Whichever way you slice and dice it, these are challenging economic times around the
world, and yet one trade relationship is holding up well. The UK-Israel trade relationship
continues to show some strong numbers. Worth around £7 billion, there are more than
400 Israeli tech firms operating in the UK, while Israeli investment into the UK has added
around £1 billion gross value to the UK economy and created about 16,000 jobs in the
last 8 years, according to UK Foreign Secretary, James Cleverly. We speak to lawyers in
the UK and Israel - from White & Case, Dechert, Bird & Bird, Charles Russell Speechlys,
and Epstein Rosenblum Maoz – about this relationship.
In our other main feature, we dive deeply into the impact of AI on law firms and General
Counsel, especially since the November 2022 launch of ChatGPT. Together with other
AI-powered tools, they have transformed the business landscape and firmly driven
the technological fox into the corporate henhouse, raising many concerns for business
leaders, including data protection, privacy, and IP infringement. Experts from Arnon,
Tadmor-Levy, Shibolet, Lipa Meir & Co., The Luzzatto Group, Dechert, and Penteris share
their latest views on the opportunities, challenges, and regulatory hurdles that continue
to surface in this rapidly developing field.
Lawyers in the know also weigh in on recent trends in both capital markets (lawyers from
Bird & Bird, Mayer Brown, and Carter Ledyard) and real estate (Herrick, Asserson, Aird &
Berlis of Canada, Taylor Wessing, Charles Russell Speechlys). Benjamini & Co. discusses
a Bill proposing new definitions around Israeli residency for taxpayers, Yossi Ben-Dror
examines the legal aspects of Smart Contracts, and the Luzzatto Group explores the
Israeli IP attracting investors.
Follow us and if you wish to know more and contribute to our bi-monthly IsraelDesks
magazine, reach out. We would love to hear from you.
Lee Saunders, Editor
IsraelDesks
Industry Focus
» Being smart about artificial intelligence
Recent Market Trends
» Impacts of the evolving legal landscape on General Counsel
» The Luzzatto Group, In femtech, foodtech, and agritech,
Israel’s intellectual property beckons investors
» Benjamini & Co., Congratulations (or maybe not)!!! You are
an Israel Resident: A Bill Proposing New Definitions and
Presumptions for Establishing Israeli Residency for Taxpayers
» Amidst capital markets rollercoaster, shoots of optimism
» Israeli businesspeople, companies, and institutional investors
invested USD 2.3 billion in overseas real estate in 2022
» Y. Ben-Dror Law Firm, Smart Contracts – Legal Aspects and
the Israeli Perspective
Jurisdiction in the Spotlight
» Israel and UK: A new roadmap
25
29
35
41
45
51
Table of
Contents
04
14
24
Jurisdiction
in the
Spotlight
Israel and UK:
A new roadmap
5
Israel and UK: A new roadmap
UK-Israel Trade Relationship worth appx. £7 billion
This past March, the UK and Israel signed the 2030 Roadmap for UK-Israeli
Bilateral Relations, the prime goal being to boost economic, security and
technology ties and to ensure the partnership remains modern and innovate
so as to address shared challenges. The Roadmap included new multi-millionpound
programmes, joint funding commitments on technology, and a plan
to keep both countries at the forefront of the technological revolution.
Adopting a thematic approach, the Roadmap contains detailed commitments
for deepening cooperation across a broad range of sectors, including on
cyber (with the UK elevating Israel to a tier 1 cyber partner), science and
tech, R&D, security, health, climate and more.
In this latest feature, we take a deep dive into the state of the UKIsrael
relationship, the challenges being faced, and the prospects going
forwards, hearing the views of some of the most active and prolific
lawyers in both markets.
The UK-Israel trade relationship has already delivered huge benefits to both
economies. The UK-Israel trade relationship is worth around £7 billion, up
from £5.1 billion at the end of 2021. According to the UK Foreign Secretary,
James Cleverly, who signed the Roadmap in March: “There are more than 400
Israeli tech firms operating in the UK. Israeli investment into the UK drives
growth and jobs, adding around £1 billion gross value to the UK economy
and creating about 16,000 jobs in the last 8 years.”
6
“We have seen decent deal flow both ways this year, with many formal
and informal delegations exploring collaboration opportunities,” says Dan
Turgel, London partner at White & Case, and co-head of the firm's Global
Technology Industry Group. “The Roadmap is definitely a step in right
direction.”
“While it is too early to predict how the new trade agreement will play out,
it is definitely a positive step,” agrees Simon Marks, partner at Epstein
Rosenblum Maoz (“ERM”). He continues: “We will need to see what specific
initiatives aimed at promoting bilateral trade come out of the agreement,
and how successful these are; however a deepening of the formal and
informal connections is certainly a good thing for Israeli business.”
"We expect that this will soon be complemented by a new free trade
agreement,“ adds Adam Meisels, London partner and head of Israel Desks
at Bird & Bird. “That will further strengthen the relationship between the
countries by focusing on the trade of services and technology and be more
suited to the technological advancements of the future."
Current status of the UK-Israel relationship
Source: UK Government (released August 2023)
Trade Figures Year to Q1 2023 Change on year to Q1 2022
Total Trade in Goods & SWervices £7.3 billion +29%
Total UK exports to Israel £3.8 billion +32%
Export of goods £1.8 billion +14%
Export of services £1.9 billion +55%
Total Israel exports to UK £3.6 billion +28%
Export of goods £2.5 billion +28%
Export of services £1 billion +28%
7
“Given the UK’s recent drive to turn the UK into a ‘science and technology
superpower by 2030’, a partnership between the two nations is of no
great surprise,” says Alexander Gold, partner at Charles Russell Speechlys,
and head of the firm’s Israel Desk. “The relationship between the UK and
Israel today is perhaps the strongest it has ever been. The agreement is a
recognition by both nations of the strengths that they possess in science
and technology, and that information and technology sharing between the
two countries will be of mutual benefit. It should lead to greater support for
science and technology businesses in both countries (including start-ups)
and greater ability to fund leading science and technology projects. That
is good news for all involved.”
This deepening of commercial ties has become especially significant
considering the domestic concerns of both nations. Once plastered all over
the business press, Brexit remains a concern but how much?
White & Case’s Turgel, states: “We have not seen the flow reduce post
Brexit in our business. In fact, some trade has increased due to additional
flexibility.”
“Not in our experience,” says Gold of Charles Russell Speechlys. “Years
post-Brexit, the UK remains Israel’s third largest trading partner. £2.7 billion
worth of British exports went to Israel in 2020. And, given this year’s news
of this new economic and technological partnership and the two nations
continuing to develop closer ties, the relationship still looks extremely
strong. It’s been our experience on the ground too – overwhelmingly, we see
enthusiasm on both sides for doing business and engaging in new projects.”
Bird & Bird's Meisels added: "Overall I would say that Brexit has not put
off Israeli entrepreneurs or start-ups. London remains the top destination
in Europe for tech investment and one of the best places in the world to
scale a tech business. The UK government provides a range of support
for entrepreneurship and start-ups including financial assistance such as
grants, loans and tax efficient R&D and investment schemes. Furthermore,
the UK remains a hotbed for incubators and accelerators that support and
promote innovation and business growth.”
How much is Brexit still a concern? Not so much…
8
In fact, there are many organizations engaging in Israeli-UK relations, such
as the UK Israel Tech Hub, which, since its inception in 2011, has facilitated
over 250 partnerships, with an estimated £1.2 billion economic impact to
the UK. There is also the Israel UK Chamber of Commerce, the UK Israel
Business, and the Israeli Business Club. Many of these remain as vibrant as
ever, while there are also Facebook groups bringing professional Israelis from
the local landscape. Some of these include the Israeli Startups in London
and the Israeli Tech Parliament in London.
This agreement has also become all the more pressing for Israel, given
controversial judicial reforms that have concerned the tech sector, banks
and global ratings agencies. According to Start-Up Nation Central, which
tracks the local tech ecosystem, almost 70% of Israeli startups are taking
active steps to pull money and shift parts of their businesses outside the
country due to the uncertainty.
Adam Levin, London partner at Dechert: “Unfortunately, the relationship has
been overshadowed by the political issues in Israel relating to the judicial
reform. We are aware that risk committees are having to include it in their
assessments of deals, and this has led to several deals falling over at the last
minute. It is not possible to see the long term implications for the Roadmap
clearly at this point as a consequence.
