. Recent years have seen a continued increase in the use of RWI on US transactions, making the extension to Israel both logical and expected. According to Barak Platt and Ezra Gross, partners at Yigal Arnon & Co: “As it becomes more popular and Representations and Warranties Insurance: Enhancing Returns on M&A Transactions in Israel Buyers and sellers in the US and Europe have been using RWI to create value for a number of years — the time has arrived for parties in Israel to do the same. The US-Israel Legal Review 2021 79 insurance companies get more comfortable with Israel, the use of such policies in M&A transactions is expected to continue to grow.” Israel’s evolution from the “Start-up Nation” to the “Scale-up Nation” has led to consistent growth in mega-acquisitions and increased investment from multinational technology companies and US financial sponsors. These buyers have been using RWI on transactions across the globe and are now seeking to do so in Israel. In addition, Israeli sellers (be they founders, management, or institutional investors) are now more aware of RWI’s benefits and increasingly raise this option at the outset of their sale processes, providing them with both greater control and insight into available RWI terms. As is common on European transactions, for no cost or commitment, sellers can instigate the RWI process, engage a broker to review the transaction documents, and request terms from insurers. At the appropriate time, the terms are “flipped” to the buyer, who will put the policy in place. Marsh has been at the forefront of RWI growth in Israel. Over the past 18 months, we have used our global experience and local market knowledge to develop awareness of the value RWI adds to an M&A deal, and have worked with global insurers to educate them on regional nuances. Marsh has advised on more Israeli transactions in 2021 than any year previously. We expect this trend to continue, and for RWI to become an established part of the M&A process. According to Ashok Chandrasekhar, partner at Goldfarb Seligman & Co: “Having represented buyers, sellers, and insurers in numerous deals where RWI was put in place, I can attest to its effectiveness as a tool to bridge negotiating gaps and enable parties to find common ground on the contours of appropriate liability. We have seen insurance fit seamlessly into deal structures in fields as varied as large portfolio sales, tech acquisitions, and regulated industries. I anticipate that RWI will play an important and growing role in the Israeli M&A scene.” SIMILARITIES AND DIFFERENCES IN US AND ISRAELI RWI An RWI policy on an Israeli transaction will look and feel similar to a US policy, with the fundamental purpose being to cover against financial loss that may arise from a breach of a representation or warranty in an acquisition agreement. Coverage and process are “US style,” including no general disclosure of the data room or diligence reports, and loss calculated on an indemnity basis. Most policies are governed by Delaware or New York state law, notwithstanding that the acquisition agreement may itself be governed by Israeli law. For US investors, this should provide the comfort of a familiar process and the confidence to pursue RWI on transactions where the target or underlying business sits in Israel. When is RWI best used in Israel? Given the extensive range of limits that can be purchased for any deal, and the available insurer capacity and appetite for Israeli deals, RWI can be used on transactions with an enterprise value as low as USD10 million or in excess of USD2 billion. Insurer appetite is strongest for cross-border Recent years have seen a continued increase in the use of RWI on US transactions, making the extension to Israel both logical and expected JOSHUA BEGNER SENIOR VICE PRESIDENT 80 The US-Israel Legal Review 2021 US-ISRAEL: R&W INSURANCE transactions, in particular where the buyer or seller is backed by a financial sponsor. In addition, many are becoming increasingly comfortable insuring earlier stage technology companies where there is a sensible valuation methodology. Does RWI in Israel have the same benefits as in the US? For buyers and sellers of Israeli companies, the benefits of using RWI closely align with its use on US transactions, including the ability for sellers to obtain a clean exit and for buyers to have a genuine source of recourse. In addition, RWI can act as a bid enhancement tool, giving a buyer the ability to obtain: (i) enhanced survival periods; typically seven years for fundamental reps, tax reps, and the preclosing tax indemnity, and three years for general business reps; and (ii) coverage limits that are higher than would typically be obtained under an acquisition agreement; typically, RWI limits range from 10% to 30% of enterprise value, but the limit could be as high as 100% of enterprise value for some or all of the reps and warranties. There are also nuances when considering the benefits of RWI in Israel. In the US and Europe, the market practice is for sellers to limit their liability for any breaches of reps and warranties to USD1.00, making the RWI policy the only form of recourse for buyers. However, this construct is not yet market standard in Israel. We have seen a variety of liability structures on deals in Israel over the past 12 months, including sellers remaining liable up to the deductible applicable under the policy, and sellers remaining liable for certain items where such items have been deemed excluded under the policy. In time, as investments in Israel grow – particularly from financial sponsors – and RWI becomes an established part of the M&A process, it appears likely that the USD1.00 cap structure will become more prevalent. Furthermore, a USD1.00 cap structure would suit the profile of buyers and sellers involved in Israeli transactions as sellers often include founders and management who will remain with the business post-closing, and financial sponsors that will want to limit post-closing indemnification liabilities. Using a USD1.00 cap structure can provide sellers with the peace of mind that they will not be subject to claims for breach of reps and warranties postclosing. Similarly, for US buyers that are unlikely to bring a claim against founders and management that continue to be instrumental in the running of the target business post-closing, a USD1.00 cap structure would incentivize management to engage with the disclosure and transaction processes. How does Israel RWI coverage compare to US policies? Like in the US, an RWI policy generally covers “loss” from claims made by the buyer for any breach of the representations and warranties made by the seller. An RWI policy can be structured to cover only certain specific reps or warranties; however, coverage is generally afforded on a blanket basis for all reps and warranties to the extent they are “market standard” and have been the subject of buyer due diligence. As with US policies, the definition of “loss” in the policy should match the extent of the indemnity negotiated in the acquisition agreement. For Israeli technology transactions, insurers place significant focus on the diligence findings in respect of the target groups’ intellectual property ownership and data privacy compliance. As a starting point, insurers typically will cover these warranties subject to underwriting and review of diligence. Typically, the intellectual property reps and warranties are covered, and data privacy is predominantly only excluded where historical compliance issues are identified in the diligence. What kinds of exclusions will an RWI policy typically contain? RWI policies generally include certain market standard exclusions. For example, RWI does not cover known issues, such as those discovered during the due diligence or described in the disclosure schedules. In addition, policies typically will not cover purchase price adjustment provisions contained in the acquisition agreement, pension underfunding, and certain environmental liabilities. Other exclusions, to the extent included, will depend on the buyers’ diligence findings. How do costs and deductibles compare to a US The US-Israel Legal Review 2021 81 RWI policy? The cost of an Israeli RWI policy is based on factors such as the nature of the risk, the location of the primary operations of the target business, and the relative size of the deductible. For an Israeli deal, RWI pricing typically sits between US and European pricing. We have seen it range from 2% to 5% of the coverage limit under the policy; in contrast, pricing on pure US policies are now as high as 5.5% of the coverage limit. Historically in the US and Europe, market practice was that the buyer paid the policy premium. However, increasingly, this cost is being shared between buyer and seller in recognition of the mutual benefits the policy provides. We have seen a similar trend for Israeli deals – the question of who pays the premium will often come down to commercial bargaining strength. The deductibles on Israeli RWI policies match the US and typically sit at 1% (or 1% dropping to 0.5% after 12 months) of transaction value. However, deductibles can vary and lower ones will be available for asset heavy transactions, for example, real estate deals. Insurers also provide higher deductible options, whose impact is to reduce the risk exposure for the insurer and lower the policy cost. Will the RWI process delay my transaction timetable? In recent years, the RWI insurance market has responded to concerns about the amount of time necessary to place a policy. RWI brokers and insurers understand the need to keep pace with the deal timetable, and using RWI can, in fact, speed it up. Key to this is an experienced broker who understands the competing time pressures for the transaction principals. This is particularly important on Israeli transactions, where RWI is still less familiar. As in the US, typically within 72 hours of being instructed and provided with the relevant information, a broker should be in a position to present a report summarising the available terms. A broker can work with the buyer’s deal team to analyse the terms provided and identify an insurer that meets the buyer’s needs. Once an insurer has been appointed, they should be in a position to underwrite the transaction and put the policy in place within one to two weeks from receipt of buyer diligence reports. Insurers do not undertake their own diligence, but will review the buyer diligence reports on a non-reliance basis and raise followup questions. Insurers will typically engage local counsel in Israel to help review the reports. Is it straightforward to make a claim? In recent years, a large number of RWI claims have been made globally in the US and Europe, resulting in significant payments by insurers. In 2019, Marsh saw multiple insurance payments in excess of USD20 million, and payments made on 84% of closed claims. The broker on a transaction should remain the buyer’s advocate throughout the policy’s lifecycle. In the event of a claim, the broker should work with the buyer’s legal counsel and guide them through the process to help position them for success in making a claim. The experience and market positioning of the broker’s claim team is fundamental and should be a key consideration when appointing a broker. Where are insurers that underwrite Israeli deals based? The pool of insurers underwriting Israeli deals is growing, with most based in the US or UK, where appetite is strongest. It is important that the broker on the deal is able to access any insurer globally, maximising the potential for competitive terms. An increasing number of insurers are “discovering” Israel, as they come to understand that doing a transaction there is akin to doing one in the US in form, style, and risk profile. Lorraine Lloyd-Thomas, an underwriter at Beazley with significant experience underwriting Israeli RWI, notes: “From mid-2020 onwards, and particularly in 2021, we have