The US-Israel legal review 2020

A GLOBAL LEGAL MEDIA & NISHLIS LEGAL MARKETING PUBLICATION THE US-ISRAEL LEGAL REVIEW 2020 IN ASSOCIATION WITH: $21.7B in 122exits (including large deals) ISRAEL 2019 HIGH-TECH ACTIVITY REPORT Copia Agro OurCrowd Insight Venture Partners FusionLA ExitValley Bessemer Venture ANALYSIS BY AXIS INNOVATION AND NISHLIS LEGAL MARKETING, BASED ON IVC RESEARCH. THE DATA COLLECTED IS JANUARY 2019 - DECEMBER 2019, PwC Report $1.26B 2019 $6.3B $12.9B 30% 35% 3% 26% 3% UK GERMANY 3% CHINA USA INTERNET 12% COMMUNICATIONS 9% SEMICONDUCTORS 1% MISCELLANEOUS TECHNOLOGIES 6% CLEANTECH 6% IT AND ENTERPRISE SOFTWARE 42% LIFE SCIENCE 24% ISRAEL RELATED EXITS CAPITAL RAISED MOST ACTIVE ISRAELI V C FUNDS NUMBER OF M&A'S CAPITAL INVESTED IN ISRAELI HIGH-TECH BY INVESTOR REGION $8,30M NUMBER OF DEALS 522 AVERAGE DEAL PRICE $15.9M $6,470M 623 AVERAGE DEAL PRICE $10.4M $5,518M 2017 2018 2019 110 M&As $11.5B 89 M&As 166 M&As NUMBER OF DEALS NUMBER OF DEALS 661 AVERAGE DEAL PRICE $8.35M 6 BUYOUTS $12.6B in103 exits (including large deals) $23.7Bin 133 exits (including large deals) 2018 $7.34B EXCLUDINGLARGESTEXITS 2017 $5.5B EXCLUDING LARGESTEXITS $4.5BEXCLUDINGLARGESTEXITS 2019 2018 Aggregate exitvalue C M Y CM MY CY CMY K infograph new_green A4_2019_Print 1 19/03/2019 13:17 2017 2018 $21.7B in 122exits (including large deals) ISRAEL 2019 HIGH-TECH ACTIVITY REPORT Copia Agro OurCrowd Insight Venture Partners FusionLA ExitValley Bessemer Venture ANALYSIS BY AXIS INNOVATION AND NISHLIS LEGAL MARKETING, BASED ON IVC RESEARCH. THE DATA COLLECTED IS JANUARY 2019 - DECEMBER 2019, PwC Report $1.26B 2019 $6.3B $12.9B 30% 35% 3% 26% 3% UK GERMANY 3% CHINA USA INTERNET 12% COMMUNICATIONS 9% SEMICONDUCTORS 1% MISCELLANEOUS TECHNOLOGIES 6% CLEANTECH 6% IT AND ENTERPRISE SOFTWARE 42% LIFE SCIENCE 24% ISRAEL RELATED EXITS CAPITAL RAISED MOST ACTIVE ISRAELI V C FUNDS NUMBER OF M&A'S CAPITAL INVESTED IN ISRAELI HIGH-TECH BY INVESTOR REGION $8,30M NUMBER OF DEALS 522 AVERAGE DEAL PRICE $15.9M $6,470M 623 AVERAGE DEAL PRICE $10.4M $5,518M 2017 2018 2019 110 M&As $11.5B 89 M&As 166 M&As NUMBER OF DEALS NUMBER OF DEALS 661 AVERAGE DEAL PRICE $8.35M 6 BUYOUTS $12.6B in103 exits (including large deals) $23.7Bin 133 exits (including large deals) 2018 $7.34B EXCLUDINGLARGESTEXITS 2017 $5.5B EXCLUDING LARGESTEXITS $4.5BEXCLUDINGLARGESTEXITS 2019 2018 Aggregate exitvalue C M Y CM MY CY CMY K infograph new_green A4_2019_Print 1 19/03/2019 13:17 2017 2018 $21.7B in 122exits (including large deals) ISRAEL 2019 HIGH-TECH ACTIVITY REPORT Copia Agro OurCrowd Insight Venture Partners FusionLA ExitValley Bessemer Venture ANALYSIS BY AXIS INNOVATION AND NISHLIS LEGAL MARKETING, BASED ON IVC RESEARCH. THE DATA COLLECTED IS JANUARY 2019 - DECEMBER 2019, PwC Report $1.26B 2019 $6.3B $12.9B 30% 35% 3% 26% 3% UK GERMANY 3% CHINA USA INTERNET 12% COMMUNICATIONS 9% SEMICONDUCTORS 1% MISCELLANEOUS TECHNOLOGIES 6% CLEANTECH 6% IT AND ENTERPRISE SOFTWARE 42% LIFE SCIENCE 24% ISRAEL RELATED EXITS CAPITAL RAISED MOST ACTIVE ISRAELI V C FUNDS NUMBER OF M&A'S CAPITAL INVESTED IN ISRAELI HIGH-TECH BY INVESTOR REGION $8,30M NUMBER OF DEALS 522 AVERAGE DEAL PRICE $15.9M $6,470M 623 AVERAGE DEAL PRICE $10.4M $5,518M 2017 2018 2019 110 M&As $11.5B 89 M&As 166 M&As NUMBER OF DEALS NUMBER OF DEALS 661 AVERAGE DEAL PRICE $8.35M 6 BUYOUTS $12.6B in103 exits (including large deals) $23.7Bin 133 exits (including large deals) 2018 $7.34B EXCLUDINGLARGESTEXITS 2017 $5.5B EXCLUDING LARGESTEXITS $4.5BEXCLUDINGLARGESTEXITS 2019 2018 Aggregate exitvalue C M Y CM MY CY CMY K infograph new_green A4_2019_Print 1 19/03/2019 13:17 2017 2018 $21.7B in 122exits (including large deals) ISRAEL 2019 HIGH-TECH ACTIVITY REPORT Copia Agro OurCrowd Insight Venture Partners FusionLA ExitValley Bessemer Venture ANALYSIS BY AXIS INNOVATION AND NISHLIS LEGAL MARKETING, BASED ON IVC RESEARCH. THE DATA COLLECTED IS JANUARY 2019 - DECEMBER 2019, PwC Report $1.26B 2019 $6.3B $12.9B 30% 35% 3% 26% 3% UK GERMANY 3% CHINA USA INTERNET 12% COMMUNICATIONS 9% SEMICONDUCTORS 1% MISCELLANEOUS TECHNOLOGIES 6% CLEANTECH 6% IT AND ENTERPRISE SOFTWARE 42% LIFE SCIENCE 24% ISRAEL RELATED EXITS CAPITAL RAISED MOST ACTIVE ISRAELI V C FUNDS NUMBER OF M&A'S CAPITAL INVESTED IN ISRAELI HIGH-TECH BY INVESTOR REGION $8,30M NUMBER OF DEALS 522 AVERAGE DEAL PRICE $15.9M $6,470M 623 AVERAGE DEAL PRICE $10.4M $5,518M 2017 2018 2019 110 M&As $11.5B 89 M&As 166 M&As NUMBER OF DEALS NUMBER OF DEALS 661 AVERAGE DEAL PRICE $8.35M 6 BUYOUTS $12.6B in103 exits (including large deals) $23.7Bin 133 exits (including large deals) 2018 $7.34B EXCLUDINGLARGESTEXITS 2017 $5.5B EXCLUDING LARGESTEXITS $4.5BEXCLUDINGLARGESTEXITS 2019 2018 Aggregate exitvalue C M Y CM MY CY CMY K infograph new_green A4_2019_Print 1 19/03/2019 13:17 2017 2018 The US-Israel Legal Review 2020 1 Contents THE US-ISRAEL LEGAL REVIEW 2020 2 WELCOME FROM THE PUBLISHERS Global Legal Media and Nishlis Legal Marketing 4 ISRAEL’S ECONOMY AND LEGAL SYSTEM Notwithstanding the global COVID pandemic and economic recession, 2020 is proving to be a record-breaking year for Israeli technology start-up companies 8 ISRAEL DESKS LEAGUE TABLES: 2020 In this second annual edition of Israel Desks League Tables, magic circle and US powerhouse law firms are vying for a greater slice of the Israel market 26 ISRAEL IN-HOUSE COUNSEL: ROUNDTABLE Q&A Deepak Vohra conducts a roundtable discussion with three of Israel’s senior inhouse Counsel – Dafna Reznik of Energix Group; Meni Neeman of The Phoenix Group; and Inbal Aviad of Papaya Global A LEGAL GUIDE TO US-ISRAEL INVESTMENT: 34 US – CANNABIS The Changing U.S. Cannabis Legal Landscape: Challenges and Opportunities for Israeli Companies and Investors – By Carter Ledyard 40 US – SPECIAL PURPOSE ACQUISITION COMPANIES SPAC Sponsors Beware: The Rising Threat of Securities Liability – By Cleary Gottlieb 46 ISRAEL – MERGERS & ACQUISITIONS M&A: The Last 12 Months at a Glance – By Erdinast, Ben Nathan, Toledano & Co. 52 US – DATA PRIVACY CCPA Compliance: A To-Do List for Israeli Companies – By Fox Rothschild 58 ISRAEL – TAX Israeli Tax Developments of 2020 – By Gornitzky 64 ISRAEL – PRIVACY Trends in American Privacy Law and their Effect on Israeli Companies – By Herzog Fox & Neeman 70 US-ISRAEL – CAPITAL MARKETS Israeli Capital Markets Defy Expectations – By Latham & Watkins 76 ISRAEL – CYBERSECURITY Cybersecurity in Israel – Selected Developments in 2020: Ecosystem & Regulation – By Lipa Meir & Co. 80 ISRAEL – ENVIRONMENT Environmental Risk Management – A Significant Challenge in the Industrial and Business Sectors in Israel – By Lipa Meir & Co. 84 US – HEALTHCARE Transformational Healthcare Collaboration Opportunities Emerge from COVID-19 Pandemic – By McDermott Will & Emery 92 ISRAEL – INTELLECTUAL PROPERTY Intellectual Property Law in Israel – An Overview – By Naschitz Brandes Amir 98 ISRAEL – HI-TECH The Swans of 2020 and Israeli Hi-Tech – By Shibolet & Co. 102 ISRAEL – CIVIL LITIGATION Civil Litigation in Israel in Theory and Practice – By Tadmor Levy & Co. 108 US – MERGERS & ACQUISITIONS Israel M&A Tracks Global Deal Downturn, but US Remains a Bright Spot – By White & Case 114 ISRAEL – HEALTHCARE Digital Health – Developments and Challenges – 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 2020 We are delighted to present the second 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. The Review features the second annual Israel Desks League Tables. The tables 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 next year as interest and response from global law firms continues to be positive. 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 publishing company whose founders have over 40 years’ combined experience working with leading law firms around the world 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. 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 businesses (particularly in the tech sector) across both jurisdictions. We welcome your feedback and will be happy to respond. 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] www.globallegalmedia.com www.legalmarketing.co.il Welcome Dear Colleagues, We want to thank our exceptional partners, both Israeli and international law fi rms, who supported the corporate counsel community in Israel during these 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 Amar Reiter Jeanne Shochatovitch & Co Barnea Jaff a Lande CMR Law Covington LLP Crowell Moring LLP Crystal Memory LLP Entis-ip Erdinast, Ben Nathan, Toledano & Co. M. Firon and Co. Fischer Behar Chen Well Orion & Co. Goldfarb Seligman Gornitzky & Co. Gross, Kleinhendler, Hodak, Halevy, Greenberg, Shenhav & Co. Herzog Fox & Neeman Lipa Meir & Co. Meitar Pearl Cohen Zedek Latzer Baratz S. Horowitz & Co. Shibolet & Co. Simmons & Simmons Sullivan LLP Yigal Arnon & Co. Zysman, Aharoni, Gayer & 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 1,500 legal counsels involved in our intensive activities. ISRAEL’S ECONOMY AND LEGAL SYSTEM 4 The US-Israel Legal Review 2020 INTRODUCTION While the current state of the Israeli economy may or may not be wanting in divine intervention, there is still no lack of silver linings protruding from behind the ominous Covid-19 storm clouds. This article will look at how the Israeli economy has faired during the rage of Covid-19 including its impact on business as well as the legal system during the first three financial quarters of 2020. Notwithstanding the global COVID pandemic, 2020 is proving to be a record-breaking year for Israeli technology start-up companies. While in North America high tech investment is down 10% compared with 2019 and while in Europe we have seen a 20% reduction, in Israel there seems to be a 40% increase compared to the first half of 2019. The above data is hard to extrapolate but what does seem evident is that Israel including Israeli policy makers, are working very hard to stimulate the economy in the midst of this unprecedented international recession. HIGH TECH INVESTMENT Workforces are transitioning (albeit not always by their own choosing) to telecommuting and in the process saving on office related expenses, namely rent. And while consumer demand is down, the need for innovation is up. There are opportunities to identify companies that have abnormal growth potential that are not seen during “normal” times. Companies like Zoom and Monday.com are helping employees make a smooth transition to domestic work environments. People are staying at home streaming content at rates never seen before. People are ordering online instead of going to the mall. Workouts are at home and not at the gym. The world is being forced to change its habits, and the hi-tech industry is providing it with all the tools it needs to implement such change. The average exit value in Israel has increased by 14% compared to the first half of a Covid-19 free 2019. These exits in 2020 included major deals that took place during the peak of worldwide lockdowns, like Intel’s acquisition of Moovit for approximately US$900M (in which our firm, Yigal Arnon & Co., represented Intel). These rosy numbers are arguably a bit misleading, given that US$3.25B (62%) of the US$5.24B in exits in H1 2020 were deals that were rooted in pre-Covid-19 times. This means that only 38% of the exits had their roots during the crisis. Investments on the other hand have stayed more resilient, with a 39.4% increase for H1 2020 compared to the same period in 2019. Artificial intelligence start-ups continue to lead the field, with 100 investments in H1 2020 alone. One ongoing trend is the significant increase in late stage large investment rounds. Investments of over US$ 100M are up 42.9% compared to H1 2019. Q2 2020 was the second strongest quarter for raising venture capital in Israel’s history, only being outperformed by Q1 2020. This shift from M&A to investment funding may signal a shift in long term growth strategies of Israeli startups. The downturn in the general economy may be leading investors to believe that this is a prime time to build a portfolio The Impact of Covid-19 on Israel’s Economy and Legal System Notwithstanding the global COVID pandemic and economic recession, 2020 is proving to be a record-breaking year for Israeli technology start-up companies. The US-Israel Legal Review 2020 5 at “bargain” rates. Investors have been able to “use” the downturn in the economy, and the cumbersome and high-risk process of M&As to score “deals” on what may prove to be undervalued investments. With rising unemployment, declining wages, and an all-time high demand for software technologies, it is an investors market. It is also quite possible that the increase in venture capital funding especially in “mega rounds” will lead to significant exits in years to come. NEW ISRAELI INNOVATION AUTHORITY PROGRAM “It is well understood, even by the Finance Ministry, that the high-tech industry in Israel holds the key to pulling us out of the economic crisis following the coronavirus pandemic” – Aharon Aharon, CEO at the IIA (Israeli Innovation Authority). With manpower being the most important resource of any startup, it is crucial that governments do all in their power to ensure that even during economic hardships, the capital that powers the startup ecosystem does not dry up. The recent economic downturn may have provided a glut of highly skilled workers which may provide a short-term cost saving benefit to start-ups. In the long run, highly skilled workers exit the startup industry, or move to other countries, and the founders stop establishing companies. Fortunately for Israel, there are government supported bodies like the IIA. The IIA is a wellestablished program headed by the Israeli Ministry of the Economy known for providing funding to Israeli R&D companies even during periods of recession. The IIA recently unveiled a new program which promotes institutional investors financing late stage Israeli start-ups. The new program aims to assist startups in raising capital from institutional investors by providing incentives to the institutional investors. An approved investor will be given a 40% return guarantee if its investment portfolio declines. If there is net appreciation after the program, the institutional investor will give 10% of the difference between the ROI received and the return on Israeli government bonds, as applicable, for the period of investment, taking into account expenses. The State of Israel guarantees the investments made during the first 18 months of the program. PEACE WITH THE UAE The recently announced agreement and normalization of ties between the UAE and Israel is also likely to be a boon to the Israeli economy, and its hi-tech sector in particular. Mohammed Ali Al Shorafa, chairman of the Abu Dhabi Department of Economic Development was quoted as saying after the announcement of the agreement “[Officials want to develop] the knowledge sector and innovation by attracting technology companies to put down roots in Abu Dhabi.” The UAE rooted Gothams start-up accelerator program has already begun inviting Israeli based entrepreneurs to participate in startup accelerator programs in Abu Dhabi. With it reported that the UAE real-estate market was down 5% even before the pandemic hit, the Israeli hi-tech sector offers a prime opportunity for UAE investors to diversify their portfolios. The immediate impact of the new formalized relations is estimated to be approximately US$ 500M. It has been estimated that within a few years UAE investors could even make up to 10% of tech investments in Israel. NATURAL GAS INDUSTRY Another important recent focus is the success of the Israeli natural gas industry, and namely the development of the Leviathan natural gas field off of Israel in the Mediterranean Sea. The Leviathan field was jointly developed by Delek Drilling (holding 45.33%), Noble Energy (holding 39.66%), and Ratio Oil Exploration (holding NIMROD VROMEN PARTNER SIMON WEINTRAUB PARTNER ISRAEL’S ECONOMY AND LEGAL SYSTEM 6 The US-Israel Legal Review 2020 15%). The field went operational on December 31, 2019, and there is estimated to be approximately 35,000×109 cu ft (990×109 m3 ) of gas in the field, of which 22,000×109 cu ft (620×109 m3 ) is believed to be recoverable. These natural resources are an amazing asset for a State that was once known to be devoid of any meaningful natural resources. As a result, Israel has become a major regional exporter of natural gas, having already signed deals with Jordan and Egypt, worth US$ 10B and US$ 15B, respectively. These deals are not only wonderful for the Israeli economy, but they also bolster its soft power in a region where geopolitical relations are fragile, to say the least. The recent acquisition of Noble Energy by Chevron in a US$ 13B deal and the US$ 2.25B global bond offering by Delek Drilling (one of the largest energy bond offering in 2020, in which our firm represented the Joint Bookrunners and Initial Purchasers) further illustrates the newly found global importance of the Israeli natural gas sector. ISRAELI PRIVACY LAW Israel is taking advantage of existing counterterrorism technologies for Covid-19. These measures include monitoring the location of citizens’ mobile phones without their consent to monitor the exact movements of people infected with the virus, warning people of new cases in their neighborhood, and enforcing lockdown measures. Even the Israeli Supreme Court has had to intervene when it ruled that only citizens who have tested positive for the virus can be subjected to digital tracking of their movements and can receive isolation orders from the government. There does appear to be a price to Israel’s use of tracking and counterterrorism technology to fight the pandemic. A recent ruling by the European Court of Justice jeopardizes Israel’s approval of adequacy which allows it to use EU residents’ information to sell them products. Israel may be forced to scale down the encompassing exemptions granted to Israeli security bodies in regards to information security. If Israel fails to do so, it will make it much more difficult for Israeli companies to do business with the EU. CONCLUSION: The above highlights certain aspects of Israel’s response and reaction to the what can certainly be described as tumultuous times. Despite the rosy picture painted by certain economic indicators, like most of the world the Israeli economy is in recession, with an estimated 8.1% 2020 Q2 contraction. It is estimated, however, that Israel will be able to make up for any 2020 losses in 2021, with 1% growth compared to 2019 GDP levels. Just like in the 2008 recession, Israel is proving that it is not afraid to confront the dynamic challenge of the day, and that the “start-up” nation is still finding the silver linings as well as innovative ways to combat a difficult financial climate. n ABOUT THE AUTHORS The authors are Simon Weintraub and Nimrod Vromen, who are partners in the High Tech Department of Yigal Arnon & Co., Israel’s leading technology law firm. Simon has been a partner at Yigal Arnon since 2008 and specializes in high-tech, life sciences, venture capital, private equity, M&A and banking. Simon regularly represents Israeli and international venture capital funds, angel investors, private equity funds, especially with respect to complicated cross-border financing transactions. Most recently Simon represented HSBC and JP Morgan Chase as Joint Bookrunners in the USD $2.25 billion global bond offering raised by Delek Drilling Limited Partnership. Nimrod has been a partner at Yigal Arnon since 2015, with his practice focusing on the representation of hundreds of startups, and is CEO of both Consiglieri, a consulting firm for tech companies, and YTech Runway Ltd., operator of www.ytechrunway. com, a platform for content and tools for entrepreneurs. Simon Weintraub, Adv. Partner, High Tech Practice Group Email: [email protected] Nimrod Vromen, Adv. Partner, High Tech Practice Group Email: [email protected] For further information about Yigal Arnon & Co. Law Firm, please contact us as below: Yigal Arnon & Co. Law Firm 22 Rivlin Street, Jerusalem 94240, Israel Tel: +972 3 608-7777 Fax: +972 3 608-7724 www.arnon.co.il WWW.LEGALMARKETING.CO.IL [email protected] TEL: + 972-72-338-7595 FOLLOW US: LEGAL MARKETING SETTING THE BENCHMARK BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 100 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. Services to international firms looking to increase their presence and brand awareness in Israel: Strategy and Business Development Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing WWW.LEGALMARKETING.CO.IL [email protected] TEL: + 972-72-338-7595 FOLLOW US: LEGAL MARKETING SETTING THE BENCHMARK BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 100 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. Services to international firms looking to increase their presence and brand awareness in Israel: Strategy and Business Development Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing BRINGING YOUR GLOBAL FIRM TO ISRAEL WWW.LEGALMARKETING.CO.IL [email protected] TEL: + 972-72-338-7595 FOLLOW US: LEGAL MARKETING SETTING THE BENCHMARK BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 100 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. Services to international firms looking to increase their presence and brand awareness in Israel: Strategy and Business Development Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing WWW.LEGALMARKETING.CO.IL [email protected] TEL: + 972-72-338-7595 FOLLOW US: LEGAL MARKETING SETTING THE BENCHMARK BRINGING YOUR GLOBAL FIRM TO ISRAEL Israel is a hotbed for innovation. Over 100 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. Services to international firms looking to increase their presence and brand awareness in Israel: Strategy and Business Development Road Show Planning Event Planning Increase Brand Awareness Email Marketing PR and Media Hebrew Content Writing BRINGING YOUR GLOBAL FIRM TO ISRAEL 8 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES We are pleased to bring you the second 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, delayed by COVID-19, 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 2019 an impressively strong year in Israeli M&A, more international law firms were involved in M&A transactions relating to Israeli companies than ever before. In this second edition of Israel Desks League Tables, Allen & Overy, Freshfields, Latham & Watkins and Kirkland & Ellis are among magic circle law firms and major U.S. powerhouses vying for a greater slice of the Israel market. In the editorial of this second edition, we reference those lawyers recommended for their involvement in a range of Israel-related matters, while in our separate Key Individuals table, we highlight those who take a proactive, instrumental and hands-on role regarding their firm’s efforts with respect to Israel, looking at factors including visits to Israel, local representatives, and relationships with domestic firms. ALLEN & OVERY Active in the Israeli market for more than 20 years, Allen & Overy (“A&O”) has one of the most formidable Israeli practices. Under the leadership of Lee Noyek and Etay Katz, A&O’s global team is hugely prominent in M&A transactions involving Israeli clients, especially in the high-tech sector where it enjoys a strong presence, especially among fin-tech and e-gaming companies. With a dominant position in M&A, the team commands respect for its roles in some of the highest profile deals in the market. A&O’s Peter Banks and Lee Noyek advised Israel’s Froneri, the 50:50 joint venture between PAI owned R&R and Nestlé, on the acquisition of the Noga Ice Creams Limited Partnership, part of the Nestlé-owned business Osem Group. This deal marks Froneri’s entrance into the Israeli market and brings all of the Nestlé Europe, Middle East and North Africa ice cream businesses into the Froneri Group. The team also advised private equity firm XIO on its USD 1.2 billion sale of Lumenis to CVC. In high-tech, Karan Dinamani advised Bridgepoint’s €5.8bn buyout fund on its acquisition of Qualitest, an Israeli based AI-powered provider of quality engineering and testing solutions, from Marlin Equity Partners. The team works continues to work closely and regularly with local counsel and has also been advising on financing, litigation and real estate matters. ASSERSON UK-headquartered law firm Asserson continues to enjoy a strong presence in the Israeli market, with 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, Trevor Asserson, the team thrives in its provision of UK legal services to Israeli clients, particularly in the realms of hi-tech, litigation, employment and real estate, flying high in these categories. Israel Desks League Tables: 2020 In this second annual edition of Israel Desks League Tables, magic circle and U.S. powerhouse law firms are vying for a greater slice of the Israel market The US-Israel Legal Review 2020 9 Oliver Harris, Hadie Cohen and Rachel Shaw star at Asserson, which is frequently instructed by clients on a range of strategic employment advice, including employment contracts, share schemes and UK employment issues, including maternity and redundancy issues. The firm is also immersed in the real estate sector, acting for Israeli private clients in the acquisition and disposal of residential and commercial property for investment, recently acting for unit purchasers of Canada Israel’s residential development of around 400 units in Wembley, north London. David Prais is one of the most prominent in the team. Asserson is well respected for a range of disputes involving Israeli parties, including professional negligence, shareholder disputes and complex commercial litigation. In the past year, the firm has been acting on a breach of distribution agreement for A. Meshi Cosmetics, a developer and producer of over 400 cosmetic products sold around the world. Yis Hiller, Baruch Baigel and Shimon Goldwater feature prominently in the Litigation team, which also enjoys a long and successful track record in arbitrations and is well versed in multi-jurisdictional London Court of International Arbitrations (“LCIA”). Another forte of the firm its support to clients in relation to GDPR and various privacy matters, an area in which Avishai Ostrin is considered an expert. BRYAN CAVE 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 Israeliowned 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/Israel-related 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. 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, especially in M&A, capital markets and venture financing transactions, as well as litigation and real estate. In M&A, Nicholas Myatt advised Northenstar Investments Ltd., owned by Israeli businessman Teddy Sagi, in connection with the USD 899 million takeover offer by Nuvei Corporation for SafeCharge International Group Limited. Simon Pollock and Jonathan Morris also guided Miya Water, a subsidiary of Israel’s Arison Group, on its USD 260 million sale to global private equity firm Bridgepoint. The team’s capital markets expertise was underlined by Morris’ representation of Israel’s Albert Technologies in its delisting from the AIM, after the team last year advised Plus500 as it joined the main listing of the London Stock Exchange. In contentious matters, Bryan Cave is prominent in litigation involving Israeli clients, active in commercial, shareholder and other complex litigation, with Oran Gelb a key figure, as are New York’s Andy Auerbach and the UK’s Barry Gross in the firm’s thriving Real Estate team, which is recognized for acquisition, development and financing. Nohar Bresler and Paul Miller are both consultants based in Israel. CARTER LEDYARD & MILBURN Built on the foundation of 160 years of legal service, one of New York’s oldest law firms, Carter Ledyard Milburn 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. Clients benefit from working with a team comprising qualified Israeli lawyers with experience of both practicing law and advising Israeli clients in the U.S. The Israel practice group is regularly involved in a raft of commercial matters for clients, notably, over the past year in the capital markets space, where the team provided strategic advice in relation to a number of offerings. For example, the team advised on the NIS 485 million (appx. USD 140 million) public offering of B Communications Ltd. on the NASDAQ and Tel Aviv Stock Exchange (TASE). B Communications is a publicly traded holding company, headquartered in Israel, whose principal asset is a controlling interest in Israeli telecommunications provider Bezeq. Its shares are traded on the NASDAQ Global Select Market and on the Tel Aviv Stock Exchange. The firm also represented global defense technology company, Netanya-based RADA Electronic Industries Ltd., in 10 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES its public offering on the NASDAQ. For Israel-related work, Steven J. Glusband and Guy Ben-Ami are key contacts in the firm. CLEARY GOTTLIEB Headquartered in New York, international firm Cleary Gottlieb (“Cleary”) wins striking acclaim for its long history in high profile M&A, high-tech transactions and litigation. During the past year, the team acted as legal counsel to Temasek in connection with the acquisition of the cybersecurity start-up Sygnia, follow on, and post-closing matters, including relevant privacy matters, with Michael Preston on lead, while Daniel Ilan played a key role in the representation of HOPU Fund Management Company and its affiliates in its investment in Trax Ltd., as well as IP and privacy issues. Trax Ltd is a provider of computer vision and analytics solutions for retailers with business operations in Israel. Last year, the firm advised on International Flavors & Fragrances’ USD 7.1 billion acquisition of Israel-based Frutarom Industries. The firm’s pedigree in litigation was 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. The claims arose out of a related-party transaction through which Yes became a fully-owned subsidiary of Bezeq the Israeli Telecommunication Corp. Ltd. (“Bezeq”) and a subsequent investigation of Yes and certain related companies by the Israel securities regulator. 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. Nathan Krapivensky, Managing Associate in the Tel Aviv office, together with London-based partners Adrian Cohen, and Stephen Reese, are key figures in an Israel group of 20 partners and 30 associates, who work across many practice areas to offer clients immediate access to one of the widest international professional networks around. With strong relationships with the world’s banks and financial institutions, the team is renowned for helping Israeli clients access funding and capital markets across the globe. In addition to confidential litigation mandates, there were some striking transactions for the group over the past year. David Lewis led on the USD 850 million sale of Edison’s exploration and production oil and gas business to Tel Aviv listed Energean, while Greg Olsen led on private equity firm CVC’s USD 430 million acquisition of IronSource. Founded in 2009, IronSource is Israel’s largest web company and offers mostly monetization technologies for mobile applications. CMS CMS has been significant in guiding Israeli clients through their investments, plans to expand their businesses abroad, to manage risk and to protect their assets, while assisting those businesses and investors looking to enhance their business in Israel. Clients benefit from the firm’s Hebrew speakers and key relationships with Israeli banks and corporates, prominent start-ups, and well-known lawyers and accountants. As one of the most prominent firms supporting the technology sector, CMS enjoys links with local and international venture capital and corporate venture capital and supports clients across the full range of legal services with an emphasis on the technology, finance and fintech. The group has also been involved in M&A, employment and litigation for Israeli clients and advised on many real estate mandates, including the acquisition of land for the Hebrew Institute in Chile. Within the Israel group, Andrew Besser and Louis Glass are key figures. DLA The international knowhow and resources of DLA 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, which advise international clients undertaking M&A and other transactions in Israel, Israeli clients with their strategic objectives abroad, while this large network also provides legal counsel with regards to Israeli-related projects overseas. Nowhere has this global experience proven more valuable than in commercial disputes involving Israeli parties and in employment law. In the past year, the team has been advising household names in Israel on their employment needs abroad, including recruitment, terminations, policies and procedures, and much more. With an extensive network of 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, Hartsfield-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 influencers 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 qualified 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 artificial intelligence. Contact Conexx today to learn more and get plugged in with the best in Israeli business! conexx.org | [email protected] | 404-843-9426 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 12 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES business connections, the team regularly liaise with Israeli bankers, accountants, venture capitalists and lawyers to add further insight. In the last year, DLA represented key companies in the agricultural sector in their acquisitions, as well as large Israeli insurance and pension funds on investments. DWF With widespread experience, particularly in the technology sector, DWF’s star shines brightly under the leadership and experience of Dr. Mathias Reif, who heads the German Corporate & M&A department, as well as the firm’s prominent Israel Practice Group. His commitment to Israel-related work is evidenced for years by a strong presence in smart mobility, cannabis, sport tech, gaming, cyber, 3D printing, real estate, software and fin-tech. As in previous years, DWF has been advising on corporate commercial and substantial GDPR compliance, as well as the ICOs of two Israeli blockchain companies, handled by Mathias and Wolfgang Richter. With an offering spanning the entire spectrum of cross-border Israeli work, with a special focus on pan-European support to all European countries, the team advises on the setting up of joint ventures, M&A transactions, cross-border employment issues, as well as the foundation of branch offices and helping clients to expand in any jurisdiction in Europe. FOX ROTHSCHILD A bridge between Israel and the U.S., Fox Rothschild‘s 33-strong nationwide Israel practice group is boosted by having two co-chairs residing in Israel – Mark Hess and Audrey Noll – who work closely with Michael Sweet and Sarah Biser in the San Francisco and New York offices respectively. A prime destination for Israeli clients launching or expanding into U.S. markets, the team has recently acted for media, publishing, software and technology companies from Israel in a raft of corporate and commercial matters. Philadelphia-based partner Odia Kagan is the Chair of GDPR Compliance & International Privacy group and has been advising Israeli clients on such key issues over the past 12 months. Technology and innovation is at the heart of the firm’s extensive client roster, which taps into the group’s transactional experience, as well as a depth of resources in relation to employment, intellectual property, litigation and arbitration, and real estate. Recently, the group advised an Israeli airline in relation to sensitive litigation. Furthermore, the comprehensive nature of the practice is enhanced by the firm’s robust Taxation & Wealth Planning department, with members supporting Americans living in Israel, dual citizens, or individuals moving to Israel on various trust, estate planning and tax issues. FRESHFIELDS As one of the most impressive names in the Israeli market, Freshfields’ Israel group is one of the pacesetters. With Adir Waldman on the ground in Israel, the 20-strong core team’s comprises Noah Rubins, Mitchell Presser and Richard Lister, whose dedication to Israeli clients is plain to see. Clients benefit from its access to a wider network and its strategic advice to Israeli companies going overseas and multinationals investing in Israel. With the Israeli banking sector undergoing a transformation, Freshfields advised U.S. private equity giant Warburg Pincus on its USD 679 million acquisition of credit card company Leumi Card, followed by a follow-on co-investor transaction in the summer of 2019, involving the selling down of an additional 5% each to Menora Mivtachim and Clal Insurance, two of the largest Israeli insurance companies. Both Adir Waldman and Patrick Ko were involved. Adir and Sebastian Lawson also advised several of EMG’s shareholders on the USD 518 million divestment of their shares in the EMG pipeline between Israel and Egypt to Israeli oil and gas players Noble and Delek. Freshfields also provides ongoing regulatory advice to Israeli-owned and headquartered, LSE-listed 888 Holdings on its operations in key European jurisdictions. The Group takes the lead spot in the Litigation table, with a successful track record in some of the highest-caliber dispute resolution matters in the Israeli market. In a raft of matters, the team advised Shikun & Binui, one of Israel’s leading real estate and infrastructure companies, on litigation arising out of a tender for the Jerusalem Light Rail, one of the country’s flagship transport projects. GOWLINGS Multinational law firm Gowling WLG takes the Patent and Trademark crown this year, respected by Israeli law and patent firms for its trademark and patent filing practice in Canada, Russia and elsewhere. 317 West Portal St.PO Box 27625 San Francisco, CA 94127 www.ci-cc.org 1:1 INTRODUCTIONS WERE NEVER SO EASY 317 West Portal St.PO Box 27625 San Francisco, CA 94127 www.ci-cc.org 1:1 INTRODUCTIONS WERE NEVER SO EASY 14 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES Eric Macramalla and Ksenia Paramonova are instrumental figures in this team, which are part of a broader Israel practice, which brings clients more than 15 years’ experience working in Israeli markets and is also involved in the Israeli start-up landscape. The Israel practice is led by Susannah Fink and Jason Saltzman, who guided Israel-headquartered ADCORE, a leading provider of machine-learning powered advertising technologies, through its sale to County Capital One Ltd. of Canada. The team has also advised Perrigo Israel Agencies Ltd. and OurCrowd. Gowlings was formed from the merger of Canadabased 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 almost 100-strong 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, the team has recently acted for Japanese computer manufacturing giant, Canon, in its first ever acquisition in Israel – that of video analysis company BriefCam Ltd, as well as Volvo in its investment in Upstream Security Ltd., an Israeli company that develops cloud based cybersecurity solutions to the automotive industry. In addition to such multinationals, the team also advises public companies, with Adam Snukal acting for NICE on various global privacy and data security compliance programs, as well as private companies, investors, entrepreneurs, financial institutions, and start-ups on M&A transactions, joint ventures, strategic partnerships, public and private offerings. Meira Ferziger, Joey Shabot and Lawrence Sternthal are instrumental figures in relation to employment, litigation, and real estate. The team’s wealth of hi-tech experience is showcased by advising on investment agreements with several Israeli portfolio companies in the agri-tech, fin-tech and ad-tech industries, and also represents start-ups in obtaining funds. 