Valuations are being driven down as the supply of investors is slowing due
to the additional risk currently associated with Israel as a consequence of
the judicial reform. It is evident everywhere from the approximately 20%
slide in the Shekel against the US Dollar and GBP, which means that existing
investments are now worth less in US Dollar and GBP terms, to the slowing
tech sector in Israel with many people losing their jobs. UK investors will be
keenly watching for the outcome to the challenge before the Israeli Supreme
Court to the judicial reforms and the fallout and consequential events from
that. Israeli investors will be watching for the next General Election in the UK
which may bring about a change of Government and the policy consequences
which will arise from that.”
Judicial reforms: Investors hesitant but interest
remains
9
White & Case’s Turgel: “There any many reasons why investor appetite may
have subdued over the past 18 months or so which are not Israel-specific.
Nevertheless, investors have been very aware of the political climate.”
Jeremy Seeff, partner at ERM adds: “There seems to be a general nervousness
about inward investment into Israeli tech at the moment, and this is not specific
to the UK. For now, a lot of this nervousness arises due to uncertainty and no
doubt, as the advancement or amendment of the proposed reforms become
clearer, we expect the business relationships to settle, although likely with
some shifts in focus. Notwithstanding, we are still seeing activity where the
right opportunity arises.”
Fellow partner, Marks at ERM goes on: “Political and legal developments
relating to judicial reforms should continue to be monitored, as should the
U.S.-China relationship which we have seen affect the business considerations
of Israeli businesses for some time, in particular in the past year. In addition,
the implementation of EU rules on platforms and digital markets, as well
as the fast-moving AI landscape will continue to be important in terms of
opportunities, and risk mitigation too.” There is scope for alignment and
collaboration in this fast-moving sector – and we have explored the state
of AI in our other main feature.
Bird & Bird partner, Meisels, also indicated: "UK investors are concerned by
the judicial reforms and the general uncertainty around how long Israel’s
constitutional crisis will continue has likely impacted appetite from investors
to some degree. That said, investors remain deeply interested in Israeli
innovation and a number of our VC investor clients are continuing to actively
explore investment opportunities in Israel and are raising new funds with
Israel as a focus area."
Gold of Charles Russell Speechlys adds: “The judicial reforms certainly have
not been helpful to international investment in the short term, and that can
be seen quite clearly in the markets. It is far too early to say how any of this
will affect business and investment in Israel over the longer-term, and for the
time-being it is a case of keeping a watching brief.”
10
With an interest in innovation, many industries continue to attract attention,
interest and funds.
According to UK Government data, mechanical power generators, medicinal
and pharma products were among the largest exports to and from Israel in
the year to Q1 2023, while travel, business and insurance were among the
services where there were collaborations – as per the table above.
Seeff of ERM confirms: “Technology generally, and specifically fintech, media,
cyber and data driven technologies are strong. As a firm with very strong links
to the UK market, we continue to see a lot of activity. Some of the transactions
we have advised on in the last 12 months include representing the buyer of an
English FinTech company, representing the sellers of an English company by
way of a share transaction with an Israeli buyer, the investment by an English
VC into an Israeli start-up, and a great number of finance transactions with
Israeli links (where the English loan markets remain dominant)."
White & Case’s Turgel adds: “Tech, energy and financial Institutions remain
the most active sectors for our practice,” while “healthcare, financial services,
cybersecurity and climate tech are a few key areas of activity,” states Bird &
Bird’s Meisels.
“Given Israel’s position as a key wealth center and a private capital hub, we are
particularly active in the Private Client and Private Wealth Disputes fields in
Israel,” says Gold of Charles Russell Speechlys.
“Unsurprisingly, tech also continues to be particularly active in Israel. The startup
scene is particularly busy, and it still holds its reputation as the ‘Silicon Valley
of the Middle East.’ Real Estate continues to be buoyant for us as a firm, as
high-net-worth individuals in Israel continue to buy and sell valuable assets in
London.”
Over the past year, UK-Israeli transactions cut across a plethora of industry
sectors. In April 2023, UK public company Entain agreed to buy the Israeli
sports app, 365Scores for USD160 million, while last October, the Israeli digital
insurance company, Lemonade launched in the UK with British residents able
to buy Lemonade Contents Insurance.
Strong interest persists in cyber, AI, healthcare,
fintech and more
11
Israeli companies and the London Stock Exchange –
23 listed and growing interest
Given the challenges of raising funds at present, the London Stock Exchange
has held up well adds Levin of Dechert: “London remains a key global financial
centre and the London Stock Exchange trying to attract global companies to
list on it in preference to a New York listing. Good companies from Israel will
surely receive a warm welcome should they decide to list in London.”
This has played out well with Israeli companies. There are currently 23 Israeli
owned / operated companies on the Main Market (13) and the AIM (10). This
includes cyber company, KAPE, fintech company, PLUS500 Ltd., gambling
software company, Playtech PLC, among many others. Last November, Israel’s
Delek Group completed the flotation of its Ithaca Energy subsidiary on the
London Stock Exchange - at a valuation of £2.5 billion.
White & Case’s Turgel points out: “We do expect more Israeli issuers to list on
the LSE. Against the backdrop of a global race by the principal stock exchanges,
including the NYSE, Nasdaq, and LSE to streamline their listing requirements to
attract issuers, we anticipate that the LSE, especially following the completion
of the recent FCA reform, will become an even more attractive venue for Israeli
issuers to raise capital. With its established reputation and a diverse investor
base, the LSE is poised to become an attractive platform for Israeli unicorns
looking to expand their funding options and enhance their international visibility.”
Michael Dawes, equity capital markets partner at Bird & Bird: “The UK has held
its own in recent months when compared to global capital markets activity, with
the London Stock Exchange reporting 179 IPOs and follow-on raises in H1
2023, raising £11bn. Globally equity capital markets have been depressed for
the past year, but I think that we’re reaching peak inflation and interest rates,
and there are definite signs of activity in the UK IPO market. We’re working on
a number of listings that are looking to position themselves for autumn 2023
or spring 2024, when we expect appetite to return in certain sectors.”
Fellow Bird & Bird partner, Meisels adds: “While it is no secret that in recent
years Israeli (and other) tech companies have often favored IPOs in the US,
there are advantages to listing in the UK and regulators are actively streamlining
the UK listing regime to further encourage high-growth companies to choose
London as their IPO destination. Further attention to this is likely to take place
given Arm’s recent high profile decision to list in New York rather than London.
12
“This will lead to opportunities in M&A and alternative
routes to fundraising”
However, overall, London is home to one of Europe’s largest stock exchanges
and Europe’s largest tech ecosystem which remains resilient despite a
challenging macro-economic environment. While the US markets may still be
favored by many Israeli tech companies, some of these factors may eventually
help draw more Israeli companies to consider listing on the LSE.”
“The Israeli market is at an interesting phase with many VC backed and other
tech companies likely to or already running out of funding,” asserts ERM’s
Marks. “Our view is that this will lead to opportunities both in M&A as well
as more interest in alternative routes to fundraising (e.g. IPOs) in the next 12
months. Historically Israeli companies tend to look to the U.S. capital markets
(the Nasdaq and NYSE) rather than London. The LSE and its advantages need
to be consistently promoted, and there needs to be a few success stories
(both IPO and post IPO) to generate more interest. It is worth noting that
the capital markets (and in particular the experience of Israeli companies on
the capital markets) have been hit hard so though we are confident that the
capital markets (and the LSE specifically) will continue to prove attractive,
we expect it to be an incremental process of increasing deal volume.”
The Roadmap may be new but there are encouraging signs.
13
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Industry
Focus
Being smart about artificial
intelligence
15
Being smart about artificial
intelligence
Artificial intelligence will continue to grow in its usefulness but will always rely
on the creative input and vast real-world experience of lawyers and General
Counsels – not merely to avoid mistakes, but also to propel companies to
the next level.
Within two months of its November 2022 launch, the ChatGPT chatbot was
being used by 100 million people, one of the fastest adoptions of a new
consumer application ever. This AI language model developed by OpenAI is
essentially a computer program designed to help you generate natural language,
replicate human-like text-based conversations, and retrieve information. A
recent study of 4,000 respondents in the U.S., UK, Australia, and India by Israeli
CRM platform developer Salesforce revealed that such ‘Generative’ AI has
been embraced by an astounding 49% of respondents - in less than a year.