seen an exponential rise in RWI submissions on Israeli transactions, of which we have insured a significant proportion; there is now real momentum. The US style nature of the SPA and disclosure process fits neatly into our wider RWI book, and I have been genuinely impressed by the quality of many of the targets that have been brought to market.” CONTINGENT LIABILITY INSURANCE IN ISRAEL RWI covers unknown breaches of reps and 82 The US-Israel Legal Review 2021 US-ISRAEL: R&W INSURANCE warranties; however, it will not cover “known risks” that have been identified in respect of the target business. Such risks can be addressed separately in a contingent liability policy, which insures known, identified, specific risks. Historically, it was confined primarily to insuring identified tax risks, but now can cover areas including intellectual property, pensions and regulatory issues. Contingent liability insurance is usually appropriate where parties have identified a technical or legal issue, and can clearly explain why the likelihood of the risk manifesting is low. The policy converts a contingent liability into a known cost (the premium), providing a buyer with a source or recourse in the event the risk crystallizes, and can thereby remove the need to include a specific indemnity provision or escrow mechanic in the acquisition agreement. For such a risk to be insurable, it requires: (i) of exposure quantified; (ii) logical reasons as to why the risk is low; and (iii) supporting documentation and analysis. The cost of a contingent policy varies depending on the risk. The rate will be fact dependent, but will be a one-off premium, typically falling within the range of 1.5% to 20% of the policy limit. There has been a significant increase in recent years in the US and Europe in the use of contingent liability insurance and, as with RWI, it is expected that this will increasingly become part of the M&A process in Israel. WHAT’S NEXT FOR M&A INSURANCE IN ISRAEL? RWI in Israel had a landmark year in 2021, having been used on a significant number of transactions. We expect the use of RWI will continue to increase and evolve to reflect the characteristics of RWI policies in the US. In addition to inbound investors, Israeli buyers acquiring assets outside of the country can now gain the confidence of using a product with which they have greater familiarity. According to Mike Rimon, a senior corporate partner at Meitar: “The use of RWI in Israeli M&A has increased significantly, following the trend in the US. It has become very common to use RWI in sales of Israeli businesses to non-Israeli buyers, as well as where Israeli companies acquire businesses from Israeli and non-Israeli PEs. Furthermore, we now see Israeli buyers of non-Israeli businesses relying on RWI. As Israeli M&A activity increases (both on the sell side and buy side), we expect the use of RWI by Israeli buyers and sellers to continue to increase.” The fundamental purpose of RWI and contingent liability insurance is to bridge the gap between buyer and seller, releasing capital and providing each with the peace of mind that comes from protecting themselves from future liabilities. Buyers and sellers in the US have benefited from these solutions for a number of years. The time has arrived for buyers and sellers in Israel to do the same. n ABOUT THE AUTHOR Joshua Begner is a Senior Vice President in the Private Equity and M&A group at Marsh Specialty (a Marsh McLennan business) and leads Marsh’s Israel M&A team. Prior to joining Marsh, Joshua was a senior M&A attorney at Willkie Farr & Gallagher LLP, advising US financial sponsors acquiring technology assets in Europe. Joshua now specializes in structuring insurance solutions for Israeli transactions. Over the past 12 months, he has led a significant number of transactions in Israel, establishing Marsh as the market leading M&A insurance broker, and playing a key role in developing the Israeli RWI market. Joshua’s clients include US, Israeli and European financial sponsors and corporates. Email: [email protected] In addition to inbound investors, Israeli buyers acquiring assets outside of the country can now gain the confidence of using a product with which they have greater familiarity marsh.com A business of Marsh McLennan Possibility happens here For more than 25 years, Marsh has partnered with clients across the globe to create value and enhance returns on M&A transactions. Supporting 5000+ M&A transactions and 2000+ portfolio companies around the world annually, our specialist expertise provides data-driven solutions across the investment lifecycle. Copyright © 2021, Marsh LLC. All rights reserved. 785466762 84 The US-Israel Legal Review 2021 US: CRYPTO / DIGITAL ASSET REGULATION THE STATE OF THE MARKET – SUCCESS BREEDS REGULATION The year 2021 will be known as the year when blockchain and digital assets of all types (including “cryptocurrencies”) became mainstream. Digital wallets in the U.S. now number over 150 million and one study predicts that by 2025 the global number of unique digital wallet users could exceed 4.4 billion. In 2013 the market cap for the entire digital asset market was around $1.5 billion. In 2021 that number had grown to $2 trillion. The total number of crypto users worldwide in 2013 was 1,000,000. Today, it is over 330 million. Those numbers are particularly astounding given that the use cases for digital assets are still in early stages of development and adoption, and the ability of digital asset platforms to truly scale has only come onto the scene within the last 12 months. Importantly, 2021 also will be known as the year in which solutions emerged to problems with financial products developed and traded on blockchains, such as scalability, speed, practicality, and security. For example, this was the year in which “Layer 2” solutions became ubiquitous which, in turn, drove considerably greater transaction speeds, thus allowing products to be scaled. Accordingly, a “Cambrian explosion” of new financial products have grown in total market value and expanded the numbers and kinds of solutions they offer for users. This success has bred more attention to the potential, and the risks, of digital assets. As the market grows, so does the potential for harm to consumers and, perhaps, to market structure and monetary policy. These factors, combined with the complexities of the underlying technology, the speed of funding, and the immediacy and immutability of settlement, have captured the attention of the regulatory community. THE U.S. REGULATORY STRUCTURE FOR FINANCIAL INSTITUTIONS The financial regulatory architecture in the U.S. is highly diffused. Sitting above the wide variety of regulatory agencies is the U.S. Congress, which created the statutory scheme on which the current regulations are based. In many cases the relevant statutes were created nearly 90 years ago, drafted by men the youngest of whom was born in 1900, and voted on by Senators 70% of whom were born before Thomas Edison patented the first electric lightbulb. It is not a statutory scheme well designed for the issues presented by instantaneous communications and immutable settlement conducted over globally distributed ledgers and governed by thousands of nodes. The fundamental building blocks forming this statutory foundation are centralized, rules-based, highly bureaucratic, dependent on middlemen, and subject to continuous and sometimes conflicting interpretations. The regulatory components can be grouped within several large categories. First are the market and anti-fraud regulators such as the Securities and Digital Asset Regulation in the United States: An Opportunity for Progress or a Threat to Innovation? The US-Israel Legal Review 2021 85 Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). Second are the consumer protection regulators, the most active of which is the Consumer Financial Protection Bureau (CFPB), as well as the Federal Trade Commission (FTC). Third are the “prudential” and monetary policy banking regulators – the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). Fourth are the financial policy and anti-crime organizations such as the Department of the Treasury (including the Financial Crimes Enforcement Network [FinCEN] and the Office of Foreign Assets Control [OFAC]) and the Department of Justice (DOJ), including the newly formed National Cryptocurrency Enforcement Team (NCET). Fifth are the organizations that are intended to coordinate the efforts of all of them, such as the Federal Financial Institutions Examination Council (FFIEC), the Financial Stability Oversight Council (FSOC) and the President’s Working Group on Financial Markets (PWG). Each of these entities has its own jurisdictional perimeter of which it is highly protective and which it often attempts to expand. For example, SEC Chairman Gary Gensler has contended that all digital assets are securities, thus suggesting that the entire market should be regulated by the SEC. On the other hand, the acting Chairman of the CFTC, Rostin Behnam, noted that the two most popular cryptocurrencies (Bitcoin and Ethereum) account for 60% of the market and have been ruled to be commodities. Both agency heads are seeking additional statutory authority from Congress. The lack of clear jurisdictional boundaries contributes to confusion at the regulatory level and industry level. In turn, this makes it more difficult for legislators, regulators, and industry members to find common ground. THE CURRENT U.S. REGULATORY ENVIRONMENT FOR DIGITAL ASSETS Digital assets were generally not viewed as mainstream products before 2021. But as the price of Bitcoin rose to over $60,000 earlier this year, then plummeted, and then returned to its previous highs, and as products such a stablecoins grew to become integral parts of useful innovations (such Each regulatory entity has its own jurisdictional perimeter of which it is highly protective STEPHEN T. GANNON PARTNER JAMES K. GOLDFARB PARTNER MATTHEW B. COMSTOCK PARTNER 86 The US-Israel Legal Review 2021 US: CRYPTO / DIGITAL ASSET REGULATION as crypto finance), the regulatory view began to tilt more aggressively. At the same time, the new Administration in Washington brought with it new agency heads with a more activist point of view and an enhanced proclivity to regulate. Today, nearly every U.S. financial regulator has taken an aggressive and mostly negative view toward digital assets in almost all of their manifestations. There has been no lack of heated rhetoric in how digital assets have been described. Phrases like “fool’s gold”, “poker chips”, “toxic” and “snake oil” are in ample supply. But the negative press has not staunched the growth of the digital assets. The decentralized nature of digital assets has regulators particularly concerned. Decentralized exchanges, where cryptocurrencies and digital assets are traded, do not maintain a limit order book or other features of a typical securities or commodities exchange. They are direct peer to peer purchases and sales. The absence of a “middle-man” – whom often is the entity which the government regulates – concerns regulators. Obviously, when regulatory action is taken it is important that there be a central governing point with which the regulators can interact. When there are only nodes (as in decentralized finance), which are “pseudonymous”, and which can be distributed across the globe, oversight and enforcement become more challenging. That said, digital asset entities such as crypto exchanges, which interact directly with end-users, are regulated for both consumer protection and systemic risk purposes. THE NATURE OF NEW REGULATION The irony of the current regulatory environment is that the agencies are seeking from Congress additional powers to regulate the blockchain and digital asset industry, while at the same time contending that their existing powers enable them to bring broad enforcement actions. Most of the new agency heads also intend to engage in