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. Recent 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 high net 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, a key pillar of strength for the firm. K&L GATES With 26 of its 45 global offices involved in Israelrelated work, K&L Gates is a consistently high performing operator in the Israeli market. Headed by Clarissa Coleman in the London office, the Israel Desk has provided advice on a raft of M&A transactions – such as to Finisar Corporation on the Israeli aspects of its USD 3.2 billion merger with II-VI Incorporated, with Oded Green playing a lead role. The Israel Desk has also been involved in a raft of instructions relating to intellectual property – especially patent and trademark filings in the U.S. and Europe – as well as commercial disputes, consumer class actions and employment, while the team has also represented buyers of real estate properties in Germany. IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities IATI Promotes and Supports the Entire High Tech and Life Science industries with Hundreds of Paying Members To learn more about IATI: Herzliya Pituach, Israel T: +972 73713 6313 / [email protected] / www.iati.co.il Connecting Israel's Tech EcoSystem Academia Hospitals Tech Transfer O†ces Multinational Companies R&D Centers Venture Capital Funds Entrepreneurs Incubators Mature Israeli Companies Economic Development O†ces Start-Ups Private investors Exchanges Stock Providers Service Innovation Centers Municipalities 16 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES KIRKLAND & ELLIS The Israel Practice of distinguished law firm Kirkland & Ellis (“Kirkland”) is recognized for a robust market position in mergers and acquisitions. In 2019, the team advised Gazit-Globe Limited on its €1.4 billion acquisition of Atrium European Real Estate, building on two landmark transactions previously – SK Capital on its USD 1 billion acquisition of Israel Chemicals’ fire safety and oil additives business and Mazor Robotics on its USD 1.6 billion sale to Medtronic. Key individuals include David Fox, Matthew Elliott, Stuart Boyd and Rebecca Villareal. The firm’s Israel Practice Group, recognized for its enterprise and energy, is steeped in the Israeli social, cultural and political environment and has a deep understanding of the particular nuances of international companies doing business in Israel. 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. Robert Henoch, Michael Rosen and Jeremy Bressman are instrumental figures 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. As the only firm with a former U.S. federal prosecutor based full time in Israel (Robert Henoch), the team specializes in assisting Israeli clients in complex international government investigations. One striking example has been its role as Independent Examiner for the U.S. Department of Justice Tax Division in their investigation of Bank Hapoalim’s entities in Israel, Switzerland, Luxembourg, Singapore, the Cayman Islands, and the U.S. in relation to allegations of the Bank’s support in evading their U.S. tax obligations. Israeli clients also benefit from the senior experience of a U.S.-trained IP litigator with almost two decades’ experience of U.S. courts. The firm acts for top-level Israeli executives and U.S. subsidiaries of Israeli companies. 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 2019, the Latham team represented Playtika in its acquisition of Seriously Holding Corp., a developer and manufacturer of mobile games for iOS and android platforms and has also played an instrumental role for buyers, sellers and financial advisors on a string of striking acquisitions, such as the sale to NVIDIA Corporation of Mellanox Technologies, a U.S. and Israel-based supplier of endto-end ethernet and InfiniBand smart interconnect solutions and services for servers and storage. Joshua Kiernan and Stuart Kurlander in the London and Washington D.C. offices are instrumental figures in the 33-strong team, which regularly advises on initial public, follow-on and private offerings. For example, the team advised CyberArk Software Ltd. on the private offering of USD 500 million of Convertible Senior Notes. The group also advised VC firm Sapphire Ventures on its USD 150 million investment in Monday.com. 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, involving Israeli clients across many cutting-edge sectors, especially technology, bio-tech and life science. McDermott enjoys a highly prominent position in the Israel Desks Capital Markets category. With considerable experience in advising these types of companies, partners Gary Emmanuel and Mark Selinger in the firm’s New York office are key figures in the team, which has recently provided strategic advice regarding acquisitions, IPOs, direct and follow-on offerings for a number of Israeli clients, such as Cellect Biotechnology Ltd., as well as clinical-stage biopharmaceutical companies. The team also represents some of the most prominent U.S. underwriters, such as H.C. Wainwright & Co., one of the oldest financial institutions and one of the leading placement agents in the country, as underwriter in a number of public and follow-on offerings for Israeli medical device companies. PAUL HASTINGS With a strong presence throughout Asia, Europe, Latin America, and the U.S., Paul Hastings is also Legal Intelligence Do you want to receive a tailored legal newsfeed relevant to your work area, jurisdiction and many other segmentations? “Lexology is an excellent and extremely useful initiative. It is certainly more useful than some of the paid services that I have signed up to.” Greg Jacobson, governance & legal coordinator Be in the know, subscribe to Lexology! www.Lexology.com Timely Our advanced content ingestion system uses the latest natural language processing and entity extraction techniques to deliver relevant insight in real time. Quality We provide our audience with a service that is unique in both its depth and breadth, collating content from over 700 leading law firms worldwide. Relevant Subscribers receive specific intelligence relevant to their work area, jurisdiction and many other segmentations, all designed to optimise their user experience. Intuitive We continually refine and develop our technology to ensure that subscribers can access the information they need, wherever they need it. Lexology is a fully customisable daily newsfeed of law firm client alerts, articles and blogs delivered to the desktops of senior business lawyers worldwide on a daily basis. Lexology delivers the most comprehensive source of international legal updates, analysis and insights. We publish in excess of 450 articles every day. They are sourced from over 700 leading law firms and service providers worldwide, across 50 work areas in 25 languages. STO-5090 Advert for Israel Desks International Legal Guide.indd 2 05/03/2019 09:31 18 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES recognized as one of the most experienced global law firms in relation to Israel-related M&A transactions, with dozens of lawyers frequently involved. Principal contacts include Palo Alto’s Alex Kaufman, previously co-chair of the Israel practice at Morrison Foerster, as well as Benham Dayanim in Washington, D.C., Yariv Katz in New York and Kfir Abutbul in Houston, with the team representing global investors acquiring and investing in Israeli companies on a regular basis and also represent many Israeli companies in regulatory and commercial matters. Mike Kennedy was instrumental on behalf of Francisco Partners in its sales of NSO Group to management and ClickSoftware to Salesforce, while Bill Choe advised Intel on its acquisition of Habana Labs. The transactions listed in this submission are a subsample of all available matters intended to highlight major transactions in Israel. PEARL COHEN Pearl Cohen’s teams in New York, Boston, Los Angeles and London comprise experienced patent attorneys, patent agents, scientific advisors and transactional lawyers, who have been advising on technologies spanning the gamut of high-tech, medical, biologic and chemical technologies. The New York office leads the firm’s U.S. intellectual property and technology-related work in prosecution (patents and trademarks), patent and other IP litigation, and technology transactional work. New York-based Life Sciences Chair, Mark Cohen is a key contact, as is U.S.-based Managing Partner, Zeev Pearl. In addition to IP, the firm is also acting for hightech clients in commercial and licensing transactions, as well as guiding clients through a myriad of employment issues and lease negotiations. REED SMITH Reed Smith’s Israel Business Team is recognized for helping U.S. or European clients doing business in Israel and those who do business with Israeli companies. With deep familiarity of the commercial and legal issues affecting Israeli clients, the team includes both native Hebrew speakers and Israeliqualified lawyers. In the past year, the team has been playing key roles in litigation and real estate. The team acted for an Israeli inventor of a medical device in relation to a breach of the licensing agreement. Stéphane Illouz is a key figure in the team. SCHULMAN & CHARISH U.S. boutique law firm Schulman & Charish 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 two founders – partners Eli Schulman and Michael Charish, in Jerusalem, who have each 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 – recently advising the New York subsidiary of Gett (previously known as GetTaxi), an Israel-based, global leader in on-demand mobility in relation to claims and counterclaims in a contract/ tort dispute in the New York Supreme Court. We were separately retained by three former CEOs of the company. In other litigation, the team guides clients through intellectual property, securities and other complex disputes, as well as real estate litigation. For example, the firm acted for a publicly traded Israeli real estate company and affiliated individuals in eight-figure New York Supreme Court litigation and appeal regarding corporate governance and contract issues related to investment in a New York property. SLG For more than 25 years, SLG has been involved in representing cutting-edge technology leaders in many sectors, from cybersecurity, agri-tech, and food-tech to fin-tech, med-tech, and more. The Israel desk is fronted by Mitchell C. Shelowitz, former leader of the Israel desk at Nixon Peabody in New York City and Greenberg Traurig’s New York office. In the past 12 months, the firm has been acting for a raft of Israeli cybersecurity clients in relation to their commercial and IP issues, as well as the filing of trademarks of Israeli companies in Washington DC. SQUIRE PATTON BOGGS The spotlight shines brightly on the 35-strong 20 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES 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 16 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, particularly in the technology and financial services sectors, and showcases a grasp of the issues facing cyber security companies, fin-tech, med-tech and smart mobility companies, in which it has grown its profile, in 2019 instrumental player at EcoMotion in Tel Aviv and organizer of a Smart Mobility roundtable discussion in the city. 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. WALKERS With 10 offices in multiple regions, international law firm Walkers is often recognized as a prime destination for offshore legal advice, regularly, advising on the laws of Bermuda, the British Virgin Islands (BVI), the Cayman Islands, and the Channel Islands of Guernsey and Jersey. Experienced in international and cross-border transactions covering a broad range of sectors, the firm’s legal offering, however, contains reputable Israel-related practice, which, during the past 12 months, has been representing funds that focus on investments in Israeli and Israeli-related technology companies. Neil McDonald is the key London partner to contact. WHITE & CASE One of the most preeminent firms with a commitment to Israel spanning several decades is White & Case. 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. The 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 on flagship deals, such as the IPO of Tufin, the first IPO of an Israeli incorporated technology company since CyberArk in 2014, and Centerbridge and Gallatin Point Capital on their acquisition of a controlling interest in The Phoenix Holdings Ltd. from Delek Group. At GBP 347 million, this represents one of the largest private equity deals this past year, and Centerbridge’s first investment in Israel. n When the legal system meets the media The Legal and Regulation Department at Rimon Cohen & Co. is the leading department in this field in Israel. Since it was established, the department has accrued knowledge, expertise and a vast amount of comprehensive experience in the definition and implementation of legal media strategy. This is how the department became the professional address for the largest and most prominent law firms in Israel. The department advises numerous firms and provides them with public relations in a range of areas, including: capital market, litigation, energy, infrastructures, taxes, banking, real estate and more. By doing so, the department works to obtain positive media coverage of the firms’ achievements and to represent them to the media. Additionally, the department provides support when the firms organize professional conferences, handle complex cases and special projects. www.rcspr.co.il/en/ 22 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES M&A VOLUME Position Law Firm M&A Value ($M) 1 Freshfields 13 4,662 1 White & Case 13 5,411 3 Latham & Watkins 8 8,114 4 Allen & Overy 7 5,601 4 Greenberg Traurig 7 625.5 6 Clifford Chance 6 2,634 6 CMS 6 6 DLA Piper 6 9 Bryan Cave Leighton Paisner 5 1,254.5 9 Kirkland & Ellis 5 1,751 11 DWF 3 11 Gowling WLG 3 43 11 Paul Hastings 3 3,350 11 Pearl Cohen NYC 3 15 Hogan Lovells 2 1,000 15 K&L Gates 2 3,700 M&A VALUE Position Law Firm M&A Value ($M) 1 Latham & Watkins 8 8,114 2 Allen & Overy 7 5,601 3 White & Case 13 5,411 4 Freshfields Bruckhaus Deringer 13 4,662 5 K&L Gates 2 3,700 6 Paul Hastings 3 3,350 7 Clifford Chance 6 2,634 7 Kirkland & Ellis 5 1,751 9 Bryan Cave Leighton Paisner 5 1,254.5 10 Hogan Lovells 2 1,000 11 Greenberg Traurig 7 625.5 The US-Israel Legal Review 2020 23 REAL ESTATE Position Law Firm Volume 1 DLA Piper 20 2 Greenberg Traurig 15 3 DWF 13 3 CMS 13 5 Asserson 11 6 Howard Kennedy 6 6 Pearl Cohen NYC 6 8 Allen & Overy 3 8 K&L Gates 3 8 Reed Smith 3 LITIGATION Position Law Firm Volume 1 Freshfields Bruckhaus Deringer 21 2 Asserson 14 3 DLA Piper 13 4 Kobre & Kim 10 5 CMS 10 6 K&L Gates 9 6 Pearl Cohen NYC 9 8 Schulman & Charish 7 8 Greenberg Traurig 7 10 Fox Rothschild 6 10 Cleary Gottlieb Steen & Hamilton 6 10 Clifford Chance 6 13 Bryan Cave Leighton Paisner 5 13 DWF 5 13 Allen & Overy 5 13 SLG 3 13 Reed Smith 3 EMPLOYMENT Position Law Firm Volume 1 DLA Piper 27 2 Squire Patton Boggs 22 2 Asserson 22 4 Greenberg Traurig 16 5 DWF 12 6 Bryan Cave Leighton Paisner 10 7 Pearl Cohen NYC 9 8 SLG 7 9 Fox Rothschild 5 10 CMS 4 11 K&L Gates 2 11 Gowling WLG 2 INTELLECTUAL PROPERTY Volume of Position Law Firm Matters 1 Gowling WLG 38 2 Greenberg Traurig 19 3 DLA Piper 14 4 K&L Gates 10 4 Pearl Cohen NYC 10 5 Fox Rothschild 6 6 SLG 5 7 Bryan Cave Leighton Paisner 3 7 CMS 3 24 The US-Israel Legal Review 2020 ISRAEL DESKS LEAGUE TABLES CAPITAL MARKETS Position Law Firm Volume 1 McDermott Will Emery 15 2 White & Case 13 3 Latham & Watkins 8 4 DWF 5 4 Bryan Cave Leighton Paisner 5 6 Freshfields Bruckhaus Deringer 4 7 Clifford Chance 3 8 Carter Ledyard 2 8 Allen & Overy 2 8 CMS 2 8 Greenberg Traurig 2 VC PRIVATE EQUITY Position Law Firm Volume 1 DLA Piper 8 2 Walkers 5 2 Clifford Chance 5 4 Latham & Watkins 4 4 Freshfields Bruckhaus Deringer 4 4 Greenberg Traurig 4 7 Bryan Cave Leighton Paisner 3 7 Allen & Overy 3 9 Paul Hastings 2 HI-TECH Position Law Firm Volume 1 Squire Patton Boggs 27 2 DWF 22 3 Greenberg Traurig 15 3 SLG 15 5 Fox Rothschild 13 5 White & Case 13 7 Latham Watkins 9 7 CMS 9 9 Allen & Overy 8 9 Asserson 8 11 Freshfields Bruckhaus Deringer 7 11 Pearl Cohen NYC 7 13 Bryan Cave Leighton Paisner 6 13 K&L Gates 6 13 Clifford Chance 6 16 Cleary Gottlieb Steen & Hamilton 3 16 Gowling WLG 3 CANNABIS Position Law Firm Volume 1 DLA Piper 2 2 DWF 1 2 SLG 1 2 Gowling WLG 1 The US-Israel Legal Review 2020 25 INDIVIDUAL TABLES LEADING Name Law Firm Lee Noyek Allen & Overy Jonathan Morris Bryan Cave Leighton Paisner Jeremy Lustman DLA Piper Adir Waldman Freshfields Bruckhaus Deringer Joshua Kiernan Latham & Watkins RECOGNIZED Name Law Firm Mathias Reif DWF Joey Shabot Greenberg Traurig Yossi Vebman Skadden, Arps, Slate, Meagher & Flom Miriam Lampert Squire Patton Boggs Colin Diamond White & Case Daniel Turgel White & Case NOTABLE Name Law Firm Nathan Krapivensky Clifford Chance Daniel Ilan Cleary Gottlieb Louis Glass CMS Michael Sweet Fox Rothschild Clarissa Coleman K&L Gates David Fox Kirkland & Ellis Mark Selinger McDermott Will Emery Gary Emmanuel McDermott Will Emery Etay Katz Allen & Overy 26 The US-Israel Legal Review 2020 IN-HOUSE COUNSEL ROUNDTABLE For 15 years, Deepak Vohra co-managed the International Division of ALM, the world’s largest legal media group and the publisher of The American Lawyer. He helped to establish market leading inhouse counsel conferences in key commercial hubs around the world, working closely with the general counsel community and the relevant corporate counsel associations in each jurisdiction. Deepak is now a Director of Global Legal Media, a specialist consultancy providing media, business development and marketing communications solutions to help law firms and other professional service providers grow their cross-border business. Global Legal Media is the co-publisher of The US-Israel Legal Review along with Nishlis Legal Marketing in Tel Aviv. Deepak Vohra: Dafna, can you give a broad overview of Energix Group and tell us a little about your path to being General Counsel? Dafna Reznik: Thank you, Deepak. Energix is Israel’s largest renewable energy company and one of the fastest growing companies in Israel, reaching a market value of over $2.1 billion within ten years of operation. As a leading Independent Power Producer which initiates, develops, constructs and owns, for long term, Renewable Energy projects, Energix has a vast portfolio of photovoltaic and wind farm facilities of more than 1.2GW of projects under development, 400MW projects under construction and 400WM in commercial operation (i.e. generating clean non-polluting electricity into the electricity grid). Its operation is focused in 3 territories – Israel, Poland and for the last 3 years, the US, in which Energix intends to focus as this market is expected to constitute Energix’s major growth market. As for myself, despite the great interest of working in the international department at one of the top ten law firms in Israel, I realized very soon that I did not want to become a partner in a law firm. This conclusion led me, after about a year from the bar exams, to find myself in the legal department of an investment house. It was the first time I understood that working “in-house” can be as interesting and satisfying as working in a leading law firm. Then, after about a year in the in-house legal department, I was fortunate to be offered to replace the general counsel of the entire investment house. Since then, for the last 15 years, I have been serving as General Counsel of three companies, and for the last 7 years as VP Legal of Energix. During such time I have gained a vast experience as a counsel to public companies supporting all of their business activities, internationally, including complex international M&As, joint ventures, tenders, project finance relating to renewable energy projects and in the capital market. Deepak Vohra: Thank you, Dafna. And Meni, would you share a little background regarding the Phoenix group and tell us a little about your path to GC? Meni Neeman: The Phoenix Holdings is a public company listed in the Tel Aviv Stock Exchange. The Phoenix is one of Israel’s largest insurance groups, managing over NIS 215 billion (approximately $65 billion). The Group’s activities are very diverse and Israel In-House Counsel: Roundtable Q&A Deepak Vohra conducts a roundtable discussion with three of Israel’s senior in-house counsel – Dafna Reznik, VP Legal of Energix Group; Meni Neeman, Executive VP, Chief Legal Counsel and Corporate Secretary of The Phoenix Group; and Inbal Aviad, Chief Legal and Compliance Officer at Papaya Global. The US-Israel Legal Review 2020 27 include all areas of insurance (Life, Health and P&C) and investments, complex litigation and ongoing dealings with various regulatory authorities. The Group employs about 3,500 employees in its various business segments. The Phoenix Group is being supervised by the Capital Market, Insurance and Saving Authority and the Securities Authority. I worked as an intern of President Aharon Barak at the Supreme Court, as an attorney and partner in one of Israel’s leading law firms. I also worked overseas in one of the leading US law firms, served as legal counsel to a promising Israeli startup, Better Place, and about six years ago I began serving as General Counsel of the Phoenix Group. Deepak Vohra: Thanks Meni. And our third participant, Inbal. Inbal Aviad: Thanks Deepak. Papaya Global offers a total people and payroll management solution supporting all types of global employment (payroll, EoR, and contractors) in over 140 countries. Our automated, cloud-based SaaS platform provides an end-to-end solution, ranging from onboarding to on-going management and cross-border payments. Our platform also integrates with all existing HRIS management tools, provides real-time business intelligence, and catches and eliminates errors. By consolidating all employee information into one place, we create a highly visible system for tracking payroll spending. To ensure the highest standard of security for our clients, our platform complies with GDPR, ISO and SOC standards and regulations. I joined Papaya Global about 3 years ago as the Chief Legal and Compliance Officer. Before joining the company, I worked for more than 15 years in big private law firms in Israel with expertise in commercial litigation (also, as a Partner, serving as the Head of the Civil Litigation Department). Deepak Vohra: Well, we have to start with COVID-19. How has the pandemic affected your international business, particularly with regard to the US-Israel bilateral relationship? Dafna Reznik: Fortunately, Energix was not directly affected by the COVID-19 pandemic, on the contrary. The COVID-19 pandemic and the economic crisis associated therewith, emphasized the added value of renewable energy and the need for substantially increasing this market. As an essential enterprise in all territories, including the US, we continued to advance our projects as anticipated, even at a more rapid pace. As part of the above, we managed to complete the construction of our first 3 solar projects in the US of 82MWp, and immediately after, begin the construction of our second portfolio of 140MWp solar projects located in Virginia. We are now conducting final preparations towards construction next year, of our third portfolio of 160MWp photovoltaic projects in Virginia. It should be mentioned that we are very proud that we had the ability to continue and create, during this tough period, thousands of working places, not only for Energix employees but also for all of our consultants, vendors etc. Deepak Vohra: And what about the dynamic within your legal department, Dafna – what effect has the pandemic had on that? Dafna Reznik: All in all, and for one reason or another, it seems as if the pandemic helped to advance dynamics and interaction within our legal department. Until now, the pandemic forced Israel to enter into three nationwide lockdowns. During the first lockdown, Energix’s CEO gathered all employees over Zoom and offered, in accordance with Energix’s values, to stand together with its employees, to DEEPAK VOHRA GLOBAL LEGAL MEDIA 28 The US-Israel Legal Review 2020 IN-HOUSE COUNSEL ROUNDTABLE support whoever needs help during these times and assured that no employee will be fired. There were times during the lockdowns that we had to continue working from home, and therefore, in order to allow all our legal team to be involved and up to date with Energix’s matters, we held frequent meetings to make sure we are all aligned with the tasks being handled by the legal department. Deepak Vohra: Meni, how about the Phoenix Group? Meni Neeman: Surprisingly, the bottom line is that the Covid-19 effect was not material. Having said that it was a roller coaster year. In the investment we had V phenomenon. We transferred all the company to work remotely. There were also business areas which were negatively affected such as travel insurance. In our international business, the main affect is in the engagements of insurance companies with reinsurance which become much more complicated. As with other industries, the Phoenix business departments and the Legal department have started to work long distance and in capsules routine. Other than the technical changes which needed to be, I am proud to say that the availability and the quality of the legal department services have continued as before. Inbal Aviad: It’s worth noting that from the beginning of the pandemic, companies across the globe began to see the real limits of manual payroll. Having people in charge of various aspects of payroll proved untenable when so many people were suddenly unavailable, either because they were sick, tending to sick family members, or stretched for time, because working at home also meant looking after their children full-time. Companies had to scramble to pay their workforce. That’s when they realized that automation along the lines that Papaya offers would save them so much hassle. That’s one of the major lessons of the pandemic: technology will keep working even when people can’t. That has been particularly true with companies based in the US. Our expertise in global payroll has also been a boon for companies that have been forced to adopt work-from-home policies and manage them on the fly. Many of these companies were unprepared for the new set of management challenges that came with their newly distributed teams. But for Papaya, global teams are by definition distributed, even if they have an office in each location. Our solutions were well positioned to help companies where they need it most. The pandemic also had an impact on the range of services our clients and potential clients needed from us. While we always provided in-house expertise on labor laws and taxes in the countries we serve, Covid-19 left everyone treading on shaky ground. We received a barrage of questions about how to handle workforce reductions, paid sick leave and all of the compliance issues that companies had to face but didn’t have the local expertise to handle. Our guidance proved more valuable than ever as a front-facing part of our business. So, we can definitely say that Papaya’s scope of expertise and the solutions it offers to its clients have become even more essential during the pandemic period. We believe this to remain true going forward as well. I can also add that from the legal team’s perspective at Papaya Global’s Headquarters, we saw that despite the pandemic we can still move forward, as we had our last Series B financing round with a US venture capital firm without the need for traveling back and forth, to and from the US to meet investors in person--- it can all be accomplished remotely. So, this is very different from what the industry was used to, but it was so efficient. I am wondering if this is how the future will look like after the pandemic and if this will change the rules of the game with We saw that despite the pandemic we can still move forward, as we had our last Series B financing round with a US venture capital firm without the need for traveling to and from the US to meet investors The US-Israel Legal Review 2020 29 respect to fundraising abroad. Deepak Vohra: That’s interesting, Inbal. And how about the working dynamic within your legal department? Inbal Aviad: The major difference is as follows: Before the pandemic, the Israeli team, naturally, was used to seeing each other in the office every day. But during the pandemic, the dynamics greatly changed! We needed to learn how to remain in sync – both internally within the legal department and externally facing other departments – all while working remotely. In essence, we needed to quickly learn and adopt methods to ensure, much as our global team already does, the same level of productivity, efficiency and scope of work. It was not easy at first, since when you conduct remote meetings, as opposed to in-person meetings, people tend to be less respectful of time and we found ourselves sometimes missing each others’ calls or meetings. That was difficult to handle. But over the course of time, I have implemented other work protocols that work better for remote work. A quick example of this is scheduling a place holder in the calendar along with a detailed agenda and relevant documents attached. That way, we could go over and cover several issues in one meeting as opposed to having several short calls on each issue. It can be few times a week or as much as needed, but it helped organised the day-to-day and get everyone up to speed on the relevant priorities and issues. Deepak Vohra: Dafna, what type of issue on your desk is currently the most pressing? Dafna Reznik: In light of the fast pace Energix is emerging and our extensive operation, this question is not an easy one to answer. Nevertheless, led by our strategy according to which you must be the “fast rider in the elephant’s track”, we do give priority to all of the transactions that allow the ongoing growth in Energix activities. As such, we constantly promote transactions, including M&As and APAs, that increase our portfolio of projects under development; we find solutions and overcome any complexities which may disturb or hold back the continuity of the construction of our Projects which are currently being built; and we promote capital raising and project finance transactions to allow our continued rapid growth. Deepak Vohra: You have a subsidiary in the US. How does your legal team in Israel co-ordinate with your in-house legal team over there? Dafna Reznik: As Energix’s activities in the US began not long ago, most US transactions were carried out by our team and local US counsels. That being said, in light of our extensive operation in US business development and the legal complexity of DAFNA REZNIK ENERGIX GROUP MENI NEEMAN THE PHOENIX GROUP INBAL AVIAD PAPAYA GLOBAL 30 The US-Israel Legal Review 2020 IN-HOUSE COUNSEL ROUNDTABLE our activities in the US, we recently hired a General Counsel to lead our legal activities within the US, who will be part of the Energix Group legal team. Deepak Vohra: What was the strategy that led Energix to expand its operations into the US? Did you consider, or are you considering, other international renewable energy markets? Dafna Reznik: Energix, as a leading company in the renewable energy sector, is always searching for new opportunities for its activities, all in accordance with the guideline of its long-term strategic plan. Although there are already well-known entrepreneurs in the US renewable energy market, Energix has found the photovoltaic market in the US as a blue ocean, especially in certain sectors in which Energix aims to expand its operation. Thus, Energix considers the US market to be the market with the greatest potential for its expansion. Furthermore, Energix is continuously examining opportunities for expansion and entry into new territories that adhere to its investment policy, with a focus on the PV and Wind Energy sectors. Deepak Vohra: And Meni, what’s the most pressing issue you’re working with? Meni Neeman: The Phoenix Group has recently approved and published a five-year Strategic Plan. The working process on the plan was challenging and interesting. The process took almost a year of work in cooperation with one of the leading international strategic advisory companies. The Phoenix has recently signed a Reverse Triangular Merger agreement under which it porches an investment house, that manages approximately NIS 70 billion (approximately $20 billion) of pension & provident funds, that will merge into the Phoenix Group activity. Such a transaction requires a lot of coordination between business units and also regulatory approvals. The transaction is expected to be completed in a few months. Deepak Vohra: Can you tell us a little about the structure of your legal department? How it deals with any international, particularly US, legal issues? Meni Neeman: The Legal department structure is based on professionality and there are dedicated legal referents to every business segment (such as: Insurance business segments, Investments, Company Secretary and Compliance & Enforcement). Each referent has a unit of employees working with him as necessary. We usually outsource litigation and investments transaction work. Deepak Vohra: So, the company has published its strategic plan for the next five years. What are its main “selling points” for investors? Meni Neeman: The main goals of the strategic plan are yield-focused growth, innovation and efficiency, increasing its asset under management, and efficiency in capital management. Deepak Vohra: And Inbal, what are the key issues you’re currently dealing with? Inbal Aviad: My legal team at Papaya is divided into three sub-departments, each with different expertise and missions to handle. So, in each sub-department there are different, top priority burning issues. But if I need to pick up one hot issue that encompasses all the departments, it would be privacy. Since Papaya processes so much personal information and then transfers it worldwide, and since privacy regulations and standards are changing quite frequently around the globe, we, in the legal team, are constantly busy implementing privacy safeguards for our clients, users, employees and all others with new procedures and methods that differ from one location in the globe to another. I can honestly say that since we take privacy very seriously and we dedicate ourselves to it, it is a constant process that needs to be reviewed all the time so that we make sure we are always in full compliance. The Phoenix has recently signed a Reverse Triangular Merger agreement [...] Such a transaction requires a lot of coordination between business units and also regulatory approvals The US-Israel Legal Review 2020 31 Deepak Vohra: You’re a global company, with operations in the US, UK and Asia. How does your legal team in Israel co-ordinate with your in-house legal teams overseas, particularly in the US? Inbal Aviad: Papaya is in the business of enabling remote work in different locations around the globe for its clients, so we have the methods, the measures and the know-how to manage it in-house. Also, all departments in the company work in tandem with teams in Israel and abroad. But, if before the pandemic we used to frequently meet each other face-to-face, especially the teams in Israel and in the US, now we are learning how to fill in the gaps (and moreover, eliminate gaps) and work fully aligned remotely. In the legal team, specifically, we have a prescheduled weekly meeting with each of the three sub-departments and one monthly meeting with the whole legal team. In those sessions, the team members share with each other broad issues that are being handled by each one of them. Frequently, one issue is related to other issues that are being concurrently handled by other team members – and hence necessitates coordination between the two. All in all, the weekly and monthly meetings, on top of the ongoing, are helpful in assuring we are fully aligned. We also need to keep the aspect of differing time zones in mind, so the roles and responsibilities are divided between the team members in such a manner that will always ensure that someone can handle an issue if other team members are not available due to holiday, weekend or time zone differences. Deepak Vohra: Papaya Global has raised more than $95m in the last couple of years, with revenues soaring 300% a year. What is unique about Israel’s tech sector that so excites investors and fosters innovation? Israel’s unique society and culture, strong economy, government support and “global-first” market approach, are just a few of the factors that make Israel’s innovation ecosystem one of the most successful in the world. The Israeli tech sector can also be defined by its courage. Companies like Papaya are fearless and relentless in pursuit of their goals. For us, that means using technology to fill the gaps in the world of people and payroll management. Our founders have worked in these fields for decades and know what the real challenges are. They also have a passion for technology. That combination is rare in the field of payroll. What we’re doing is bringing payroll operations into the modern age. There is a great deal of resistance to change – and for good reason – but there is a growing understanding that change is unavoidable. We’re trying to make the transition as simple and smooth as possible. We make it easy for companies to hire across the globe while remaining in full compliance so they can take advantage of the modern, global economy. I think that investors recognize that we are solving a very real problem many companies are facing. And they see how passionate we are to do it right. That’s all part of the Israeli tech ecosystem, our culture and goals and it seems that the results speak for themselves. Deepak Vohra: A question for all three of you. Can you talk a little about the work you refer to outside counsel – what goes into that process? Dafna Reznik: In my view, a strong, high quality internal legal department that matches the nature of the organization creates an added value of “Triple Win” – first, high quality legal advice that matches exactly the needs and goals of the company, all in “VIP” time response; second, naturally, the cost of the internal legal service is significantly cheaper; and the third “Win” is of course ours, the in-house lawyers enjoying the benefit from the challenges and interest associated with the legal work required for the operation of a Company. Therefore, the legal department at Energix carries out independently most of the legal work usually done by the commercial departments of large law firms, including corporate, M&A, Energy and Renewables, Commercial Agreements, Project Finance Agreements and Capital Market. However, we do rely on the opinion and legal advice of large We do rely on the opinion and legal advice of large reputable law firms for niche topics such as litigation and real estate planning law 32 The US-Israel Legal Review 2020 IN-HOUSE COUNSEL ROUNDTABLE reputable law firms for niche topics such as litigation and real estate planning law, which will always be carried out under the supervision and guidance of Energix’s legal department. Meni Neeman: We usually outsource litigation and transaction work. It’s important to note that an insurance group is a litigation and transaction factory. For example, there