A recent article in the Jerusalem Post asked if corporations were going to
ban the use of ChatGPT, after a recent survey showed businesses in the U.S.
have begun to question the extent to which ChatGPT should be embraced.
Generative AI has already attracted regulatory scrutiny, particularly in Europe,
where data collection practices have come under the microscope of privacy
watchdogs. Particular fears relate to potential data security breaches and
intellectual property leaks.
As the speed of change accelerates, both private practice lawyers are
weighing up the benefits and risks associated with the integration and use
of AI in their practices, and GCs are also increasingly exploring how AI tools
can enhance legal operations within their companies.
In this broader discussion, experts from Arnon, Tadmor-Levy, Shibolet, Lipa
Meir & Co., The Luzzatto Group, Dechert, and Penteris shared their thoughts
and experiences with us, how this field is impacting or beginning to impact
clients, as well as the great opportunities and immense challenges for
companies, governments, and consumers.
What is AI and what do lawyers use it for?
At its most basic level, AI is the ability of machines to carry out intelligent
tasks typically performed by humans, using algorithms (a series of rules
written into computer code) and combining computer science with data to
16
solve problems or make predictions. Generative AI takes vast amounts of
raw data, learns the patterns within it, in order to generate the most likely
correct response when prompted with a question. In Israel, in August, AI21
Labs- the only company in Israel developing a "large language model" based
on AI, became a unicorn after it raised USD155m in a Series C financing
round, giving it a valuation of approximately USD1.4 billion (Meitar acted
for A121 Labs, Herzog and H-F & Co. represented flagship investors, Nvidia
and Google respectively).
Generative models have been used on numerical data for several years.
However, as deep learning and natural language processing have become
more advanced, Generative AI has been applied to images, audio, and text. The
term became more well known after OpenAI released its chatbot ChatGPT
at the end of last year.
Lawyers are familiar with AI; but
today’s changes unparalleled
Lawyers have been deeply familiar with AI for some time. AI-powered software
has been widely adopted for managing and reviewing documents, as well as
due diligence tasks, with machine learning algorithms capable of analyzing
reams of documents, helping lawyers identify relevant information more
efficiently during legal research and discovery processes. Other software
allows for the analysis of market trends, tracking of legal developments, and
identification of potential business opportunities. Some law firms are also
using AI to predict case outcomes and assess potential risks. By analyzing
past legal cases and relevant data, AI algorithms can provide insights that
assist lawyers in making strategic decisions for their clients.
However, caution was thrown to the wind when, in June, a New York lawyer used
ChatGPT to help with a brief for his case against the Colombian airline, Avianca.
It provided him with entirely fictitious case law and was immediately called
out by opposing counsel and the judge. After several humiliating headlines,
the lawyer was fined, underlining the dangers of relying on Generative AI.
As this one case highlighted, there are many legal issues arising from the
prolific use of such technologies. In addition to the inaccuracies through an
improper review of AI’s output, Generative AI raises a number of complex
legal issues around data privacy, intellectual property and the potential
leakage of confidential information, as well as compliance violations, breach
of contract, copyright infringement, as well as damaging communications
with customers, and more.
17
It is very important for clients to understand how it affects their obligations
and contracts in potentially new ways. Other issues that have surfaced also
relate to trade secrets - how to keep prompts and Generative AI workflows
secret; ethics - how to supervise someone else using gen AI if you yourself
have never used it; and the comingling of client data.
While embracing the latest generation of AI technology, the vast majority
of lawyers appear to be proceeding with caution.
The impact of AI on the lives of lawyers
and their clients
Eyal Oren, partner at Shibolet & Co: “We have already established an AI team
to monitor closely the evolution of AI in terms of technology, the regulatory
landscape and that of the judiciary to be able to give advice in an uncertain
environment. In addition, the firm is working on the constant review of AI
tools for internal implementation.”
Partner, Roy Keidar, who heads the Emerging Technologies practice at Israeli
law firm, Arnon, Tadmor-Levy adds: “We see the impact across the board.
The growing use of Generative AI tools by lawyers entails significant benefits
for lawyers which are still at its nascent stages, but also poses significant
challenges to protect privileged information of clients, to ensure adequate
use to avoid issues of professional liability, and to develop the right program
for training the future generation of lawyers.”
“A real game-changer for clients”
“Before the use of AI-assisted diligence technology, we would frequently be
asked to just review the top material contracts, says Adam Levin, co-head of
Dechert’s corporate group in London. “Now, we can have our AI check every
single agreement in a transaction. It’s a real game-changer for clients to be
able to have that extra level of comfort.”
Keidar of Arnon, Tadmor-Levy, adds: “Generative AI won't replace lawyers
so quickly in the crucial crossroads of a company (such as strategic deals,
regulation analysis or litigation). But it can influence some of the clients’
willingness to pay lawyers by the hour, for services they can get almost free,
even if they are of inferior quality. General counsels were looking for guidance
on how to formulate internal policies for their companies. Such policies
should be tailor-made for each organization, as the use of AI varies across
18
organizations. For some, it’s integral in what they make or sell, some use it
as input for decision-making (e.g., employment, customer service), and in
many others, it is used sporadically by employees for smoother operations.”
“Also, the risks and potential liabilities are already drawing the attention of
investors and potential buyers in financial rounds and M&As, and we encourage
companies, even startups, to be ready with solutions to some of the risks AI,
and specifically Generative AI poses to their operation,” he adds.
Do these trends concern you or excite
you?
Keidar of Arnon, Tadmor-Levy points out: “Excitement and concern may
strangely come together. We are excited by these tools and are still in the
process of learning how to best utilize them, for the best of the firm and
for the benefit of the clients. The use of Generative AI in drafting papers,
analyzing documents, Due-Diligence, legal research, E-discovery, and data
management addresses many pain points in our legal day-to-day. At the
same time, we need to be concerned about how we train the next generation
of top legal professionals who would grow into this world where AI is going
to be embedded in almost all of our platforms. We already understand that
some tasks could be given to AI and make associates' lives easier and more
efficient, yet we also bear in mind that adequate training requires maintaining
some types of assignments which are essential for making them into excellent
professionals.”
The industries most affected
“Most affected are the industries based on copyright paradigm, most notably
software, music, visual, and so on” adds Oren of Shibolet. AI could also help
people with improved healthcare, safer cars and provide tailored, longer-lasting
products and services. It can also facilitate access to information, education
and training. AI can also make workplaces safer as robots can be used for
the more dangerous parts of jobs, and open new job positions as AI-driven
industries grow and change. AI used in public services might also reduce
costs and offer new possibilities in public transport, education, energy and
waste management and could also improve the sustainability of products.
Data privacy is a real concern
AI can play a crucial role in enhancing cybersecurity measures and protecting
sensitive client data. It can detect and respond to potential security breaches
19
more effectively – and yet, with this advance comes a myriad of concerns.
GenAI applications leverage extensive sets of data, carrying the potential
for unauthorized access and breaches of privacy regulations, data loss, and
subsequent legal consequences.
In a recent GC survey conducted by Nishlis, data privacy and security were high
on the list of concerns, especially with regards to data protection when using
AI tools and ensuring compliance with relevant regulations like GDPR or HIPAA.
Vered Zlaikha, partner and head of the Cyber Affairs & Artificial Intelligence
practice at Lipa Meir & Co., says: "I believe that in order to mitigate privacy
and data protections challenges, organizations would, firstly, prefer using
closed and separate technological environments (of AI systems) for their
activities, and secondly, we may see further development of de-identification
and anonymization methods, and more organizations implementing them for
their AI activities. Moreover, organizations should adopt dedicated policy and
internal guidance for employees, in relation to privacy and data protection,
tailored to their activities and the AI system they use.”
Shibolet’s Oren adds: “When it comes to our clients, some of them are worried
about the implications of their employees using GEN-AI tools in the framework
of their duties and wish us to develop rules of conduct, and others want to
take advantage of these tools while doing so carefully. When it comes to us
as a firm, we are already in the midst of reviewing diverse levels of AI tools
to be implemented in our work.”
Training both management and staff to understand and use the tools effectively
and understand the potential on the work and caseload will be vital, as firms
will increasingly look at the cost-benefit analysis of the time, accuracy and
operational efficiencies involved.
Fears surround intellectual property
GenAI has the capability to produce content that closely emulates the
creations of content creators, raising the possibility of intellectual property
conflicts. This, in turn, could trigger legal disputes and potential harm to one's
reputation. In August in the U.S., in Thaler v. Perlmutter, the U.S. District Court
for the District of Columbia affirmed the Copyright Office’s decision that
a work generated entirely by AI with no human input is not copyrightable.