additional rulemaking related to digital assets. The challenge for regulators is that expanding their jurisdiction through Congressional action is often slow, contentious, and interfered with by other legislative imperatives. Rulemaking, while perhaps not as slow as legislation, involves an extensive notice and comment process that can be just as contentious as law making. Because of this, regulators often resort to “Regulation by Enforcement,” a kind of de facto rulemaking by issuing guidance (which is not enforceable), undertaking consumer awareness campaigns, and bringing enforcement actions. For example, the CFPB earlier this year withdrew a policy statement issued by the prior Director which had provided clarity to the industry as to what counts as “abusive conduct.” However, the new head of the CFPB, Rohit Chopra, told Congress that the statement did not, in his view, provide clarity and that he would instead likely use a mix of guidance, litigation and rules to help articulate standards for abusiveness. Because “regulation by enforcement” often lacks predictability, it can lead industry members to over-correct for what they guess might be future problems. WHAT IS ON THE REGULATORY AGENDA? The CFTC appears content with the current view that most digital assets are commodities and can be regulated as such. However, because it is a small agency, its capacity to truly oversee the market is limited. Nonetheless, it has clear antifraud jurisdiction and recently brought two large enforcement actions against BitMEX ($100MM) and Tether ($41MM). The banking agencies, particularly the FRB, appear most concerned about regulation of stablecoins and their potential impact on (i) the Fed’s development of a central bank digital currency and (ii) monetary policy. We anticipate stablecoins will be limited in a particular way, such as by extensive risk disclosures or use cases. We also anticipate extensive requirements for risk assessments and risk monitoring if the Fed Nearly every U.S. financial regulator has taken an aggressive and mostly negative view toward digital assets The US-Israel Legal Review 2021 87 determines that stablecoins pose a “systemic risk,” something that would be more likely if stablecoins emerge as stout competitors of fiat currencies as stores of value. On October 26, the Chairperson of the FDIC, Jelena McWilliams, indicated her agency was exploring with other regulators “under what circumstances banks can engage in activity involving crypto assets.” She focused particularly on stablecoins and noted that oversight “should rest on the foundation that stablecoins issued from outside the banking sector are truly backed 1:1 by safe, highly liquid assets.” In an earlier academic paper, Saule Omarova, the current nominee for Comptroller of the Currency and a so-called “crypto critic”, expressed concerns about stablecoins, particularly the launch of Libra/Diem, that could have broad policy implications due to the opening up of “central banks balance sheet to Big Tech and other emerging fintech platform operators.” Finally, the government has begun to make specific recommendations with respect to its preferences for a future regulatory architecture. On November 1, the PWG (along with the OCC and the FDIC) issued its long-awaited report on stablecoins. It catalogs a series of potential risks and then recommends that Congress enact legislation to ensure that stablecoins and stablecoin arrangements are brought within the federal prudential regulatory framework, by recommending: (i) stablecoin issuers be required to be insured depository institutions, (ii) require custodial wallet providers be subject to federal oversight including requirements for appropriate risk management standards; and (iii) require stablecoin issuers to limit affiliation with commercial entities and that inter-operability standards be implemented. It also recommends that FSOC designate certain stablecoin activities as systematically important. Following that announcement, the Acting Comptroller of the Currency, Michael Hsu, in two different speeches on November 3 and 16, called for an expanded “financial regulatory perimeter,” including “comprehensive consolidated supervision” of certain cryptocurrency firms. He further called for coordination among the regulators and promised that the findings from the inter-agency “crypto sprint” would be available soon. Further details have been left unsaid for the moment. While apparently conceding they need additional powers from Congress to achieve all of their desired outcomes, the regulators obviously have firmly placed digital assets at the top of their action list. WHAT IS THE PATH FORWARD? Larger digital asset companies and even the most libertarian of digital product advocates are realizing that regulation is inevitable, and that engaging with regulators offers the potential to shape a reasonable regulatory regime. To determine the optimal path forward requires clear definitions of where the industry is headed and why. There is no shortage of thoughtful commentary in this space. In testimony before the U.S. Senate, Jeremy Allaire, the CEO of Circle, called for globally coordinated national policies on digital assets to ensure “there is supervision and compliance around the fundamental protections needed for financial services – enterprise risk, cyber security risk, fraud and financial crime risk, and the risk of theft”, with the goal of enabling rapid technological progress within the context of sound risk management. Given the decentralized nature of digital assets, another piece of the puzzle is the successor to the internet – what is commonly referred to as “web3”. In an October 21, 2021 White Paper on the subject of “How to Win the Future”, the venture capital firm Andreessen Horowitz stated its belief in three core principles to guide policymakers and “to deliver resilience and efficiency: secure, inclusive digital infrastructure; greater economic prosperity; and participatory, accountable governance.” Web3 systems offer a better vision of how societies should use technology because they are directly accountable to their users and provide an No single U.S. regulator has comprehensive authority to regulate digital assets, and large parts of the sector remain beyond the current jurisdiction of any regulator 88 The US-Israel Legal Review 2021 US: CRYPTO / DIGITAL ASSET REGULATION alternative to the status quo dominated by big tech and centralized regimes. Decentralization is the organizing principle of our past and future successes with respect to economic growth and dynamism. “Decentralization fosters democratized technology platforms that embody the values of open societies and will provide the infrastructure to power tomorrow’s economy and institutions.” Policymakers should work with market participants to unlock the potential of web3 technologies and design regulatory frameworks that are carefully calibrated to address perceived risks. Coinbase has issued its own Digital Asset Policy Proposal that embraces the regulation of digital assets. But it also suggests that the regulation take place under a new and separately crafted framework, with one regulator for marketplaces for digital assets (MDAs) and a dedicated selfregulatory organization to strengthen the oversight regime and provide more granular oversight of MDAs. Coinbase’s proposal highlights the risk of continued dependence on the current structure, which could force “the full spectrum of digital assets into supervisory categories codified before the use of computers [thus] stifling the development of this transformational technology [and] pushing offshore the innovative center of gravity that currently sits in the United States.” For our own part, we suggest four elements of a productive path forward. First, regulators should prioritize regulatory cooperation. Confusion about jurisdictional boundaries and reach has done little to promote innovation or guide the industry toward safety and security. Second, regulators and market participants should prioritize digital asset education. Digital assets and decentralized finance can improve access to capital, eliminate or reduce costs, fight financial crime, and enhance new opportunities to create value. How this can be accomplished prudently must be understood before picking up the regulatory pen. Third, regulators should clearly articulate the goals of regulation by determining the risks they want to mitigate or avoid. Only then can regulated parties begin to build safe, secure, transparent, and compliant solutions. Where those solutions are not available, appropriate disclosure and reporting regimes can provide consumers and other stakeholders with needed information. Fourth, regulators should sponsor “regulatory sandboxes” for the broad variety of products and projects being undertaken by the sector. In such venues, the interactions between new products and newly designed regulations can be vetted in a collaborative testing environment. These sandboxes should be developed with full transparency as to the projects tested and the lessons learned. Thoughtful and collaborative engagement among legislators, regulators and the digital asset industry promises greater benefits than siloed approaches and confrontation. Dialogue builds trust, trust leads to confidence and confidence spurs innovation. That should be the arrival point of the path forward. n ABOUT THE AUTHORS Stephen Gannon is a financial services industry leader who has previously served as a senior legal executive at Citizens Financial Bank, Capital One Financial Corporation and Wachovia Securities. Email: [email protected] James Goldfarb counsels companies in a variety of sectors, including financial services, technology, and life sciences. Email: [email protected] Matthew Comstock, a former lawyer at the U.S. Securities and Exchange Commission, has a diverse practice covering the legal and regulatory aspects of securities trading and markets, including the application of securities regulation to digital assets issued on the blockchain. Email: [email protected] Policymakers should work with market participants to unlock the potential of web3 technologies Murphy & McGonigle “Law Firm of the Year” – Securities Regulation DOUBLY HONORED! Learn more at www.mmlawus.com Are U.S. fi nancial regulations a barrier to your company’s success? We can help. New York l Washington, DC l Virginia l Chicago l San Francisco For purposes of state Bar rules, this may be considered attorney advertising. HAVEN’T HEARD OF US YET? LET’S CHANGE THAT. 90 The US-Israel Legal Review 2021 ISRAEL: HIGH-TECH Shibolet partner Amir Iliescu sat down for an interview with Danny Collins of Global Legal Media. Danny Collins: Last year you wrote that COVID-19 had thrown a strong, stable and robust Israeli HighTech sector into a tailspin leading to a decline in the supply of goods and services. As we gradually emerge from the worst of the pandemic, has the supply and demand equation been restored to some sort of balance? Amir Iliescu: As tempting as it is to just say yes and move on, I need to provide some small print. We got back to normal but it’s a new kind of normal which is affected by a number of different issues. Supply is back, the factories are back online, but essentially we missed a year: everything shut down and there was incredible uncertainty in the markets. There has been a distinct change in consumer patterns: the way we consume leisure, the way we travel, the way we work, the products we use and how we consume them. And one of the clearest results of this is a tremendous increase in the cost of raw good. The rise in the price of steel for example, is requiring serious renegotiation of existing commercial relationships and the prices get pushed onto the end consumer. You’re seeing that for fuel, for plastic – basically every single component of raw goods has increased so yes, the supply and demand has returned to something resembling normalcy but prices are