are over 60 open class action cases against the Phoenix, and at any given moment, over ten large-scale non-tradable transactions. We try to handle matters of corporate governance, regulations, labor law and procurement law in-house. Inbal Aviad: As mentioned before, I have a rich background working as an outside counsel in private law firms, so I have the advantage of understanding the “other side” and how they think. I can say that the most professional service outside counsels will provide will never be the same as an in-house counsel in terms of calculating the business needs. The opposite is also true – when talking about a specific expertise in a specific field or an ad hoc issue, that would be the time to turn to an outside counsel. My approach to this matter is to have a small ongoing retainer with big law firms (that have departments in various fields of expertise) in the different locations the company operates in, so that my team and I will feel comfortable to consult at any time, even on minor issues. An added benefit of this is not having to worry about the budget (it actually makes it even easier to plan the budget in advance). On specific big projects (e.g. M&A, litigation, IP safeguards etc.), we will work with outside counsels, whereas for the rest of the work, I am trying to build a work process inside the company with the in-house legal team so that the legal work will be based a lot on the business and relating to the commercial aspects of the company. Deepak Vohra: Finally, could you each share your thoughts on how 2021 will play out? Dafna Reznik: Thanks to excellent researchers worldwide, it seems that humanity is now on the way to overcome the pandemic. Unfortunately, I believe it will take time to restore economic damages on a global scale. For Energix, however, I believe 2021 is expected to be an intensive year of significant growth for the company in all the territories in which it operates, together with the continual growth in the Renewable Energy market worldwide. This can even receive another boost by the governments’ intentions to increase their targets for generating clean nonpolluting electricity together with their efforts to overcome the economic recession by promoting infrastructure projects. As it is often said in Energix – no matter what, the sun will always shine and the wind will always blow! Meni Neeman: Bearing in mind that 2020 was a very complex year, it’s hard to speculate what will 2021 bring with it. However, I believe that due to the Covid-19 vaccine the economic outlook will start to recover. In this regard it seems that the rate of unemployment is expected to decrease. On the investment side, the interest rates will remain low and there will be many business opportunities as an outcome of the Coronavirus crisis. Inbal Aviad: Even if there is a vaccine ready for the entire world on Jan 1, 2021, the world will never completely return to the way it was before the crisis. Companies everywhere have adopted new technologies, new policies and new management styles. They have learned important lessons – not only about crisis management but also about how their companies operate, and those lessons will guide their next moves. One change that many people see as permanent is the shift to remote work. Even before the pandemic, the number of companies adopting remote work or a hybrid between remote and office-based work was growing, as were the number of companies choosing the fully distributed model. The pandemic only accelerated those trends. We expect the numbers to recede from the enormous 2020 figures, but they will be greater than 2019, and there is no going back to that. We also expect companies to take crisismanagement and contingency planning very seriously. Technology will play a bigger role in contingency planning. Automation will gain greater adoption in 2021, and companies will be looking for ways to add skills to their workforce to take advantage of the efficiency that automation will bring them. Deepak Vohra: Thank you all for participating in this roundtable and sharing your experience and insights with us, and the warmest of wishes for the coming year! n GLOBAL LEGAL MEDIA Helping Law Firms Grow Their Cross-Border Business l Custom publications l Social media programmes l Global meeting scheduling with prospective clients l Seminar and conference marketing l Lead generation l Legal marketing and media consultancy For more information, please visit: www.globallegalmedia.com Contact: Danny Collins, Director [email protected] +44 (0) 7889 366340 34 The US-Israel Legal Review 2020 US: CANNABIS One clear winner in the 2020 U.S. election has been the continuing state-level legalization of both medical and recreational cannabis. Four additional states – New Jersey, Arizona, Montana and South Dakota – voted to allow recreational use, and Mississippi voters authorized a medical marijuana program. As it stands, 36 state have legalized medical marijuana, and 15 of those states will allow recreational (or “adult use”) marijuana. However, “marijuana” remains fully illegal under U.S. federal law, which applies to all individuals and companies in the United States in tandem to state laws. Federal law is particularly pronounced in the areas of banking, securities, intellectual property, bankruptcy, immigration and import and export. The United States, unlike many countries, distinguishes between very low-THC cannabis (called “hemp”) and its derivatives including hemp-derived CBD, and all other forms of intoxicating cannabis (called “marijuana”). In the hemp and CBD space, state-level regulators are beginning to step in where federal regulators are moving more slowly. As a result, different sets of laws must be considered by investors, operators, and ancillary businesses, trying to enter the market. We will try to cover some of the major areas to consider in this note. LANDMINES TO WATCH OUT FOR The very first piece of advice prospective investors will receive from their U.S. based attorney is that, as far as the official stance of the federal government goes, cultivating marijuana is no different than producing any other Schedule I drug (like heroin, LSD, GHB or MDMA). The second piece of advice they will receive from that attorney is that the attorney cannot, ethically or legally, advise them on how to try and avoid those federal laws. In accordance with various ethics opinions an attorney can, however, advise them about what those laws are, and also about how to comply with state laws in effect. As far as U.S. federal law is concerned, because it is a Schedule I drug, marijuana is a dangerous drug. Some of the reasoning behind such classification: (a) it has a high potential for abuse, (b) it has no currently accepted medical use in treatment in the United States, and (c) it lacks safety in use under medical supervision. Perhaps surprisingly, cocaine is actually listed as a Schedule II drug because it has accepted medical uses.1 There have been lawsuits seeking to force the U.S. Drug Enforcement Administration to act on recommendations to reschedule marijuana from Schedule I to Schedule II,2 and considering increasing acceptance of cannabis The Changing U.S. Cannabis Legal Landscape: Challenges and Opportunities for Israeli Companies and Investors For investors, operators and ancillary businesses seeking to enter the legal U.S. cannabis market, different sets of laws must be navigated. The US-Israel Legal Review 2020 35 as “mainstream” in the political landscape, it may well happen in the next few years. But as of the date of this article, that is simply not the law. This current classification has several implications we will outline below. The Legal Consequences of Federal Prohibition Because federal criminal law forbids the possession, distribution, sale or use of marijuana – and provides no exception for medical uses – there are risks of potential liability under federal law for: (i) conspiring to manufacture and distribute marijuana, (ii) aiding and abetting the manufacture and distribution of marijuana, and (iii) acting as an accessory after the fact for the manufacture and distribution of marijuana.3 The government may also choose to target the source of the funds using criminal and civil forfeiture laws which allow federal officials to seize marijuana-related property, including bank accounts.4 Finally, non-US citizens who invest (or participate) in the cannabis industry may be permanently barred from entry into the United States by the U.S. Customs and Border Protection Agency.5 The federal landscape means that cannabis activities carry even greater risk for non-US citizens, such as Israelis that wish to be involved in the emerging US industry. Investing in, or working for, a cannabis company can be seen as aiding and abetting an illegal enterprise, and even attending a cannabis convention in the US can be seen by US border authorities as supporting an illegal enterprise. While in practice certain protections exist for U.S. based operators who comply with state laws and adhere to certain guidelines (including making sure that marijuana does not cross state lines), they are largely a matter of enforcement priorities for the federal government (both of individual prosecutorial discretion, and annual mandates of Congress as to how resources must be spent).6 Actual change will only come from comprehensive legislation by Congress. The Business Consequences of Federal Prohibition Due to federal prohibition marijuana related businesses – both plant touching businesses and ancillary businesses that derive their income from state-legal marijuana activities – face headwinds that other industries do not. Some of the most common are: Payment Processing and Banking. Although there are limited number of credit unions and smaller banks providing basic banking services to state-legal marijuana related businesses, access is constrained. This is because banks could face potential exposure to anti-money laundering laws by assisting such businesses. The limited banking that does exist is due to the guidance issued by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) in February of 2014.7 It tracks the non-enforcement priorities outlined (and then rescinded) by the U.S. Department of Justice in the “Cole Memo.” The banking services provided to marijuana related businesses, which are broken up into “tiers” based on how close they are to the plant, are fairly basic the closer you get to it and the monitoring fees charged by the banks (to offset the costs of compliance) are quite high (several thousand dollars a month for “leaf-touching” businesses). Congress has attempted to remedy the situation somewhat by creating safe-harbors for banks serving the cannabis industry in the proposed Secure And Fair Enforcement (SAFE) Banking Act of 2019,8 but despite considerable momentum the bill did not become law in 2020. While limited banking is available to marijuana businesses, true credit card processing remains out of reach. Major credit card networks, including Visa and MasterCard, do not permit cannabisrelated transactions in the United States (though Mastercard does in Canada). Cash, debit cards, and GUY BEN-AMI COUNSEL ALEXANDER G. MALYSHEV PARTNER 36 The US-Israel Legal Review 2020 US: CANNABIS Automated Clearing House (“ACH”) withdrawals remain the norm for most dispensaries. While some “solutions” have popped up, caution is warranted as many of these high-risk processors are not FDIC insured, and the industry is rife with potential for fraud and abuse. Any “solution” that seek to mask the name of the business or the type of transaction or purchase made, may be potentially violating anti-money laundering laws. Limited Federal Rights. Three commercial areas of law where federal law is especially pronounced are intellectual property (both trademark and patent law), tax, and bankruptcy. True marijuana related businesses are severely constrained in these areas. When it comes to intellectual property, consumer products often rely on trademarks to differentiate their brand. Unfortunately, for many cannabis businesses, that is not an option. The U.S. Patent and Trademark Office (“USPTO”) does not allow registration of trademarks for illegal drugs (like marijuana).9 Thus, so long as cannabis remains a Schedule I controlled substance (or unless the USPTO changes its rules), primary trademark protection is not available at the federal level for marks relating to the production, sale, or distribution of cannabis. Registration may, however, be available for ancillary goods and services. The news is better on the patent front. The USPTO has been willing to issue cannabisrelated patents since at least 1942. Thousands of such patent applications have been filed because patents are a unique form of property that secure only a negative right to exclude others from an invention. It remains to be seen, however, if federal courts are going to actually be willing to enforce those rights.10 Under a line of “highwayman” cases (named for bank robbers of the 1920’s), there may be an argument that federal courts should not enforce illegal rights. When it comes to tax, most federal deductions for business expenses are not available to marijuana related business (whether or not they are “leaftouching”) under Section 280E of the Internal Revenue Code of 1986. That section disallows the deductions of expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any state in which such trade or business is conducted.” Some states have parallel provisions for state-tax law purposes. Nor are the protections of the bankruptcy code available to marijuana related businesses,11 requiring distressed businesses to rely on much less potent state-law procedures. A Mixed Bag for Hemp and CBD Since passage of the 2018 Farm Bill, cannabis with very low levels of THC (less than 0.3% on a dry weight basis) has been named “hemp” and removed from Schedule I of the CSA (so long as it is grown in accordance with an approved cultivation plan and adheres to certain testing requirements that are in the process of being finalized). Although hemp has many uses, the current “gold rush” focuses on CBD extracted from hemp. Hemp and hemp derived products, in their various forms, continue to be imported into the United States. The U.S. Food and Drug Administration (“FDA”) has asserted jurisdiction over certain hemp derived products containing CBD under the Federal Food, Drug, and Cosmetic Act and section 351 of the Public Health Service Act because CBD is an active ingredient in an FDA approved drug (Epidiolex). While the rulemaking is ongoing, there is a great deal of uncertainty as to where the lines will be ultimately drawn: will the FDA limit itself to prohibiting or regulating the addition of CBD to food and beverages, and false claims of medical benefits, or will the restrictions be broader?12 In the meantime, state level regulators (including Although hemp has many uses, the current “gold rush” focuses on CBD extracted from hemp which continues to be imported into the U.S. The US-Israel Legal Review 2020 37 most recently New York) have introduced their own regulatory regimes for hemp derived CBD products. There is a great emphasis on consumer protection and testing in these regulations. THERE ARE OPPORTUNITIES FOR INVESTORS AND INNOVATORS Notwithstanding some of the headwinds faced by the legal and regulatory uncertainty surrounding the cannabis industry, it is expected to reach a size of $35 billion by 2025 according to some estimates. With the right approach, opportunities are available for Israeli investors and innovators who want to take part. For investors it is a matter of risk appetite. The national U.S. exchanges, NYSE and NASDAQ, do not permit the listing of companies operating in violation of federal law. Generally, the only U.S. “cannabis” companies that trade on the national exchanges operate in a gray area by not “touching the leaf,” which means their business is ancillary to any cannabis operations. Publicly traded tobacco companies are also testing the boundaries of national exchanges with products and brands in or near to the cannabis industry. Canadian companies listed on U.S. national exchanges and operating in the cannabis industry outside the United States present another channel to cannabis investing. Both U.S. public companies that do not “touch the leaf” and Canadian companies that do not operate in violation of U.S. federal law represent relatively conservative investments compared to companies directly involved in the production or sale of marijuana in the United States. Although historically “leaf-touching” (or more closely adjacent) companies relied on private placements, more recently they have been looking to the over-the-counter (OTC) market. Carter Ledyard has extensive experience with such listings generally, and more recently has been helping companies in the field assess the feasibility of such listings. Moreover, while mergers and acquisitions in the cannabis industry may require a complicated structure involving the sale of related businesses and affiliated entities and a changing of the board, Carter Ledyard has the expertise for that as well. By way of example, Carter Ledyard acted as U.S. counsel to a Canadian Securities Exchange-listed British Columbia corporation headquartered in Colorado, in a reverse takeover transaction, as well as in the acquisition of brands, dispensaries, and other operators in the cannabis industry. Carter Ledyard also acted as counsel to a public company listed on the Canadian Securities Exchange and the OTCQX which invests in the medical recreational cannabis space, in its acquisition of a Nevadabased group of companies licensed for cannabis cultivation. Opportunities also exist for innovators who want to solve the logistical challenges plaguing this cannabis industry: inventory tracking requirements (known as “seed-to-sale”), application and compliance management for operators (especially multi-state operators who must interact with dozen of regulators in some instances), AML compliant payment processing, and a myriad of other services that an industry of that size will face. Israel’s reputation as a technological innovation powerhouse gives it a clear advantage in this field, and Carter Ledyard has extensive experience working with technology companies in bringing their products to market and protecting their brand. Innovation in the fields of cultivation and extraction, as well as the various applications of extracts (whether CBD, THC, or some of the other less well known compounds), will be important in the years to come. These kinds of technologies, if properly protected, can be licensed in the United States without the need to establish operations in the country. This is, again, an area in which Carter Ledyard’s intellectual property team can help. Israeli companies have been continuously The cannabis industry is expected to reach a size of $35 billion by 2025 according to some estimates, providing opportunities for Israeli investors and innovators 38 The US-Israel Legal Review 2020 US: CANNABIS innovating in cannabis as the Israeli cannabis laws change. An exciting often mentioned company is Cannassure Therapeutics (trading on the Tel Aviv Stock Exchange). Israel also recently approved a law that may allow export of medical cannabis. It is estimated that nearly 350 startups founded by Israeli entrepreneurs are currently operating in New York, with the majority of them concentrated in Manhattan, so as more Israeli cannabis companies emerge, we should expect to see them here next to our Offices. n ABOUT THE AUTHORS: Alexander G. Malyshev is co-chair of Carter Ledyard’s Cannabis, Hemp & CBD Industry Group, advising businesses, investors, and other stakeholders in the quickly evolving state-legal cannabis and federally legal hemp (and CBD) industries on how to deal with the unique challenges the industry poses in a practical manner. Alex also maintains an active litigation and counseling practice, primarily focused on the financial services industry. He also regularly counsels industry employers and employees in connection with restrictive covenants and unfair competition claims. Alex grew up in Haifa in the 1990’s. Guy Ben-Ami is a member of the Corporate Department and a leader of the firm’s Israeli CrossBorder Practice, and he is admitted to practice in both New York and Israel. Guy focuses his practice on representing international and U.S. companies doing business in the U.S, and he has experience in a broad array of financial transactions, including U.S. and international public and private offerings of debt and equity, Rule 144A placements, Regulation S cross-border offerings, listing companies on U.S. exchanges, and mergers and acquisitions. Much of his transactional work is for technology companies and venture capital investors in the U.S. and Israel. NOTES 1 Controlled Substances Act (“CSA”) of 1970, 21 U.S.C.A. § 812(b) (1). 2 See Washington v Barr, 925 F.3d 109, 122 (2d Cir. 2019) (dismissing appeal because plaintiff failed to exhaust administrative remedies, but “in light of the unusual circumstances of [the] case” holding the case in abeyance and retaining jurisdiction should the “administrative process fail to operate with adequate dispatch.”). 3 See 18 U.S.C. § 2 (“Whoever… aids, abets, counsels, commands, induces or procures” a federal crime, or “causes” a federal criminal act to be done, “is punishable as a principal.”); 18 U.S.C. § 3 (“Whoever, knowing that an offense against the United States has been committed, receives, relieves, comforts or assists the offender in order to hinder or prevent his apprehension, trial or punishment, is an accessory after the fact.”) ; 18 U.S.C. § 371 (“If two or more persons conspire either to commit any offense against the United States … and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.”) 4 See 21 U.S.C. §§ 853, 881(a)(6). 5 https://www.cbp.gov/newsroom/speeches-and-statements/ cbp-statement-canadas-legalization-marijuana-and-crossingborder 6 For more information about the “Cole Memo” and the “Rohrabacher Amendment” see, generally, “Despite the Trend Towards Legalization, Challenges Remain for Investors Considering Investment in State-Legal Cannabis Industries,” (March 26, 2019), at Section II (Protections from Federal Law are Limited, and Sometimes Overstated) available at https:// www.clm.com/publication.cfm?ID=5647&Att=172. 7 See U.S. Treas. FinCEN, BSA Expectations Regarding MarijuanaRelated Businesses (Feb. 14, 2014), available at https://www. fincen.gov/resources/statutes-regulations/guidance/bsaexpectations-regarding-marijuana-related-businesses. 8 Secure and Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. (2019), available at https://www.congress.gov/ bill/116th-congress/house-bill/1595/text. 9 Specifically, TMEP Section 907 provides that the use of a mark in commerce must be lawful to be the basis of a Federal mark. Available at https://tmep.uspto.gov/RDMS/TMEP/current#/ current/TMEP-900d1e1.html. 10 For more background, please see “Protecting Cannabis and Hemp-Related Intellectual Property,” (May 9, 2019) available at https://www.clm.com/publication.cfm?ID=5654&Att=172. 11 See “Bogart That Joint, But Don’t Bankrupt It: Cannabis Businesses in Bankruptcy” (September 23, 2019) available at https://www.clm.com/publication.cfm?ID=5666. 12 For further background, please see “Things to Consider If You Decide to Invest in the Hemp and CBD Industries,” available at https://www.clm.com/publication.cf?ID=5651. The US-Israel Legal Review 2020 39 With a long history of providing legal services to Israeli-based companies coupled with the expertise to steer clients through the rapidly changing legal landscape of the cannabis 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 40 The US-Israel Legal Review 2020 US: SPECIAL PURPOSE ACQUISITION COMPANIES Special purpose acquisition companies (SPACs) are an increasingly popular way for an existing private company to become publicly traded without undergoing a traditional initial public offering, and for investors in public markets to invest in growth-stage companies. There can be generous returns for SPAC sponsors, but they should be aware of the liability risk in connection with their role. Indeed, litigation arising from several recent SPAC acquisitions, most prominently against Nikola Corporation, underscores the risks for SPAC sponsors. They therefore should be mindful of steps they can take to mitigate these risks in the reverse merger process. KEY TAKEAWAYS • In the “de-SPAC” transaction, when a SPAC acquires its target, the SPAC and its sponsors are potentially liable under Sections 10(b) and 14(a) of the Securities Exchange Act of 1934 for misleading statements included in a proxy statement or in other public statements. The SPAC and its sponsors may also be liable under Section 11 of the Securities Act of 1933 if that deSPAC transaction includes a registered offering. • Investors have sought to hold SPACs and their sponsors liable for a variety of alleged misstatements, including about the financial outlook of the target companies and the level of due diligence performed by the SPAC. • The best ways for a SPAC sponsor to mitigate these risks are to perform sufficient due diligence on the target and to be cautious with language in the proxy statement. STRUCTURE AND INITIAL PUBLIC OFFERING OF A TYPICAL U.S. SPAC A SPAC is a shell company that raises capital in an initial public offering (IPO) to acquire one or more businesses. The proceeds of the IPO (plus an amount invested by the sponsor to cover upfront underwriting fees) are held in a trust account until released to fund the acquisition – what lawyers call the “initial business combination,” and everyone else calls the “de-SPAC.” Public investors can redeem their shares (typically for $10 per share plus any interest earned in the trust account, minus any withdrawals to pay taxes) in connection with the de-SPAC, at liquidation if the SPAC does not complete a de-SPAC within the prescribed period (typically between 18 and 24 months), or in connection with a vote to extend the time that the SPAC has to complete the de-SPAC. On formation, the SPAC is capitalized by the sponsor, which contributes a nominal amount (e.g., $25,000) in exchange for a number of founder shares that, after the IPO, will represent 20% of the SPAC’s outstanding shares. These founder shares SPAC Sponsors Beware: TheRising Threat of Securities Liability There can be generous returns for sponsors of special purpose acquisition companies, but they should be aware of the liability risk in connection with their role. The US-Israel Legal Review 2020 41 automatically convert to public shares at the time of the acquisition. Founder shares are subject to lock-up provisions that limit the ability of the sponsors to sell prior to the first anniversary of the transaction (or earlier, if certain price performance thresholds are met). The founder shares are often referred to as the sponsor’s “promote” because they represent the bulk of the sponsor’s compensation for managing the SPAC, finding a suitable target and raising the necessary funds to complete a business combination. The sponsor also capitalizes the SPAC by making loans to the SPAC and by purchasing securities (e.g., warrants) in amounts sufficient to cover IPO expenses and other working capital needs. RISKS FOR SPAC SPONSORS IN CONNECTION WITH THE IPO Sponsors should exercise sufficient care and diligence in preparing the marketing and disclosure materials in connection with the SPAC’s IPO, including the prospectus, to ensure that they do not include material misstatements or omissions. In conducting its IPO, the SPAC files a registration statement with the U.S. Securities and Exchange Commission (SEC) and lists its securities – commonly shares and warrants – on either the Nasdaq or the New York Stock Exchange. The SPAC avoids having to include any specific disclosure regarding potential targets by not starting its search for a target before conducting the IPO. As a result, a typical SPAC IPO registration statement is relatively short and contains, in large part, boilerplate disclosure, including with respect to the rules applicable to SPACs and the risks associated with an investment in a SPAC. The registration statement also includes a small number of risk factors, a description of the terms of the SPAC, and financial statements, which are short and contain limited historical information given the SPAC’s status as a shell company without significant assets or operations. Given the limited amount and nature of disclosure required, a SPAC’s IPO is generally regarded as implicating few risks to the SPAC and the sponsors. However, there are some aspects of the prospectus and the marketing materials that may involve potentially higher risks, and should be reviewed with a higher degree of care. For example, the prospectus and investor presentations often include biographical information on the sponsors and directors, including, in many cases, track record information highlighting the sponsor’s and management’s success in previous SPAC transactions or other investments. Sponsors should be careful not to “cherry pick” the transactions described. The criteria for choosing what transactions to describe as illustrative examples of the sponsor’s relevant experience should be based on objective measures (e.g., a specific recent time period or transaction size). Disclosing only successful results while overlooking flops should be avoided. In addition,the experience of third parties, including people and entities affiliated with the sponsor and anchor investors, should be described with the proper caveats to avoid giving the false impression that these persons or entities will participate in the management of the SPAC and the search for a target in a manner that is more meaningful than intended. As described in more detail below, material misstatements or omissions in the registration statement could give rise to liability under the Securities Act and the Exchange Act. RISKS FOR SPAC SPONSORS IN CONNECTION WITH A DE-SPAC When a SPAC has found its target, it makes filings under the federal securities laws in connection with the de-SPAC. Shareholder approval generally is required for the de-SPAC and the SPAC often issues additional shares as part of the consideration paid to the target’s shareholders. In the typical case, the ADAM BRENNEMAN PARTNER CRAIG BROD PARTNER 42 The US-Israel Legal Review 2020 US: SPECIAL PURPOSE ACQUISITION COMPANIES principal filing is a proxy statement, which is often combined with a prospectus. The SPAC provides detailed disclosure about the target, including several years of financial statements. Many SPACs also include statements concerning the outlook for future business or market growth. If there is a material misstatement or omission in those materials, the SPAC or its sponsor could be held liable under Section 14(a) of the Exchange Act and Rule 14a–9 thereunder. These claims would require a plaintiff to prove that the misstatement or omission was an “essential link” in the consummation of the transaction, and that the SPAC or its sponsor was at least negligent in making the misstatement or omission. (A SPAC that is a “foreign private issuer” is not subject to the SEC’s proxy rules and therefore could not be liable under Section 14(a) and Rule 14a–9 for any misstatements or omissions in the materials it sends to shareholders, but it could have Rule 10b–5 liability with respect to those materials, as described below.) Liability could also arise under Section 10(b) of the Exchange Act and Rule 10b–5 thereunder, which prohibit intentional or reckless material misstatements or omissions in connection with the purchase or sale of a security. To prove a Rule 10b–5 claim, an investor would have to show, among other things, loss causation. This generally is shown by pointing to a stock price decline following the revelation of the “truth” concerning an alleged misstatement or omission. The assumption is that the decline in price following the revelation reflects the dissipation of prior inflation caused by the alleged misstatement or omission. For example, any material misstatements or omissions concerning the target company could serve as the basis for lawsuits filed on behalf of investors who traded in the SPAC’s securities. Indeed, in the wake of the 2008 financial crisis, similar claims were asserted against companies that became listed on U.S. stock exchanges through reverse mergers. The de-SPAC also often involves a registered offering of the SPAC’s shares, so there also could be claims under Section 11 of the Securities Act againstthe issuer and its officers and directors, and under Section 12(a)(2) of the Securities Act against any other sellers – e.g., investors who purchased SPAC shares in PIPE transactions (i.e., private investments in public equity) with the SPAC and who are reselling their shares). RECENT LITIGATION AGAINST SPAC SPONSORS The risks are not just theoretical: claims have been asserted against earlier SPACs and there is now an increasing number of examples of securities litigation against recent SPAC sponsors. A number of ongoing actions illustrate the litigation risks that SPACs can face. (These examples discuss allegations against SPAC sponsors arising from their conduct in that capacity. Claims can also be brought against the same individuals based on their conduct in subsequent roles with the newly merged company.) VectoIQ/Nikola. VectoIQ Acquisition Corp., a SPAC led by former General Motors executives and focused on the smart transportation industry, merged with hydrogen-powered electric truck startup Nikola Corp. in June 2020. On September 10, 2020, a short seller issued a report stating that it “believe[s] Nikola is an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career.” Multiple law firms subsequently announced that they were investigating claims for violations of the securities laws by Nikola and filed lawsuits against the newly-merged company and its officers, alleging violations of Section 10(b) of the Exchange Act for alleged misstatements and omissions made concerning the merger. One of the lawsuits names the former CEO of VectoIQ (the pre-merger SPAC) as an individual defendant, and alleges that he made misstatements during and subsequent to the announcement of the partnership with Nikola in his capacity as the CEO of VectoIQ. These alleged misstatements include that VectoIQ had been on a “two-year quest to find a partner that was a proven technology leader” and that “Nikola’s vision of a zero-emission future and ability to execute were key drivers in our decision,” which are alleged to be false and misleading because Nikola allegedly overstated its “in-house” design, manufacturing, and testing capabilities and its hydrogen production capabilities. The suit also alleges that VectoIQ’s statement that it had performed extensive due diligence in selecting Nikola was false and misleading because it had not actually performed that diligence. Landcadia/Waitr. Another ongoing lawsuit arises The US-Israel Legal Review 2020 43 out of the November 2018 acquisition of Waitr, a food-delivery service, by a SPAC called Landcadia Holdings, Inc. The lawsuit alleges that with mere weeks to go before the SPAC’s deadline to acquire a target (or to liquidate), the SPAC’s founders hastily acquired a target to preserve their reputation as dealmakers, and made false and misleading statements in the proxy statement in an effort to quickly close the transaction, giving rise to claims under Sections 10(b) and 14(a) of the Exchange Act and the rules thereunder. (Courts may consider allegations that SPAC sponsors hastily finalized a deal to be relevant to demonstrating fraudulent intent. In one 2012 decision, a court found that “[t]he desire to avoid impending liquidation,” as pleaded by the plaintiffs, was a “motivating factor,” among others, for the SPAC’s officers to commit fraud, and accordingly found that the plaintiffs had properly pleaded scienter.) The lawsuit alleges that optimistic statements about Waitr’s financial condition and projections, including statements made by Landcadia’s co-chairman (in his capacity as co-chairman of Landcadia) were misleading, because at the time of the merger, Waitr’s existing contracts were not profitable for Waitr, and the fee structures that it planned to use in the future would be “draconian” and unsustainable for restaurants – as evidenced by certain restaurants’ calls for a boycott of Waitr after the price changes were put in place. MMAC/Akazoo. Another ongoing lawsuit was brought against Akazoo S.A. – which is the product of a September 2019 merger between Modern Media Acquisition Corp. (MMAC), a SPAC, and Akazoo Limited, a music streaming service – and various individual defendants, including officers and directors of MMAC pre-merger. The complaint alleges that the defendants made misstatements about the strength of Akazoo, including in the proxy statement, giving rise to claims under Sections 10(b) and 14(a) of the Exchange Act and the related rules. For example, the complaint alleges that upon the announcement that MMAC had reached a merger agreement with Akazoo, the chairman of MMAC (in his capacity as chairman of MMAC) made misstatements regarding the number of Akazoo’s users, the number of countries it operates in, and its “profitable business model with a strong competitive moat in emerging markets.” Similarly, the complaint alleges that the proxy statement contained misstatements about the level of diligence that MMAC had undertaken in evaluating Akazoo as a potential target. Notably, the complaint also brings a claim under Section 11 of the Securities Act, including against the chairman of MMAC, alleging that the company’s registration statement for common stock issued in connection with the de-SPAC contained misstatements concerning similar topics. On September 30, 2020, the SEC also filed a lawsuit against Akazoo, alleging that it “grossly misrepresent[ed] the nature and success of its music streaming business” and that it “continued to mislead the public” while its shares were publicly traded, although the SEC does not allege misconduct by MMAC or its directors and officers. Cambridge Capital / Ability Computer & Software. Another example of a de-SPAC leading to SEC enforcement actions, including against an individual from a SPAC sponsor, is Cambridge Capital Acquisition Corporation’s December 2015 acquisition of an Israel-based intelligence communications company called Ability Computer & Software Industries, Ltd. The SEC settled an enforcement action against the SPAC’s former CEO, in which it brought Section 14(a) and Rule 14a–9 claims alleging that the former CEO failed to take reasonable steps and conduct appropriate due diligence to ensure that the SPAC’s shareholders were provided with material and accurate information regarding the target’s business prospects. An JULIAN CARDONA ASSOCIATE ADAM FLEISHER PARTNER 44 The US-Israel Legal Review 2020 US: SPECIAL PURPOSE ACQUISITION COMPANIES enforcement action against individuals associated with the target company is ongoing. CONCLUSION Those looking to create SPACs and acquire companies through them should carefully consider the accompanying legal risks and the ways to potentially mitigate them. Because of the current wave of securities litigation against SPACs, sponsors may wish to approach the de-SPAC process as akin to a traditional IPO from a liability management and risk mitigation perspective, even if the process otherwise resembles a merger transaction. If sponsors choose to do so, they may consider the following steps: First, SPAC sponsors may consider performing the