As Shimon Maman, associate in The Luzzatto Group, a specialist IP firm in
Israel, pointed out: “It should be noted that, unlike the United States, there is
no official Copyright Registry in Israel, but, if a similar question of copyright
20
ownership is discussed in Israel through a copyright infringement litigation case,
the decision will likely be similar as well, that AI alone cannot be considered
a creator under the current Israeli copyright law.”
Shibolet’s Oren added: “The future of copyright in relation to GEN-AI tools
is indeed a new terrain, and the regulatory and judicial authorities should
balance carefully between all the players in order to keep incentives for human
creators while pushing forward the benefit we all can gain from AI tools.”
Keidar of Arnon, Tadmor-Levy notes: “The reality is that there is little guidance
by regulators or case law as to the legal norms in this space. Clients would
typically look for certainty and risk management. We are investing efforts to
assist client in a creating an AI legal-safe environment within the organization
mainly through working with the GC or management. Usually, it involves
AI risk mitigation policy, internal monitoring to ensure AI usage aligns with
existing policies, tracking high-risk activities, ensuring proper disclosures
and representations, adjusting commercial agreements and proper training
for management and employees.”
Current regulatory landscape: EU; UK;
US and Israel
While there is widespread agreement on the need for protective measures,
finding the right balance between innovation and safety, ethics and
accountability is a real challenge. Debate remains ongoing on how best to
regulate these innovative technologies. As the world’s regulators grapple
with concerns such as algorithmic bias, misinformation from chatbots like
ChatGPT, and misuse of personal data, there is a lack of consensus on a
regulatory framework. The result: the regulatory landscape surrounding AI
varies by country and region.
“The EU has taken a leading-edge approach in shaping the regulatory landscape
for AI in recent years,” says Jeremiasz Kusmierz, Head of Compliance at
Warsaw-based international law firm Penteris.
“Central to this effort is the proposed "Artificial Intelligence Act," which is
a framework designed to establish unified rules for the development and
deployment of AI. Key to this framework and a defining characteristic of
the EU's approach is the adoption of a risk-based paradigm, which involves
regulating the diverse applications and functionalities of AI systems rather
than the technology itself. This strategy sees technology as a versatile tool
that can be beneficial, neutral, or even harmful to society depending on its
21
application. This approach, often referred to as “narrow” regulation, focuses
on identifying potential benefits and risks,” he adds.
ChatGPT triggered a debate whether “narrow” regulation is sufficient to
mitigate the risks associated with this technology, with such concerns
leading to key amendments to the proposed AI Act, which were agreed
upon and adopted by the European Parliament this past June. Striking the
right balance is vital.
The UK and U.S. have adopted a more permissive approach to AI regulation.
According to the UK’s House of Lords Library in July: "Ministers contend
that UK laws, regulators and courts already address some of the emerging
risks posed by AI technologies. However, they also concede that, while AI is
currently regulated through existing legal frameworks like financial services
regulation, some AI risks have arisen and will arise across, or in the gaps
between, existing regulatory remits.”
Writing in April 2023, the U.S. think tank, the Brookings Institute contends that
the U.S. federal government’s approach to AI risk management can broadly
be characterised as risk-based, sectorally specific, and highly distributed
across federal agencies. While this can be advantageous, this approach also
contributes to the uneven development of AI policies.
Israel has also followed a sectoral approach. “Israeli Governments took a
conscious decision not to develop a comprehensive regulatory framework
towards AI, but rather, adopted a "sectorial approach" allowing each regulator
to monitor and enforce AI activities in their respective fields,” said Keidar of
Arnon, Tadmor-Levy.
He goes on: “Such approach was anchored in a policy paper titled "Draft
Regulation and Ethics Policy in the Field of Artificial Intelligence", published
by both the Ministry of Innovation, Science, and Technology and the Ministry
of Justice in October 2022. We believe this approach is a good reflection
of Israel's position as a hub for technology start-ups, where innovation
should not be stifled by strict regulation. However, while Israel is indeed a
technological leader in several domains, when it comes to AI development,
permissive regulation is not enough, and there are expectations from the
government to address market failures (one of which is training foundation
models in Hebrew) and incentivize more AI innovation across industries for
the benefit of Israelis and the entire industry.”
“Israel is quite behind when it comes to regulatory advancements in the field
of AI, however,” adds Oren of Shibolet. “However, a few principal papers
22
were published by the Ministry of Justice and the Ministry of Health which
can serve as a benchmark, although the advancement in the EU and U.S. is
also a strong point of reference.”
Although global consensus is needed, it is unlikely to emerge any time soon
with a fragmented approach likely for some time. Staying updated on local
laws and international developments is crucial.
There is cautious optimism about AI overall, presenting many possibilities
but as firms continue to navigate this new landscape, continued vigilance
and proactivity in managing the associated cybersecurity risks will be part
and parcel of life in this new era.
23
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Recent
Market
Trends
Impacts of the evolving legal
landscape on General Counsel
25
According to a recent survey of General Counsel by Nishlis, the evolving legal
landscape has impacted the role of in-house counsel in many ways. Regulatory
change, compliance, data protection and global and/or geopolitical uncertainty
were among issues worrying GCs. Factors like increasing business complexity,
growing regulatory scrutiny, and the changing needs from external legal
counsel have indeed led to an expansion of in-house legal departments, and
is also altering what they need from external counsel and how they need it.
As showcased in the Nishlis annual GC survey, GCs are focusing their work
with fewer law firms than in the past, with today 41% hiring 3-5 law firms. More
work is done in-house due to tighter budgets and a concentration of work.
The volume of legal work sent to law firms has held up well, however, more
work (25%) has remained in-house. GCs have recently preferred to handle
regulatory and real estate work in-house, where possible, but are somewhat
more likely to require external counsel on employment and IP issues, especially
with the rising importance of data protection and privacy. Litigation is out in
front as the type of legal work most likely to be outsourced to private practice
firms, but M&A also remains very high on the list of work outsourced, as
well as tax and intellectual property law, as companies look to protect their
bottom lines and IP assets.
Much of this is backed by The General Counsel Report 2023, which examines
the risks keeping general counsel up at night – which include compliance,
regulation and technology “modernization,” while concerns relating to
employment issues and data privacy and security remained somewhat steady.
60% of respondents in this survey witnessed an increase in new regulations
that require policy refreshes and additional headcount; 47% experienced
more contract management demands; 33% noted a rise in M&A activity;
30% reported increases in privacy violations and notifications; and 27%
mentioned increases in class action litigation.
ESG matters were more common this year than in any of the prior years of
The General Counsel Report. In fact, 60% of the participating general counsel
Impacts of the evolving legal
landscape on General Counsel
By Idan Nishlis
26
noted that their organizations are concerned about ESG as a business
imperative. It’s an imperative for so many because companies are being
measured in this area, and the quality of their efforts are increasingly linked
to their business success. Investors will screen a company for ESG risk, and
if you don’t score well enough, there is a potential risk they will not fund the
company. When choosing a law firm, personal connection is the highest source
of influence, according to about 70% of respondents in Nishlis’ survey. This
could be through a previous relationship, legal engagement with a given firm
or lawyer, or a personal recommendation. In recent years, GCs continue to
push for a better service to justify fees, especially in this economic climate.
When selecting a law firm to work with, client service unsurprisingly comes
in at number 2, behind a high standard of professionalism. This mirrors the
way many corporate clients behave in their own operations and with their
clients. Given the current global downturn, legal fees, which were at #4 in
the last survey, climb to 3rd place.
More GCs are active today on LinkedIn, with two-thirds of GCs proactive
on the social media platform, as opposed to under half two years ago. With
that in mind, it is important to make time to reach out and strengthen those
connections.
As the Nishlis survey underlines, GCs point out the importance of client
updates and content in general. However, many law firms have been reluctant
to oblige this, thinking it is a burden. In a market saturated with content,
value-add, readability, and relevance will be key. A survey of General Counsel
in the UK and US by Passle supported this, revealed that 77% of GCs spent
5 hours or more staying up to date each week – although not in a structured
time slot, with weekends most popular, followed by time after work, during
lunch and in between meetings. More interestingly just 8% of GCs thought
law firms enough timely, relevant content to the market.