very different now. The same thing happened in the lumber industry because everyone was at home doing DIY projects but that stopped once people got their lives back on track and had to go back to work, even if remotely, so we see the price of lumber settling back down. Danny Collins: Despite the hit taken by the industry, sectors dealing in remote services – digital health, e-commerce, gaming, etc – saw an increase in demand. One year on, are you seeing that level of demand being sustained in these sectors? Amir Iliescu: This will make me sound incredibly old, but I started my legal career during the dotcom boom, back in the late 90s when if you slapped a dot-com on it you could raise a million dollars. Now I’m not saying that from a bubble perspective, I’m saying that from the perspective of something which seemed in the beginning incredibly new, but very quickly became an inseparable part of our lives. Nowadays, if you have a business of course you have a website, it’s like you have a car – where’s the novelty in that? During the dot-com boom there was very quick adoption of global technology: within the scope of eighteen months everyone was online. Eighteen months earlier if you said www people wouldn’t get it and eighteen months later they were saying, ‘yeah, I saw this great website’. Well I think the same thing happened with COVID-19 in the sense that twelve months ago we were looking at each other saying how amazing it is to work from home by Zoom and have meetings by Microsoft Teams and get all this stuff through Amazon – now it became a standard. Israel’s High-Tech Sector: Looking Back and Ahead Reflecting on a turbulent year and taking a look at what the Israeli High-Tech sector holds for the next twelve months. The US-Israel Legal Review 2021 91 In Life Sciences for example, pre-Covid we were in the 21st century but still had to go to the doctors for basic diagnostics or basic prescriptions and had to stand in line in various places in order to get our blood drawn. Well since Covid hit, we’re in a completely different place. Twelve months ago every single company that developed that type of technology was on a tremendous hype. It’s now become a question of service and efficiency: it’s a consumer issue rather than novel technology which is breaking down barriers. Incredibly quickly it has become a part of life so these life sciences technologies which help remote medicine, they got a 20-year head start in public adoption overnight. You know, my mom is in her seventies and she’ll be on her WhatsApp with the doctor forwarding him the results for her blood test. So that impacted the market and you see a whole range of start-ups that reflect that different dynamic. Obviously anything to do with remote work, anything to do with home improvement, with home entertainment, etc., was going to be a big deal. But breaking away from that, I wanted to touch upon a secondary influence which I found very interesting: the fact that the shift in consumer patterns because of COVID-19 meant we were all so much more active online. This meant that everything got documented somewhere and created a database. That coupled, with the upsurge in online computing ability and in storage, ushered in a booming AI and data science market. I think that that’s one of the by-products of COVID-19. We provided even more free voluntary data, everything was recorded and it just screams for analysis of data patterns. For example, Life Science issues that can be diagnosed out of pure data. Danny Collins: Do you think this is particularly pronounced in Israel, a) because of the sophistication of the tech market, and b) because you came through the virus and led the vaccine efforts ahead of the pack, ahead of the rest of the world? Amir Iliescu: A joke comes to mind. A couple of chaps are sitting in the savannah in Africa when they see a lion approaching, so one of them starts stretching and limbering up. The other one says, ‘What are you doing mate? You’re never going to outrun that lion!’ and he says, ‘I don’t need to outrun the lion, I just need to outrun you.’ So I’m not sure we’re ahead of the pack and I’m not sure the race is over, but I think yes a lot of it is attributable to socio and geo-economic considerations. I think the combination of us being small enough, coherent enough as a society, used to some level of military discipline and just plain lucky in some respects. Danny Collins: Turning to the IPO market – since the beginning of 2021 there has been a booming IPO market with Israeli tech start-ups a major beneficiary. In fact, there has been an explosion of new stock offerings on the Tel Aviv Stock Exchange, as well as foreign exchanges. To what do you attribute this? Amir Iliescu: I think that economically speaking, the main reason is that money is like water: it needs to flow somewhere or it stagnates. COVID-19 has blocked a lot of the classic waterways for money to flow down because everyone put the big investments on hold because of a need for caution – you don’t want to be the guy who threw all the money away during a global pandemic – and people needed to solidify their cash positions so they tended to invest less. The interest rates were ridiculous and when looking for avenues to invest money, the public markets became more attractive than ever because they are regulated. To be cynical for a moment, it’s very hard to get AMIR ILIESCU PARTNER 92 The US-Israel Legal Review 2021 ISRAEL: HIGH-TECH blamed for misinvesting funds that were entrusted to you if you give them to a reputable stock market. Because the banks won’t give you interest and people will ask why you even put it there – I mean you might as well just resign and give me back my money. It’s a legitimate avenue for investing funds so it’s not incredibly high risk and on the other end it does provide an investment opportunity for those funds for which you’ve identified a higher risk profile for their deployment. So a tremendous amount of cash went into the capital markets. 2007 was a year of IPO booms and they raised in aggregate in that year $420 billion, globally. I think we got there in October this year: we broke the 2007 data for the $420 billion. The tone of this discussion would be different had we had it about two or three months ago because the wave seems to be diminishing in terms of appetite for IPOs. It’s hard to say which one is the cause and which one is the effect, but if you look at Israeli SPACs, for example, about 75 % of them are now traded at a price which is lower than the price at which they entered the market. Danny Collins: There is much talk of the SPAC trend as being a quick route to going public which bypasses a lot of the bureaucracy in filing for an IPO. Can you talk a little about this? Amir Iliescu: They were seen as a way to get in by avoiding red tape and a more straightforward route but they are a touch on the decline due to, as I mentioned, the general sense of under-performance of the stock versus the initial expectation – and as a result of increased regulatory scrutiny in the U.S. Why? Because the whole concept of a SPAC lends itself to, shall we say, some challenges from a legal perspective. The basic concept of a SPAC is, ‘hey give me some money and I’ll buy you a company with it.’ If somebody told you that in a pub, you’d check your change. Whereas that’s exactly what’s happening in the markets: you have serious serial entrepreneurs and banks and sponsors who go out there and raise something which used to be called (I thought it was a lovely name), Blank Check Companies and the SPAC says give me some money, I’ll buy you a good company with it. There’s a bunch of small print which is intended at some level to ensure the fact that you deploy the funds in the manner intended and within the prescribed period and so on, and sometimes you even have to go back and make sure everyone’s okay with it, or a certain majority, but regardless it’s a bold mechanism. If you couple that with the fact that there was tremendous demand for avenues to deploy money during COVID-19 because of the factors we touched upon earlier, the demand was higher than the supply of successful companies. A lot of people just poured tons of cash into SPACs and if you have to deploy your funds because you have fiduciary duties and you need to show results, a SPAC on a highly regulated reputable stock exchange such as the New York or NASDAQ stock exchange is not a bad way to deploy your money and say – hey, I didn’t know what was going to happen during the pandemic. There were poor interest rates, I didn’t see any targets I liked, and on the other hand I had a bunch of A-list entrepreneurs with a proven track record of pulling this kind of thing off, they just raised a new SPAC so how about we throw them 100 million of our pension money? And by the way, stuff worked out. A lot of institutional investors put money in SPACs and then after the SPAC identifies the targets you typically do another raise concurrently with the merger. It’s called a PIPE: a private investment in a public entity. So you have the SPAC and then you identify the target and then when you merge them, to get another extra boost of cash you get a bunch of institutional investors to buy-in right before it goes public. For them it’s kind of a secured liquidity event. More often than not you see a lot of the folks that invested in the SPAC come back and invest in the PIPE after the target’s been identified. It’s a clear sign that you’re happy with what your blank cheque has been used for. But there’s an index for the SPACs and it has dropped 23% from a February high. US officials are US officials have warned against celebrity-backed SPACs The US-Israel Legal Review 2021 93 trying to dampen it and they have warned against celebrity-backed SPACs. Danny Collins: Israeli start-ups have reportedly had a record-breaking fundraising year to date, beating a somewhat subdued volume of financing rounds in 2020 which saw a preference for investment in more mature companies. What sparked this sudden boom in investing in early stage tech companies? Amir Iliescu: I’ve met with a tremendous amount of investors and entrepreneurs and we’ve had a year which, if we were in the Chinese-Israeli calendar, would be the Year of the Unicorn, because everyone’s got a unicorn and the ones that are valued at half a billion dollars are feeling underpriced and underperforming. A general sentiment that I’ve come across from a tremendous amount of clients is ,“man, we got to get them when they’re young”. So you see a tremendous amount of new start-ups that are fuelled by the aura of the unicorns and by the fact that folks did cash in quite a bit. I sit on a number of boards as legal adviser and as they go down the path of becoming a unicorn or a multi-hundred million dollar valued startup, the board members, especially the venture capital ones, start talking about an exit in excess of ‘blankety blank’ hundreds of millions of dollars, and we all hope it’s going to be even more and so forth. After the sale there could be 20 millionaires out of this transaction. We need 20 employees to say they’ve become millionaires and that’s going to be the headline in the paper. If there aren’t going to be at least 20 software engineers who can say I’m an Israeli millionaire then we’re not going to be able to get the right people for our next stop. We need 20 people on Facebook to wave their hats in the air or we’re off the A-list. It’s an interesting new dynamic. But then, I have to say that I’m not even sure about the premise because it presumes there’s a rise in that slice of the market compared to the other slices. I’m not sure that’s the case. I think there’s a general rise of the cake because as I said at the outset, money is seeking avenues to flow and to get deployed. I don’t see the interest rates going anywhere so funnelling the money into reputable venture capital funds which specialize in early stage start-ups is becoming an increasingly attractive