type of diligence associated with a traditional IPO, in addition to the valuation-focused due diligence typical of the merger context. As discussed above, many of the potential securities claims that could be brought against a SPAC sponsor require a showing of negligent, reckless, or knowing wrongdoing, while others provide a due diligence defense. A SPAC sponsor therefore can attempt to mitigate its potential litigation exposure by performing robust due diligence on the target, which would allow it to subsequently argue that it did not act negligently, recklessly, or knowingly in making any alleged misstatements or omissions. This would also help defend against claims that challenge statements about the level of diligence conducted. Second, in regulatory filings and public statements, SPAC sponsors should include appropriate caveats concerning the sources of the information they disclose regarding the target company, as well as disclaimers for forward-looking statements and opinions. For example, where disclosures are made based on information provided by a target, it may be advisable to explicitly say so. Similarly, where disclosures are forward-looking or reflect opinions, sponsors should identify the statements as such and describe the basis for them. By carefully crafting the disclosures in their filings and other public statements, SPAC sponsors may strengthen future arguments against liability for alleged misstatements or omissions. Finally, SPAC sponsors should fully disclose any potential conflicts of interest, and be aware that the SEC is increasing its focus on this topic with respect to SPACs. In particular, SEC Chairman Jay Clayton recently made comments regarding SPACs, suggesting that the SEC may be taking a closer look attheir filings. Specifically,ChairmanClaytonstated in a recent interview: “One of the areas in the SPAC space I’m particularly focused on, and my colleagues are particularly focused on, is the incentives and compensation to the SPAC sponsors. How much of the equity do they have now? How much of the equity do they have at the time of the IPO-like transaction? What are their incentives?” With respect to both the IPO and the de-SPAC process, he said that “we expect the disclosure to be such that an investor can understand all of those motivations.” Such concerns echo claims about potential conflicts of interest that gave rise to claims pursued by CDO and RMBS investors in the wake of the 2008 financial crisis. Especially in light of these comments, we can expect an increased focus by both regulators and private litigants on the incentives and motivations of a SPAC’s sponsors in seeking out and consummating a merger. Full disclosures of those incentives and motivations are therefore critical to mitigating the risks from such claims. n NICOLAS GRABAR PARTNER DANIEL ILAN PARTNER Providing Simple, Actionable Solutions to Complex Challenges Our lawyers have experience representing clients in high-profile matters related to Israel across a range of practice areas, including capital markets, cybersecurity, IP, M&A, bankruptcy, litigation, real estate, and private equity. We are particularly known for advice in connection with complex cross-border matters across various legal disciplines and a broad range of industries, including Internet of Things, artificial intelligence, fintech, telecommunications, life sciences, essential infrastructure, media and entertainment, financial services, and consumer goods. We are also active in the representation of Israeli clients in important class action and other litigation in U.S. courts as well as arbitration matters. Global Elite Firm Legal Business’ “Global 100,” 2003–2019 (Every year since the list’s inception) Top Global Firm Law360’s “Global 20” List of Preeminent Global Law Firms, 2011–2019 (Every year since the list’s inception) clearygottlieb.com 20.1029.05-NY-BD-US-Israel-Legal-Review-Ad-V2.indd 1 11/4/2020 6:46:53 PM Providing Simple, Actionable Solutions to Complex Challenges Our lawyers have experience representing clients in high-profile matters related to Israel across a range of practice areas, including capital markets, cybersecurity, IP, M&A, bankruptcy, litigation, real estate, and private equity. We are particularly known for advice in connection with complex cross-border matters across various legal disciplines and a broad range of industries, including Internet of Things, artificial intelligence, fintech, telecommunications, life sciences, essential infrastructure, media and entertainment, financial services, and consumer goods. We are also active in the representation of Israeli clients in important class action and other litigation in U.S. courts as well as arbitration matters. Global Elite Firm Legal Business’ “Global 100,” 2003–2019 (Every year since the list’s inception) Top Global Firm Law360’s “Global 20” List of Preeminent Global Law Firms, 2011–2019 (Every year since the list’s inception) clearygottlieb.com 20.1029.05-NY-BD-US-Israel-Legal-Review-Ad-V2.indd 1 11/4/2020 6:46:53 PM 46 The US-Israel Legal Review 2020 ISRAEL: MERGERS & ACQUISITIONS I n the world of global mergers and acquisitions, the last 12 months have been roller-coaster. While 2019 was particularly strong – M&A transactions totaled over $20 billion – the Covid-19 pandemic has put many new transactions on hold. In fact, since the end of the first quarter of 2020, mergers and acquisitions around the world have come to a grinding halt. In March 2020, the Israeli M&A market nearly froze with only nine transactions closing as compared to twenty-three closings in March 2019, the strongest month for M&As that year. On the Israeli landscape, notable transactions were the acquisition of Forescout (an Israeli provider of solutions for control and security of devices connected to an enterprise network) by Advent International, a U.S. private equity fund for $1.9 billion, as well as the acquisition of Checkmarx, a pioneer in the field of cyber security and data protection with over 600 employees worldwide, for $1.15 billion. (In this transaction EBN has acted as the Israeli counsel for the acquirer, Hellman & Friedman). Another notable transaction in the high-tech sector was the acquisition of Moovit by Intel for approximately $900 million. Moovit, an Israeli company founded in 2011, launched a highly successful public transport and mobility journey planner application. This transaction is the second major acquisition by Intel in Israel in 2020, following its acquisition of chipmaker Habana Labs for approximately $2 billion at the end of 2019. It is interesting to note that Intel has invested over $22 billion in Israeli companies over the past years and is one of the largest employers in the high-tech sector in Israel. A particularly noticeable trend in mergers and acquisitions over the last twelve months is the increased investment in, and acquisition of, Israeli cyber-related companies. The volume of investment in the Israeli cyber security industry was just over $4 billion from 2015-2019. Toward the end of 2019, ObserveIT, a developer of an insider-threat defense system was acquired by Proofpoint, a U.S. cybersecurity company for $225 million, and Insight Partners, a U.S. private equity and venture capital firm acquired Armis, an Israeli Internet-ofThings security company for $1.1 billion. During 2020 several high-profile acquisitions M&A: The Last 12 Months at a Glance The Covid-19 pandemic has put a brake on many new M&A deals. How did the normally vibrant M&A market in Israel fare over the past year, and what can be expected for the future? A particularly noticeable trend in M&A over the last 12 months is the increased investment in, and acquisition of, Israeli cyberrelated companies The US-Israel Legal Review 2020 47 were made. A significant transaction that closed in spite of the Covid-19 pandemic was the acquisition of Mellanox Technologies, an Israeli big data connectivity equipment developer, for approximately $7 billion by NVIDIA Corp, the U.S. graphics processing giant. The energy sector has also shown some resistance to the effects of the Covid-19 pandemic. Among the prominent transactions were the merger of Arko Holdings with Haymaker resulting in a combined company valued at $1.5 billion; the acquisition of Chevron’s North Sea oil fields by Delek Group for $2 billion; and the acquisition of Competitive Power Ventures by OPC Energy for approximately $750 million. As Nils Bohr, the Nobel prize physicist once humorously proclaimed: “Prediction is very difficult, especially if it’s about the future”, we will nevertheless try to forecast the M&A market in light of the recent trends mentioned above and our acquaintance with the different players in the market: private equity funds, strategic investors and c-level executives, as well as scholars and experienced accountants and lawyers. THE IMPACT OF COVID-19 The Covid-19 pandemic will continue to affect the world economy. Covid-19 has put nearly every aspect of business operation to a test. We have seen a slow-down in the number and scope of M&A transactions in the first and second quarters of 2020. Whereas 2019 was phenomenal for the Israeli M&A market, it is clear that 2020 and even 2021 will be challenging. The M&A market will need to re-invent itself. Strategic acquirers have less appetite for growth acquisitions and expansion into new markets and are more focused on maintaining current market-share and profitability. Therefore, it is to be expected that strategic acquirers will be less dominant in the near future and high-range acquisitions such as Intel’s of Mobileye will become less frequent. As private equity firms have a limited window in which to utilize their committed funds and acquire target companies, it is to be expected that they will continue to “feed” the M&A market. A dramatic rise in bankruptcies with a concurrent increase in distressed M&A activity is expected as a result of the economic turmoil. For many strategic purchasers and private equity firms with relatively strong cash positions, the wave of insolvency auctions will present significant opportunities to acquire valuable assets at discounted prices. The decrease in M&A transactions indicates that we are in a pro-buyer market. In recent years, cross-border M&As have turned to pro-seller “lock-box” price methodology (where purchase price is based on the target business’ financial statements at a specific date before signing of the purchase agreement). Since use of “lock-boxes” is not all that common in Israel, Israeli cross-border M&As will probably use more traditional postclosing purchase price adjustment mechanisms (“completion accounts”), wherein the purchase price is adjusted (“trued-up”) to the state of the business at closing. One of the challenges that the M&A market now faces is how to evaluate target companies. A dramatic rise in bankruptcies with a concurrent increase in distressed M&A activity is expected as a result of the economic turmoil VIVA GAYER PARTNER JONATHAN ACHIRON PARTNER 48 The US-Israel Legal Review 2020 ISRAEL: MERGERS & ACQUISITIONS Traditionally, last twelve month (LTM) financial metrics are used to determine target company’s valuation and are the basis for the agreed purchase price. Although short, a 12-month period is useful because it indicates a company’s most recent performance and reveals the company’s current financial state. It seems that post-coronavirus this method is no longer sufficient, since it disregards the impact of Covid-19 on a business and the overall market in which the target company operates. Therefore, it should not be employed to predict the business outlook in the years post-closing. One of the ways to mitigate the complexity of determining company valuation is to introduce more nuanced price adjustment mechanisms and payment structures like earn-outs and other conditional payment structures. These structures entitle sellers to receive the full purchase price only if the business going forwards meets certain benchmarks. This splits the risk of low performance post-closing between sellers and acquirers and protects the acquirer from overpaying for an overvalued asset. We envision that until the global effect of the Covid-19 pandemic on markets is fully understood, more M&A transactions will include these conditional apparat uses. M&A transactions are financed both through purchasers’ own resources and debt financing. Financial institutions will be more reluctant to participate in high-risk transactions and therefore it is expected that the financing of these type of transactions will be prolonged and in certain very high-risk markets may not even be provided. This will have a negative impact on the transaction cycle, including extending it by several months. There will be a direct impact not only on the number of the transactions concluded but also on the dollar-value of such transactions. We note that the exponential growth of unicorn companies (i.e., companies with over $1 billion in valuations) in recent years is expected to decrease. Investment in early-stage companies by venture capital funds continue to flourish, especially in the arenas of cyber-security, artificial intelligence and deep learning. This is an indication that when M&A markets revive and return to their 2019 level, many opportunities will present themselves and Israel will continue to be a vibrant market for M&As. PROMISING INDUSTRIES While Covid-19 has devastated sectors like travel and tourism, transportation, culture and entertainment, it has had the opposite effect on cyber-security, telemedicine, fintech, e-learning and digital services. The company Zoom is a case in point: as a business, it was primarily known only among tech-companies, but now it is widely used by everyone. Zoom’s success is evident in the greater than 300% increase in its stock price since the onset of the pandemic. As it is now clear that Covid-19 will not disappear in the near future, businesses will be forced to learn how to identify and actualize business opportunities specifically for these times. Israel as a hub for both defensive and offensive cyber-security companies, has in recent years specialized in addressing issues of cyber-attacks upon organizations. Now, working remotely has significantly increased such risks, exposing industries to even more complex threats. During 2015-2019 an aggregate $4 billion was invested in cyber-security companies and the average value of deals for 2015-2019 was approximately $1.5 billion per year. In the first half of 2020 more than $800,000 was invested. M&As of cyber-security companies during the first half of 2020 reached $4 billion (which includes the acquisition of Checkmark and Armis). We expect that by the end of 2020 this number will increase and growth both in investments and M&A transactions in this sector will be experienced. We predict that the next trend in mergers and When M&A markets revive and return to their 2019 level, many opportunities will present themselves and Israel will continue to be a vibrant M&A market The US-Israel Legal Review 2020 49 acquisitions, as well as in capital investments, will be in education technology (Ed-tech). Even before the Covid-19 pandemic, there was high growth and adoption of Ed-tech related projects, with global investment in 2019 totaling approximately $18.5 billion. The market cap expectation for 2025 (prior to the pandemic) was estimated at $350 billion. In the first quarter of 2020, Ed-tech companies raised more than $803 million in the United States alone. This amount was invested across more than 60 transactions, although this was a 17% decline when compared to the $962 million raised in the first six months of 2019 (a record year in the Ed-tech sector for raising capital). Therefore, we believe that it is merely a matter of time before Israeli companies join this trend and we see more acquisitions in this sector. Telemedicine is a sector that has been neglected over past decades. Coronavirus has accelerated the long overdue telemedicine revolution. The global telemedicine market is currently valued at $185 billion. Since March 2020 we have seen increased interest in this sector. During the first half of 2020, an aggregate amount of $3.6 billion was invested in telemedicine companies, representing a more than 100% increase. Since this market is undeveloped its potential is huge. We expect to see exponential growth in the near future. THE EMIRATES-ISRAEL TREATY On August 13, 2020, the State of Israel and the United Arab Emirates (UAE) reached a landmark peace deal – dubbed the “Abraham Accord.” The deal was announced following a call between Sheikh Mohamed bin Zayed, the Crown Prince of Abu Dhabi, U.S. President Donald Trump and Israeli Prime Minister Benjamin Netanyahu. The three leaders agreed to “full normalization of relations” between Israel and the UAE. The UAE is now the first Gulf state and the third Arab country after Egypt and Jordan to establish diplomatic relations with Israel. This step officially revoked the UAE economic boycott of Israel, thereby allowing trade and financial agreements between the UAE and Israel to flourish. Companies and individuals in the UAE can now legally enter into agreements with companies, individuals or organizations residing in Israel or belonging to it by nationality as part of commercial or financial operations or other dealings. This historic peace accord will provide new opportunities for mergers and acquisitions. The UAE hopes that Israel will help it to lay the foundation for its transformation into the world’s next startup nation. The UAE do not necessarily want to buy Israeli technologies as finished products but as investments that will allow companies in the UAE to expand these ventures over time. The expectation is that the UAE will make strategic investments in Israel that will be a “game changer” for the Israeli economy. Tech and innovation relating to irrigation, desalination, agriculture, fintech, cleantech, healthcare and cyber security are likely to be of particular interest. A fair projection would be that a solid relationship between the two countries will boost both nations’ economies. Saudi Arabia and other Gulf countries may follow the UAE, which will obviously have dramatic positive geo-political, commercial and financial consequences for the entire levant region. CONCLUSION World finance will need to accommodate to the Covid-19 pandemic. We already see an increase in the number of transactions finalized during the second and third quarters of 2020. In light of the nearly universal adoption of digital technology across all industries and sectors it is not surprising that high-tech will be the sector exhibiting the highest durability in the Covid-19 era. This trend will likely continue into 2021. As the premier startup nation, there is hope for optimism in the M&A market in Israel. n The expectation is that the UAE will make strategic investments in Israel that will be a “game changer” for the Israeli economy 50 The US-Israel Legal Review 2020 ISRAEL: MERGERS & ACQUISITIONS ABOUT THE AUTHORS Viva Gayer is a partner in the firm’s corporate and M&A department. Viva’s practice is focused on domestic and cross-border M&A, investment transactions in the hi-tech arena and representation of technology companies. Viva’s business orientation and in-depth understanding of market trends makes her the ideal professional for handling business complexities requiring creative legal solutions. Viva represents foreign and domestic clients, capital funds and angel investors. She handles their transactions, both in Israel and abroad. Viva also advises start-up companies, throughout their life cycle and in their day-to-day activity, which includes joint ventures, licensing agreements, distribution agreements, sale and procurement agreements and other. T: +972-3-7770100 E: [email protected] Jonathan Achiron is a partner in the corporate and M&A department. Jonathan specializes in cross-border private and public mergers and acquisitions, corporate and commercial law, hightech companies, and private equity and venture capital investments. He has a comprehensive broad-based corporate practice that involves counseling clients in cross-border transactions, public offerings and exchange listings in Wall Street of both private and TASE-listed Israeli companies, corporate finance, start-ups and technology. Jonathan provides ongoing corporate counseling to corporations through all stages of development on a wide variety of corporate and commercial matters, including private equity investments, venture funding transactions, financing and credit agreements and various day-to-day corporate governance, regulatory and commercial advice. T: +972-3-7770350 E: [email protected] ABOUT THE FIRM As a premier and Tier 1 full-service Israeli law firm, Erdinast, Ben Nathan, Toledano & Co. (EBN) is a pioneer in business and commercial law and a frontrunner in transactional work. As one of Israel’s most prominent and fastest growing commercial law firms, clients work with over 110 lawyers across multiple practice areas and disciplines. Our first class pedigree, international training and hands on experience regularly earns EBN roles in complex cross-border and high profile domestic M&A transactions running in the billions of USD. Recently, for example, we advised global private equity firm, H&F on its USD 1.15 Billion acquisition of Checkmarx Ltd.; XIO Group on the sale - for more than USD 1 Billion - of its entire shareholdings in Lumenis Ltd.; and a rare merger in the banking sector between Mizrahi-Tefahot Bank Ltd. and the Union Bank of Israel Ltd. EBN’s M&A department is one of the largest and most active M&A practice groups in Israel, and has been at the heart of the private equity and venture capital scene since its earliest days, playing a pivotal role for investment funds in all of their strategic investments and acquisitions. Our comprehensive and committed service to private equity and venture capital funds, as well as to multinational corporations and hi-tech companies of all stages of growth, is another major driver of our successful M&A and Hi-Tech practice groups, which comprise more than a third of the firm, and is among the largest corporate practice groups in Israel. Consistently ranked as a top tier firm in Chambers Global, Legal 500, IFLR1000 and the Israeli ranking guides, our breadth of knowledge, professionalism and outstanding client service contributes to our consistently winning various M&A awards throughout the years. “The firm will join you at the hip; they 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) “Experience in leading cross-border M&A transactions, resulting in highly professional and seasoned legal advice.” (Chambers Global) “EBN are exceptionally good lawyers. They are thorough, systematic and at the same time employ “out of the box” strategies and moves.” (Legal 500) As one of Israel’s most experienced, innovative and dynamic law firms, EBN & Co. is fully immersed in all sectors of the economy and well versed in all the issues affecting you. From high-tech to energy and infrastructure, from telecoms and media to real estate, and with a unique capabilities in both mergers and acquisitions and commercial litigation, “they are very businessoriented, 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.’s clients benefit from departments of topnotch corporate lawyers involved in major domestic and cross-border M&A transactions, as well as first class Litigators with an impressive track record of involvement in the market's most valuable, most sensitive, and landmark commercial disputes. T:+972.3.7770111 • F:+972.3.7770101 • [email protected] • www.ebnlaw.co.il As one of Israel’s most experienced, innovative and dynamic law firms, EBN & Co. is fully immersed in all sectors of the economy and well versed in all the issues affecting you. From high-tech to energy and infrastructure, from telecoms and media to real estate, and with a unique capabilities in both mergers and acquisitions and commercial litigation, “they are very businessoriented, 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.’s clients benefit from departments of topnotch corporate lawyers involved in major domestic and cross-border M&A transactions, as well as first class Litigators with an impressive track record of involvement in the market's most valuable, most sensitive, and landmark commercial disputes. T:+972.3.7770111 • F:+972.3.7770101 • [email protected] • www.ebnlaw.co.il 52 The US-Israel Legal Review 2020 US: DATA PRIVACY The California Consumer Privacy Act (CCPA) took effect on January 1, 2020 and became enforceable on July 1, 2020. The state issued final regulations in July. Israeli companies that do business in California and fall under jurisdiction of the CCPA must comply with a multitude of requirements involving privacy notices, opt-out mechanisms and consumer requests for data. In a November 2020 referendum, the state’s voters approved the California Privacy Rights Act (CPRA), which makes a variety of changes to CCPA, bringing it closer to the European Union’s General Data Protection Regulation (GDPR) in several respects. As CPRA will go into effect in January 2023, CCPA remains the state’s prevailing data privacy law. WHAT ISRAELI COMPANIES ARE SUBJECT TO CCPA? You can be subject to the law if you are a for-profit company that collects and processes California residents’ personal information, “do business” in the state and meet one of the following three criteria: • You have at least $25 million in annual gross revenues. This means $25 million from wherever acquired, not just revenues from California. • You buy, sell, share and/or receive (alone or in combination with others) the personal information of at least 50,000 California consumers, households or devices, per year. [Note: To reach this threshold, 137 unique visits to your website a day suffices.] • At least 50% of your annual revenue comes from selling California consumers’ personal information. You can also fall under CCPA if you control or are controlled by an entity that meets the above criteria and share branding, meaning CCPA applies to entities that do business in California and those that are part of the corporate group (parents or subsidiaries) of an entity that does business in California. You may indirectly be in scope if your B2B clients say so. In order to comply with obligations under CCPA, businesses that are subject to the law need to ensure that their third-party service providers use information in a way that allows the business to be compliant. Therefore, you could be required to comply with CCPA provisions indirectly, through an agreement with a customer. CCPA applies to any business that meets the above criteria, even if it does not deal directly with consumers. WHAT DOES IT MEAN TO COLLECT AND PROCESS CALIFORNIANS’ DATA? • You receive, buy, rent or access information (including personal information collected passively, i.e. through cookies); and • Determine the purpose and means of processing of information that both: ͵ Identifies, relates to, describes, is capable of being associated with or could reasonably be linked, directly or indirectly, with a particular consumer or household AND ͵ Pertains to an individual who is (1) in CCPA Compliance: A To-Do List for Israeli Companies California’s Landmark Consumer Data Privacy Law is Approaching Its One-year Anniversary: Take Steps to Comply Now. The US-Israel Legal Review 2020 53 California for other than a temporary purpose, or (2) domiciled in California, but outside the state for a temporary purpose “DOING BUSINESS IN CALIFORNIA” DOES NOT REQUIRE A PHYSICAL PRESENCE IN THE STATE This phrase is not defined in the CCPA. It has, under California tax laws, been deemed to apply, in certain cases, to companies doing business online without any physical presence in California. So, in the absence of guidance from the California Attorney General, it is likely that this will include you if: • You have employees in California. • You are an entity incorporated in California or an entity required to register in California as a “foreign entity” under existing California corporate and tax law. Per a recent amendment, as of April 1, 2019, companies not registered in California, with no physical presence in California, are required to register with the California Department of Tax and Fee Administration (CDTFA), collect the California use tax and pay the tax to the CDTFA based on the amount of sales into California, if their sales exceed a certain dollar threshold or they have more than 200 separate transactions. • You have ties to the state including, in some cases, repeated sales into the state and ownership of real property in the state. Consult with counsel to determine whether you fall in scope. If you do, below are some first steps to take: 1. CREATE NEW PRIVACY NOTICES You need to adopt and maintain four privacy notices: notice of collection, notice of opt-out, notice of financial incentive and a privacy policy. What does this mean? Create a Notice at Collection. • This needs to be made readily available where consumers will see or encounter it at or before the point of collection of any personal information. • Include the information collected, purpose, whether or not there is a “sale” and a link to your privacy policy. • Be comprehensive and precise. Draft in a way that is very user-friendly. This means that your notice must: ͵ Use plain, straightforward language – such that the notice is understandable to an average consumer. ͵ Avoid technical or legal jargon. ͵ Be written in a way that consumers understand. ͵ Use a format that draws the consumer’s attention to the notice and makes the notice easy to read, including on smaller screens, if applicable. ͵ Be available in the languages in which the business, in its ordinary course, provides contracts, disclaimers, sale announcements and other information to consumers. ͵ Be accessible to consumers with disabilities. (At a minimum, for notices provided online, the business shall follow generally recognized industry standards, such as the Web Content Accessibility Guidelines, version 2.1 of June 5, 2018, from the World Wide Consortium. In other contexts, the business shall provide information on how a consumer with a disability may access the notice in an alternative format.) Create a Notice of Opt Out. If you sell personal information (the way that this is defined in CCPA): ODIA KAGAN PARTNER 54 The US-Israel Legal Review 2020 US: DATA PRIVACY • Provide the notice. You need to provide a notice of the right to opt out. • Draft the notice to be “very user-friendly” (as explained above). You do not have to provide a notice to opt out if: • You will not sell personal information during the time period a notice to opt out is not posted; and • State unequivocally in your privacy policy that you do not and will not sell personal information. This has been a point of recent enforcement by the California Attorney General. • Create a notation in your records of all information collected during this time as being information of consumers who had exercised the right to opt out. This way, if you change your practice going forward – you will have an opt-out list. Create a Notice of Financial Incentive. Before drafting the notice: • Review the documentation of your financial incentive. • Analyze, using a reasonable and good faith method, whether it meets with the requirement that the price or difference is directly related to the value provided to the business by the consumer’s data (or “the value of the consumer’s data”) and document your analysis. • Use the criteria for the analysis provided in the regs. The notice: • Provide the notice of financial incentive. • Draft in a very user-friendly manner (see above). • Include the information required in the law/ regs. This should include an explanation of why the financial incentive or price or service difference is permitted under the CCPA. • Create a process for operationalizing the right to opt in and to withdraw that is easy for consumers to execute. 2. REVISE YOUR ONLINE PRIVACY NOTICE • Not just website data collection! Make sure that it includes your online and offline practices regarding the collection, use, disclosure and sale of personal information. • Draft the notice in a very user-friendly manner. (see above) • Include the following information: ͵ A description of the right to know and how to exercise it. ͵ What information you collect, the categories of sources from which that information was collected, the business or commercial purpose(s) for which the information was collected, and the categories of third parties with whom you share the personal information. ͵ Whether you have disclosed/sold personal information. ͵ A description of the right to request deletion and how to exercise it. ͵ A description of your method for verifying the consumer’s identity (or if there is no reasonable method, a statement to that effect and an explanation of why you do not have any reasonable method by which you can verify the identity of the requestor). ͵ A description of the right to opt out of a sale and how to exercise it. ͵ A description of the right to nondiscrimination. ͵ An explanation of how a consumer can designate an authorized agent to make a request under the CCPA on the consumer’s behalf. ͵ A contact for more information. ͵ The date the privacy policy was last updated. • If you collect or process the personal information of 10 million consumers or more a year: ͵ Number of each type of request that you have received in the past 12 months ͵ Whether you complied with the request in whole or in part or whether you denied it ͵ The median or mean number of days it took you to substantively respond to each type of request. 3. REVISE YOUR PROCESS FOR VERIFYING THE IDENTITY OF CONSUMERS MAKING KNOW/DELETION REQUESTS • Establish or revise and maintain your written, reasonable method for verifying the identity of the person making a request to know or to delete. • Establish and implement reasonable security measures to detect fraudulent identity verification activity and prevent the unauthorized access to or deletion of a consumer’s personal information. The US-Israel Legal Review 2020 55 • You generally cannot require the consumer to pay a fee for the verification. • Use the principles set forth in the regs to devise the process. Whenever feasible, use the information that you already have about the consumer and refrain from asking for sensitive information. ͵ Consider the type, sensitivity and value of the personal information. ͵ Consider the risk of harm to the consumer posed by any unauthorized access or deletion. • Establish a process for evaluating on a yearly basis whether a reasonable verification method can be established and document its evaluation. 4. REVISE YOUR PROCESS FOR RESPONDING TO KNOW (ACCESS) REQUESTS Before responding: • Create or revise the two or more methods you will make available for submitting requests. At minimum (with some exceptions): ͵ A toll-free telephone number and interactive web form accessible through the website or mobile application. ͵ Additional method reflecting the manner in which you primarily interact with the consumer (e.g. paper form for point-of-sale retailers). If you interact with consumer in person – consider a printed form/tablet or portal for submitting the requests. • Create a process for identifying and responding to requests not made through the designated process (e.g. specific directions as to how make the request using the designated method). • Create a process that ensures that you do not at any time disclose a consumer’s Social Security number, driver’s license number or other government-issued identification number, financial account number, any health insurance or medical identification number, account password or security questions and answers. • Create a process that allows denying requests for specific pieces of information if: ͵ The disclosure creates a substantial, articulable and unreasonable risk to the security of that personal information, the consumer’s account, or the security of your systems or networks. ͵ There is a conflict with federal or state law. ͵ There is an exception to the CCPA. • Implement reasonable security measures for transmitting personal information to the consumer as part of a response. • Devise/implement a process for dealing with requests pertaining to household information. (A household is defined as a person or group of people who reside at the same address, share a common device or the same service provided by a business and are identified by the business as sharing the same group account or unique identifier.) For the response, create/implement a process that includes: • An initial response within 10 business days confirming receipt and describing how you will verify identity and process the request. The response may be given in the same manner in which the request was received. • The ability to request additional time to respond, and the reason. • A notice of problem with verification that includes an explanation of your inability to verify and (i) for a request for specific pieces of information – a possible response with categories of information; and (ii) for a request for categories of information – a possible link to an explanation of your common data processing practices. • Full response: (Must be provided within 45 calendar days) If you are granting the request (a YES response) ͵ Avoid referring the consumer to your general practices outlined in the privacy policy unless its response would be the same for all consumers and the privacy policy discloses all the information that is otherwise required You need to adopt and maintain four privacy notices: Notice of collection, notice of opt-out, notice of financial incentive and privacy policy 56 The US-Israel Legal Review 2020 US: DATA PRIVACY to be in a response to a request to know such categories. ͵ Provide the information for each identified category of personal information collected about the consumer. If you are denying the request (a NO response) ͵ Explain why. ͵ If only some disclosure is prevented, provide the rest. ͵ For household request – If you cannot verify the identity you may provide aggregate household information, subject to verification requirements. 5. REVISE YOUR PROCESS FOR RESPONDING TO DELETION REQUESTS Before responding: • Assess whether it makes the most business sense for you to comply with deletion requests by a complete deletion or, alternatively, through de-identification or aggregation. ͵ If de-identification – (i) make sure that it meets with the definition of de-identification and (ii) for sensitive information – consider getting a third party to confirm the de-identification. • Conduct/revise your analysis of which exceptions to the right to delete may apply to you and make sure to assess whether those cover all of the information or only parts of it (if only parts – you would need to disclose the rest). • Create or revise the two or more methods you make available for submitting requests. • A two-step process may be used but is not required for online requests to delete, where the consumer must (i) clearly submit the request and (ii) separately confirm that they want their personal information deleted. • Create a process for identifying and responding to requests not made through the designated process (e.g. specific directions as to how make the request using the designated method). • Create a process for dealing with requests pertaining to household information. • For backup – ensure that information is deleted, following the receipt of the deletion request, the next time that the archive or backup system is restored to an active system or accessed or used for a sale, disclosure or commercial purpose. For the response: Create/implement a process that includes: • Initial response (see above) • Request for additional time (see above) • If you like – a notice presenting an option to delete only a selected portion of the data, provided that (i) you also offer a global option to delete all personal information; (ii) you present the offer to delete all information more prominently than the other choices; (iii) you use the two-step process (outlined above) for this. • Notice of problem with verification ͵ Tell the consumer that you cannot verify their identity. ͵ Provide an explanation of why you do not have any reasonable method by which you can verify. ͵ Treat the request as an opt-out of sale and inform the consumer of this fact. • Full response which includes: ͵ Specify the manner in which you deleted. ͵ Indicate that you will maintain a record of the request as required by the regs. ͵ For a denial of the request: Provide the basis of denial, delete information not subject to an exception and use the information retained per an exception only as permitted by the exception. 