In the Passle report, 61% of GCs would prioritize suppliers that kept them
up to date with the latest industry developments and best practices and
100% of GCs felt that law firms had a responsibility to keep their clients
and prospects informed about news and developments that include legal
updates, industry trends, industry appointments, and content that could
generate ideas and opportunities. Newsletters, webinars and podcasts are
over 1/3 of the ways GCs receive updates, with many visiting a law firm’s
website weekly or monthly to consume the relevant updates there.
27
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Recent
Market
Trends
In femtech, foodtech, and agritech,
Israel’s intellectual property beckons
investors
29
Could the Israeli tech sector be any hotter? It's hard to imagine it could. With
freshly patented ideas leading the way, a recent international survey once
again found that the country leads the world in the ratio of tech investment
to the total size of its economy. And that investment is paying off in startling
innovation, seizing the imagination of IP-savvy investors worldwide.
At 75 years of age this spring, Israel is still one young country. Its technological
know-how continues to astound the world, drawing capital and trading
partners from places as far-flung as China, Japan, Russia, and of course,
Israel's favorite trading partner, the United States. A disproportionate number
of those foreign investors and entrepreneurs engaging with the Israeli tech
sector are represented by one Israeli entity—The Luzzatto Group, an Israeli IP
law firm and consultancy. The Group, with thousands of tech patents in Israel
and abroad under its belt, is leading in the development and spread of talent
and innovation in "Silicon Wadi,"-the nickname for the Israeli Silicon Valley.
The Luzzatto Group is a proud five generations and 154 years old, with pre-
Israeli-roots in the Jewish community of Milan, Italy. The Group provides full
service for inventors, entrepreneurs, and investors seeking IP protections
or IP investments, as well as legal support. We'll come back to one of the
fifth-generation partners who make up the modern leading edge of the
Luzzatto legacy.
In this article, we'll look at three of the many tech subsectors driving the
excitement around IP developed by Israeli entrepreneurs, to the benefit of
investors worldwide.
The Birth and Growth of FemTech
Whether you are a woman, a man, or neither: Have you ever considered just
In femtech, foodtech, and agritech,
Israel’s intellectual property beckons
investors
By Joshua M. Peck, published in Patent Lawyer Magazine
30
how little regard technology seems to have for women and girls? Almost
every medical device, pharmaceutical, and even consumer product is attuned
primarily to the physiology and psychology of the human male. This may not
be news to you, but it's an enduring issue that hasn't yet been adequately
addressed. And it's not just medicine. You've probably noticed how an
average-sized woman in an average-sized car wears a seatbelt? It's as if the
designer didn't know that more than half of human adults have...breasts.
How about the apps on your phone? Many of them are geared to the singly
focused male attention span and male sensibilities. Don't believe us? Look
at the list of women's favorites, which departs significantly from men's.
And no, they're not all menstrual period trackers, though three of them are.
Israeli entrepreneurs are stepping up and focusing on the gender gap in
technology and across all industries, and making use of intellectual property
protections to safeguard their inventions. More and more inventors and
entrepreneurs are pouring time and energy into the sector called FemTech,
a name coined by an American entrepreneur just seven years ago. Publicly
disclosed FemTech deals hit the $2.5 billion mark in value worldwide in 2021,
spread over some 300 transactions, according to a McKinsey survey. With
some half the world's population identified as female, one need not be a
prophet to see the profits coming--and Israeli tech is seriously in on the
FemTech mix.
"The Israeli economy is leading the way on FemTech, among many other
sectors," says Lilach Luzzatto Shukrun, one of the current generation of The
Luzzatto Group, and the head of the Engineering and Medical Devices division
in the Luzzatto patent law firm. "Women's needs have often been ignored by
the tech world, and, over the last few years, the Israel entrepreneurs I work
with are starting to change that."
Woman-Specific Medical Tech on the Way
An example? "Endometriosis," Luzzatto says, "which falls under the definition
of a 'transparent disease'; 10 percent of all women suffer from it, but little
effort is invested in studying the condition and researching solutions. I wonder
what would happen if 10 percent of all men suffered from a similar condition.
At last, our Israeli FemTech community is beginning to study it in depth and
even attack it."
The medical profession may still lead the way, with a recognition that, for
example, cardiac problems and physical pain plays out differently in women
31
than in men, and may call for different approaches, for example, in anesthetic
intervention. "We have to look at every product and service with fresh eyes,
and not only in the medical industry. The way everything is engineered must
be re-geared to make it work for women, Luzzatto adds. "Our clients from
our tech sector are doing that, with great success. Those who see the value
of this technology and its patented innovations should get in on the act."
"As a group with 80 percent women in management, our mission is to develop
the FemTech industry worldwide", Luzzatto says. "That is why our team
members are key players in live conferences and social media groups that
are looking at the many paths to making technology woman-friendly. Up
until recently, it was solely about fertility, gynecological issues, and sexual
health, but they now understand that women's concerns and perceptions
are relevant to...everything."
One Luzzatto client and financial partner is Pulsenmore, which has pioneered
the development of home ultrasound scanning during pregnancy. The patient
scans her own uterus with a specialized instrument the company delivers to
her, and her smartphone then communicates with her obstetrician so both
can observe her growing baby. This technology has begun to spread around
the world, and recently has seen utility in Ukraine, where women within the
war zone have had difficulty getting to medical offices or hospitals for care.
Luzzatto fully expects more promising innovation in FemTech to follow in
the years and decades to come.
The Seeds of AgriTech
To highlight another of Israel's rapidly-growing sectors, we will go to the
ground—specifically AgriTech, which in many cases goes hand in hand with
Food Technology ("FoodTech)." Both demand multi-disciplinary knowledge.
The Luzzatto Group, also with a northern Israeli office in Qiryat Shemona—the
heart of the Galilee region's agricultural land of plenty--has deep roots in the
innovation of the agricultural sector, working with companies that manage
such technologies as drip irrigation; developing and perfecting fertilizers and
pesticides; working with start-ups focused on yield and harvest management;
and the growing field of cannabis technology and processing for medical use.
"A simple example of AgriTech innovation is that now Israeli farmers can
treat each plant as an individual and provide customized care," Luzzatto
says. "A camera, a drone, or a sensor-based system will reveal that one plant
32
in a field is struggling with a lack of water, another needs more light, and a
third is trying to fight off a weird species of beetle. The farmers can use the
abundance of data gathered from the field to give each avocado, orange,
and date palm exactly the attention and treatment it needs. That used to
be prohibitively expensive, but technology has made it viable. The recent
significant leaps come on the heels of the latest programming technology,
including AI and machine learning; capturing the detailed data in real time
makes ideal solutions possible."
What's on the FoodTech Menu?
Another, related tech sector is FoodTech. The new science of food includes
elements of chemistry and biology, and engineering across the board—
chemical, biological, and mechanical engineers all have crucial roles in this
sector. The patent challenges for FoodTech companies are particularly steep;
they want to obtain IP protection for their innovation without giving away
trade secrets that could aid competitors. Innovation is found not only in the
food products themselves, but also in trademarks, copyrights, and in how the
industry is supported and financed. A top-flight legal and consulting team
must serve from that far-ranging menu.
Luzzatto mentions that one of the newer initiatives she works on is the
search for food that reminds consumers of meat, but isn't. "I can't tell you
the formula," Luzzatto-a pescatarian herself—says with a smile, "but our
clients are moving the world to a much less meaty future, with organic food
cleverly developed in a laboratory, healthy and clean, that never walked the
Earth. I've had the mock hamburger, and it's great. We're still working on
'steak.'" Another excellent example is from a client from the gluten-free
flour field "He is leading a real revolution for celiac patients and succeeds in
bringing to their table equally delicious food that does not endanger them, at
comfortable cost. This is another example of how this field changes people's
daily quality of life and health.”
In both AgriTech and FoodTech, thousands of Israeli-bred patents have
been granted to these companies, providing patent protection both
domestically and abroad. The Way Forward, Partnering with Israel.
And just why is an IP group so visible on the high-tech front? That's easy: there
would be no incentive for inventors or investors to dive into new technology
ventures in Israel if what they discover and develop can easily be pilfered
by a rival. That's where intellectual property protection comes in and turns
innovation into an asset. The Luzzatto Group works in Israel and globally,
33
collaborating with its clients throughout the process until they obtain IP
protection everywhere it's needed. The Group also represents many foreign
companies, some of them internationally known brands, seeking IP protection
in Israel. In fact, The Luzzatto Group represents all five of the most active
foreign companies working with Israeli high-tech companies.