deployment opportunity. Danny Collins: Which sectors of the Israeli economy are of particular interest? Amir Iliescu: Life Sciences, in the broadest sense of the which includes agricultural technologies, that’s certainly on the rise. We’ve seen a surge in EdTech, not all of which has made it to the IPOs - and that to my mind is directly attributable to COVID-19. And of course, AI and data science. Danny Collins: And Amir, I note your interest in windsurfing diving and motorcycling so my final question is: how many bones have you broken? Amir Iliescu: Ha ha! Five in the last 36 months, including six weeks in a wheelchair. Danny Collins: Thanks Amir – and stay safe. Amir Iliescu: Thanks Danny. n ABOUT THE AUTHOR Amir S. Iliescu is a partner in the firm’s High-Tech and Venture Capital practice. He is an experienced M&A, venture capital, securities, and licensing attorney and has extensive experience in counseling venture capital funds, emerging growth companies, academic institutions, and public companies across a broad spectrum of industries, including energy, electronics, telecommunications, internet, and life science companies, in numerous venture capital transactions, mergers and acquisitions, joint ventures, dispositions, financings, recapitalizations, and corporate governance matters as well as with respect to commercial and licensing matters. Prior to joining Shibolet & Co., Amir practiced law for a number of years with the Private Equity practice group in the New York office of Weil, Gotshal & Manges LLP. Email: [email protected] 94 The US-Israel Legal Review 2021 ISRAEL: CIVIL LITIGATION GENERAL The State of Israel has an independent, adversarial legal system, modeled after the Common Law tradition. Disputants are free to define the scope of their dispute and the court will adjudicate only on the basis of their pleadings and the evidence they present. In determining the outcome, the court will apply the law, consisting of primary legislation enacted by parliament, subsidiary legislation such as regulations and legal precedent. All judicial proceedings in Israel are bench trials as there is no right to trial by jury. Traditionally, Israeli civil procedure embraces written submissions and affidavits (subject to cross examination), rather than oral arguments and testimonies. However, the Civil Law Procedure Regulations, which have gone through an extensive revision which took force on January 1st, 2021 (“the Regulations”) now instate a clear preference of direct examination and oral summation. In recent years, certain influences of Continental Law principles can be identified in the Israeli legal system. These influences can be seen, for instance, in the revision of the Regulations which envisages a more active role for judges, as well as in the continuous effort by the Knesset (the Israeli Parliament) to codify substantive civil laws. Israel is a highly litigious state. It has the highest number of lawyers per capita, and an overwhelming number of claims filed each year, crowding its courts. According to the Courts Administrator, approx. 853,500 new claims and appeals were filed in 2020 – roughly 1 claim for every 11 citizens. This exceptional popularity of litigation ultimately leads to a tendency to default to legal proceedings (both in the court system and alternative dispute resolution forums such as arbitration) as the go-to option for solving disputes. THE STRUCTURE OF THE ISRAELI LEGAL SYSTEM The Israeli judiciary is comprised of a general court system alongside specialized tribunals. The general court system includes the Supreme Court, 6 District Courts (one in each judicial district) and 28 magistrate courts located throughout the different districts. Permanent specialized tribunals operate alongside the general court system, with limited subject matter or personal jurisdiction. These tribunals include labor courts, administrative courts, military courts, religious courts, family courts, the Antitrust Tribunal and the Standard Civil Litigation in Israel in Theory and Practice Those acquainted with Common Law, will recognize many of the foundational principles of the Israeli legal system, alongside other formal and unwritten rules unique to Israel. Israel is a highly litigious state with the highest number of lawyers per capita The US-Israel Legal Review 2021 95 Form Contracts Tribunal. The magistrate courts serve as the trial court of first instance for most civil disputes, having subject matter jurisdiction over claims for relief valued under ILS 2.5 million. The magistrate courts are usually presided over by one judge. District courts have appellate jurisdiction over the magistrate courts, and they serve as a residual trial court of first instance when the magistrate courts and specialized tribunals lack jurisdiction. The district courts are usually presided over by one judge in their capacity as trial courts, and three judges in their capacity as appellate courts. The Tel Aviv and Haifa District Courts each have a specialized economic division. These economic courts are granted exclusive subject matter jurisdiction within the court over economic claims (such as shareholder disputes or derivative actions). Judges with the relevant knowledge and experience preside over each of these divisions. The Supreme Court is the highest court in Israel. It serves both as an appellate court for the district courts (by right of appeal for first instance cases, and by certiorari for appellate cases) and as a High Court of Justice with powers of judicial review. Fifteen justices are members of the Supreme Court, the senior of which is named President of the Supreme Court. Most cases are presided over by one or three justices, and five or more justices can preside over matters deemed especially significant. The decisions of the Supreme Court are final and are not subject to appeal, yet under extremely rare and unique circumstances a supreme court verdict can be subject to a re-hearing. As the High Court of Justice, the Supreme Court has material jurisdiction over petitions for judicial review of legislative and administrative action, including limited review of decisions of the specialized tribunals. While in some of these cases the High Court of Justice is in fact the court of first instance, it is not a trial court and it applies administrative rules of evidence, rather than the civil law rules of evidence. Appropriately, the High Court of Justice also has unique procedural regulations. Since many cases are granted right to the Supreme Court, either by appeal or as first instance petitions, the Supreme Court is extremely active – with over 9,000 cases opened in 2020. The decisions of the Supreme Court, the highest court in Israel, are final and are not subject to appeal YECHIEL KASHER PARTNER SIVAN WULKAN-AVISAR PARTNER AKIVA FUND ASSOCIATE 96 The US-Israel Legal Review 2021 ISRAEL: CIVIL LITIGATION According to the Courts Administrator, the average length of regular civil proceedings in the magistrate courts is 11 months (including claims that are dismissed before final judgment). The average length of regular civil proceedings initiated in the district courts is 19.5 months (including claims that are dismissed before final judgment), and 15.5 months for civil appeals in the Supreme Court. JURISDICTION AND EXTRATERRITORIAL SERVICE OF PROCESS Service of process is what allows an Israeli court to acquire jurisdiction over a foreign defendant. The pre-revised regulations required that a prospective plaintiff seeking to initiate proceedings against a prospective defendant located outside of Israel, must request leave of extraterritorial service of process from the court. However, the current regulations establish that a prospective plaintiff can serve a foreign prospective defendant – if there are grounds for extraterritorial service – without requesting leave. The plaintiff is still required to motion the court requesting orders for executing the service. Such a motion must be accompanied by an affidavit supporting the cause of action of the perspective suit, as well as the existence of grounds for extraterritorial service, and must include the defendants address abroad to which process is intended to be served. The Regulations include a comprehensive list of grounds for extraterritorial service, such as that the claim concerns a property located in Israel, or the claim concerns a contract subject to the laws of Israel. All the grounds require some connection between the claim and the State of Israel which justifies the court assuming jurisdiction over the claim. The revised Regulations establish an especially broad scope of grounds for service of process concerning torts. According to these, damages incurred by the plaintiff in Israel from a product, service or conduct of the defendant, are sufficient grounds for extraterritorial service – provided that the defendant could have anticipated that the damages could be caused in Israel, and that the defendant, or a person affiliated with him, is significantly engaged in international commerce or services. This clause in the Revision came into force in December 2018 and applies prospectively to claims initiated thereafter. The court has the discretion to deny the perspective plaintiff’s motion for orders of service, and rule that under the given circumstances process will not be served extraterritorially. If the court does not deny the motion, and process was served accordingly, the defendant may move to quash the extraterritorial service arguing that the Israeli court lacks jurisdiction or is not the appropriate forum for adjudication of the dispute (forum non convenience). CLASS ACTIONS Class action lawsuits have become popular in Israel in recent years, including against foreign international corporations. The legal framework for filing and adjudicating class actions in Israel is outlined in the Class Action Law, 5766-2006 and the Class Action Regulations, 5770-2010. The Class Action Law limits the causes of action that can be certified as a class action. In practice, class actions may be certified for a series of civil causes of action derived from contracts law (e.g. breach of contract) or torts law (e.g. breach of a statutory duty). Another approved cause of action relates to claims based on the Consumer Protection Law, such as misleading consumers regarding material aspects of a transaction (e.g. the nature of the asset or service); the date of delivery or provision of goods or services; the usual or customary price of the good or service; transaction cancellation terms, etc. This cause of action includes claims against Class action lawsuits have become popular in Israel, including against foreign international corporations The US-Israel Legal Review 2021 97 a dealer concerning matters between the dealer and the consumer, whether they have engaged in a transaction or not. A “dealer” is defined broadly in the Consumer Protection Law, and includes any seller, supplier, manufacturer, importer or marketer that sells goods or provides a service in their regular course of business. In recent years, there has been a significant increase in “private enforcement” of the Antitrust Law through the filing of class actions. Thus, increasing numbers of class actions that raise claims regarding the Antitrust Law, such as alleged damages caused in Israel by international price fixing conspiracies (cartels) and general cases regarding allegations of excessive pricing, are being heard before courts in Israel. A declaration of a breach of the Antitrust Law by the Israeli Antitrust Commissioner serves as prima facie evidence in all legal proceedings, and thus facilitates the submission of class actions regarding the subject of the declaration. Other prominent causes of action stem from the Law of Unjust Enrichment, and the Standard Form Contracts Law which will be detailed later. An additional popular cause of action in recent years is unlawful invasion of privacy, especially in cases where