6. REVISE YOUR PROCESS FOR RESPONDING TO OPT-OUT REQUESTS Before responding: • Create or revise the two or more methods you make available for submitting requests. At minimum: • An interactive web form accessible through a clear and conspicuous link titled “Do Not Sell My Personal Information,” or “Do Not Sell My Info,” on your website or mobile application. • Additional method reflecting the manner in which you primarily interact with the consumer (e.g. paper form for point-of-sale retailers) • Incorporate into your process the ability to submit a request through an authorized agent. • If you like – add into the process a choice for the consumer to opt out of sales of certain categories of personal information provided that (i) You also offer a global option to opt out of the sale of all personal information; (ii) You present the global option more prominently than the other choices. The US-Israel Legal Review 2020 57 • Revise your process so that it: ͵ Allows you to respond as soon as feasibly possible but not later than within 15 business days from the date you received the request. ͵ If you sell a consumer’s personal information to any third parties after the consumer submits their request but before the business complies with that request, notify those third parties that the consumer has exercised their right to opt-out and direct those third parties not to sell that consumer’s information. ͵ Allows you to deny a request if you have a good-faith, reasonable and documented belief that a request to opt out is fraudulent. 7. REVISE YOUR AGREEMENTS WITH THIRD-PARTY VENDORS • Prohibit your service providers from using consumers’ personal information received in connection with the services provided to one business client for another except for the following reasons: ͵ To retain and employ another service provider as a subcontractor, where the subcontractor meets the requirements for a service provider under the CCPA and the regulations ͵ For internal use by the service provider to build or improve the quality of its services, provided that the use does not include building or modifying household or consumer profiles, or cleaning or augmenting data acquired from another source ͵ To detect data security incidents or protect against fraudulent or illegal activity ͵ To comply with federal, state or local laws ͵ To comply with a civil, criminal or regulatory inquiry, investigation, subpoena or summons by federal, state or local authorities ͵ To cooperate with law enforcement agencies concerning conduct or activity that the business, service provider or third party reasonably and in good faith believes may violate federal, state or local law ͵ To exercise or defend legal claims • Require your service providers to devise a process for recognizing and fielding consumer requests and conveying them to the right business client. • Address in your agreement with the service provider who answers consumer requests, you or the service provider. • If you will be responding to the requests, require the service provider, in your agreement, to devise a process for responding to consumer requests, to inform them that the request cannot be acted upon because it was sent to a service provider. 8. REVISE OR DEVELOP RECORDS RETENTION AND TRAINING PROGRAMS Records Retention: • Maintain records of consumer requests made pursuant to the CCPA and how you responded to said requests for at least 24 months. • Retain all signed declarations collected in connection with requests to know specific pieces of information. (Signed means physically signed or provided electronically under the Uniform Electronic Transactions Act.) • Avoid using records for any other purpose than for record-keeping. Training: • Revise or create a training policy to ensure that all individuals responsible for handling consumer requests or your compliance with the CCPA are informed of all the requirements in the regulations and the CCPA. • Document and comply with the training policy. Note: The regulations also include special requirements in the event you collect the personal information of children and if you are a service provider, which are not covered in this article. n Odia Kagan is a partner at Fox Rothschild LLP and Chair of the firm’s GDPR Compliance & International Privacy Practice. She can be reached at [email protected] 58 The US-Israel Legal Review 2020 ISRAEL: TAX The following article presents some of the significant developments in Israeli tax during the last year. UPDATES IN THE HIGH-TECH INDUSTRY The Broadcom Case – Business Model Change One of the most significant judgments published in recent years, which is highly relevant for the hightech industry, is the Broadcom case. Multinational companies acquire Israeli companies almost on a weekly basis. Following such acquisition, the acquired Israeli company is usually transformed into an R&D center, compensated on a cost-plus basis. That was also the case with Broadcom. Broadcom purchased the Israeli target company at a value of approximately 200 million USD. Following the acquisition of its shares, the Israeli company engaged in three inter-company agreements with the group and became an R&D center. According to the Israeli Tax Authority (“ITA”), after the acquisition, the Israeli company underwent a “business model change”, from a business venture that owns independent profitable intellectual property to a “risk-free” company that operates using a cost-plus model and develops intellectual property in favor of related foreign companies. Therefore, it should have been considered as an “empty corporate shell” that “emptied out” its assets in favor of the group’s members. Hence, the transaction should be reclassified, so that the company shall be taxed for the sale of its “FAR” (Functions, Assets and Risk). The FAR should be valued based on the price of the previous share purchase transaction, subject to a few minor computational adjustments. However, the court rejected the ITA’s thesis and accepted the appeal. The case was conducted by our firm and the ITA did not file an appeal to the Supreme Court. The district court determined that “I do not believe that the words “business model change” are some kind of magic words, where it is sufficient simply to utter them in order to give rise to a change of the classification of the transaction that was made between the parties”. The district court firmly stated that a “business model change” is a legitimate business action and not an automatic cause for issuing a sale assessment. This is a warning sign for the ITA which has been repeatedly reciting these three words, claiming that whenever an Israeli company acquired by an international group and shifts its model business to a “cost-plus” model, it transfers its own “FAR”. Now, the ITA is committed to carefully reviewing every transaction. Profit Split Assessments After losing the Broadcom case, it seems that the ITA has changed its approach towards multinational companies. Instead of claiming for a business model change after an acquisition of an Israeli company, now the ITA claims in many cases the opposite. Meaning, the ITA claims that the acquired Israeli company is independent and generates a substantial contribution to the multinational group. The ITA argues that the Israeli company is highly significant, 2020, More than just COVID Daniel Paserman looks at the Israeli tax developments of 2020. The US-Israel Legal Review 2020 59 serves critical functions in the group of companies, employs key personnel in the global group and bears significant risks. Thus, according to the ITA, the Israeli company should be regarded as managing and controlling the risks, and therefore some of the global group’s profits should be attributed to it. In other words, the ITA claims that more profits should be attributed to Israel compared to the global profits. Therefore, the “profit split method” should be applied with regard to transfer pricing, rather than the “cost-plus method”. Accordingly, the ITA has recently started to issue “profit spilt” assessments. The ITA analyzes the Israeli company’s contribution to the entire multinational group and its FAR. After doing so, the ITA tends to claim that some of the multinational group’s profits should be attributed to Israel. Our firm has been representing clients before the ITA and in court concerning such assessments. Capital Gain Treatment for Shares Issued Under Section 102 Section 102 of the Israeli Income Tax Ordinance (“Section 102” and the “ITO”, respectively) allows Israeli residents who are employees of a company to receive, under certain conditions, favorable tax treatment for compensation in the form of equity awards. Section 102 provides beneficial tax treatment to the employees: first, it allows for a postponement of the taxable event for the employee. Second, employees of private companies enjoy a 25% tax rate rather than marginal tax rate (which can be up to 50%). A precedential district court ruling, Shohat v. Tsfat Tax Assessor, illuminates the various aspects of Israeli employee option plans under Section 102, including, inter alia: • The Nature of the ITA’s Preliminary Approval of the Option Plan: a company must antecedently file the option plan and receive the ITA’s approval that the plan satisfies Section 102’s requirements. An option plan would be approved if the ITA failed to reject it within 90 days from its filing. • More Flexibility in Designing Option Plans: the Court concluded that companies have the prerogative to determine which rights are attached to each class of shares, including its transferability. • The Classification of a “Controlling Shareholder”: to qualify for beneficial tax treatment, an employee should not hold 10 percent or more of the company’s share capital (“controlling shareholder”). The Court determined that “controlling shareholder” holdings should not be determined per class of shares, but rather by the total issued shares. • The employee should be taxed at a 25% rate as a capital gain pursuant to Section 102 also in cases where the distributing company enjoys a beneficial tax treatment under the Israeli Encouragement of Capital Investment Law. DANIEL PASERMAN PARTNER AND HEAD OF TAX The district court determined that “I do not believe that the words “business model change” are some kind of magic words, where it is sufficient simply to utter them in order to give rise to a change of the classification of the transaction that was made between the parties.” 60 The US-Israel Legal Review 2020 ISRAEL: TAX It should be noted that both the taxpayer and the ITA recently appealed this judgement. Amending the Angels Law Recently, an initial draft of the economic plan, which incorporates changes that the government intends to promote regarding various sectors, was published. One change aims to promote the growth of the Israeli high-tech industry by removing funding barriers and encouraging the growth of Israeli companies whose intangible assets are in Israel and whose center of activity is based in Israel (the “New Proposal”). The New Proposal aims to amend the “Angels Law” (enacted in 2011) as follows: • Simplifying the bureaucratic process, so that the required approvals and confirmations from the Innovation Authority and the company’s accountants will no longer be required. • Allowing a deferral of capital gains tax generated from the sale of the investment in the high-tech company, provided that the investor made another investment in an early stage company within 12 months of the realization of the first investment. • Eliminating the requirement to maintain the purchaser and the target as two separate entities and allow for their merging. • Extending the tax benefits also to the acquisition of foreign high-tech companies provided that the intellectual property of the purchased target should be transferred to Israel, under certain conditions. • Exempting interest on loans granted by a foreign financial institution to companies that meet certain conditions. PRIVATE CLIENTS DEVELOPMENTS Groundbreaking Expected Reform in International Taxation The ITA is currently planning a major International Tax Reform (the “Reform”), which may have great influence on individuals with economic or personal ties to Israel. Moreover, it may influence foreign residents considering moving to Israel, Israeli residents considering leaving Israel and Israeli residents with households both in Israel and abroad. Key components of the Reform include: • Tax Residency: Israeli residency for tax purposes is based on the “center of life” test, which examines the overall facts and circumstances of the individual, including one’s familial, economic and social ties. In addition, the amount of days spent in Israel is important as the ITO provides two alternative residency rebuttable presumptions: an individual who stays in Israel for more than 183 days in a tax year or more than 425 days over the course of three consecutive tax years (and at least 30 days in the third tax year) is presumed to be an Israeli tax resident. The Reform wishes to introduce stricter irrebuttable presumptions determining one’s tax residency, including, inter alia, the following: the individual will be considered an Israeli tax resident if they stay in Israel for more than 183 days for two consecutive tax years; more than 100 days in a tax year and more than 450 days over the course of three consecutive tax years; or more than 100 days in a tax year and their spouse is an Israeli resident. • Exit Tax: an “Exit Tax” is imposed on any Israeli tax resident that emigrates from Israel and becomes a foreign tax resident. The “emigrant” is treated as though they had sold all of their assets on the day preceding the day on which they had ceased being an Israeli tax resident. Today, the law allows the taxpayer, however, to postpone the tax payment until the actual realization of the assets. The capital gain attributed to Israel upon the actual sale will be the capital gain generated during the time the “emigrant” was an Israeli tax resident. The Reform wishes to impose in certain circumstance an immediate obligation to pay the exit tax, and to provide A precedential district court ruling, Shohat v. Tsfat Tax Assessor, illuminates the various aspects of Israeli employee option plans under Section 102 The US-Israel Legal Review 2020 61 securities in cases that postponement shall still be available. The Reform includes additional reporting obligations and other provisions intended to prevent tax avoidance. • Controlled Foreign Company (“CFC”): The Reform attempts to expand the definition of passive income to include certain business income that is received from related parties, as well as lower the passive income threshold for the purpose of classifying a company as a CFC to one third of the total income or profits of the foreign company. Moreover, stricter conditions shall be applied to foreign companies that are residents of a country which is in the “black” or “gray” lists of the EU (excluding treaty countries), or residents of a country with which Israel does not have an agreement that allows the exchange of information. The Reform shall also impose reporting obligations on Israelis holding more than 10% of a foreign company’s means of control. • Foreign Tax Credit: The tax credit method in Israel is the “Basket Method” according to which each income item, on which tax was paid outside of Israel, is considered a separate “basket”, and the foreign tax will be creditable only against the Israeli tax paid for that specific income. The Reform reduces the number of “baskets” used in in the “Basket Method”, denies credit for foreign tax paid in certain cases or in certain countries, and prevents the use of excess credit in the following years, except for in specific cases. • Tax Benefits for New Residents: An individual who has become an Israeli tax resident after 2007, whether for the first time or as a veteran returning resident , is entitled to extensive tax benefits during a period of 10 years (the “Benefits Period”), such as exemption from Israeli tax on foreign source income and reporting requirements regarding foreign income and assets. The Reform is expected to limit the tax benefits afforded to new residents, although this matter is still under discussion. Obligating National Insurance Contributions for Family Company Income During the last year, the Regional Labor Court of Tel Aviv published a ruling in the case of Refael Nechushtan, which determined that individuals are required to make national insurance contributions for all income derived from a “Family Company”, irrespective of its source or type, including income that would have been exempted if the individual had incurred it directly (and not through the Family Company). The National Insurance Law (the “Law”) provides that required insurance contributions are calculated on the basis of an individual’s taxable income defined by the ITO. However, capital gains and income such as income from interest, dividends etc. earned directly by an individual are exempt from insurance contributions (“Exempt Income”). According to the ITO, a company whose shareholders are all close family members can choose to be treated as a look-through entity for tax purposes (Family Company). The income and profits of a Family Company are attributed to the shareholder who is entitled to the largest share of the Family Company’s profits. The taxation of the company’s income is calculated as of the date at which the income is generated by the Family Company and not the date of the distributions to the individual shareholders. The Regional Labor Court ruled that an individual’s exemption from insurance contributions with respect to Exempt Income does not apply to income attributed to the individual from a Family Company. Therefore, all of a Family Company’s income should be regarded as having been distributed as a dividend obligated in insurance contributions, irrespective of the type of income. Unreported Income is Not Covered Under the Statute of Limitations In a recent case, the district court dismissed a motion to approve a Class Action against the ITA (the Nukrai Case), ruling that the civil statute of limitations The Reform wishes to introduce stricter irrebuttable presumptions determining one’s tax residency 62 The US-Israel Legal Review 2020 ISRAEL: TAX period that is set forth in the ITO does not apply to income that has not been reported. In the course of voluntary disclosure proceedings, the ITA generally collects tax on income that has been generated in the last ten years, and also on the value of the undeclared assets of the taxpayer as it was ten years ago, unless it has been proven that these assets are attributable to income that was not subject to tax or that the tax thereon was duly paid. In a motion to approve the Class Action, it was claimed that since the criminal limitation period in respect to income tax is ten years, the ITA is precluded from imposing tax on assets that were accumulated more than ten years ago, including in the framework of a voluntary disclosure proceeding. The Court, however, accepted the ITA’s position, ruling that even though there is no dispute that a taxpayer cannot be indicted for concealing income that was generated more than ten years ago, it cannot be established that the tax in respect of such income shouldn’t be collected. While it is true that taxpayers who failed to report their income are subject to statute of limitations for the purpose of the filing of a criminal indictment, nevertheless, in situations in which no report was filed and the income has not been reported at all, it has been determined that there is no restriction on the statute of limitations period from the civil aspect. Therefore, in that case it is possible to demand reports, to issue assessments, and to collect taxes in respect to the above-mentioned income, needless to say, subject to the rule of reasonableness as required of any state authority by administrative law. ABOUT THE AUTHOR 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, whilst applying his interdisciplinary approach, vast experience and accounting expertise. In the field of private clients, Daniel represents clients in matters concerning family wealth planning and preservation, specializing in taxation of trusts and estates and provides tax planning guidance for high net worth individuals. He has earned the trust of highly affluent families and HNWI, serving as their legal advisor and personal consiglieri, and often provides consultation in the area of philanthropy. He also advises new and returning residents who immigrated to Israel with regard to the projected ramifications of such a move on their worldwide assets and business activities. Daniel 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. n Some see a conflict We see common ground TAX | CHAMBERS GLOBAL "...most valued for their problem-solving capabilities and legal professionalism." The Reform reduces the number of “baskets” used in in the “Basket Method”, denies credit for foreign tax paid in certain cases or in certain countries, and prevents the use of excess credit in the following years The US-Israel Legal Review 2020 63 Some see a conflict We see common ground TAX | CHAMBERS GLOBAL "...most valued for their problem-solving capabilities and legal professionalism." 64 The US-Israel Legal Review 2020 ISRAEL: PRIVACY HOW DO GLOBAL PRIVACY LAW TRENDS AFFECT AMERICAN PRIVACY LEGISLATION? Over the recent years, there is a growing global trend of advanced privacy legislation initiatives. From Europe to Brazil’s recently enacted data protection law, ‘Lei Geral de Proteção de Dados Pessoais’, to Australia’s Privacy Act – comprehensive and robust privacy legislation is rapidly becoming a worldwide standard. One of the most recognizable and significant moments of this trend was the entry into force of the European General Data Protection Regulation (“GDPR”), which influenced both new and existing legislation in other jurisdictions. The GDPR is comprehensive due to two main aspects: it addresses all types of personal information and, as per its extraterritorial reach, it may be applicable to any entity that offers goods or services to residents of the European Union or monitors them. In the US, a different legislative approach was taken – various aspects of data protection are regulated under both federal and states laws. The US currently does not have in place a sweeping federal privacy legislation, and legal protection of personal information is subject to a variety of sectoral laws. For example, The Health Insurance Portability and Accountability Act (“HIPAA”) protects medical information, the Fair Credit Reporting Act (“FCRA”) provides protection of consumer credit information, the Gramm-Leach-Bliley Act (“GLBA”) regulates personal finance information and the Children’s Online Privacy Protection Act (“COPPA”) protects children’s privacy online. Although all fifty states have implemented laws to protect their residents in case of a data breach, the majority of them do not have in place other comprehensive privacy legislation. But the winds of the global trend of enhanced privacy legislation are significantly noticeable in the US as well. Recently, consensus on the need and attempts to enhance the protection of American consumers’ digital privacy on the federal level have increased. For example, In November 2019, the Consumer Online Privacy Rights Bill was introduced in Senate. This law would have a broad applicability to personal data across the US, and would have implemented common modern privacy principles on a federal level. Similarly, in September 2020, a group of Senators presented a new legislative initiative – the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (“SAFE DATA”) Bill. This bill would preempt state laws and enhance consumers’ privacy through substantive rights, remedies and federal enforcement. While no such federal legislation has passed , it appears that there is a growing interest in online privacy in the American Congress, and over the last years public hearings, which included some of the world’s biggest technology companies, were held on these matters. Trends in American Privacy Law and their Effect on Israeli Companies The ever-growing amount of privacy regulations sources presents a considerable challenge for Israeli companies that operate worldwide, and especially in the US. The US-Israel Legal Review 2020 65 All of these actions strengthen the assumption that a comprehensive federal law may be enacted at some point in the near future. In addition, various US states have implemented or are promoting new and advanced privacy protection laws. Comprehensive legislative initiatives are currently pending, inter alia, in Massachusetts, New York, Washington and Maryland and this list is expected to grow. Other states have also enacted advanced legislation with regard to specific aspects of privacy, such as protection of biometric data in Illinois and regulation on data broker in Vermont. However, the most known and comprehensive existing state legislation is the California Consumer Privacy Act (“CCPA”), which entered into force this year and is commonly mentioned in the same breath with the GDPR due to their similarities and worldwide influence. HOW IS THE CCPA DIFFERENT COMPARED TO THE GDPR? On the material level, modern privacy laws are based on several key legal principles. Some of them dedicate a specific reference to each of these principles, while in others the principles are entwined throughout the provisions of the law. These key principles can be divided into the following elements: i. Lawfulness, fairness and transparency: under this principle, for processing of personal data to be deemed lawfully, a lawful basis must be identified prior to any processing activity. The fairness element requires certain information to be available for the relevant data subjects, and the transparency element requires this information to be communicated in an intelligible form, using clear and plain language; ii. Purpose limitation: personal information should only be collected in order to achieve a specific purpose. Once collected, the personal data should not be used to serve another purpose that was not disclosed in advance. The purposes should be disclosed through privacy notices; iii.Data minimization: collection of personal data should be limited to what is necessary to achieve the purpose. Similarly, personal information should not be retained longer than necessary; iv. Security: personal information should be processed in a manner that ensures appropriate security, taking into consideration physical, technological and organizational measures; v. Accuracy: reasonable steps should be taken to ensure that the stored personal information is updated and is not incorrect or misleading as to any matter of fact; and vi. Accountability: compliance with applicable privacy laws should be demonstrated through internal and externally facing policies and procedures. These policies and procedures should follow the approach and concepts of Privacy by Design and by Default. These principles are embedded throughout the CCPA’s regulatory framework. Evidence of the principles can be found, inter alia, in the CCPA’s requirement to inform consumers of collection via conspicuous privacy notices. These notices also require business to disclose the purposes of the collection, and the law prohibits them from collecting additional categories of information for other purposes without a similar notice. In addition, certain data rights that are given to consumers, such as the rights of access and deletion, call ARIEL YOSEFI HEAD OF TECHNOLOGY & eCOMMERCE REGULATION TOM BORENSTEIN LEGAL INTERN Various US states have implemented or are promoting new and advanced privacy protection laws 66 The US-Israel Legal Review 2020 ISRAEL: PRIVACY for business to maintain accurate records. The consumers’ private right of action in certain cases of data breaches, as well as accompanying regulatory enforcement, require business to process the personal information in a secure manner. The data protection principles that are in the background of these obligations are the essence of the material similarity between the CCPA and the GDPR. Despite their similarities, the CCPA is different from the GDPR mainly in various procedural aspects. For example, the CCPA requires businesses to disclose additional and different element of information compared to the GDPR’s based privacy policies. A privacy policy published as per the CCPA, for instance, would need to include a description of the consumers’ data rights and some of them are unique to the CCPA. Businesses are also obliged to follow different timelines when responding to consumers’ requests to exercise their data rights compared to the GDPR’s timeline. In addition, where applicable, under the CCPA businesses must provide a clear option (e.g., with a “do not sell my personal information” link) for consumers to opt out of having their personal information sold or shared. These procedural differences require businesses to adjust their internal and external facing policies and procedures. This adjustment poses a compliance challenge for businesses that fall within the scope of the CCPA, including, of course, Israeli companies. WHICH ISRAELI COMPANIES ARE INFLUENCED BY THE CCPA? The CCPA could apply to many Israeli companies, both directly and indirectly. The CCPA directly applies to for-profit entities that are doing business in California (broadly interpreted) and collect, share or sell California consumers’ personal information, if they also meet one of the following thresholds: i. An annual gross revenue of over $25 million; ii. Possession of personal information of over 50,000 or more Californian consumers, households or devices; or iii. Over half of the entity’s annual revenue is earned from selling consumers’ personal information. ‘Personal information’ is very broadly defined in the CCPA, and in some aspects may even go beyond the definition in the GDPR. The definition includes any information that identifies, relates to, describes, and is reasonably capable of being associated with, or could reasonably be linked, directly or indirectly, with a particular consumer or household. The CCPA also enumerates, without limitation, certain categories of information (e.g., identifiers and website activity) that would be considered personal information. In addition, the CCPA broadly defines ‘sale’ of information, and the following actions are covered under this definition: selling, renting, releasing, disclosing, disseminating, making available, transferring, or otherwise communicating a consumer’s personal information by the business to another business for monetary or other valuable consideration. Due to these broad definitions, a myriad of categories of personal information that are held by companies would be considered personal information, and even common industry practices such as using cookies or other online identifiers and tracking technologies with regard to Californian residents’ browsers may amount to “making available” personal information, and therefore to sale, as defined by the CCPA. Therefore, many Israeli companies are likely to directly meet the threshold of the CCPA and become subject to its regulatory reach. It should be noted that despite these broad definitions, the CCPA includes several exemptions with regard to certain types of personal information. The CCPA does not apply to personal information that is processed by covered entities or business associates, as defined by HIPAA, and in compliance with it. Similarly, personal information that is processed by financial companies in accordance with the GLBA, or by credit reporting agencies in accordance with the FCRA is also fall outside of the Many Israeli companies are likely to directly meet the threshold of the CCPA and become subject to its regulatory reach The US-Israel Legal Review 2020 67 CCPA’s scope. Certain personal information that is collected from employees and job applicants in the course of employment, or that is involved in businessto-business communications and transactions is currently exempt, at least until January 2022. The CCPA is enforced by the California’s Attorney General and non-compliance with the law could lead to sanctions. Violations of the CCPA carry penalties of up to $2,500 per violation and up to $7,500 for intentional violations. A violation occurs each time a consumers’ right is violated by a non-compliant entity, and the violations may stack up and therefore lead to significant sanctions. In addition, the CCPA provides California residents with a private right of action by with regard to data breaches resulting in the exfiltration, theft or disclosure their non-encrypted or non-redacted personal information. The statutory damages under this right vary between $100 and $750 per incident. Except for direct and formal applicability of the CCPA, Israeli companies may also be indirectly required to comply with the CCPA as a business requirement in the global market. It is gradually becoming a common industry practice for entities to contractually require their business partners to be or to become CCPA-compliant (e.g., in their role as data processors for the provision of a service). Under such circumstances, Israeli companies could find themselves subject to the CCPA’s requirements even though they may not meet its abovementioned formal thresholds. WHAT DEVELOPMENTS ARE EXPECTED IN THE FORESEEABLE FUTURE? As the trend of modern and advanced privacy legislation initiatives is proceeding, we expect to see significant legislation activities in these areas throughout the US. With the increased public awareness and debate over regulation of personal data, especially in the US, it is likely that various states would further promote legislation to regulate the practices of legal entities in their jurisdictions. Some of these state laws may follow Illinois’ and Vermont’s examples of limited statutes that regulate specific aspects of personal information, while many others may follow the example of the CCPA and enact acts to broadly regulate personal information. The current atmosphere could also lead, after years of legislative efforts, to a comprehensive federal law, which would change the US’ approach to privacy law altogether. The ever-growing amount of privacy regulations sources presents a considerable challenge for Israeli companies that operate worldwide, and especially in the US. While the specific details and potential effects of future legislation is currently unknown, based on recent legislation activity we believe that they will include two main elements, which allow companies to better prepare themselves beforehand. The first aspect is that legislation is expected to follow the common data protection principles, as discussed in the first section above. Therefore, the material requirements are likely to be similar to other existing advanced privacy laws, while the procedural obligations may vary between the jurisdictions. The second aspect relates to the scope of the laws, which are expected to have an extraterritorial reach, similar to the GDPR and CCPA. This, in turn, would require to companies to closely monitor their data flows, especially under the current regime where privacy is regulated on the states’ level. In order to efficiently and successfully overcome the challenges as imposed by diverse and simultaneous sources of privacy regulation, Israeli companies should develop a harmonized and integrated procedural approach in their response to the various requirements. Such approach would simplify transitions to additional new regulatory sources, and allow the companies to be compliant with the relevant requirements while maintaining As the trend of modern and advanced privacy legislation initiatives is proceeding, we expect to see significant legislation activities in these areas throughout the US 68 The US-Israel Legal Review 2020 ISRAEL: PRIVACY a relatively simple and compliant business activity. Achieving this goal would include an ongoing constant mapping of the organization’s personal information collection and uses, as well as the data subjects’ locations and jurisdiction; evaluation and updating existing policies and procedures to ensure compliance and to perform data protection impact assessment processes in order to help identify and minimize the data protection risks which are associated with a global cross-jurisdictional approach. Another aspect of data protection that has known upheavals over the past year, especially with regard to the US, and Israeli companies should also be minded to, is international data transfers. In July 2020, in the case of ‘Schrems II’, the European Court of Justice has invalidated the Privacy Shield framework, which was a unique framework allowing the transfer of personal data from European countries to organizations in the US. Consequently, in September 2020, the Israeli Privacy Protection Authority (“PPA”) has issued a statement regarding the transfer of personal data from Israel to the United States, in light of the annulment of the Privacy Shield framework in the abovementioned ruling. The PPA clarified that the exception set forth in Section 2(8)(2) of the Israeli Privacy Protection Regulations (Transfer of Data to Databases Outside the State Borders), that enabled data transfers from Israeli companies to American companies based on the Privacy Shield framework, can no longer be relied upon as basis for this purpose. In addition, the PPA has further stated that a reform in the Israeli privacy regulations is under consideration, in order for it to adjust to changes, while taking into account the world’s leading regulation in that matter. Therefore, Israeli companies that transfer personal data to the US must analyze their data sharing mechanisms and consider proper adjustments that would allow the implementation of alternative data transfer legal mechanisms, while taking into consideration that changes in the current mechanisms are expected in the upcoming future. n ABOUT THE AUTHORS Ariel Yosefi is a partner and co-head of the firm’s Technology & Regulation Department. He is highlyregarded for his prominent global practice and experience in advising startups, multi-national companies, mobile apps and software developers, internet and disruptive technologies vendors, on applicable technological regulatory and compliance considerations in numerous areas. Ariel has unique experience with the increasing volume of related regulations, enforcement actions and legislative