Lilach Luzzatto notes that the desire for growth in Silicon Wadi is so great
that last summer, the Israel Innovation Authority committed about $4.5
million to attract skilled workers from abroad and train workers already living
in Israel. "...This diversification of manpower in the local ecosystem will help
maintain local high-tech's position as a global leader," Dror Bin, CEO of the
Authority, told JNS, the Jewish News Syndicate.
The call to join Israeli high-tech is almost irresistible, according to the
government itself. The Israeli Innovation Authority, in just one recent invitation
to foreign collaborators, cited interest from China, Thailand, Canada, Italy,
and Spain, to name just a few. A disproportionate number of those foreign
assets are Luzzatto clients, of course. For the technology industry of Israel
and those in the U.S. who would reap its benefits through partnership and
collaboration, the future is bright.
"Some of our best friends are American investors in our clients’ intellectual
property,” Luzzatto concludes. She invites even more to join in and get a
piece of the IP action.
Recent
Market
Trends
Congratulations (or maybe not)!!! You
are an Israel Resident: A Bill Proposing
New Definitions and Presumptions
for Establishing Israeli Residency for
Taxpayers
35
The draft bill to reform determining
tax residency in Israel is expected to
lead to nothing short of a revolution
regarding how an individual can be
considered an Israel Resident, or
alternately a Foreign Resident, for
income tax purposes.
The Amendment's objective is to
minimize the scope of existing
disputes regarding an individual's
residency, and to set forth irrefutable
presumptions based on the number
of days an individual spent inside and
outside of Israel, in order to decide the
resulting tax liability in Israel.
The current status:
Today, the legal status prescribes that residency is decided based on the
"center of life" test, a qualitative individual test that examines the taxpayer's
center of life. Thus, the totality of the taxpayer's personal, familial, and
economic ties are examined. For example, the location of their permanent
home, where their family members study, whether and where they are active
in various organizations or unions, and what and where their financial interests
are, are all examined.
Congratulations (or maybe not)!!!
You are an Israel Resident: A Bill
Proposing New Definitions and
Presumptions for Establishing
Israeli Residency for Taxpayers
36
In order to simplify the "center of life" test, rebuttable presumptions have been
set forth, under which an individual is presumed to be an "Israel Resident".
Thus, these presumptions place the burden of proof upon whoever seeks to
refute them, the taxpayer/Tax Authority (as relevant). However, in any event,
these presumptions are refutable.
Rebuttable presumptions – Present law
1. Israel Resident – stayed in Israel for 183 days or more during the tax year.
2. Israel Resident – stayed in Israel for 30 days or more during the tax year
and at least 425 days in the tax year and the two preceding tax years.
The proposed amendment:
The proposed Amendment introduces extreme cases in which irrefutable
presumptions, can be implemented. Where these are met, the individual
will be viewed as an Israel Resident or a Foreign Resident. It is important
to note that the Amendment adds these presumptions to the existing law.
Thus, following the Amendment, there will be extreme cases that cannot
be appealed, and it will no longer be possible to argue that the "center of
life" test leads to a different conclusion. And in contrast to these, in cases
where there are no irrefutable presumptions, the taxpayer's residency would
still be examined according to the center of life test, using the rebuttable
presumptions (where relevant), with respect to which the burden of proof
would be upon the entity arguing against the presumption.
Proposed amendment - irrefutable presumptions – Israel Resident
1. An individual who stayed in Israel for 183 or more days, and in the preceding/
subsequent year also spent 183 days in Israel shall be considered an
Israel Resident.
2. An individual who stayed in Israel for 100 or more days, and the total
number of days they stayed in Israel together within the preceding
two years reaches 450 days, shall be considered an Israel Resident.
This presumption shall not apply when this individual stayed 183 days
or more during each of these three years in a reciprocating state (with
which Israel has entered into a tax convention).
3. An individual who stayed in Israel for 100 or more days in the tax year
and they have a spouse/common-law partner who is an Israel Resident
according to the Ordinance, shall be considered an Israel Resident.
37
Example of an irrefutable presumption – Israel Resident
A significant change is the requirement for confirmation of residence from
a reciprocating state (a state that has an international tax convention with
Israel). Thus, for example, in a case where a person stayed in Cyprus for 183
days every year during three years, and stayed in Israel 450 days during
these three years (presumption no. 2 above), they would be considered
an Israel Resident according to an irrebuttable irrefutable presumption,
since Cyprus is not a reciprocating state. Even in a parallel case where
this person did stay in a reciprocating state (such as the United States),
yet for some reason or another, they are not considered a resident
there; the Israel Tax Authority would consider them an Israel Resident.
Additional example
We would like to mention another example of a significant change in the bill, and
that is the emphasis placed upon the spouse or common law partner's place of
residence. The Amendment proposes to stipulate an irrefutable presumption
with respect to a person who stayed in Israel for 100 or more days, and their
spouse including a common-law partner, was an Israel Resident (according to
the peremptory/rebuttable presumptions or the center of life test).
In other words, even a person who stayed in Israel less than 183 days, and
according to the present law would not be an Israel Resident (according to
the center of life test/rebuttable presumptions) would now be considered an
Israel Resident according to an irrefutable presumption because they have
marital ties with an Israeli partner, including where these taxpayers are not
officially married but rather are common-law partners.
Conclusion
In conclusion, the draft bill is intended to minimize uncertainty regarding
residency in ostensibly clear cases, where it appears the taxpayer is clearly
an Israel Resident or, alternately a Foreign Resident. However, these changes
create new exposure even for taxpayers the Tax Authority did not view as
Israel Residents thus far.
In order to minimize the uncertainty, two flowcharts are enclosed in this circular
– one for examining whether a person is an Israel Resident, and the other for
examining if the person is a Foreign Resident, all according to the above draft bill.
For additional information, contact Adv. (CPA) Doron Elmekiesse from our firm.
38
39
Recent
Market
Trends
Amidst capital markets rollercoaster,
shoots of optimism
41
The rollercoaster of the world’s capital markets has been widely reported
over the past year. In Israel, even after the political chaos surrounding judicial
reform, July was oddly crowned the best month on the Tel Aviv Stock Exchange
in the past year: The Tel Aviv 35 Index climbed almost 7%, while the Tel Aviv
125 Index was up by almost 6%. All this while the S&P 500 rose just 3%.
Yet, July’s rises were some way from correcting the upsets on the TASE
in previous months. While the Tel Aviv 35 Index has risen 4% in the year to
date, in the U.S. the S&P 500 has risen by almost 20%, and the Nasdaq 100
by 37%, according to a report in Globes. In fact, as of August 1 2023, there
have been 97 IPOs on the U.S. stock market, 26% down on the 131, at the
same time last year.
Elsewhere in the world, the trend is similar. In Germany, the DAX index rose
by just 2% in July, less than the equivalent Israeli index, but it has put on more
than 18% so far this year. The picture is similar in Japan, where the Nikkei
225 fell by 2.7% in July, but is up by nearly 23% for the year to date. Tokyo’s
debutants in 2023 are up an average of 75% since their listings, according
to data compiled by Bloomberg. That’s more than any other major Asian
market that had at least USD 1 billion raised through IPOs over the period.
A report from EY pointed out that in the UK main market and AIM, H1 2023
IPO activity saw a 31% drop in deal numbers compared to H1 2022, but 18
issuers raised £593m, in line with H1 2022 but way of the same period in 2021.
With IPOs adversely impacted by high inflation, rising interest
rates and geopolitical pressures, as we move firmly into H2
2023, are there any shoots of optimism?
“US reviving but far from robust”
“Yes, the US IPO market is beginning to revive—although it is far from robust,”
points out Anna Pinedo, securities and derivatives partner in Mayer Brown‘s
New York office. “The first six months of 2023 have been the slowest first half
Amidst capital markets
rollercoaster, shoots of optimism
42
in IPO activity since 2016. That said, we’ve now seen a number of successful
completed IPOs in the consumer sector, which have priced above the IPO
range and performed well in the aftermarket. Also, there is more market
confidence that the last quarter of the year will bring more IPO activity,
including some tech deals.”
“UK has held its own”
Michael Dawes, equity capital markets partner at Bird & Bird: “The UK has held
its own in recent months when compared to global capital markets activity, with
the London Stock Exchange reporting 179 IPOs and follow-on raises in H1
2023, raising £11bn. Globally equity capital markets have been depressed for
the past year, but I think that we’re reaching peak inflation and interest rates,
and there are definite signs of activity in the UK IPO market. We’re working
on a number of listings that are looking to position themselves for autumn
2023 or spring 2024, when we expect appetite to return in certain sectors.”