information regarding customers is collected and stored. Under Israeli law, a class action is adjudicated in two stages: • The certification stage – where the court decides whether to allow the class plaintiff to lead a class action on behalf of the class they claim to represent. • The adjudication of the action itself – which is similar to the adjudication of any other civil claim in Israel. The certification stage begins with the plaintiff filing a motion to certify the class action. The motion to certify must demonstrate that the claim meets the cumulative conditions required for the court to certify the motion: • The plaintiff must have a personal cause of action concerning the subject of the motion, and their cause of action must have a reasonable chance of success. • The class action raises material questions of law or fact that are common to all the members of the represented class. • There is a reasonable chance that said mutual questions will be decided in favor of the represented class in the adjudication of the claim. • A class action is the fair and effective mechanism for resolving the dispute. • There is a reasonable basis to assume that the class plaintiff will duly and properly represent the interests of the represented class. • There is reasonable basis to assume that the interests of all class members will be represented and managed in good faith. The respondents are entitled to respond to the motion to certify, and the class plaintiff is then entitled to reply to the respondents’ response. Following the parties’ submissions, the court will usually set a preliminary hearing, for the purpose of simplifying and expediting the adjudication of the motion to certify, or to explore the option of amicably resolving dispute. At times, the court might propose that the parties turn to mediation. Should mediations or the preliminary hearing fail to bear fruit, the court will usually schedule evidentiary hearings, wherein the affiants on behalf of both parties are subjected to crossexamination (unless the parties agree to forgo cross-examinations). The evidentiary hearings are typically followed by written summations, following which the court decides whether to certify the class action. If the motion to certify is granted, the court will include in its decision the legal questions that will be adjudicated and the definition of the class to be represented by the class plaintiff. The certified There has been a significant increase in “private enforcement” of the Antitrust Law through the filing of class actions 98 The US-Israel Legal Review 2021 ISRAEL: CIVIL LITIGATION claim will be considered the submitted claim. The defendants must then submit a statement of defense, and the action will be adjudicated as a civil claim. The decision to certify a class action can be challenged by leave of appeal filed to the relevant court of appeal. A decision to deny the motion to certify, on the other hand, can be appealed by right. However, the court’s decision in the claim itself (following the granting of the motion to certify) can be appealed by right to the relevant court of appeal. The Class Action Law sets out a unique procedure for the approval of settlements, which are subject to the court’s approval. The parties must publicize a notice to the public with the terms of the proposed settlement. Furthermore, a copy of the proposed settlement must be sent to the Attorney General, the Courts Administrator and the relevant regulator (such as the Custodian of Consumer Protection). These officials, as well as any member of the represented class, and any entity or government body that operates to further public goals in fields relevant to the motion, may file objections to the proposed settlement. Additionally, the court should receive an opinion from an expert in the fields relevant to the motion to certify, analyzing the advantages and disadvantages of the settlement. The court will only approve the settlement if it finds that the settlement is fair, reasonable and proper, considering the interests of the represented class. In the event that the settlement is reached during the certification stage, the court must also find that the prerequisites for certifying the motion are fulfilled. NOTEWORTHY PROCEDURES AND PRINCIPLES IN ISRAELI LAW Good faith A great emphasis is placed on the principle of “Good Faith” under Israeli law. The duty of a party to act in good faith is often sufficient to establish liability (or rights), and sometimes even to create duties towards a party harmed by conduct in bad faith – even if said obligations are not expressly included in the original agreement between the parties. In practice, the courts consider themselves authorized to provide broad interpretations of the language of the contract and enforce contractual obligations that are not expressly (or even implicitly) set out in the agreement between the parties. The duty to act in good faith was set in the Israeli Law of Contracts and applies to all the contractual stages – negotiations, the execution of the agreement and termination thereof. Over the years, the application of the principle was extended beyond the Law of Contracts. In accordance with well-established and binding Israeli case law, the principle of good faith now applies to all areas of private law. Unjust enrichment Unjust Enrichment is a recognized and wellestablished cause of action under Israeli law. It is often used by the injured party in situations where there is difficulty proving damages (or where it is impossible to do so), but where the injured party can show that there is enrichment resulting from a breach of contract. Under such circumstances, a party might be required to reimburse the other party for its enrichment. Under Israeli law, a plaintiff must prove 3 cumulative elements in an unjust enrichment claim: (1) The existence of enrichment; (2) the enrichment is at the expense of the plaintiff; and (3) the enrichment is unlawful. Standard Form Contracts A standard form contract is a contract with a uniform formulation intended for many engagements. Generally, the contract is drafted by one party, or at its request, in order to be used in agreements with its customers and is usually presented to the customer as a finished product Unjust enrichment is a recognized and well-established cause of action under Israeli law The US-Israel Legal Review 2021 99 that cannot be negotiated. The Standard Form Contracts Law, 5743- 1982 was enacted to protect consumers party to a standard contract. The law stipulates that in circumstances where – considering the entirety of the contract’s provisions and the context of the engagement – a specific clause of a standard form contract is found to be exploitative or provides an unfair advantage to a service provider, the court is empowered to invalidate it. The Law also includes a list of instances which are presumed to be exploitative. Numerous claims are filed under this cause of action, alleging that the provisions set out in agreements dictated by service providers are exploitative and therefore, not binding. Many class actions are based, as well, on claims alleging the exploitatively of clauses in standard form contracts – such as user agreements. n ABOUT TADMOR LEVY & CO. Tadmor Levy & Co. is a premier Israeli law firm with a global perspective, dedicated to providing top-tier legal services to clients operating in all sectors of the economy. The firm is comprised of a highly skilled and professional team of over 120 lawyers and interns. Many of the firm’s partners and associates are multilingual and have studied or are admitted to practice in overseas jurisdictions. The firm’s Litigation and Dispute Resolution practice group includes 35 partners and associates who are profoundly experienced in all forms of civil and commercial litigation, class actions and administrative proceedings, and provides comprehensive legal services to a broad and well-established clientele – both domestic and international. The practice is consistently highly ranked and recommended by international and domestic legal publications and directories, including Legal 500 and Chambers and Partners. The firm has a reputation for excellence and precision and provides its clients with tailor-made solutions accompanied by unwavering service. n ABOUT THE AUTHOR Yechiel Kasher is a partner and heads the firm’s Litigation and Dispute Resolution practice group. Yechiel is widely recognized as one of Israel’s leading and most prominent litigators in the fields of civil and commercial litigation. Boasting a litigation career of over 30 years, Yechiel is consistently ranked in the top tiers of international and Israeli ranking guides. With extensive experience and knowledge in all aspects of civil and administrative law, Yechiel’s practice includes commercial and corporate litigation, class action, shareholder litigation (for both domestic and foreign clients), antitrust and competition law, banking and payment methods, infrastructure and energy, real estate and construction. The combination of Yechiel’s skills in various practice areas, together with his experience in diverse business sectors and his incomparable passion for the profession, provides the firm’s clients with the highest of legal services. His talents are evident from his roster of clients, which include notable industry leaders as well as some of the biggest names in the Israeli and international business community. Yechiel leads and is personally involved in most of the litigation handled by the practice group. He routinely appears all judicial instances and tribunals in Israel, including countless appearances before the Supreme Court. In addition, Yechiel regularly serves as an arbitrator and mediator. Yechiel track record includes spearheading the defense in some of the most significant class action lawsuits in Israel, and the representation of clients in highly complex arbitrations and in precedential pettions before the Israeli Supreme Court. CONTACT: Yechiel Kasher T: +972-3-684 6000 F: +972-3-684 6001 E: [email protected] Tadmor Levy & Co. 5 Azrieli Center The Square Tower 33rd-34th floors 132 Begin Road Tel Aviv 6701101 Israel www.tadmor.com 100 The US-Israel Legal Review 2021 US: MERGERS & ACQUISITIONS The Israeli M&A market enjoyed a spectacular H1 2021. In just the first six months, deal value in the country reached US$28.7 billion, already higher than any annual total on Mergermarket record (since 2006). Driven in part by strong activity at the top end of the market, activity has also been robust in terms of volume: a total of 109 transactions in H1 2021, just under the 118 over the whole of 2021. SPACS SPUR DEALMAKING Given Israel’s prowess in all things technology, it was only a matter of time before the SPAC phenomenon reached Tel Aviv. Technology is a hugely disruptive sector, and those companies addressing, or even creating, new markets have the potential to win big by taking on big risks. Israel has more startups per capita than any other country, making the explosion of interest in – and investor demand for – tech-targeting SPACs a natural fit for the opportunities on offer. SPAC deals attract investors with an appetite for highrisk, high-reward strategies. In the first half of 2021, the top three M&A deals in Israel were SPAC transactions. In the largest deal, Fintech ironSource, a platform that helps game developers monetize and their apps and grow and engage their users through multiple channels, was sold by CVC Capital Partners for US$10 billion to Thoma Bravo Advantage, a blank check company that filed its IPO at the end of December. In second place sits the US$3 billion acquisition of REE Automotive, an electric vehicle platform maker, by the Nasdaq-listed 10X Capital Venture Acquisition Corp. Third comes TWC Tech Holdings II Corp.’s US$1.9 billion merger with Cellebrite Mobile Synchronization, a data intelligence company. Another notable 2021 example was the merger of SPAC ION