trends across a myriad of jurisdictions, as well as with the industry’s best practices and leading selfregulatory guidelines. T: +972-3-6922871 E: [email protected] Tom Borenstein is a Legal Intern at the firm. He was previously Analyst at the Office of the Prime Minister of Israel, and Intelligence Analyst and Team Leader with the Military Intelligence wing of Israel Defense Forces. Another aspect of data protection that Israeli companies should be minded to is international data transfers R E N O W N E D FOR A REASON Asia House 4 Weizmann Street Tel Aviv 6423904 Israel ___________________________ [email protected] Tel: +972 3 692 2020 Fax: +972 3 696 6464 ___________________________ Visit our website: www.herzoglaw.co.il 70 The US-Israel Legal Review 2020 US-ISRAEL: CAPITAL MARKETS OVERVIEW Despite the global uncertainty and upheaval caused by the COVID-19 pandemic, business as usual has continued across Israel’s capital markets. Latham & Watkins has been involved in 18 Israeli-related capital markets transactions since the pandemic spread across the globe in Q1, including nine completed initial public offerings (IPOs), four convertible bond offerings and four follow-on offerings. While many market commentators predicted that global capital markets would grind to a halt in the wake of the virus, Israel continues to defy expectations, with strong levels of activity expected to be sustained for the remainder of 2020 and into next year. Total listings have already hit US$3.5 billion, a higher figure at this stage of the year than at any point since 2015, according to Dealogic data. There have been as many Israeli-related US IPOs in 2020 thus far as there have been in the previous three years combined. So far this year, larger Israeli companies have opted to list on US stock markets, as valuations of Israeli company listings in the US are six times greater than listings on the Tel Aviv Stock Exchange (TASE). Yet TASE continues to see the largest volume of IPOs for Israeli or Israeli-founded businesses. A total of 11 companies have listed shares for the first time in Tel Aviv this year, more than all other exchanges combined including the IPO and global offering of Max Stock, which marks a new trend of TASE IPOs being combined with Rule 144A/Reg S global offerings (off the back of the global IPO of TASE itself last year), enabling TASE-listed companies to access international investors in their local IPO. 2020 TRENDS Following a surge in activity in the United States, Special Purpose Acquisition Companies (SPACs) have emerged as a viable option for tech companies. Investors are turning to equity markets for returns, and financial sponsors are seeking new ways of taking their portfolio companies public. For companies that are already publically traded, convertible bond offerings and follow-on offerings provided viable financing options through the economic downturn, with 2020 seeing a record number of convertible bonds issued by Israeli companies. Remarkably, most of these convertible bond offerings were done with a zero coupon, reflecting the high quality of Israeli issuers and high demand from investors. Overall, capital markets remain buoyant, with the outlook broadly positive. With a range of financing options in Israel and the United States, we expect deal activity will remain strong in 2021, particularly in Israel’s well-regarded life sciences and technology industries. IPOs IPOs remain available to Israeli companies in 2020, with both domestic and US markets providing options for businesses seeking to go public. So far this year, larger Israeli companies have Israeli Capital Markets Defy Expectations Israel has turned pandemic challenges into opportunities, with significant growth in IPOs, SPACs, and convertible bond offerings at an all-time high. The US-Israel Legal Review 2020 71 preferred the option of US exchanges. The total value of IPOs on US exchanges has reached US$3 billion, more than six times the value of listings on Israel’s domestic exchange. Notable offerings have included the July IPO of mobile-based insurance startup Lemonade on the New York Stock Exchange, valuing the company at more than US$3 billion, and JFrog, an Israeli-founded high-tech company, with stock price soaring by 55% on its Nasdaq IPO in September, reaching a valuation of US$4 billion. Nevertheless, TASE continues to see the largest volume of IPOs for Israeli or Israeli-founded firms. Since the beginning of the year, 11 companies have listed shares for the first time in Tel Aviv, more than all other exchanges combined. A highlight for Latham & Watkins arrived in September, as the firm advised Jefferies on the ground-breaking and globally marketed TASE IPO of value retailer Max Stock. The Max Stock deal paved the way for global private equity firm Apax Partners to realize a significant return on its investment, valuing the company at NIS1.7 billion on its market debut. Total listings of Israeli and Israeli-founded companies have already hit US$3.5 billion (as at Q3 2020), a higher figure at this stage of the year than at any other point since 2015. The volume of IPOs this year is expected to surpass the 2017 high of 21 IPOs, making it a record year for listings. PANDEMIC CHALLENGES AND OPPORTUNITIES On the opportunity side, US capital markets have reached record highs despite the pandemic, as the American government continues to inject money into the financial system. However, barriers to travel, and investor access, present challenges to deal teams. Large institutional investors have been hungry to invest in innovative technologies and are particularly focused on companies that have managed to thrive despite, or even because of the pandemic. Companies that adapt well in the shift to remote working, particularly e-commerce companies and e-commerce enablers such as Wix and Fiverr, have seen their market capitalization take off, with investors lining up to buy securities in these companies. Similarly, e-commerce, digital health, and SaaS companies such as Lemonade, vroom, AmWell, and JFrog have all weathered the storm and thrived during the shift to remote working by offering products and services that fill critical needs during the pandemic. Life sciences continues to be an attractive sector for domestic and international investors, as healthcare topics dominate the news agenda. Encouragingly, the IPO pipeline remains strong. With stable markets, an even larger IPO pipeline is expected for 2021 compared to 2020. CONVERTIBLE BOND OFFERINGS Convertible bond offerings have been in high demand in 2020. These products are a form of hybrid security, which allow bondholders to exchange their holdings for company shares when a certain threshold or price target is met. Bonds have grown in popularity as companies seek to shore up their balance sheets, and investors chase returns. In light of the economic stress caused by JOSHUA KIERNAN PARTNER GILAD ZOHARI ASSOCIATE Total listings have already hit US$3.5 billion, a higher figure at this stage of the year than at any point since 2015 72 The US-Israel Legal Review 2020 US-ISRAEL: CAPITAL MARKETS COVID-19, many impacted issuers in need of liquidity, as well as companies whose stock prices have dramatically increased during the pandemic, have sought out cheaper ways to borrow money. For some, the answer has been convertible bonds and global new issuances of convertibles has surged in 2020. For companies impacted by the pandemic, part of the attraction for issuing convertible bonds is the lower cost; companies usually pay a lower coupon than traditional fixed income instruments due to the value of the attached equity option. Additionally, convertible bonds can afford issuers a path to equity issuance at a premium to current market prices. These factors have opened the convertibles market to companies that may not otherwise have turned to such deals. In 2020 alone, there have been six Israelirelated convertible bond offerings (four by Israeliincorporated issuers). Five out of the six deals were completed with a zero coupon, meaning investors were willing to buy the bonds even though they pay no interest, in the hopes of getting upside on the equity once the bonds convert into shares. In recent years, Latham & Watkins has helped to create the structure for convertible offerings by Israeli-incorporated issuers, and the firm has advised on all four convertible bond deals by Israeliincorporated issuers to date this year. The firm advised website builder Wix on its US$575 million offering, online marketplace Fiverr on its US$460 million convert, which generated record demand, and Nova Measuring Instruments on its US$200 million upsized offering. Latham also advised the underwriters on NICE Systems’ US$460 million convertible bond offering. Many of the bond offerings included a so-called “capped call” transaction that serves to hedge the risk of equity dilution by raising the effective conversion price for equity-linked notes, and we expect these to remain popular. These transactions demonstrate the strong appetite among institutional investors for highquality issuers across different sectors of the technology industry in Israel. The string of highly successful convertible bond offerings out of Israel this year is a dramatic and positive sign as to how the markets view the country’s most innovative companies such as Wix, Fiverr, Nova Measuring Instruments, NICE Systems, and SolarEdge. Before 2020, there were only three Israeli convertible bond offerings over the previous five years. While it is difficult to predict the market conditions for 2021, we think convertible debt issuances will continue to be an attractive option relative to other forms of debt and equity capital. FOLLOW-ON OFFERINGS When we look back at the last few months, the COVID-19 pandemic has created a truly unprecedented set of challenges for the global economy and society at large. The need to secure additional liquidity was at the forefront of Latham’s clients’ minds as lockdown measures in March and April caused revenues to collapse at many companies and revenue uncertainty in others. But the significant policy responses to maintain liquidity in markets and inject stimulus have been decisive, sizable, and remarkable. These programs will remain critically important in supporting economies as companies navigate the path to recovery. Latham expects further investor drive and appetite for follow-on offerings in technology, medical, and pharmaceutical assets given the importance of these sectors in a post-COVID-19 world. Industry subsectors such as hospital companies, telehealth, online pharmacies, and lab diagnostics are all likely to see increased investor focus. Acquirers will also place increasing importance on scalable internet-driven business models as companies advance further into the digital world. Industries that have been hit hard by the COVID-19 crisis include automotive, aerospace, aviation, retail, leisure, casual Companies have used past economic downturns as a catalyst to transform their businesses and emerge stronger The US-Israel Legal Review 2020 73 dining, and media and some companies from these sectors have made the most of follow-on offerings as a method to raise additional capital. Several Israeli public companies have raised money during the pandemic through followon offerings, including Fiverr, Sapiens, Camtek, Audiocodes, Ormat Technologies and Kornit Digital. Latham advised on four out of these six deals. Many of Israel’s leading technology companies have already raised money this year through followon offerings and convertible bonds, so commentators expect to see a slowdown in issuances by the large Israeli technology companies over the next year. However, Latham expects to see companies in industries that have been hard hit during the pandemic look to access the capital markets to raise funds to weather a potentially extended economic downturn. Therefore, the market anticipates a number of follow-on offerings to emerge next year as the depth of the pandemic-related financial crisis becomes clear. The successful transactions of 2020 are likely to instill confidence in other public companies to follow suit. Companies have used past economic downturns as a catalyst to transform their businesses and emerge stronger, meaning companies will be looking to streamline their businesses, reduce debt, and respond to shifts in industries from this significant market event. Divestment of non-core assets will become more important as boards look to further stabilize performance and focus on their strongest business lines. SPACS Special purpose acquisition companies (SPACs) have emerged as a popular product across the globe in 2020, with significant activity in major markets including the United States. SPACS are vehicles that list on a stock exchange, raise capital for an acquisition, and then purchase a private company, taking the business public via a “back-door” listing. Investors and sponsors with an industry focus are increasingly forming SPACs as an alternative way of raising funds, through an IPO, prior to buying an operating company. SPAC structures represent a careful balance between investor protections and an effective acquisition tool – providing benefits to investors, sponsors, and sellers of target businesses. SPAC management teams typically target an industry or sector, but not a particular company, before IPO. Once a SPAC goes public it has a set timeframe – usually 18 to 24 months – to use its funds to acquire a target (de-SPAC), or else return the funds to its investors. Latham has seen increasing demand from Israeli firms for SPAC-related advice. SPACs are viewed as a less burdensome and more cost-effective way of bringing companies to the stock market. This process is a strong alternative to the traditional IPO, offering a source of financing and an efficient route to go public that may be a better fit for some Israeli companies. SPAC IPO pricing is often simpler on the front end because the value of a SPAC’s shares is equal to the money in its trust. Credible sponsors with significant assets under management are increasingly executing larger SPAC IPOs and de-SPAC transactions, successfully acquiring significant operating businesses in the process. Price discovery takes place between the SPAC and target business during the de-SPAC transaction. This can be appealing to investors because it provides an equally – if not more insightful – pricing process than that of a traditional IPO. While the US has led the way on SPACs, with nearly US$50 billion raised so far this year, there are strong signs that we will see more SPAC activity in Israel. In October, Israeli blank check company ION Acquisition Corp raised approximately US$260 million, the largest SPAC deal in the Middle East, and the first in the region in 2020. We anticipate that additional Israeli SPACs will be formed, as investors turn to equity markets for Israel has more promising technology and life sciences startups than at any other time in its history 74 The US-Israel Legal Review 2020 US-ISRAEL: CAPITAL MARKETS returns and financial sponsors explore exits for their portfolio companies. LIFE SCIENCES While many industries have been hit hard during the pandemic and the wave of potential bankruptcies are only beginning, Israel’s life sciences sector continues to lead the way as one of the nation’s most exciting industries. COVID-19 has underlined the importance of Israel’s life sciences economy and raised the profile of the sector across the globe. Israel’s disproportionate reliance on the technology and life sciences sectors relative to other economies has raised investor awareness of the country’s world-class innovation and thought leadership in the tech and life sciences sectors, making global investors hungry for Israeli-related stocks. However, many life sciences companies have faced delays in their progress having been forced to halt clinical trials. Many of these companies will look to raise money through cross-over rounds. Cross-overs (late-stage private financings before a public listing), allow companies to strengthen their balance sheets and line-up an anchor investor for their IPO. In the current environment, anchor cross-over investors have become essential before a life sciences company can conduct an IPO. In the next year, Latham expects several Israeli life sciences companies will take this step, as many are pre-revenue with immediate funding needs. In turn, this is expected to lead to an increase in Israeli life sciences IPOs once companies have readjusted their capital structures. THE OUTLOOK How have Israeli capital markets evolved in the age of COVID-19? What is the outlook for 2021? While there has been an encouraging level of activity in 2020, the current economic landscape has presented challenges to companies and their advisers, including banks, lawyers, and accountants. There are no face-to-face drafting sessions and negotiations, and no international roadshows to secure investors and present transactions. Deal teams are operating in a “new normal” and have adjusted to a new remote way of working. While there were initial questions over whether remote working would be effective, 2020 has proven deals can be done outside of the traditional setting – in some cases even more effectively and cost-efficiently. In Latham’s experience, roadshows that usually lasted two weeks pre-pandemic are now being conducted in shorter time frames, with companies saving on costs associated with deals, particularly travel expenses. Time will tell whether remote deal making can replace the tangible and intangible benefits of physical meetings and presentations. There are positive signs for the year ahead. Latham believes the financial impact of the COVID-19 pandemic will result in businesses accessing capital markets to readjust their capital structures, raise funds, and bolster their operations for an economic recovery. Many of Israel’s leading technology companies have already raised money this year via followon deals and convertible bonds. Therefore we expect a slowdown in issuances by larger publiclytraded Israeli companies. However, Latham expects pandemic-related volatility will result in a strong level of overall capital markets activity, as businesses look to survive through an extended global recession. The IPO market looks set for a strong year in 2021. There is an even larger IPO pipeline building for the next 12 months, assuming there are no further shocks from the pandemic or other geopolitical factors. Latham believes this strong pipeline has been driven by the growth of “tech unicorns” in recent years, many of which have reached IPO level maturity. The pandemic is also playing a part, as many companies have managed to thrive this year and may accelerate their IPO plans. The level of activity ahead is difficult to predict, however, and forecasters have not enjoyed a successful year. Activity through 2021 depends on the resilience of capital markets, which are vulnerable to global headwinds. Many factors could negatively impact the markets and cause a flight to safety away from stocks. Political uncertainty following the US election, or a worsethan-expected economic downturn, could sway investor sentiment in the months to come. However, Israel has more promising technology and life sciences startups than at any other time in its history. If the window remains open in the 12 months ahead, there are plenty of dynamic and innovative companies ready and waiting to come through it. n One Team. One Vision. One Platform. Band 1 for Corporate/M&A in Israel Chambers Global 2020 LW.com US-Legal Review_203.2mm x 266.7mm.indd 1 09/11/2020 17:17:58 One Team. One Vision. One Platform. Band 1 for Corporate/M&A in Israel Chambers Global 2020 LW.com US-Legal Review_203.2mm x 266.7mm.indd 1 09/11/2020 17:17:58 76 The US-Israel Legal Review 2020 ISRAEL: CYBERSECURITY ISRAEL CYBERSECURITY INDUSTRY – THE FIRST HALF OF 2020 The Israeli cybersecurity industry has continued flourishing during the first half of 2020. According to Israel National Cyber Directorate data, as reported in the press1 , about 29% of the world’s cyber investments are made in Israel. There are currently 540 cyber firms in Israel. In the first half of 2020, the Israeli cyber industry, despite the global coronavirus pandemic, has raised $1.2 billion in 43 transactions. CYBERSECURITY LABS IN THE CITY OF BEER SHEVA – INNOVATIVE ECOSYSTEM Remarkable advancement was made this year towards establishing labs to promote innovative cybersecurity solutions for sectors of critical services. These projects to be elaborated below, demonstrate the vibrant cybersecurity ecosystem in Israel. Global Enterprises step into Fintech-Cyber innovation Lab in Beer Sheva. In May 2020, Israel Innovation Authority selected “Finsec Lab” corporation, owned by MasterCard Group and Enel X, to establish a Fintech-Cyber innovation Lab in Beer Sheva with NIS 13 Million funding from the Israel Innovation Authority, the Israel National Cyber Directorate and the Israel Ministry of Finance for a period of 3 years.2 The Lab will be located next to the financial center of the National Cyber Directorate. According to Israel Innovation Authority announcement, the Lab should “help entrepreneurs and innovative startups reach a proof of concept in the fields of Fintech-Cyber Security. As part of its goals, the Lab will develop cyber defense solutions for the financial sector”. The announcement also specifies, that the Lab will support companies and entrepreneurs by “providing access to unique knowhow and expertise in the financial and cyber sectors as well as access to financial data, regulations, products and processes…”. The announcement provides, that the Lab will be entitled to receive a grant from the Innovation Authority to cover recognized expenses of the technological infrastructure and the lab’s operation. Startups could also benefit from the Innovation Authority funding, up to a designated sum, for their proof of concept project. Other national cyber labs are in progressive stages of being established in Beer Sheva, such as Smart Transportation – Cyber Innovative Arena. During 2020, Ayalon Highways has promoted the establishment of a Cyber Arena for Testing in smart transportation within Beer Sheva, which will simulate a future transportation Arena.3 According to the Smart Cybersecurity in Israel – Selected Developments in 2020: Ecosystem & Regulation Israel’s Cybersecurity Ecosystem has continued flourishing during 2020. We examine some of the developments in this remarkable world-leading sector. Shaping Legislation As businesses embrace the need for compliance and changing technology, a myriad of reforms are well under way in Israel, Europe and the wider world. Dr. Tzipi has extensive experience in promoting innovative regulatory reforms, such as The Clean Air Act, The Deposit Law on Beverage Containers, and others. These bills were drafted by Tzipi in her previous position as executive director of The Israel Union for Environmental Defense. In her current position, Tzipi is involved in a variety of regulatory discussions regarding other major legislation such as the Bill of Rehabilitation of Contaminated Land, Integrated Environmental Licensing Legislation, and more. Flagship Projects Dr. Tzipi also routinely handles a range of commercial, regulatory and continuous issues for clients, including traditional and renewable energy companies, establishing a reputation as a prime destination for Israel’s most active and visible companies in the renewable energy space (including one company developing the national infrastructure for wind farms), desalination facilities, waste treatment infrastructure, sewage treatments facilities, and more. Clients from abroad also tap into her comprehensive grasp of all the environmental issues affecting their major projects across a range of fields. Industry Thought Leader Dr. Tzipi enjoys a unique role as the former CEO and Legal Counsel of the Israel Union for Environmental Defense (the leading advocacy organization of the Israeli environmental NGO's), has been a key member of the Israeli delegation to the United Nations Framework Convention on Climate Change (UNFCCC) annual conference, and also serves as a lecturer on environmental regulation at several academic institutions and a speaker at international conferences. Dr. Tzipi Iser Itsiq | Partner Partner and Director of the Environmental Protection, Cleantech and Clean Energy Department, Dr. Tzipi Iser Itsiq has long been one of the go-to lawyers in Israel for environmental law and has been instrumental in the development of Lipa Meir & Co.’s cutting-edge environmental practice. Awarded the title of "Women of Influence" by economic newspapers Globes and The Marker and the only female nominee in the Best Environmental Lawyer category in the Euromoney LMG Europe Women in Business Law Awards 2019, Tzipi has been helping clients to meet their commercial objectives and regulatory demands for over 20 years. Contact Information Dr. Tzipi Iser Itsiq | Partner |Environmental Protection, Clean Tec M. +972.52.3520267 T. +972.3.6070603 E. [email protected] Amot Investments Tower, 2 Weizmann St., Tel Aviv, 64239 Israel PERSONAL. PROFESSIONAL. CREATIVE The US-Israel Legal Review 2020 77 Transportation Tender’s Terms, the Arena shall enter into engagements with various parties operating in the field of smart transportation and autonomous vehicles, who are interested in using the Arena’s Services. It will enable them to carry out Testing in the Arena’s facilities while providing guidance and support in professional aspects within the field of cyber security. In accordance with the Tender’s Terms, the project would include sharing know-how and information within the transportation cyber domain existing at the various government institutions, as well as providing professional guidance through the state representatives operating in the relevant areas. It is also expected to address promoting transport cyber regulation. Aside from their expected contribution to breakthrough cybersecurity solutions, the Innovative Cybersecurity Labs may therefore also potentially promote innovative regulatory ideas, bringing together forces from government and industry. SELECTED REGULATORY UPDATES Steps to strengthen cybersecurity of the market during Covid-19. Covid-19 special regulations4 of the lockdown in March 2020, provided that suppliers of cybersecurity or support computer services were permitted to continue their activity and supply their services, if the services could not be supplied remotely, and under additional several conditions. Furthermore, in order to minimize the cyber risks involved with the movement of many organizations to digital platforms, Israel National Cyber Directorate has created a voluntary marketplace, “a meeting place between the open market and cyber security products, services and solutions”5 . It was aimed to allow the easy introduction of commercial cybersecurity solutions to the private sector and support the market in its cybersecurity demands6 (the initiative was mentioned lately in OECD report of November 2020 “Seven lessons learned about digital security during the COVID-19 crisis”7 ). Regulators have acknowledged the important contribution of the private sector in regulatory processes, such as cybersecurity of Plants that hold Hazardous Substances, as well as data security of Smart Transportation. Indeed, the private sector holds resources and expertise that should be taken into account in cybersecurity regulation development. Cyber Manual “Adhering to the cybersecurity requirements of a toxins permit8 .” The Ministry of Environmental Protection has enhanced its efforts to develop and implement cybersecurity standards for plants that hold hazardous substances. In July 2020, the Ministry of Environmental Protection – Emergency and Cybersecurity Division, has published a revised manual, presenting the unique methodology for conducting risk surveys in plants that hold hazardous substances and are required to obtain a toxins permit from the Ministry of Environmental Protection. According to the Ministry of Environmental Protection, the methodology is based on the National Cyber Directorate’s Cyber Defense Methodology for Organizations with adaptations for the hazardous substances industry. Its development included consultations with leading professionals in the fields of cybersecurity, control systems, and VERED ZLAIKHA PARTNER 78 The US-Israel Legal Review 2020 ISRAEL: CYBERSECURITY hazardous substances, as well as cooperation with the Manufacturers’ Association. According to the manual (version 1.3), it constitutes a binding version. This version incorporates some of the public’s comments received from prior versions, as well as updates based on insights gleaned from risk surveys conducted at businesses and according to consultations with various companies and businesses that hold hazardous substances. Smart Transportation Privacy Guide – In September 2020, the Privacy Protection Authority (PPA) has published a guide on Smart Transportation9 . As part of the process that led to its publication, the PPA has held multistakeholders’ consultations (those included governmental entities, civil society, smart transportation start-ups etc.). The guide describes major threats to users’ privacy in the field of digital transportation, offers recommendations to transportation services’ suppliers on ensuring privacy and data protection, and reflects the applicable relevant legal standards in that regard. The guide refers, inter alia, to the existing legal requirements to secure personal data held by transportation entities. Promoting a Comprehensive Cybersecurity Legislation – In 2018, a draft of Cybersecurity and the National Cyber Directorate bill was published for public comments. The draft includes complimentary legal authorities to implement prior Government Resolutions, in relation to Israel National Cyber Directorate’s roles and powers. Since then, comments from various stakeholders were brought before Israel National Cyber Directorate and the Ministry of Justice, whereas some of them are expected to be embedded in a revised version of the bill. The governmental efforts in this regard have continued during 202010. The revised bill may be brought in parliamentary processes in the upcoming year. n ABOUT THE AUTHOR Adv. Vered Zlaikha is a Partner and the Head of Cyber Affairs & Artificial Intelligence practice at Lipa Meir & Co. Advocates. She is an expert in Cyber Law and Policy. She holds a wealth of experience both at the national and international levels, gained from previous roles as the Legal Advisor for Technology and Cybersecurity Affairs at Israel Defence Forces, and as the Head of International Cyber Policy and Initiatives at the Israel National Cyber Directorate. She has worked closely on Cyber Law and Policy affairs with different governmental ministries in Israel as well as with international counterparts. Vered represented the State of Israel at the UN OEWG (Open-Ended Working Group), on cybersecurity affairs. She was a Vice-chair and bureau member of the Working Party on Security in the Digital Economy at the OECD. During 2017-2019, Vered was a member of the steering committee of the Haifa University Cyber Law and Policy Research Center. Today, she is a member of the Law, Science and Technology Forum of the Israel Bar Association. NOTES 1 https://www.israelhayom.com/2020/09/30/israel-is-acyber-superpower-the-potential-is-endless 2 https://innovationisrael.org.il/en/news/mastercardand-enel-x-selected-establish-and-operate-fintech-cyberinnovation-lab 3 https://www.ayalonhw.co.il/wp-content/uploads/2020/02/ Tender-No.-9-20-For-the-Establishment-DevelopmentManagement-and-Operation-of-a-Cyber-Arena-for-Testingin-Smart-Transportation-Doc-I-002.pdf (Tender No. 9/20 For the Establishment, Development, Management and Operation of a Cyber Arena for Testing in Smart Transportation Tender’s Terms Booklet) 4 https://www.gov.il/BlobFolder/faq/coronaregulations/he/%D7%AA%D7%A7%D7%A0%D7% 95%D7%AA%20%D7%A9%D7%A2%D7%AA%20 %D7%97%D7%99%D7%A8%D7%95%D7%9D.pdf https://www.gov.il/BlobFolder/faq/corona-regulations/he/% D7%AA%D7%A7%D7%A0%D7%95%D7%AA%20%D7%A9% D7%A2%D7%AA%2D7%97%D7%99%D7%A8%D7%95%D7 %9D%20-%20%D7%AA%D7%99%D7%A7%D7%95%D7%9F. pdf https://www.gov.il/he/departments/faq/corona-regulations 5 https://www.gov.il/en/departments/news/emarketplace 6 https://www.israeldefense.co.il/he/node/42503 ; https:// www.gov.il/en/Departments/news/emarketplace 7 https://read.oecd-ilibrary.org/view/?ref=137_137440- yavecbtye4&title=Seven-lessons-learned-about-digitalsecurity-during-the-COVID-19-crisis 8 https://www.gov.il/BlobFolder/reports/cyber_industry_ toxins_permit/he/Emergency_cyber_adhering_to_ cybersecurity_requirements_of_a_toxins_permit_2020_eng.pdf 9 https://www.gov.il/BlobFolder/news/guide-transportationprivacy/he/--transformation--privacy--2020--.pdf 10 https://www.gov.il/he/departments/news/lawabstract1 80 The US-Israel Legal Review 2020 ISRAEL: ENVIRONMENT Environmental Risk Management – A Significant Challenge in the Industrial and Business Sectors in Israel Environmental regulation in the State of Israel has undergone a process of considerable development. Therefore, stakeholders operating in the Israeli industrial and business sphere would do well to identify the extent of their legal exposure due to the environmental risks involved in their activities, and to manage those risks pre-emptively and wisely. Environmental regulation is an evolving and dynamic field as compared with other areas of regulation. It first developed in Israel in the 1970s, when legal systems for managing natural and environmental resources began to emerge. In the beginning, environmental regulation included rules for command and control, which were subdivided by the various sources of pollution. The complexity of environmental risks, which is characterised by being both multidisciplinary and lacking clear boundaries (affecting air, water, and soil simultaneously, and without territorial demarcation), as well as having parallel and cumulative impacts (i.e., pollutants can be introduced from different sources), over time required changes to the classic environmental regulation. In fact, as in other developed countries, one can now discern a trend in the development of Israel’s environmental regulation. There are three main characteristics that exemplify this trend: The first, increased consideration of public health hazards and the public’s interest in managing natural and environmental resources; the second, dialogue with stakeholders on policy development, implementation, and evaluation; and the third, a focus on economic efficiency, risk assessment, and achieving the desired result. Environmental regulation in the State of Israel has undergone a process of considerable development since the enactment of the Abetment of Nuisances Act 1961-5721, which is a prototype of classic environmental regulation. Two notable factors can be pointed out that have influenced the development of environmental regulation in recent years: The first factor is the impact of industrialisation, privatisation, and globalisation processes. These have not skipped over Israel, and their impacts include environmental pollution and harm to natural and environmental resources. All of these have necessitated adapting environmental regulation to fit the existing reality. The second factor is increased public awareness of environmental protection both in Israel and globally, and the establishment of an environmental Environmental regulation in Israel has undergone considerable development. Stakeholders operating in the country would do well to identify and pre-epmtively manage the risks involved. Shaping Legislation As businesses embrace the need for compliance and changing technology, a myriad of reforms are well under way in Israel, Europe and the wider world. Dr. Tzipi has extensive experience in promoting innovative regulatory reforms, such as The Clean Air Act, The Deposit Law on Beverage Containers, and others. These bills were drafted by Tzipi in her previous position as executive director of The Israel Union for Environmental Defense. In her current position, Tzipi is involved in a variety of regulatory discussions regarding other major legislation such as the Bill of Rehabilitation of Contaminated Land, Integrated Environmental Licensing Legislation, and more. Flagship Projects Dr. Tzipi also routinely handles a range of commercial, regulatory and continuous issues for clients, including traditional and renewable energy companies, establishing a reputation as a prime destination for Israel’s most active and visible companies in the renewable energy space (including one company developing the national infrastructure for wind farms), desalination facilities, waste treatment infrastructure, sewage treatments facilities, and more. Clients from abroad also tap into her comprehensive grasp of all the environmental issues affecting their major projects across a range of fields. Industry Thought Leader Dr. Tzipi enjoys a unique role as the former CEO and Legal Counsel of the Israel Union for Environmental Defense (the leading advocacy organization of the Israeli environmental NGO's), has been a key member of the Israeli delegation to the United Nations Framework Convention on Climate Change (UNFCCC) annual conference, and also serves as a lecturer on environmental regulation at several academic institutions and a speaker at international conferences. Dr. Tzipi Iser Itsiq | Partner Partner and Director of the Environmental Protection, Cleantech and Clean Energy Department, Dr. Tzipi Iser Itsiq has long been one of the go-to lawyers in Israel for environmental law and has been instrumental in the development of Lipa Meir & Co.’s cutting-edge environmental practice. Awarded the title of "Women of Influence" by economic newspapers Globes and The Marker and the only female nominee in the Best Environmental Lawyer category in the Euromoney LMG Europe Women in Business Law Awards 2019, Tzipi has been helping clients to meet their commercial objectives and regulatory demands for over 20 years. Contact Information Dr. Tzipi Iser Itsiq | Partner |Environmental Protection, Clean Tec M. +972.52.3520267 T. +972.3.6070603 E. [email protected] Amot Investments Tower, 2 Weizmann St., Tel Aviv, 64239 Israel PERSONAL. PROFESSIONAL. CREATIVE The US-Israel Legal Review 2020 81 movement that is active in the public sphere. Environmental organisations such as Adam Teva VeDin and the Society for the Protection of Nature in Israel have been given rights of standing and thus the ability to privately enforce environmental law. They operate using legal and public tools and, through their work, bring about the enactment of modern environmental laws as well as the formulation of precedents in the field of environmental law. An examination of these factors and an analysis of developments indicate an improvement in environmental regulation and its expansion into various environmental areas. At the same time, it is possible to point to the growth of case law. This is also reflected in rulings by the Supreme Court, which, in its decisions, has anchored important administrative and interpretive principles for the protection of the environment. However, the work is still in progress, and over the coming year we have other important regulatory initiatives that are in the process of formulation. Among these legislative initiatives, is the initiative to enact the Industrial Chemicals Registration Act 2020-5781 (similar to its American counterpart – the Toxic Substances Control Act (TSCA)). This is a new bill whose purpose is to establish a chemical registration