Bird & Bird corporate partner and head of Israel Desk, Adam Meisels added:
“While it is no secret that in recent years Israeli tech companies have often
favored IPOs in the US, there are still many advantages to listing in the UK and
regulators are actively streamlining the UK listing regime to further encourage
high-growth companies to choose London as their IPO destination. London
is home to one of Europe’s largest stock exchanges and Europe’s largest tech
ecosystem which remains resilient despite a challenging macro-economic
environment. This will stand it in good stead as market conditions improve.”
Which industries look the most likely to withstand these
current pressures? What concerns are you noticing from
clients of yours that have planned IPOs or issuances?
Mayer Brown’s Pinedo adds: “There continue to be some life sciences IPOs,
as well as consumer products IPOs and some financial services deals. We
have not yet seen any large tech IPOs. The completed, successful IPOs have
generally been smaller deals than in prior years and have had some insider (or
“cornerstone”) investor participation going into the deal, which has provided
investor confidence.”
She continues: “Companies contemplating IPOs are weighing whether to
proceed in the last quarter of 2023 or wait for early 2024. Many strong wellregarded
late stage private companies are considering M&A opportunities
instead of IPOs. Those that are not and that still are setting their sights
on an IPO in the future, are undertaking financings, but the financings are
43
different—they are turning to private credit funds and looking at pre-IPO
converts or debt.”
Guy Ben-Ami at Carter Ledyard adds: ”Definitely cleantech or green tech
with $70 billion spent in the last two years. Artificial Intelligence is still in
its infancy with new technologies. There are also IPO opportunities from
emerging markets. The cost of regulation remains a concern and opens up
the possibility of smaller scale financings and the need for creative lower
cost solutions (working with smaller to mid-sized law firms).”
Bird & Bird’s Michael Dawes added: “We are seeing a lot of interest in the
technologies that support the clean energy transition and advance climate
change mitigation. In the natural resources sector, there is increased interest
from companies developing battery metals projects and battery technologies
given the substantial undersupply of copper, nickel and other critical metals
and reliance of batteries on those metals. The main concerns for our clients
are the timing of IPOs and fundraisings, which are moving very slowly, as
well as valuations and certainty of funding when there are broader economic
uncertainties.”
As for Israel, with the extra pressure of the political chaos surrounding the
passing of the judicial reforms, what might the likelihood – and real-world
impact – be of any rating downgrade? “There is a lot of interest in the
United States regarding the developments in Israel,” adds Pinedo of Mayer
Brown. “We understand many companies are evaluating redomiciliation
transactions to establish their parent companies in Delaware while keeping
their operating companies in Israel. That said, the enthusiasm for, and interest
in, the technologies developed by Israeli entrepreneurs and companies
remains high. There may have been higher valuations for Israeli companies
than for their peers during the valuation run-up in recent years and now the
adjustment may seem more dramatic, and observers may be attributing
some of the adjustments to other factors, like the reforms or downgrade.
However, we see continued equity investment, M&A activity, and a lot of
direct lending, as well as more warehouse lending and asset based lending
by credit funds.”Guy Ben-Ami at Carter Ledyard: ”I doubt this will affect the
Israeli market in the long-term, a market which has proved time and again
how resilient and strong it is. The Israeli market remains vibrant as ever. There
is always a trendy investment focus and Israel is a leader in both green tech
and AI too.”
44
Recent
Market
Trends
Israeli businesspeople, companies,
and institutional investors invested
USD 2.3 billion in overseas real
estate in 2022
45
Whichever way you slice and dice it, these are challenging economic times
around the world, and yet outbound real estate investments for Israeli clients
are holding up well, according to a recent article in Israeli business press, Globes.
Israeli businesspeople, companies, and institutional investors invested USD
2.3 billion in overseas real estate in 2022, down only 5.7%, despite the
interest rate rises.
We caught up with some of the leading real estate lawyers in New
York, Toronto, London and Hamburg to gather some of their views.
What do you attribute this to?
“Historically, Israeli capital has been very opportunistic,” said Yariv Ben-Ari,
partner in Herrick‘s Real Estate Department and a co-chair of both the firm’s
Israel practice group and Real Estate Hospitality group. He added:
“Given the growth of relationships between Israeli investors and their US
partners over the last decade or so, these relationships have allowed Israeli
capital to reach quality assets in prominent locations and other opportunistic
investments. While most institutional capital wasn’t exposed to the prior
recession because they hadn’t yet significantly invested in the US, after going
through a learning curve that included a decade or more of investing and then
adjusting for COVID-related scenarios, Israelis have reached a higher level
of comfort in US investing. We also attribute the growth to the uncertainty
in Israel that has been going on for months given the political environment.
Notwithstanding the current economic environment, the US is still a stable
investment target.”
Israeli businesspeople, companies,
and institutional investors invested
USD 2.3 billion in overseas real
estate in 2022
46
“We have not seen a particular slowdown in activity from Israelis looking
to buy real estate in the U.K. this year,” says David Prais, leader of the Real
Estate department at Asserson.
The Israel economy is facing a dual challenge of soaring interest rates and the
uncertainty presented by the proposed judicial reforms which is prompting
many Israelis who may otherwise invest in Israel, to look elsewhere.
The U.K. has always been and continues to be an appealing market to Israeli
investors given its proximity to Israel, its transparency and its stability. “As UK
property owners begin to suffer from rising borrowing costs we are starting
to see heavily discounted investments – downturns offer opportunities which
Israeli investors are looking to take advantage of. However investors do need
to invest smartly – not necessarily focusing on London but considering other
large population centers such as the West Midlands (Birmingham), Northwest
(Manchester, Liverpool).”
The opportunities presented by the 2020 Abraham Accords offers another
route for Israelis abroad. “Increasing relations with the Middle East is a factor,”
points out Alexander Gold, London partner at Charles Russell Speechlys.
“With our offices based in the UAE and Bahrain we are seeing a number
of Israelis looking at these rapidly developing markets that represent huge
opportunity for investment.”
“Israelis are always looking for safe investment opportunities,” says Nili
Goldman, real estate partner at Canadian law firm, Aird & Berlis, and Canada
holds huge appeal for Israeli investors. She adds: “Canada is the fastest
growing country in the G7 by population and provides great benefits to
investors through its strong economy, global market access, highly skilled and
educated workforce, political stability, safe banking system and low corruption.
According to Statistics Canada, foreign investment in the Canadian real
estate market in 2022 went up by 5.56% from the previous year, despite the
rising interest rates. This is in part due to the fact that large cities across the
nation provide lucrative investment opportunities yet are still more affordable
than some of their counterparts in other countries. Canada also has wellestablished
laws and regulations governing real estate transactions, making
the investments much more risk-averse.“
“Israeli investors are strictly rational and analytic on the one side and more
risk accepting than others on the other side,” added Daniel Ajzensztejn, a
partner in the Hamburg office of Taylor Wessing, and part of the firm’s Israel
Group. He went on: “From our perspective this means that the understanding
47
that an investor is paid for managing risks is visible in investment activities by
Israeli investors when others avoid the market out of fear. The Israeli investor
typically is still able to seize the opportunity in such situations.”
Which are the real estate assets attracting the most interest?
“We are seeing significant increase in the hospitality industry, particularly in
the luxury sector and the extended stay sector,” Herrick’s Ben-Ari points
out, adding: “we are seeing significant increase in the hospitality industry,
particularly in the luxury sector and the extended stay sector. Luxury hotels
are consistently sought after, but it’s no surprise to see brands such as
Marriott and Hilton, as well as Airbnb, increasing their inventory of extended
stay brands for a few converging reasons. Perhaps the most significant are
the current economic realities – including a high-interest rate environment
and significantly-reduced lending options – with these less costly assets
allowing for reduced development costs for sponsors, even amid an economic
slowdown. The continuation of “work from home” and “home away from
home” trends make these properties more attractive to a broader swath
of visitors. Reduced fees and development costs naturally lead to higher
profitability for these developers and longer stays with more, albeit reduced,
fees for the brands.”
Prais of Asserson adds: “They should also consider their sector carefully too;
the jury is still out on the ‘wfh’ question which means the office investment is
no longer the solid mainstay of the commercial property market it once was.