Acquisition Corp. 1’s Taboola. com, a global leader in powering recommendations for the open web, culminating in Taboola’s listing on the New York Stock Exchange. SPAC activity in Israel is spillover from a US trend that defined capital markets activity in the first quarter of 2021. While 2020 was heralded as “the year of the SPAC,” the US$88 billion raised by blank check companies in Q1 of this year has already topped the US$76 billion collected last year Investment in Israeli Companies Surges – with Help from SPACs The SPAC phenomenon has spread to Israel, where regulators have now laid the foundation for local SPAC IPOs. In the first half of 2021, the top three M&A deals in Israel were SPAC transactions The US-Israel Legal Review 2021 101 in its entirety, bolstered by 320 SPACs going public. Yield-starved investors are hungry for growth and anything that can make their portfolio performance pop. Because SPACs are not operating companies until they settle upon a deal target to merge with, SPAC IPOs are fast-tracked, often closed months quicker than traditional IPOs can be. Financial statements for SPAC IPOs are short, and require no disclosure of operational risks. SPAC IPOs also forgo the lengthy and costly investor roadshow process required in a non-SPAC IPO. US CLAMPS DOWN, ISRAEL OPENS UP In the US, the SPAC feeding frenzy has been reined in by regulators who spotted what they consider a common accounting anomaly. Last April, the US Securities and Exchange Commission challenged the classification of SPAC warrants as equity rather than as liabilities. Following up in July, the regulator set forth what it expects of these vehicles for their warrants to be considered equity, which includes indexing these instruments to the SPAC’s own stock. The intervention paused issuances as sponsors set about revising their accounting practices. In Q2 only US$16 billion was raised in SPAC IPOs globally. While issuance has slowed to a relative trickle, the vehicles already raised are actively seeking deals. At this writing there are 439 US-listed cash shells with a combined US$131.2 billion in the pre-deal phase, according to SPAC Research. These shells are finding targets in Israel. The second-largest M&A transaction so far in Q3 (as of mid-August) saw Medtech Acquisition, a SPAC, pay US$625 million for Memic Innovative Surgery, a company dedicated to transforming robotassisted surgery with its proprietary technology. Also among the top three largest deals was SPAC Healthcare Capital Corp.’s acquisition of Alpha Tau Medical, a developer of alpha radiation cancer therapy, for US$600 million. The SPACs scooping up Israeli assets now are USregistered cash shells. But that could be set to change. In May, just as US issuance slowed, the Israel 102 The US-Israel Legal Review 2021 US: MERGERS & ACQUISITIONS Securities Authority (ISA) laid ground rules to open up the Tel Aviv Stock Exchange to local SPACs, balancing demand from private companies to access this fast-track fundraising route with investor protections. The ISA requires that sponsors have at least 40 million shekels (US$12.4 million) of their own capital at risk, skin in the game to align their interests with those of third-party investors. And at minimum, 70% of a SPAC IPO must be accounted for by institutional investors, a relatively high threshold. The minimum Israeli SPAC offering must also be above 400 million shekels (US$123.7 million), according to the ISA. Investors are guaranteed to have their money returned should they later vote against the acquisition of the target company, once the target has been named The US will continue to be the primary venue for SPAC raisings that eventually merge with promising tech-centric Israeli businesses – the brand association, kudos and free publicity that comes with a Nasdaq listing will likely ensure that outcome. But with a steady stream of deal opportunities, and with regulators laying the foundations for local listings, more modestly sized cash shells that aim to accelerate the growth of homegrown technology The ISA requires that sponsors have at least 40 million shekels (US$12.4 million) of their own capital at risk The US-Israel Legal Review 2021 103 businesses will surely become a feature of Israel’s SPAC landscape. TIGHTER ANTITRUST ENFORCEMENT LOOMS IN US After campaigning on a platform that included more aggressive antitrust enforcement, US President Joe Biden has taken early steps to honor that pledge, with stricter oversight of the US’s large technology companies among his policy priorities. For starters, Biden named Lina Khan, an antitrust academic and prominent critic of Big Tech, as Federal Trade Commission (FTC) chair, and appointed Tim Wu, a Columbia University law professor and also a Big Tech critic, to the National Economic Council as a special assistant to the president for technology and competition policy. A yen for tighter scrutiny of the technology industry precedes the Biden administration, with the Department of Justice and FTC launching antitrust lawsuits against Google and Facebook during the Trump administration. These efforts are expected to continue, and may see their scope expanded under Biden. In addition to the Biden administration’s appointments, Congress is considering five antitrust bills with bipartisan support that could lead to additional scrutiny of larger technology businesses. SIX TRENDS SHOW THE WAY FORWARD US M&A progressed steadily through the first half of 2021. The COVID-19 vaccination rollout has reopened the economy, stock markets have remained strong, and dealmakers have moved to accelerate deployment and put deal schedules back on track after lockdown disruption. The outlook for M&A remains very positive. Outlined below are key themes that are likely to be at the top of dealmakers’ agendas. • Regulation could complicate dealmaking: In addition to making the technology sector a priority area for antitrust enforcement, the White House remains focused on the impact of M&A on national security. CFIUS has been allocated additional resources, and the SEC, under its new chair Gary Gensler, is expected to take a more aggressive approach to securities law enforcement. None of this means deals will not progress. But to be effective, bidders will have to adapt, and understand how to prepare transactions in advance to secure regulatory clearance. • Energy transition will fuel M&A: The Biden administration’s ambitious targets to achieve net-zero carbon emissions will drive a surge of M&A activity in the energy and infrastructure sectors as corporates pivot their portfolios away from hydrocarbons and move to retrofit and build infrastructure for renewables. There will also be follow-on effects in other sectors, with consumers already showing preference for ‘green’ brands and suppliers, while financial institutions see opportunity to create ESGfocused financial products and finance energy transition projects. • SPACs continue to be an important factor: There are signs that the red-hot capital market for SPACs is cooling off. Recently shares in some SPACs have fallen after acquisition closing, in contrast to the rising share prices that greeted SPAC purchases in 2020. Retail investors and institutions have opted to sell their shares when deals don’t meet expectations. But so much capital has been raised by SPACs that even at the current frenetic pace of dealmaking, SPAC acquisitions still lag the pace of new SPAC IPOs. With SPACs having up to two years to deploy their funds, dealmakers will remain active and influential for the next 24 months, even if the pace of new listings does not reach the same heights as Q1 2021. • The sector lens widens: The pandemic saw dealmakers narrow their investment focus to a select group of high-quality companies in a small group of industries that did well throughout the pandemic. Resilient technology and healthcare assets were the most prized, with consumer, leisure and aviation deemed too risky. Dealmakers will continue to invest heavily in tech and healthcare, but industries hardest hit by lockdowns are starting to draw dealmaker attention to a broader range of targets. The gradual reopening of hospitality, travel and entertainment and clearer visibility of future earnings, will help to direct more capital into these industries. Extensive government stimulus and dovish monetary policy are 104 The US-Israel Legal Review 2021 US: MERGERS & ACQUISITIONS expected to continue supporting the provision of abundant liquidity. There are early signs of inflation increasing, however, and the Federal Reserve has indicated that it plans to raise interest rates in 2023. Over the medium to long term, these changes could ease M&A valuations and balance out a market previously slanted in favor of vendors. • Stock markets could pull back: Stock markets plunged early in the pandemic, sharply rebounded, and then surged to new highs in the second half of 2020 and the first half of 2021. Rising market caps fueled dealmaking throughout the last 12 months. A similar, significant pullback in the next year or two could put a significant damper on M&A activity. n ABOUT THE AUTHORS Colin Diamond is a partner in White & Case’s Global Capital Markets Practice, and the USbased Israel practice co-head. He is recognised among the leading US-based experts in Chambers Global: Capital Markets (Experts Based Abroad) – Israel. Diamond’s practice focuses on securities transactions, public mergers and general corporate matters. Email: [email protected] Mobile: +1-917-859-8754 Daniel Turgel is a partner in White & Case’s Global Mergers & Acquisitions Practice, as well as the UK co-head of the firm’s Israel Practice. He is widely recognised as a leading practitioner on Israelrelated matters, having been ranked by Chambers Legal Directory for several years. He spends a significant portion of his time in Tel Aviv and has advised on some of the largest and most complex matters in the Israeli market. Email: [email protected] Mobile: +972-544-236896 Tali Sealman is a partner in White & Case’s Global Mergers & Acquisitions Practice. Sealman’s practice focuses on private and public M&A and general corporate representation of emerging technology and life sciences companies and venture capital investors. Sealman represents strategic and financial buyers and sellers in public and private acquisitions, and also represents companies at all stages of their lifecycle and across a broad range of industries, including software, enterprise, security, digital health, fintech, gaming and blockchain. Email: [email protected] Tel: +1 650 213 0315 COLIN DIAMOND PARTNER TALI SEALMAN PARTNER DAN TURGEL PARTNER Complexity isn’t the challenge. Simplicity is. whitecase.com “Sources note that ‘they have a lot of experience in the market’ and ‘they know the way business is done in Israel.’” Interviewees regard the practice as “super high-quality.” Chambers Global 2021 Band 1 for Corporate M&A: Israel Chambers Global 2021 106 The US-Israel Legal Review 2021 ISRAEL: BIO-CONVERGENCE PROJECT BREATH OF AIR With the outbreak of the COVID-19 pandemic, healthcare systems around the world faced significant challenges, including shortages in hospitalization facilities, insufficient experienced clinical staff to deal with the demands of a pandemic and dwindling supplies of medical equipment. In the early days of the pandemic, Israeli hospitals, like their global counterparts, grappled with an immediate crisis as well – the country’s inventory of hospital-grade ventilators were insufficient for the large number of patients in need of invasive ventilation. As countries around the world scrambled to obtain these life-saving devices, supply channels were exhausted, and ventilators were unavailable for purchase from traditional sources. Israel was forced to find an innovative solution, and in doing so channeled a force wellknown for creativity and innovation – the Israeli defense sector. A classified technology and intelligence unit, known as Unit 81, was