mechanism in Israel, as part of Israel’s undertakings upon joining the OECD. The bill, published by the Ministry of Environmental Protection, includes mechanisms for establishing existing chemical inventories, and for assessing and regulating the risks posed by various chemicals. Israel’s admission into the OECD has also led it to further incorporate the economic approach into its environmental regulation. Thus, for example, Israeli environmental legislation has begun to adopt economic tools to advance environmental goals. These include fees and emission levies in the Clean Air Act 2008-5768, a deposit mechanism in the Beverage Container Deposit Act 1999-5759, a fee for maritime disposal as part of the Preventing Maritime Pollution from Terrestrial Sources (Marine Pollution Prevention Levy) Regulations 2011-5771, economic enforcement mechanisms in the Environmental Protection (The Polluter Pays) (Legislative Amendments) Act 2008-5768, and establishing reporting and registration duties for the purpose of environmental risk information transparency as part of the Environmental Protection (Environmental Pollution and Transfer – Reporting and Registration Duties) Act 2012-5772. Israel’s Ministry of Environmental Protection adopted an official approach based on economic enforcement against environmental polluters. This Environmental regulation in the State of Israel has undergone a process of considerable development since the enactment of the Abetment of Nuisances Act 1961-5721, which is a prototype of classic environmental regulation DR. TZIPI ISER ITSIQ, ADV. PARTNER approach is grounded, among other things, on the imposition of substantial financial sanctions, which avoid the need to resort to lengthy and expensive criminal enforcement proceedings. The main advantage of relying on economic enforcement measures is their being both effective and deterrent. In addition, we are witnessing a significant increase in the number of class action lawsuits in environmental protection areas (atmospheric pollution, water source pollution, and ground pollution). These are large-scale lawsuits, the management of which involves considerable inputs from defendants perceived as polluters by the lead plaintiffs. Thus, for instance, the Ministry of Environmental Protection has recently taken the unusual step of filling a huge lawsuit for financial compensation, to the tune of hundreds of millions of New Israeli Shekels, against an infrastructure entity (the Eilat – Ashkelon Pine-Line Co.) on account of an ecological disaster caused by an oil leak in the Evrona Nature Reserve in the Arava. This legal action joined several class actions filed due to the event. The compensation components demanded by the Ministry of Environmental Protection included the costs of rehabilitating the damage to the land, ecosystems, and water sources, as well as compensation for damages caused to nature and the public which are not capable of being restored. This legal action was settled in the setting of a mediation agreement, as part of which the defendant paid significant compensation (100 million NIS), and even acted to carry out the restoration work at its own expense. This is the highest compensation awarded in a class action lawsuit in Israel in the field of environmental law, and one of the highest compromises in class action lawsuits in general in recent years. In conclusion, this article outlines trends in the development of environmental regulation in Israel, in parallel with the formation of environmental awareness in Israel and the accelerated development processes that the State of Israel has been undergoing since its establishment. The dynamic growth in the scope of environmental regulation in recent years stems in part from the understanding that accelerated development comes at a cost – namely, environmental pollution and depletion of the country’s natural resources. Therefore, stakeholders operating in the Israeli business sphere would do well to identify the extent of their legal exposure due to the environmental risks involved in their activities, and to manage those risks preemptively and wisely. This will help stakeholders avoid the significant and unpleasant costs involved in dealing with the supervisory and enforcement mechanisms of modern environmental regulation. n ABOUT THE AUTHOR Dr. Tzipi Iser Itsiq, Adv. is a Partner and director of the Environmental Protection, Cleantech and Clean Energy Department. Tzipi has extensive experience in promoting innovative regulatory reforms in the field of environmental protection and in accompanying legal and environmental disputes in her role as CEO and Legal Counsel of the Israel Union for Environmental Defense (Adam Teva Ve'Din). In addition, Tzipi serves as a lecturer on environmental regulation at several academic institutions, as a speaker at international professional conferences, and as Director of the Center for Environmental Protection at Netanya Academic College. The dynamic growth in the scope of environmental regulation in recent years stems in part from the understanding that accelerated development comes at a cost – namely, environmental pollution and depletion of the country’s natural resources 82 The US-Israel Legal Review 2020 ISRAEL: ENVIRONMENT Shaping Legislation As businesses embrace the need for compliance and changing technology, a myriad of reforms are well under way in Israel, Europe and the wider world. Dr. Tzipi has extensive experience in promoting innovative regulatory reforms, such as The Clean Air Act, The Deposit Law on Beverage Containers, and others. These bills were drafted by Tzipi in her previous position as executive director of The Israel Union for Environmental Defense. In her current position, Tzipi is involved in a variety of regulatory discussions regarding other major legislation such as the Bill of Rehabilitation of Contaminated Land, Integrated Environmental Licensing Legislation, and more. Flagship Projects Dr. Tzipi also routinely handles a range of commercial, regulatory and continuous issues for clients, including traditional and renewable energy companies, establishing a reputation as a prime destination for Israel’s most active and visible companies in the renewable energy space (including one company developing the national infrastructure for wind farms), desalination facilities, waste treatment infrastructure, sewage treatments facilities, and more. Clients from abroad also tap into her comprehensive grasp of all the environmental issues affecting their major projects across a range of fields. Industry Thought Leader Dr. Tzipi enjoys a unique role as the former CEO and Legal Counsel of the Israel Union for Environmental Defense (the leading advocacy organization of the Israeli environmental NGO's), has been a key member of the Israeli delegation to the United Nations Framework Convention on Climate Change (UNFCCC) annual conference, and also serves as a lecturer on environmental regulation at several academic institutions and a speaker at international conferences. Dr. Tzipi Iser Itsiq | Partner Partner and Director of the Environmental Protection, Cleantech and Clean Energy Department, Dr. Tzipi Iser Itsiq has long been one of the go-to lawyers in Israel for environmental law and has been instrumental in the development of Lipa Meir & Co.’s cutting-edge environmental practice. Awarded the title of "Women of Influence" by economic newspapers Globes and The Marker and the only female nominee in the Best Environmental Lawyer category in the Euromoney LMG Europe Women in Business Law Awards 2019, Tzipi has been helping clients to meet their commercial objectives and regulatory demands for over 20 years. Contact Information Dr. Tzipi Iser Itsiq | Partner |Environmental Protection, Clean Tec M. +972.52.3520267 T. +972.3.6070603 E. [email protected] Amot Investments Tower, 2 Weizmann St., Tel Aviv, 64239 Israel PERSONAL. PROFESSIONAL. CREATIVE Shaping Legislation As businesses embrace the need for compliance and changing technology, a myriad of reforms are well under way in Israel, Europe and the wider world. Dr. Tzipi has extensive experience in promoting innovative regulatory reforms, such as The Clean Air Act, The Deposit Law on Beverage Containers, and others. These bills were drafted by Tzipi in her previous position as executive director of The Israel Union for Environmental Defense. In her current position, Tzipi is involved in a variety of regulatory discussions regarding other major legislation such as the Bill of Rehabilitation of Contaminated Land, Integrated Environmental Licensing Legislation, and more. Flagship Projects Dr. Tzipi also routinely handles a range of commercial, regulatory and continuous issues for clients, including traditional and renewable energy companies, establishing a reputation as a prime destination for Israel’s most active and visible companies in the renewable energy space (including one company developing the national infrastructure for wind farms), desalination facilities, waste treatment infrastructure, sewage treatments facilities, and more. Clients from abroad also tap into her comprehensive grasp of all the environmental issues affecting their major projects across a range of fields. Industry Thought Leader Dr. Tzipi enjoys a unique role as the former CEO and Legal Counsel of the Israel Union for Environmental Defense (the leading advocacy organization of the Israeli environmental NGO's), has been a key member of the Israeli delegation to the United Nations Framework Convention on Climate Change (UNFCCC) annual conference, and also serves as a lecturer on environmental regulation at several academic institutions and a speaker at international conferences. Dr. Tzipi Iser Itsiq | Partner Partner and Director of the Environmental Protection, Cleantech and Clean Energy Department, Dr. Tzipi Iser Itsiq has long been one of the go-to lawyers in Israel for environmental law and has been instrumental in the development of Lipa Meir & Co.’s cutting-edge environmental practice. Awarded the title of "Women of Influence" by economic newspapers Globes and The Marker and the only female nominee in the Best Environmental Lawyer category in the Euromoney LMG Europe Women in Business Law Awards 2019, Tzipi has been helping clients to meet their commercial objectives and regulatory demands for over 20 years. Contact Information Dr. Tzipi Iser Itsiq | Partner |Environmental Protection, Clean Tec M. +972.52.3520267 T. +972.3.6070603 E. [email protected] Amot Investments Tower, 2 Weizmann St., Tel Aviv, 64239 Israel PERSONAL. PROFESSIONAL. CREATIVE 84 The US-Israel Legal Review 2020 US: HEALTHCARE The Coronavirus (COVID-19) pandemic suddenly and permanently changed healthcare delivery and the economics of healthcare services and other digital health products and services in the United States and around the world. This seismic, virtually overnight transformation, has flung open doors to innovation, as a diverse cross-section of digital health and life sciences stakeholders mobilize crisis resources; adjust operations for enhanced screening, sanitization and social distancing measures; harness telehealth capabilities to deliver healthcare remotely, and identify opportunities for smarter, better healthcare going forward. We highlight the challenges and opportunities that digital health and life sciences operators and investors should consider as the industry charts a course through the post-pandemic changed healthcare landscape. DIGITAL HEALTH Telehealth and Remote Care Are Here to Stay Telehealth adoption rates exploded as healthcare providers rushed to leverage this solution to care for patients while complying with stay at home orders and restrictions on elective procedures (defined broadly in many cases), coping with strained provider resources and accommodating social distancing requirements. Providers have largely set aside the debate over whether telehealth allows for quality patient care and are turning to how telehealth can facilitate quality care. States and federal governments have removed obstacles to adoption and use, including antiquated licensure and reimbursement policies, at least for the duration of the public health emergency (PHE). Some key takeaways: • The Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent actions supported telehealth services by lowering longstanding barriers to Medicare reimbursement and acknowledging the central role telehealth plays in coordinated care delivery. • The Centers for Medicare and Medicaid Services (CMS) changed its Medicare payment requirements to allow traditional Medicare beneficiaries to access telehealth services from home, with reimbursement similar to amounts paid for in-person medical services. • The Office of Civil Rights, the US Drug Enforcement Administration and other agencies loosened restrictions to allow providers to use technology to deliver telehealth services. • State emergency declarations and orders aimed to expand Medicaid coverage and ease licensure barriers. Transformational Healthcare Collaboration Opportunities Emerge from COVID-19 Pandemic We highlight the challenges and opportunities as the digital health and life sciences industry charts a course through the post-pandemic changed healthcare landscape. The US-Israel Legal Review 2020 85 • The increased utilization of telehealth services is likely to be self-reinforcing, as patients adapt to new modalities for care delivery and payors appreciate the cost savings of treatment outside of the acute care setting. Regulators have signaled that some changes made during the PHE may become permanent. If there is a silver lining to the COVID-19 pandemic, it is that the need for telehealth services has given regulators empirical evidence that, generally speaking, practical benefits far outweigh risks that previously drove regulatory limitations. Moreover, regulatory innovation may be an inevitable need as more consumers become accustomed to telehealth and appreciate the efficiency and convenience remote services afford. Indeed, for higher-risk patient populations, telehealth may become the preferred modality. Changing attitudes toward telehealth services will continue to spur innovation. For example, we anticipate better integration of telehealth services in skilled nursing facilities, nursing homes, and assisted living and independent living facilities, as infection control will remain an important focus for some time. Looking past the pandemic, we also anticipate continued integration of artificial intelligence (AI) systems into telehealth services to deliver more efficient care, help manage chronic conditions with remote patient monitoring and home-based sensors, and better coordinate the care of patients with multiple diseases and specialists. Implementation of Digital Tools to Speed Care and Improve Outcomes Prior to the pandemic, healthcare was centered on in-person provider-patient visits. Even so, health systems, health plans and others eagerly sought innovative and elegant digital health tools to better manage allocation of healthcare resources, monitor and coordinate care between in-person visits, and assist providers and patients in making healthcare decisions. The pandemic underscored the urgent need for such tools and increased provider and patient comfort using digital technologies for healthcare delivery. This momentum will continue, particularly with increased use of remote monitoring, clinical decision support software, and supplemental patient engagement apps and tools that move toward an enhanced continuum of care. Digital health innovation will need to assist providers with making real-time healthcare recommendations, and improving patient adherence and followthrough on those recommendations. Digital tools also promise to equip stakeholders with additional resources to manage chronic conditions, enhance preventative care, accelerate recovery, and create additional connective interactions between providers and patients. Technological tools also present new pathways for rapid data aggregation and analysis. These capabilities should allow providers to develop smarter treatment plans adapted to particular patients and conditions, with technological interfaces MARK SELINGER GARY EMMANUEL JENNIFER GEETTER 86 The US-Israel Legal Review 2020 US: HEALTHCARE that empower clinicians and patients to form a partnership for care delivery and management. That information and the associated outcomes will in turn provide empirical support for new payment models that can truly be outcomes-based. To fully harness the power of these tools, however, companies must be thoughtful about how patients (and providers) interact with technology, how to acclimate users to technology and how to appropriately integrate digital tools into healthcare. Data Readiness: Crucial to Future Healthcare Systems All of these innovations are dependent upon more complete, structured data that can move seamlessly among healthcare practitioners, with the patient at the center. Government task forces and committees have worked to enhance data standards and multiparty connectivity, but these regulatory pushes were slowed by the health crisis when they were most needed. Moreover, the pandemic highlighted what many have known for years: despite stakeholder efforts, our digital health infrastructure lacks the scale and integration necessary to obtain, harness and analyze data in real time across multiple players, including public health authorities. Challenges with broad-based testing and contact tracing during the pandemic exemplified how our disease identification and prevention systems were immature and insufficient. The real opportunity, however, is much broader. A newfound interconnectivity would allow industry stakeholders to identify trends, deploy resources where they are most needed during an emergency, and more actively engage patients in their care. Enhancements to our global healthcare system data infrastructure are necessary, and the need is immediate. These enhancements include development and adoption of universal and standard data elements, as well as formatting, transmission and receipt technologies. Historical political and regulatory barriers should now be seen for what they were: unnecessary roadblocks that inhibited crisis readiness. The future for data standardization is now, and the COVID-19 crisis may have provided the catalyst for accelerated change. Efforts to eliminate barriers to data interconnectivity are sure to restart postpandemic. In preparation, all health system players should review the interoperability of their systems and their API readiness, evaluate their participation in health information exchanges (and even notification services), and identify how and by what methods they communicate with public health authorities to support disease identification and prevention. These information system building blocks will help health systems of the future position themselves to identify trends proactively and ensure that participants in healthcare, especially patients and providers, have the tools and information to respond together to head off disaster, improve access and quality, and lower costs. Privacy and security considerations will need to be addressed, but there must be balance between those considerations and successful data movement for optimal healthcare. LIFE SCIENCES As governments, health organizations and public health officials scrambled to mobilize and coordinate a coherent, effective and data-driven response to the global pandemic, the private sector – specifically the life sciences industry – has offered a beacon of hope. The pandemic highlighted what many have known for years: our digital health infrastructure lacks the necessary scale and integration The US-Israel Legal Review 2020 87 Speed and Innovation During Crisis The speed at which the biotech sector pivoted toward innovation in the face of the global pandemic is unprecedented. Time will tell whether this more nimble approach is sustainable or has created its own set of risks that outweigh the benefits of delivering eventual results. Despite global economic uncertainty, the health, technology and life sciences sectors converged with the investment community to innovate, collaborate and respond to unmet needs caused by the pandemic. The global race to develop successful tests, treatments and vaccines unleashed a dizzying amount of activity from biotech companies. According to Informa Pharma Intelligence, by the end of May 2020, there were 140 experimental treatments and vaccines for COVID-19 in development, including 11 in clinical trials. Economic Strength of the Life Sciences Industry The life sciences sector has demonstrated resilience during the economic turbulence caused by the global pandemic. Biotech companies are awash with more cash than at any time in the sector’s history, with venture capital funding reaching $5.5 billion in the first three months of 2020, record numbers of strategic collaborations and partnerships, continued strong initial public offering (IPO) activity1 and the NASDAQ Biotechnology Index nearing a fiveyear high. Since the beginning of March 2020, life sciences venture capital funds have raised more than $5 billion in new investment funds. Overall, it appears the biotech sector is less sensitive to macroeconomic swings, which provides some confidence that there may be less disruption to drugs and therapies currently under clinical development. While danger from COVID-19 persists, the need for solutions and willingness to make investments in search of those solutions will continue. Government Investment in Life Sciences The COVID-19 pandemic has demonstrated that the US government, specifically the Biomedical Advanced Research and Development Authority (BARDA), is willing to invest in the biotech sector. BARDA has awarded more than $2 billion to support COVID-19 vaccine development efforts. Given the severity of the economic downturn and the belief that government support is critical to recovery, it is likely that government support will continue and become more anticipatory relative to future viral and biological risks. COVID-19 is Reshaping the Pharmaceutical Supply Chain According to the Chemical Abstracts Service (CAS), the COVID-19 pandemic did not seriously impede production and shipment of pharmaceuticals in the first quarter of 2020. However, the supply chain may be tested in the coming months, as inventories of backup materials will be used and deliveries delayed. Further, as the world has recognized the dominance China plays in the global supply of active pharmaceutical ingredients and their LISA MAZUR KEVIN MILLER VERNESSA POLLARD 88 The US-Israel Legal Review 2020 US: HEALTHCARE chemical raw material, the United States has led an effort to rebalance the supply chain. For example, BARDA awarded more than $500 million to two USbased companies for manufacturing and onshoring supply chains. Machine Learning and AI AI is also being deployed to screen billions of molecules for COVID-19 treatments. The MIT-IBM Watson AI Lab is funding 10 research projects aimed at addressing health and economic consequences of the pandemic, and various efforts to model the COVID-19 outbreak and provide scientific insights are being leveraged using AI and machine learning tools. There has also been robust private sector investment in companies using AI for drug development. According to PitchBook, there are 210 AI-powered drug discovery companies, with $8.14 billion in capital investments. Exponential growth in AI use can be expected. COVID-19 Regulatory Pathways Almost every major pharmaceutical company worldwide is racing to develop effective therapeutics and vaccines to combat COVID-19. Although some of this effort is aimed at creating, testing and rolling out new treatments and preventatives, a significant part of this push involves taking a second look at existing compounds and possibly repurposing them to treat or reduce the rate of COVID-19 infection. To support this effort and enable faster access to promising treatments, regulators in the United States established several options that loosen or revise certain restrictions and simplify investigative and regulatory approval pathways. US Food and Drug Administration (FDA) In response to the COVID-19 crisis, the US Food and Drug Administration (FDA) has used several pathways and initiatives to facilitate or expedite access to COVID-19 therapeutics and vaccines. For example, the FDA issued emergency use authorizations (EUAs) that permit the use of unapproved medical products, or the off-label use of approved medical products, to prevent, diagnose or treat COVID-19 when – among other criteria – no adequate, approved and available alternative exists. The FDA is expediting the provision of feedback on development plans for COVID-19 vaccines and therapeutics through the pre-Investigational New Drug (IND) application process, which intends to help manufacturers address key regulatory questions before beginning clinical (human) trials. The FDA also implemented a Coronavirus Treatment Acceleration Program (CTAP), a special emergency program under which the agency will triage requests from developers of new drugs and biological therapies (excluding vaccines), connect them with appropriate FDA staff and provide rapid, interactive input on product development plans and/ or study protocols. Additionally, the FDA has used its expanded access (or compassionate use) program to give patients access to certain treatments outside the scope of clinical trials. The FDA is expected to continue using these tools for the duration of the PHE. However, the agency’s willingness to consider aggressive action to expedite the delivery of novel therapeutics and vaccines beyond the pandemic will likely depend on several factors, including (but not limited to) the agency’s assessment of the risk/ benefit balance of its decisions during the pandemic, and legislative activity that could modify FDA’s “usual” regulatory processes. Finally, the US government launched Operation Warp Speed, which can allow the federal government to select promising COVID-19 vaccine candidates, offer funding and resources, fast-track trial and aid in manufacturing efforts. While this project does not There has been robust private sector investment in companies using AI for drug development, and exponential growth in AI use can be expected The US-Israel Legal Review 2020 89 create any new regulatory pathway for vaccines, it does highlight a more intensified push by the federal government to infuse greater financial resources into the vaccine development process. CAPITAL MARKETS After a two month period of inactivity in March and April 2020, the US capital markets returned with a vengeance in May 2020, with an unprecedented number of public financings, particularly in the biotechnology space. This increase in capital markets activity, which took the form of private investment in public equity (PIPE) offerings, registered direct offerings, and traditional followon offerings, continued through 2020, in multiple sectors, including increased IPO activity. The emergence of the special purpose acquisition company (SPAC) market also deserves special mention. While the SPAC structure has been around for over 25 years, 2020 saw a dramatic increase in the number of SPAC IPO filings, and more importantly, the completion of several SPAC merger transactions, often coupled with simultaneous PIPE financing transactions. The development of the SPAC market opens another avenue for emerging biotechnology, medical device, pharma and other life sciences companies to access the US capital markets. Private companies looking to the US capital markets should be aware of the various alternative structures available to “go public” in the US. Companies already listed on the Tel Aviv Stock Exchange (TASE), for example, can consider either a dual NASDAQ/TASE listing arrangement, or a process in which a NASDAQ listing is achieved and a subsequent delisting from the TASE. However a company chooses to approach the US market, understanding the increased disclosure requirements (and corresponding increase in liability exposure), as well as the expectations of the public investor sector, are paramount to longterm success in the US capital markets. As 2020 has demonstrated, while there will be short-term disruptions in the efficiency of the US capital markets for life sciences companies, both the attractive valuations and liquidity offered by these markets makes them a significant long-term opportunity that emerging life sciences companies should consider. TRANSACTIONS Although transaction volume in the healthcare industry reached all-time highs in recent years, the sudden and unanticipated cash flow and operational disruptions resulting from the pandemic slowed most M&A and other transactional efforts for strategic and financial investors. The lasting impact of the COVID-19 pandemic on healthcare transactions is multi-faceted, with an eventual surge in deal volumes seemingly inevitable as parties cope with the financial and operational impacts on current businesses and execute on strategies for the “new normal.” A few observations: MIKE RYAN JED SPIELMAN KRISTIAN WERLING 90 The US-Israel Legal Review 2020 US: HEALTHCARE • Uncertainty about the duration of public health restrictions continues to inhibit deal-making, with perceptions of a “light at the end of the tunnel” likely unlocking a surge in deal activity. Already investors are exploring ways to beat the curve by underwriting some uncertainty in their valuation assumptions and correspondingly exploring options to hedge that risk through deferred payments and contingencies, which have to navigate a complicated lattice of economic, regulatory, tax and general alignment issues. • With respect to EBITDA impacts, we anticipate that parties will generally look past short-term, non-recurring negative impacts to EBITDA arising from COVID-19 pandemic restrictions. However, smart investors will not assume a “return to normal,” but will endeavor to evaluate what “new normal” will emerge for the target business. This is particularly pertinent for private equity investors looking for new platforms. By contrast, strategic buyers may consider their own COVID-19 experience to afford sufficient insight on a complementary target business’s future revenue and expense profile, utilizing pre-COVID-19 pandemic EBITDA numbers, or extrapolations therefrom, for valuation purposes, particularly where purchase consideration includes a sizable equity component. • The impact of COVID-19 on transaction multiples is less clear, with insight depending on when and to what extent the transactional market ramps back up and how the pandemic experience impacts credit terms. For private equity, the pandemic has stressed platforms built on highly-leveraged, buy and build strategies. Investors that failed to adequately plan for reduced productivity among selling providers have not found their current lenders to be particularly sympathetic in managing through current liquidity needs as a result of stay-athome orders and elective surgery prohibitions across most states. Even pre-pandemic, some lenders had begun to lose appetite for highlyleveraged, single-specialty physician practice management and dental service organization businesses. Similarly, many equity investors were shying away from sky high valuations that require high leverage and high-consequence financial modelling assumptions. Accordingly, negative lender and sponsor experiences with COVID-19 disruptions to existing investments may ultimately cool (or even depress) multiple expansion from the pre-pandemic highs. At the same time, the systemic drivers toward consolidation, coupled with the continued need for existing “dry powder” (both debt and Smart investors, particularly private equity looking for new platforms, will endeavour to evaluate what “new normal” will emerge for the target business STEPHEN BERNSTEIN The US-Israel Legal Review 2020 91 equity) to be invested, could preserve those prepandemic multiples. • Valuation and credit distress during the COVID-19 pandemic is also likely to further depress larger cap buyer appetite to compete for businesses at outsized multiples that have exhibited rapid growth through bolt-on acquisitions without a proven track record of operating in an integrated manner at scale. This trend was developing before the pandemic, and has exacerbated the situation for many, as poorly integrated platforms fracture without the economic, political and cultural integration needed to promote stability and performance through turbulent times. • The adverse impacts of the pandemic notwithstanding, there will continue to be a premium market for quality assets that demonstrate the economic, political and cultural cohesion to weather the storm. With significant investor appetite remaining, premium multiples are likely to remain if there is a scarcity of scaled healthcare platform businesses that have demonstrated the ability to not only acquire smaller businesses, but integrate and position them for sustainable, organic revenue growth. Relatedly, we expect a renewed emphasis by investors on earnings growth through organic avenues beyond “stacking” acquired EBITDA, including adoption of more efficient staffing models to leverage the accelerated adoption of telemedicine, expanded use of technology and data to improve the patient experience and reduce cost, and efforts to develop alternative care delivery and payment models in a more comprehensive manner than existed before the pandemic. • The COVID-19 pandemic evidenced a need for greater connectivity among patients, providers, payors and other stakeholders. Overall success will depend on how well healthcare players collaborate to build the system around the consumer. Accordingly, we can expect to see more data and information collaborations, using the right technology with the right sensitivity to patient needs, to bring forth new modes of data use. Systemic improvements need to ensure that current data is available on demand for multiple uses, including treatment, payment, healthcare operations, trend identification, research and population health. Given the exposed vulnerabilities in the current system, the drive to reimagine and implement an even more sophisticated data infrastructure will continue to accelerate. • The pandemic has exposed gaps in the process of healthcare delivery and opened new opportunities that can be addressed when participants across health, life sciences technology and other subsectors join forces. Many investors are already exploring business combinations, joint ventures and other innovative transactions to capitalize on these opportunities and address the new challenges facing both providers and patients to deliver and receive care safely and effectively. CONCLUSION As the health industry continues to tackle the immediate challenges of the COVID-19 pandemic, stakeholders across the board should prepare for a “new normal.” The exact parameters of this new normal are still in flux, but this period of transition presents numerous risks for those unprepared or unwilling to adapt and real opportunity for those that are. n NOTES 1 According to Renaissance Capital – Biotechs make up almost two-thirds of IPO activity through the end of June 2020 Written by Mark Selinger, Gary Emmanuel, Jennifer Geetter, Vernessa Pollard, Steve Bernstein, Lisa Mazur, Kevin Miller, Michael Ryan, Joshua Spielman and Kristian Werling. The authors, all partners at McDermott Will & Emery, represent healthcare and life sciences clients, including providers, digital health developers, pharmaceutical companies and technology developers, across the full range of regulatory, compliance and transactional matters. 