We see investors also increasingly buying with cash when they have available
resources rather than relying on bank finance. Those relying on banks to funds
their acquisitions are having to work harder to find satisfactory loan terms but
with the support of a good finance broker this is possible. There has been a
move away from the traditional office and retail investments with keener interest
in the light industrial and logistics sectors. Residential acquisitions are also
a very attractive sector as investors are able to negotiate healthy discounts
from developers looking to quickly off-load stock in bulk. Returns are strong in
the residential market as the rental market is buoyant as mortgages become
less affordable for aspiring homeowners. Those looking at offices and retail
are careful to consider those with add-value opportunities, such as options
to add space through roof-top development. Specialist sectors continue to
be strong such as care homes, hotels, affordable housing.”“Forward-thinking
people, many Israeli investors are putting their money into alternative and
potentially ‘safer’ assets,one of these being the living sector,” adds Gold, at
Charles Russell Speechlys. He adds: “Demand for living assets, which includes
student housing, co-living, multifamily, affordable housing and healthcare, has
increased since the pandemic, as investors look for safe havens and stable
48
income. Logistics and life sciences represent further areas of interest for
Israeli investors. Whether it is drug development, drug transportation, or
building state-of-the-art labs for scientists, life sciences is proving to be a
strong real estate asset, while demand for commercial property dips. Equally,
the ongoing ecommerce boom, onshoring, supply chain reconfiguration and
modernization are important drivers for investment into logistics. Daniel
Graske, also a Hamburg-based partner at Taylor Wessing, agrees that “there
are the usual categories of office, logistics, residential as well as data centers
– less so retail.”
Goldman at Aird & Berlis adds: “In response to recent housing supply and
affordability issues, the federal government enacted the Prohibition on the
Purchase of Residential Property by Non-Canadians Act, on a temporary
basis, intended to prohibit the purchase of residential real estate by nonresidents.
This, however, does not impact the opportunities for investing in
commercial real estate or residential properties outside metropolitan areas.
As Canada’s population continues to grow, new areas are rapidly developing
around central hubs and the market offers a wide array of investment options
including retail, industrial, office or mixed-use spaces. Many retail, industrial,
office or mixed-use spaces have long-term leases and guarantee consistent
cash flow, making them attractive for investors and developers.”
49
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Recent
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Smart Contracts – Legal Aspects and the
Israeli Perspective
51
A Smart Contract is a self-executing
contract where the terms concluded
among its parties are written
directly into code. The code and the
agreements contained therein exist
across a distributed, decentralized
blockchain network. The code
controls the execution of the terms
and the transactions are trackable
and irreversible.
In general, a blockchain is a distributed
database or ledger that is shared
among the nodes of a computer
network. As a database, blockchain
stores information electronically
in digital format. Blockchains are
best known for their crucial role in
cryptocurrency systems, such as
Bitcoin, for maintaining a secure and
decentralized record of transactions.
Blockchain is exceptionally innovative; it guarantees the fidelity and
security of data including through unique storage capacities. Additionally,
blockchain generates trust among the Smart Contract's parties, without
the need of a facilitating third party.
Smart Contracts permit trusted transactions and agreements to be
carried out among disparate, anonymous parties without the need for
a central supervising authority or an external enforcement mechanism.
Smart Contracts could be implemented in common transactions, in areas
such as finance, insurance, sales, leasing, and licensing.
The Smart Contract can enforce and update itself automatically, including
for instance, in connection with the transfer of funds between the parties,
according to the parties' determination.
Smart Contracts – Legal Aspects and the Israeli
Perspective
Yossi Ben-Dror, Founding Partner, Y. Ben-Dror Law Firm
52
For example, when selling real estate, payment will be automatically
transferred from the buyer to the seller, as well as a request to update
the ownership at the Land Authority, without the involvement of a third
party such as a commercial bank or governmental authorities.
The Smart Contract is considered a reliable legal instrument since, due
to its structure, the contract cannot be changed without the consent of
all parties and cannot be hacked due to the decentralization of its details
in the blockchain. Moreover, the contract is updated automatically as the
transaction advances.
Related Challenges
The drafting of a Smart Contract requires the pre-definition of its terms
so it will include any scenarios that may occur throughout the relevant
period. The parties are required to predict in advance a wide-range of
circumstances that may occur and to include them within the Smart
Contract's terms.
In addition, since Smart Contracts are based on code, they are created
by qualified programmers and require powerful computer systems.
Once a Smart Contract's code is sent to the blockchain, it is immutable and
any modification is impossible. The only way to 'modify' a Smart Contract
is to cancel the original version and draft an entirely new contract.
It may be difficult to convert ordinary and specific legal language to
code (e.g. the terms "in good faith" and "with reasonable effort") and the
system may interpret the contract differently than a human being would
have interpreted it.
Since there is no intervention of intermediaries such as banks or related
authorities (governmental or others) in Smart Contracts, if and when
required, the accompanying procedures may lack 'supervision' or review,
and the execution may partially fail.
Hybrid Contracts
Due to the challenges related to Smart Contracts as described above,
including the need to encode the contract on all its clauses upon its
preparation, currently, the preferred solution is to combine a Smart
53
Contract with a contract written in a more traditional, independent way,
and in uncoded language. This solution is temporary until the outstanding
gaps in Smart Contracts' technology are addressed and eliminated.
The Hybrid Contracts combine the instructions as encoded and in natural
language. At certain stages of the overall agreement, the code will be the
underlying contract and the wording provided in the traditional way will
be supplementary or present auxiliary rules for the interpretation of the
Smart Contract.
Hybrid Contracts synchronize two distinctly different environments to
create a superior application that neither a blockchain nor a traditional
contract could achieve alone, particularly because each segment specializes
in providing features that the other does not.
An additional avenue parties could undertake is the integration of an
'Oracle' - an external factor to the system that serves as a dynamic interface
between the information in the blockchain and external databases.
The Oracle can be a human or technological factor that verifies occurrences
in the 'real world' and submits the information to the blockchain system
(for example, the Oracle can provide information from external sources
- such as interest rates, currency rates, etc.).
In addition, the Oracle can examine whether each party has fulfilled its
obligations as stipulated in the Smart Contract (for example, whether
the seller has arranged for a Warning Note on a real estate property that
was sold to the buyer).
Moreover, the Oracle could be the mediating function when disputes
arise and the parties have agreed upon arbitration or mediation (or similar
clauses) as part of such mechanism.
The Legal Status of Smart Contracts in Israel and Abroad
Certain countries and states have amended their respective laws and
regulations to explicitly incorporate blockchains and Smart Contracts (e.g.
US – Arizona, Nevada, Vermont and Delaware). Additional countries and
states will follow their lead as there may be increasing pressure to adopt
unified definitions to reflect blockchain and Smart Contract developments.
In the State of Delaware, where most of the US commercial corporations are
incorporated, blockchain technology was introduced for use in connection
with the incorporation procedure, shares transfers and other matters.
Israel has not introduced to date any significant law or regulation with
54
regard to Smart Contracts. Academics and others generally conclude
that the local legal environment (e.g. Contracts and other laws, related
regulations and court precedents) allows for the implementation and
legal use of Smart Contracts in Israel.
In the interim, until local laws and regulations specifically embracing Smart
Contracts are enacted, additional validity and legitimacy may be obtained
through court reviews and precedents.
Recently, the Accountant General of the Ministry of Finance and the Tel
Aviv Stock Exchange have executed a feasibility test (Proof of Concept)
of a blockchain-based issue and the clearing of government bonds.
Smart Contracts were used as part of the above-mentioned 'dummy
issue'. The related press release states the following: "At the heart of
this process is a dedicated Smart Contract for bond management, which
serves as an intermediary that enables the smooth and secure transfer
of digital payment tokens against digital bonds".
It is the Israeli perspective that the application of Smart Contracts and
their accompanying technologies will improve efficiency concerning
future transactions as in the above-mentioned bond issue, and at the
same time reduce risks for the parties involved, including investors in the
financial markets.
Conclusion
There are significant advantages in executing transactions through
Smart Contracts. The 'automated procedure' provides certainty and
definitive performance, while eventually requiring the investment of less
resources and expenses.
Smart Contracts will probably become a significant legal and commercial
vehicle in the near future globally as well as in Israel.
The legal system in Israel in its entirety can comprehend and positively
relate to Smart Contracts, yet specific laws and regulations will be required
as the Smart Contracts and the related technologies evolve.
55
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