enlisted to work with the Sheba Medical Center, Israel’s largest hospital, to find a solution to the nationwide shortage of ventilators. They noted that Bilevel Positive Airway Pressure (BiPAP) machines (non-invasive devices that facilitate the delivery of air via a face mask without the use of an endotracheal airway) were readily available; however, this type of device was not suited to treat severe COVID-19 patients suffering from acute respiratory distress syndrome. In an operation code-named Project Breath of Air, Unit 81 assembled a multidisciplinary team of 150 engineers including software, hardware, electrical and mechanical engineers. This team, which under ordinary circumstances would spend its days developing military systems, worked handin-hand with Sheba’s physicians to transform BiPAP machines into advanced hospital-grade ventilators suitable for treating COVID-19 patients in critical condition. They developed a highly sophisticated monitoring system that could be incorporated into the device that enabled doctors to monitor patient Israel, Bio-Convergence and COVID-19 Israel’s pioneering COVID-19 vaccination program received global media attention. What is less widely known, however, is that Israel utilized Bio-convergence principles to effectively respond to challenges presented by the pandemic. This article describes Israel’s unique position in the field of Bioconvergence, specifically its development and applications in the COVID-19 world. The US-Israel Legal Review 2021 107 oxygen, pressure, and air flow, and added a function that alerted the medical staff to changes of airflow in the ventilated patient, thus allowing medical staff to care for several patients simultaneously. To protect medical staff, they also added a filtration system that filtered the exhaled air from the infected ventilated patient. High oxygen flow technology was merged with invasive ventilation, which was key to treating complex COVID-19 cases. Finally, they connected the new machines to the hospital’s central information and monitoring infrastructure to update hospital staff in real time regarding vital information for ventilated patients. To declare the ventilators functional, the ventilator’s upgraded systems were tested on lung models, in animal models and in an advanced lung simulator at the National Medical Simulation Center at Sheba. Once successful results were obtained, the device was approved as functional, and the IDF commenced production of 1,000 of the new devices. Under ordinary circumstances, this complex project would have taken months – if not years – to complete. Faced with a growing health crisis, the teams from Sheba and Unit 81 were able to produce 100 fully functional ventilators from existing devices in an astonishingly short time frame: only 45 days. This successful cross-industry and government collaboration is a salient example of bioconvergence and exemplifies Israel’s potential to become a leader in the field. WHAT IS BIO-CONVERGENCE? Bio-convergence refers to the convergence of two disciplines: life sciences and software/engineering. In Bio-convergence, life sciences technologies such as pharmaceutical treatments, medical devices, healthcare solutions relying on digitization of biological data, and gene therapy are merged with – and enhanced by – software and engineering techniques, including big data analytics, computational technologies, and developments in materials science. The combination of mathematics, engineering, and physical and computational sciences with life sciences yields exceptional opportunities for innovation. Israel, recognized as a leader in both the life sciences and engineering fields, is well poised to become a leader in Bio-convergence. BIO-CONVERGENCE ACTIVITY IN ACADEMIA Israel is fortunate to have many top-tier universities. Several of these, such as the Hebrew University, the Weizmann Institute of Science, and the Technion, are ranked among the top 100 universities in the world by the latest Shanghai Ranking. Israeli academics, however, do not remain isolated in the “ivory tower”; on the contrary, a dynamic and fertile environment exists in Israel whereby scientists and entrepreneurs alike are able to leverage the strong relationship between academia and industry to commercialize new technology and developments created within the institutional setting. The respective technology transfer offices (TTOs) associated with Israeli institutions play a major role in the life sciences industry in the country; many patents, new startups, and licensing agreements in the field have their genesis from within academic institutes, medical centers and hospitals. Indeed, according to a recent survey undertaken by the Israeli Central Bureau of Statistics in December 2019, TTOs in Israel filed 10 percent more patent applications in 2018 compared to in 2017. According to the same survey, TTOs were also involved in setting up 56 startup companies in 2018, a significant increase compared to 39 companies in 2017. This link between Israeli academia and industry continues to grow rapidly, an ongoing reality that is a significant engine for the continued development of the life YOHEVED NOVOGRODER SHOSHAN PARTNER DANIEL GREEN PARTNER 108 The US-Israel Legal Review 2021 ISRAEL: BIO-CONVERGENCE sciences industry in the country. Israel boasts a high level of Bio-convergence research activity in the academic sector, with over 30 academic research centers housing numerous research projects. For example, at the Azrieli Institute for Systems Biology at the Weizmann Institute of Science, teams research fields such as genome architecture and function, model organism development, and the multi-scale dynamics that drive health and disease. The Lorry I. Lokey Interdisciplinary Center for Life Sciences at the Technion in Haifa has teams applying engineering principles and technologies to life sciences research fields such as bioinformatics, imaging, systems biology, and synthetic biology. In addition, the Sagol School of Neuroscience at Tel Aviv University incorporates molecular and cellular biology principles to better understand the link between genetics and mental disorders, with the aim of developing of new treatments. ISRAEL INNOVATION AUTHORITYCOVID-19 PROGRAMS AND BIOCONVERGENCE SUPPORT PROGRAMS As leaders in the field of life sciences with a demonstrated capacity to support and generate new products and technologies, Israeli companies were well situated to navigate the COVID-19 pandemic and pivot their existing technology platforms in the fight against the pandemic. Foreseeing this, the Israel Innovation Authority (IIA), an agency of the Ministry of Economy, established a special COVID-19 grant application channel. In practice, some companies pivoted into entirely new arenas, with companies like Diagnostics. AI and Radlogics offering solutions to help with early detection of COVID-19, while companies like Oxitone, BioBeat and Tyto Care offered unique solutions for remote monitoring of clinically relevant biomarkers pertaining to tracking COVID-19 patients. Other companies managed to adapt and build on existing research, pivoting to focus exclusively on COVID-19. For example, certain biotech companies working on developing a molecule targeting respiratory viral infections pivoted to pre-clinical research targeting COVID-19. Israel’s strong life sciences ecosystem, fortified by the close relationship enjoyed by academia and industry, has enabled the Israel life sciences industry to pivot and position itself as a central player in the COVID-era. The Israel Innovation Authority believes in the potential for Bio-convergence to alter the biomedical industry and generate significant growth in the Israeli economy. In 2020, the IIA committed to invest over US $500 million in approximately 1500 Bio-convergence related programs, including in the fields of cultivated meat, 3D printing of tissues, reengineering of cells for diagnostics purposes and fluid sampling technologies and sensors to detect biological markers for early diagnosis of diseases. BIO-CONVERGENCE IN THE PRIVATE SECTOR IN ISRAEL Listed below are a few examples that illustrate the vibrant Bio-convergence activity occurring in the Israeli private sector: • Pluristem, an Israeli biotech company, is expected to receive approximately NIS 1,800,000 (approximately US $583,000) to continue its work in developing a new generation of PLX cells based on the use of CRISPR technology to genetically program desired cell functions in future allogenic products. Pluristem is collaborating with other industry and academic leaders in the field of genome editing, bringing together leading experts in life science and computer science from academia, medicine, and industry, to develop artificial intelligence (AI) based, end-to-end, multi-species genome editing solutions. These solutions are expected to maximize the efficiency and accuracy of CRISPR genome editing of human, plant and animal DNA, and have applications in the pharma, agriculture, and aquaculture industries. • SKIP Therapeutics is a company within the FutuRx biotechnology incubator, an IIAIsrael, recognized as a leader in both the life sciences and engineering fields, is well poised to become a leader in Bioconvergence The US-Israel Legal Review 2021 109 supported incubator established by Johnson & Johnson, Takeda, Orbimed and Bayer. SKIP is collaborating with Bar Ilan University to develop novel RNA-based therapies for rare genetic diseases. SKIP’s approach is to use a computational framework to scan known disease-causing genetic mutations to determine which diseases and mutations should be prioritized for RNA based treatment. As opposed to the traditional approach of starting with a specific disease and working up, this “top-down approach” aims to optimize target choice and maximize patient pools. • InterX engages in collaborative development of novel drugs using physics-based simulation of atomic and molecular interactions. This “downside up” approach models atomic interactions and is used to predict and improve molecule binding affinity and resulting drug specificity. The physics-based approach – inspired by nature’s laws, provides critical atomic-level insights of molecular behavior and allows researchers to accurately re-design molecules at the atomic-level - resulting in lower cost development of better drugs. This approach draws from diverse disciplines such as biology, medicinal chemistry, chemistry, physics, quantum physic, mechanics and computer science among others. • A2i Therapeutics is a joint venture of FutuRx and Atomwise, designed to utilize Atomwise’s AI platform, AtomNet® technology, to target ADAR1, a key protein involved in controlling the innate immune response, neurological disorders, metabolic diseases and potentially a key target for immuno-oncology and neurological homeostasis. The company is developing small molecule inhibitors of adenosine deaminase acting on ADAR1. The life sciences and software/engineering sectors in Israel have historically been strengthened by Israelis’ entrepreneurial spirit, strong government support, a rich tradition of academic excellence and a plethora of research institutions filled by highly trained individuals who possess unique skills and experience having great value to commercial entities. This “perfect storm” enabled Israel to respond innovatively to COVID-19 challenges, including by utilizing Bio-convergence principles, and makes Israeli uniquely positioned to be a leader in Bio-convergence in the years ahead. n ABOUT THE AUTHORS Yoheved Novogroder Shoshan and Daniel Green are partners in the Life Sciences and Technology and Transactional Intellectual Property Practice Groups at Yigal Arnon & Co. They can be reached at [email protected] and [email protected], respectively. They acknowledge the assistance of Tali Har-Oz, Leah Grumet and Raviv Finer in contributing to this article. Yigal Arnon & Co. 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