92 The US-Israel Legal Review 2020 ISRAEL: INTELLECTUAL PROPERTY GENERAL I ntellectual Property (IP) is an important if not essential tool in the vibrant Israeli knowledge based economy. Many times, the main assets of an entrepreneurial initiative are patents, designs, trademarks or trade secrets. Innovation is prevalent in all walks of business as well as government in Israel. The Israel Innovation Authority (formerly the Office of the Chief Scientist) together with the Israel Patents Office (ILPO) have put in place many reforms to alleviate regulative burdens in providing innovation related operations and installing innovation into the processes themselves some of which connected to the CoVID-19 pandemic and the various technological attempts to mitigate it. Enforcement of IP rights in Israel is carried out in the courts. There is no officially appointed IP specialized instance, though there are several Judges who have gained experience in the field. As a rule the courts follow the letter of the law prescribing that IP matters be adjudicated in the District Courts, nevertheless a recent decision by the Supreme Court provides that certain types of intellectual property matters – primarily soft IP warranting relatively low awards of damages – may be heard before the lower instances, at the Magistrate Courts. As a rule, courts are inclined to explore alternative dispute resolution means and many matters are diverted to mediation or arbitration. The Customs have gained a relatively effective track record having powers to stop shipments of goods allegedly infringing trademarks, copyright and recently also registered design rights. The following is a general overview of the fields of Patents, Designs, Trademarks and Copyright and neighboring rights. PATENTS Early in 2020, in view of the CoVID-19 pandemic the Ministry of Justice has issued a first ever order according to Section 104 to the Patents Law allowing the state to use a patent protected invention by the state with regards to the Abbvie owned patent for the active ingredient in the Kaltera products which was considered at the time to present an effective treatment to symptomatic CoVID-19 patients. This extreme measure was take in view of Abbvie’s inability to market the product in Israel and the government intended to import same from India. This rare action brought to the front public discussion on the validity of the patent system as a promoter of innovation in the life science field. The Israel Patent Law of 1967 has undergone several amendments through the years. The latest rounds of 2011, 2012 and 2017 concerned two main topics: the adjustment of the law to enable the ILPO to operate as an International Searching Authority and International Preliminary Examination Authority (ISA/IPEA) under the Patent Cooperation Treaty (PCT); and addressing patent term extension (PTE) in the field of pharmaceutical material related inventions. Accordingly, adjustments were made to Intellectual Property Law in Israel – An Overview Innovation is prevalent in Israeli business, and with it Intellectual Property is an essential tool. Asa Kling examines the role of IP in the country’s knowledge based economy. The US-Israel Legal Review 2020 93 the Patents Regulations. Arrangements were made to enable the ILPO to launch in December 2016 its long-awaited online patent filing and prosecution service. These legislation and regulative changes have contributed to the streamlining of the patent prosecution process in Israel the pendency, as well as actual examination times, are constantly decreasing. Since start of its operations as ISA/IPEA in June of 2012, the ILPO has shown growing numbers while maintaining high quality parameters monitored and published by WIPO. It is well worth noting that the ISA/IPEA services provided by the ILPO can be enjoyed also by US applicants who can designate the ILPO as their ISA/IPEA. Examination on the national level has shown in many cases that national phase patent offices attribute high quality to the ILPO ISRs. This high rate of performance by the ILPO on the international as well as the national level is indicative to the value recognized by IP stakeholders worldwide. In an attempt to balance the interests of both the innovative and generic pharmaceutical industries, provisions for the grant of patent term extension were made in the Israel Patents Law together with the insertion of a Bolar exception. These provisions have been revisited several times by the legislator, the last such round was in 2014 leading to a relatively complex chapter in the Patents Law. Quite a few decisions of the Patent Commissioner concerning the interpretation and scope of the Law’s PTE provisions have been subject matter of appeals to the courts, some of which arriving to the Supreme Court. The most recent decision of the Patent Commissioner in this field concerns the grant of PTE to biosimilar drugs (i.e. patents on inventions pertaining to drugs which are biosimilar to other drugs of similar biological matter which enjoy prior market approval) thus providing indications as to when PTE will be granted in this innovative field of the pharmaceutical industry. In December 2020 the ILPO together with the Ministry of Justice published a call for proposals of the patents law – it is anticipated that this first call will culminate in legislation of several reforms within a couple of years. In recent years, in view of the IP friendly local environment, Israel has become the opening gateway not only for the innovation itself but also for the obtaining of its legal protection. Recognizing the importance of timely patent prosecution there are several modes for expediting patent prosecution in Israel. Under the 2012 Patent Law amendment, Section 19A added the possibility of expediting the examination also at the request of any person of the public (i.e. not the applicant) on grounds of public interest. The few applications made to date on such grounds, were rejected. Requests on behalf of patent applicant for expediting examination using the various modes of making special have become quite common. Most such requests are made on grounds of PPH, GPPH or PCT Direct programs and arrangements made with other patent offices in order to share the work and mutually benefit from positive office actions. Another mode of expedition is the ILPO’s undertaking to expedite an application for an invention first filed in Israel from which priority is intended to be claimed in foreign territory. Such mode has been known to gain effective results such as arriving at allowance by the ILPO within 10 – 12 months from priority, thus providing applicant with an important perspective to the success of the application and the continuation of prosecution. As a high rate of innovation is reliant on software implemented inventions (SII) and nowadays more so on artificial intelligence (AI), the ILPO gas put in ASA KLING PARTNER AND HEAD OF IP 94 The US-Israel Legal Review 2020 ISRAEL: INTELLECTUAL PROPERTY place quite clear guidelines ad to the patentability of such inventions and their examination. Broadly speaking, it was indicated that the requirement of a patentable invention to be in a field of technology should present, prima facie, a technical effect. This test was adopted from European jurisprudence. The guidelines incorporated several examples for their implementation. With regards to AI, ILPO officials publicly voiced a position espousing that inventions pertaining to AI technology should be regarded as any other SII. This would be in line with EPO and USPTO guidelines for examination of such, although as is the case in other IP offices this approach is under constant scrutiny and consideration. The Israel Patent Law includes a pre-grant opposition proceeding. Such a proceeding is an adversary process initiated by an opponent from the public before the Commissioner of Patents. In a public report issued by the ILPO in 2017, data shows the low usage of the pre-grant opposition proceeding (under 1% of all allowed patents). Some public discourse regarding a possible reform to resemble EPO post grant opposition and US PGR proceedings is underway. This reform is yet to transpire and the pre-grant opposition remains, for now, in place. This process may be revisited upon the reform of the Patents Law as discussed above. As in most countries, Israel has rules concerning limitations on the filing by its citizens and residents of inventions relating to national security and nuclear energy. In the past such limitations bottlenecked the examination process in a large part of local patent prosecutions. Reportedly, the exercise of such limitations has substantively decreased in recent years by way of effective cooperation between the ILPO and the Ministry of defense. Special efforts have been made to streamline the screening process on both local as well as PCT applications made by Israeli citizens and residents. Such a streamlining is another indication of the importance the regulative environment in Israel attributes to the effective obtainment of legal protection to IP rights. The Israel Patents Law provides employer with full property rights in service inventions which are the product of an employment relationship whereby the invention is a direct result of the relationship and is made during the employment relationship. Unless agreed otherwise, the law sets aside a financial right to the employee to be duly compensated for such ‘automatic’ attribution of property right to employer. Such matters may be heard before a unique committee having sole authority to set the rate of severance and royalties for the appropriation of the invention, unless otherwise stipulated by the parties. In a landmark decision of said committee from 2010, The advance stipulation whereby employee waives any future financial benefit was deemed to be void. This decision caused much concern whereby a relatively large number of new cases were brought before the committee which eventually, in a 2014 decision, the committee made it clear that the said monetary rights attributed to employee, may be contracted out. In later decisions the committee regarded additional, until then unresolved, matters providing the stakeholders with a higher rate of certainty. The last of these decision is a 2017 decision, which was largely affirmed by the Supreme Court, in which the committee dismissed a case in limine due to statute of limitations thereby limiting the timespan during which employer may bring into account possible monetary claims on part of a service invention. The ILPO and the Ministry of Justice announced at end of 2019 that they will be exploring the possibility to enact a provisional application procedure at the ILPO. The form of such procedure is yet to take shape. This important initiative is another example of the robust yet flexible services the IP stakeholder may enjoy in Israel. DESIGNS The past few years saw a dramatic change to the legal protection of design rights in Israel. In August 2018 the new Design Law came into force replacing a British Mandate ordinance from 1924 (which will remain in force with regards to designs applied for before the new law coming into force). This was followed by Israel acceding in October 2019 to the Hague Agreement Concerning the International Registration of Industrial Designs, under-which operations started in January 2020. The new Designs Law has adopted terms and criteria used in the European Union Directive on design and intends to rely, for the sake of interpretation, on European and specifically United Kingdom jurisprudence in the field. Similar to the EU Registered Community Design Right and the Unregistered Community Design Right, the new The US-Israel Legal Review 2020 95 Israel Design Law provides for a registered and an unregistered right. The term of protection of a registered design right is 25 years whereas unregistered rights last for 3 years from date of first publication and provide relatively limited protection. The new law requires the design be globally novel and have individual character as per the impression of an informed user. The new law will enable providing protection for design of graphic user interfaces, icons and digital screen images which under the ordinance were not clearly protectable. It should be noted that despite the many legal as well as administrative reforms providing for a streamlined registration process, the Designs ledger shows a decrease in amounts of applications. Additionally, to date, the use of the Hague system in Israel has not reached substantial numbers. It is uncertain whether this is affected by international tendencies or is telling to the local designs space. Also the courts have yet to substantially address interpretation of the new law – such application of the law may underline the many advantages to register the rights rather than opting for the unregistered design right. The courts are yet to directly address the enforcement of unregistered design rights. Nevertheless, the few recent lower instances decisions addressing such legislation have tended to favor enforcement of rights under the new legislation. TRADEMARKS The Trademarks Ordinance was substantially revised in 1972 (a New Version over the original British Mandate version). Many amendments were made since. One of the main amendments was made in 1999 to conform with the TRIPs Agreement providing, inter alia, for well-known marks rights. Frequent litigation before the courts and active customs enforcement have brought to effective jurisprudence granting trademark rights considerable value in the local marketplace. As of October 2010 Israel started operating under the Madrid Protocol concerning international registration of marks. Since then the overall amount of trademark applications in Israel grew by 20%, while the amount of classes applied for grew by more than 100%. In the past few years foreign applicants steadily account for 75 – 80 % of all trademark registration applications in Israel. Also Israeli applicants have constantly increased their use of the Madrid protocol as a means to obtain trademark protection outside of Israel. Trademark examination for registration in Israel is conducted both on relative as well as on substantive grounds. Recent streamlining of the examination process as well as training additional examination personnel have contributed to the considerable reduction of the pendency and examination times in the trademark department. Reportedly, on average during 2019, a trademark registration may be obtained anywhere between 3–6 months (a considerable improvement over 9–12 months in previous years). Expedited examination may provide for allowance within days or very few weeks. Israel is a member of the Lisbon Agreement. The Appellations of Origin and Geographical Indications Law provides for the registration of Appellations of Origin and for the protection of Geographical Indications which are not registrable per-se but may be subject matter of a trademark registration made under the Trademarks Ordinance (as amended in accordance with the TRIPs Agreement). The courts tend to enforce registered AOI rights over trademark rights (in 2015 the District Court cancelled a trademark registration of a water distributor for a mark containing the word ‘Champagne’) though the scope of GI rights were construed in a limiting fashion (The supreme court allowed in 2008 the registration of a trademark for ‘Darjeeling’ despite the opposition of the Indian Tea Board). Up until recently, out of more than eleven hundred registered AOIs, Israel enjoyed only one registered AOI – “Jaffa” for citrus fruit. This has changed in 2020 when the ILPO approved “Maté Yehuda” for wines as a registration of an AOI under the Israel AOI Law which will enable the obtainment of protection under the Lisbon Agreement. This registration may be a precursor to additional applications for registrations which may be supported by the Ministry of Agriculture which has shown certain support for such activity. COPYRIGHT AND NEIGHBORING RIGHTS Copyright law is governed by the relatively new Copyright Law of 2007 which replaced longstanding British Mandate Ordinances (whereas the 1924 Ordinance still remains in force with regards to recordable media other than for computer use, e.g. blank tapes). Neighboring rights are governed by the Per- 96 The US-Israel Legal Review 2020 ISRAEL: INTELLECTUAL PROPERTY formers and Broadcasters Rights Law of 1984. A recent amendment from January 2019 to the Copyright Law provides for internet service providers a ‘take down’ procedure under the law which requires a court order. A person claiming copyright infringement on the internet may petition the court to order the internet service provider to reveal the infringer’s identity under a certain balance of interests taking into account the possibility of identifying the actual infringer. The amendment provides for a detailed process of transfer of information from the internet provider and the court has the power to consult with experts who can advise on actually identifying the infringer based on available information. In any event, the court may require the alleged infringer to respond to the petition and have the chance to persuade the court not to identify the infringer. It is anticipated the copyright proprietary rights will enjoy precedence in cases of web infringements. Although, how this elaborate procedure will play out is yet to be seen, currently the courts are cautious in applying this process while attributing weight to privacy and proprietary rights. The said amendment also provides for indirect infringement responsibility where a work is made publicly available where such distribution is made to gain profit. A person installing means of circumvention of infringement will not be considered as a person who should have known that the work was made public by way of infringement. Special limitations on compensation without proof of damages for internet infringement were put in place. The amendment also addresses the possibility of using orphan works without affecting copyright or moral right infringements. There are several collection societies in Israel having mutual arrangements with international societies. The most active society in the enforcement space is ACUM, the collecting society for authors and composers of musical works. ACUM has recently taken actions against large players and institutions such as radio broadcasting corporations and municipalities in an attempt to reform the royalties scheme applied to such users. The result of these proceedings which relate also to competitive practices may affect how royalties are collected from public concerns. In a recent case (2017) the Supreme Court addressed the issue of overlap of copyright and design right. It was decided that copyright may reside in a product in parallel to design rights depending on the intentions of the creator at time of making the work. This decision will affect how merchandising rights are enforced. CONCLUSION – CHALLENGES TO COME The Israeli IP system provides stakeholders effective tools to install use and maintain due safeguards. The legislator and the courts are attentive to the need to reform and adapt to a changing technological world. Several reforms are underway while effective enforcement is obtainable. In view of the high involvement of Israeli companies in artificial intelligence innovation, the regulators are yet to fully address the implications of this technological field on IP, its creation, registration and enforcement. ABOUT THE IP PRACTICE AT NBA The IP Group at Naschitz Brandes Amir comprises of highly experienced practitioners who have gained deep understanding of the essentiality of IP rights in a knowledge driven economy and culture to provide clients with a comprehensive toolkit to deal with an ever-changing landscape where law, technology and creativity meet. The IP Group at Naschitz Brandes Amir provides a full range of IP related services, such as: strategizing IP portfolios; copyright; prosecution of patents, designs, trademarks, plant breeders’ rights and appellations of origin; enforcement; litigation; trade secret law; unfair competition; and transactional work including cross border licensing, due diligence reviews and reports and freedom to operate opinions. Asa Kling heads the firm’s intellectual property practice including registration prosecution and litigation in courts, in arbitrations and before the Israel patents office. Prior to joining the firm Mr. Kling was the Director of the Israel Patent Office and Commissioner of Patents, Trademarks and Designs (2011–2017). Mr. Kling consults on litigation and transactional issues pertaining to all aspects of intellectual property. Mr. Kling is an attorney-at law and a patent attorney and is well versed in international intellectual property and unfair competition laws. n BROAD DEPTH OF IP CAPABILITIES “They provide support 360 degrees, 24/7. They could not be faster. High added value, mainly by understanding what’s worth challenging and what’s not.” Chambers and Partners “They have specific expertise and availability, plus their local and international brand is valued.” Legal 500 Naschitz Brandes Amir 5 Tuval Street, Tel-Aviv 6789717 Israel T: +972-3-623-5000 | E: [email protected] www.nblaw.com BROAD DEPTH OF IP CAPABILITIES “They provide support 360 degrees, 24/7. They could not be faster. High added value, mainly by understanding what’s worth challenging and what’s not.” Chambers and Partners “They have specific expertise and availability, plus their local and international brand is valued.” Legal 500 Naschitz Brandes Amir 5 Tuval Street, Tel-Aviv 6789717 Israel T: +972-3-623-5000 | E: [email protected] www.nblaw.com 98 The US-Israel Legal Review 2020 ISRAEL: HI-TECH Much ink has been spilt over whether or not the outbreak of the COVID-19 Pandemic qualifies as a Black Swan event (an unexpected event that has significant impact, and rationalized in hindsight), a White Swan (an event that has significant impact, but statistically foreseeable), or perhaps a Grey Swan event (an event that is possible and known, potentially very significant but considered unlikely to occur). Be it as it may, a strong, stable and robust Israeli Hi-tech sector was shoved into a complete tailspin with the COVID-19 outbreak – leaving behind a whirlwind of economic upheaval, distress and uncertainty. Another swan that appeared in 2020 was the signing of the Abraham Accords (arguably a White Swan event – considering the decades of clandestine trade and cooperation that has been ongoing between Israel and the United Arab Emirates (UAE)1 , an event which is predicted to positively impact the Israeli Hi-tech sector). This article will attempt to provide an analysis of the cumulative effect of such events and how they impacted and/or are anticipated to impact the Israeli Hi-tech sector throughout 2020 -2021. If we look back at the Israeli Hi-tech sector, way back in 2019 BC (the year Before COVID), Israeli Hi-tech investment and exits had reached all-time highs – a year coined by some as “Record Year of Exits”. It was a year characterized by large financing rounds, investor optimism and increasingly favorable VC terms towards start-up companies. The exuberance of 2019 continued on into the beginning of Q1 2020 peaking to the tune of some $2.43 billion during the early part of H1 2020. But then, in walked COVID and in March of 2020, we saw markets crash, a 50% decline in deal making in relation to the same month in 2019,2 and a jump in the rate of down rounds in H1 2020 from 9% to 14%.3 To try and better understand how the advent of COVID on what was otherwise a robust Israeli Hi-tech sector impacted, continues to impact and in all likelihood will continue to impact the Israeli Hi-tech sector, long after the date that this article was published, lets break it down into 3 significant ways the COVID-19 Pandemic impacted the Israeli Hi-tech sector: (i) the supply and demand calculus The Swans of 2020 and Israeli Hi-Tech COVID-19 and the signing of the Abraham Accords between Israel and the UAE are two events that are impacting the Israeli Hi-tech sector in opposite ways. What does the future hold for the country’s leading industry? A strong, stable and robust Israeli Hi-tech sector was shoved into a complete tailspin with the COVID-19 outbreak The US-Israel Legal Review 2020 99 (ii) the volume of financing rounds; and (iii) employment. The supply and demand equation was altered dramatically, inter alia due to closure of factories worldwide – resulting in a decline in supply of goods and services – leading to stagflation (inflation combined with high unemployment and stagnant demand)4 – all this adversely affecting the Hitech sector that relies on many of these factory produced components. But not all sub-sectors within the Israeli Hi-tech sector lost out due to the Pandemic – while Hi-tech companies engaged in the development of products for tourism, automotive, transportation, culture and leisure, etc. suffered – there were sectors which saw an increase in demand (inter alia due to the new realities brought about by COVID), such as life science ventures (mainly focused around remote services and digital health) gaming companies, online gambling, e-commerce, communications, etc.5 As for fund raising in the Israeli Hi-tech sector, in the first half of 2020, more than $ 3.83 billion were invested in Israeli startups, which demonstrate an increase of 7.5% compared to the first half of 2019 and an increase of 13.3% compared to the first half of 2018. However, a closer look, tells a different story – in H1 of 2020 only 174 companies raised money, over 179 financing rounds – reflecting a 33% decrease in comparison to 2019, in which we saw 171 rounds in Q1 alone.6 Likewise there was a 12.5% decrease in the number of financing rounds of early stage companies compared to the corresponding period in 2019. Essentially what we saw in H1 of 2020 was “more money for less companies” along with a preference for investment in more mature companies. Likewise we saw an uptick in the usage of assorted VC terms, such as participation rights and multiple liquidation preferences, which are used to offset risk attributed to company valuations. The shift in the supply-demand calculus and the pessimistic air on the fund raising front have consequently impacted employment. Before the COVID-19 Pandemic, the Israeli Hi-tech industry had some 18,000 vacant technology jobs and there was a constant shortage of programmers in the market. With the onset of COVID and the ensuing chaos, instability and uncertainty in the market place, the damage to the global economy in general and the revenues of the Hi-tech industry in particular, along with the fear of inability to raise future capital, have all directly affected the Hitech labor market – with demand for new workers in decline, significant rise in unemployment rates, salary cuts and layoffs across the board.7 On the other hand, the Abraham Accords, can be expected to positively impact the Israeli Hitech sector in a variety of ways8 – but 3 Israeli Hi-tech sub-sectors that Israel’s partners to the Abraham Accords can be expected to almost certainly take advantage of are: security, cyber and desert farming. Security – mainly due to regional instability in general and the Iranian threat in particular. Cyber – Israel’s highly coveted cybertechnology capabilities are of significant interest to the Gulf players. Desert Farming – the UAE hopes to improve its ability to deal with the rough climate in the area and establish a path of nutritional independence9 , instead of relying heavily on import, which proved to be problematic in crisis times such during the Covid-19 Pandemic which forced the closure of the borders.10 An alternative possible way to forecast how the Abraham Accords will impact the Israeli Hi-tech sector is by looking back in time and examining how the opening of trade with China impacted the Israeli Hi-tech sector. Like the Chinese, who have demonstrated a predisposition to bringing home jobs and localizing technology and therefore focusing their Israeli investments in more mature AMIR ILIESCU CORPORATE AND M&A PARTNER EFFY STERN ASSOCIATE 100 The US-Israel Legal Review 2020 ISRAEL: HI-TECH companies, so too the Gulf states, which have similar predispositions, can be expected to focus investment in more mature companies11 where companies such as Rafael and similarly situated cyber-security companies may anticipate capital injections in the hundreds of millions of dollars for deals involving weapon and defense mechanisms deals as well as cyber-technology knowledge and products.12 Another common interest that the Chinese and many Gulf States share is AI and Smart cities. China had already proven its interest in developing that sector13, and it seemed that the UAE hopes to advance those sectors as well.14 Even though the UAE is a new source of investment learning from the “Chinese” experience, it might take a few years until the UAE will become a significant investor in Israel’s start-up landscape. According to 2018 figures the involvement of China was 12%, which was a great improvement in relation to 2015-2017 investments which were around 7.5-9%.15 This indicated that it might take a few years until the UAE investors will be an integral part of Israel’s capital investment. To sum it up, the Israeli Hi-tech sector strode into 2020 brimming with self-assuredness and a confidence that was backed up by glittering stats of the year that preceded it. Then two Swans came along and punctured that confidence, shook up all the cards and forever altered reality. The long term damage from the COVID-19 Pandemic has yet be fully understood, but what we do know is that both COVID and the Abraham Accords complete shifted industry interests and focuses and following these new trendlines is paramount to staying in tuned with the Israel Hi-tech sector. n ABOUT THE AUTHORS: Amir S. Iliescu is a partner in the firm’s Hi-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. Effy Stern represents international and local companies, including angel investors, venture capital funds, technology incubators and emerging growth companies in a broad range of legal matters. His practice focuses on corporate finance, including mergers and acquisitions, venture capital and capital financing, as well as commercial transactions and general corporate counseling. NOTES 1 See Heidi Ledford “Millions affected by racial bias in health care algorithm.” Nature 31, Oct. 2019 1 https://www.washingtonpost.com/world/middle_east/ inside-the-secret-not-secret-courtship-between-israel-andthe-united-arab-emirates/2020/08/14/3881d408-de26-11eab4f1-25b762cdbbf4_story.html 2 https://en.globes.co.il/en/article-ivc-zag-israeli-tech-cosraise-record-274b-in-q1-2020-1001324615#:~:text=Israeli%20 tech%20companies%20raised%20an,the%20fourth%20 quarter%20of%202019.&text=The%20strength%20of%20 Israeli%20high%2Dtech%20will%20be%20tested%20in%20 2020.,-This%20time%20around 3 Shibolet, Survey on Legal Terms of Venture Capital Transactions – For the year the first half of 2020. 4 https://www.neaman.org.il/Files/Global%20Economic%20 Impact%20of%20COVID19_20200422171634.350.pdf 5 https://www.pc.co.il/ad/ 6 https://www.geektime.co.il/2020-h1-israeli-startups-funding/ 7 https://www.globes.co.il/news/article.aspx?did=1001335312 8 https://www.calcalist.co.il/local/ articles/0,7340,L-3849936,00.html 9 https://www.calcalist.co.il/local/ articles/0,7340,L-3849936,00.html 10 https://www.bizportal.co.il/general/news/article/783765 11 https://en.globes.co.il/en/article-chinese-take-growingslice-of-israeli-tech-investment-1001258499 12 https://www.bizportal.co.il/general/news/article/783765 13 https://israel-trade.net/asiapacific/2018/12/05/הפיא-ףסכהלע-תועקשה-תויניס-לארשיב/ 14 https://en.globes.co.il/en/article-from-tech-to-tourismisrael-uae-trade-potential-is-vast-1001340312 15 https://israel-trade.net/asiapacific/2018/12/05/הפיא-ףסכהלע-תועקשה-תויניס-לארשי Well-regarded firm, recognized for its expertise in the technology and telecommunications markets advising on corporate transactions and regulation One of the best options for venture capital and entrepreneurial hi-tech work in Israel Have solutions in every area that we require Museum Tower, 4 Berkowitz St. Tel Aviv-Yafo | www.Shibolet.com | Tel. +972 3-777-8333 102 The US-Israel Legal Review 2020 ISRAEL: CIVIL LITIGATION OUTLINE 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. Israeli civil procedure is partial to written submissions and affidavits (subject to cross examination), rather than oral arguments and testimony. However, a recent revision to the Civil Law Procedure Regulations (“the Revision”) has tipped the balance in favor of direct examination and oral summation. The Revision will take force on 6 September 2020 and will apply prospectively to claims initiated after the Revision entered into force. In past years the Israeli legal system has deviated from Common Law to Civil Law principles. One example is the Revision, which also envisages a much more active role for the judge. Another example is the continuous effort by parliament to codify civil substantive law. Israel is a highly litigious country with the highest numbers of lawyers per capita, and an overwhelming number of claims filed each year crowding its court system. According to the Courts Administrator, 854,000 new claims and appeals were filed in 2018 – roughly 1 claim per 10 people. The result is a tendency to use legal proceedings (both in the court system and alternative dispute resolution forums such as arbitration) as a way of solving disputes. THE STRUCTURE OF THE ISRAELI LEGAL SYSTEM The Israeli judiciary is comprised of a general court system and specialized tribunals. The general court system is comprised of the Supreme Court, 6 District Courts (one in each judicial district) and 28 magistrate courts spread out over the different districts. Additionally, there are permanent specialized tribunals with limited subject matter or personal jurisdiction such as labor courts, administrative courts, military courts, religious courts, family Courts, the Antitrust Tribunal and the Standard Form Contracts Tribunal. The magistrate courts serve as the trial court of 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 country with the highest numbers of lawyers per capita The US-Israel Legal Review 2020 103 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 relevant knowledge and experience preside over each court. The Supreme Court is the highest court in Israel. It serves both as an appellate court for the district courts and as a High Court of Justice with powers of judicial review. The decisions of the Supreme Court are final and are not subject to appeal. As a 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 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. According to the Courts Administrator, the average length of regular civil proceedings in the magistrate courts is 11 months (including claims that are disposed of before final judgment). The average length of regular civil proceedings initiated in the district courts is 17 months (including claims that are disposed of before final judgment). JURISDICTION AND EXTRATERRITORIAL SERVICE OF PROCESS The current Civil Law Procedure Regulations establish 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. By power of the service of process under such leave, the Israeli court acquires jurisdiction over a foreign defendant. The court will grant leave of service only if the plaintiff meets several cumulative conditions: • The plaintiff must demonstrate adequate cause of action, specifically that the cause of action is a serious matter worthy of adjudication. In practice, a claim is considered to demonstrate an adequate cause of action for the purpose of granting leave of service if it is not devoid of merit prima facie. • The plaintiff must demonstrate that the Israeli forum is the most appropriate forum for the adjudication of the dispute. If the court finds that there is a more appropriate forum available to the parties (forum non conveniens), it might decline the request. • The plaintiff must demonstrate that their claim falls under one of the grounds for service of YECHIEL KASHER PARTNER The Supreme Court is the highest court in Israel. Its decisions are final and are not subject to appeal 104 The US-Israel Legal Review 2020 ISRAEL: CIVIL LITIGATION process enumerated in the Civil Law Procedure Regulations. 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 Revision broadened the scope of the grounds for service of process concerning torts. The regulations in their current formulation stipulate that the court may grant leave of service if the complaint is based on an act or omission that occurred within Israel. The Revision authorizes the court to grant leave of service also for damage incurred by the plaintiff in Israel from a product, service or conduct of the defendant, provided that the defendant could have anticipated that the damage would be caused in Israel, and that the defendant, or a person affiliated with it, is engaged in international commerce or the provision of international services of a significant scope. This clause in the Revision came into force in December 2018 and applies prospectively to claims initiated after the clause took force. Even if the court does grant leave of extraterritorial service, the defendant may move to quash the leave granted, arguing that any of the above conditions were not met. CLASS ACTIONS Class action lawsuits have become a frequent occurrence in Israel in the past years, including class actions filed 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 grounded in contracts law (such as in the event of breach of contract) or in torts law (such as in the event of a breach of a statutory duty). A prominent cause of action, with respect to contracts law and tort law, is grounded in the duty of a party to act in good faith, as will be discussed in a subsequent chapter. • One approved cause of action relates to claims in connection with the Consumer Protection Law, such as misleading customers regarding material aspects of a transaction, e.g. the nature of the asset or service; the date of its delivery or provision; the usual or customary price of the asset or service; transaction cancellation terms and more. This cause of action includes claims against a dealer concerning a matter 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 it includes any dealer that sells an asset or provides a service in their regular course of business. The Class Action Law allows for the certification of class actions against any seller, supplier, manufacturer, importer or marketer of any product or service concerning a matter between the dealer and the consumer, whether the product or service was for consideration or not, including matters that preceded the actual engagement, and even if the engagement never materialized. • In recent years, there has been a significant increase in private enforcement of the Antitrust Law through the filing of class actions. There has been an increase in the number of class actions conducted before courts in Israel that raised claims by power of the Antitrust Law, such as allegations of excessive pricing and allegations relating to international cartels. A declaration of a breach of the Antitrust Law by the Antitrust Commissioner serves as prima facie evidence in all legal proceedings, and thus facilitates class actions against the subject of the Class actions filed against foreign international corporations have become a frequent occurrence in Israel in the past years The US-Israel Legal Review 2020 105 declaration. • Other prominent causes of action stem from the law of unjust enrichment, and standard form contracts which will be discussed in a subsequent chapter. • A 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 purport 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 in order 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 petitioners 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. The class plaintiff is then entitled to reply to the respondents’ response. Following the filing of 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 in order to try to amicably resolve the dispute. At times, the court might propose that the parties submit to mediation. In most cases, should mediations or the preliminary hearing fail to bear fruit, the court will schedule evidentiary hearings, wherein the affiants on behalf of both parties are subjected to cross-examination (unless the parties agree to forgo cross-examinations). The evidentiary hearings are typically followed by written summations, following which the court decides on whether to certify the class action. If the motion to certify is granted, the court will decide the legal questions that will be adjudicated and will define the class to be represented by the class plaintiff. Furthermore, the certified claim will be considered as the complaint. The defendants must then submit a statement of defense, and the complaint will be adjudicated like any other civil claim. A court’s 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. In contrast, 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 A court’s 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 106 The US-Israel Legal Review 2020 ISRAEL: CIVIL LITIGATION 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. In addition to the above procedure, the Law also provides that 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. In practice, the court often uses its discretion to refrain from appointing such expert. 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 tether a party to liability (or rights), and sometimes even to create duties towards another party harmed by conduct in bad faith – even if the obligations in this context 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 of a party to act in good faith was set in the Israeli Law of Contracts and applies to all the contractual stages – the negotiations, the execution of the agreement and its termination. Over the years, the application of the principle extended beyond the Law of Contracts and, in accordance with well-established and binding Israeli case law, the principle of good faith applies to all areas of private law. An indication of the prominence of the good faith principle in Israeli law, as elaborated above, can be seen in the fact that one of the conditions that should be met for the court to certify a motion to submit a class action or derivative action is that the motion was submitted in good faith. 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: • Enrichment by the opposing party; • Said enrichment is the result of action(s) taken by the plaintiff; and • Said enrichment is unlawful. Standard Form Contracts A standard form contract is a contract with a uniform formulation intended for many engagements. For the most part, the contract is drafted by one party or at its request in order to be used in agreements between that party and their customers. The contract is usually presented to the customer as a finished product that cannot be negotiated. Israel enacted a law aimed to protect customers who entered a standard form contract – the Standard Form Contracts Law, 5743-1982. The law stipulates that in circumstances where – considering the entirety of the contract’s provisions and the context Unjust enrichment is a recognized and well-established cause of action under Israeli law The US-Israel Legal Review 2020 107 of the engagement – a specific clause of a standard form contract is found to be exploitative or affords an unfair advantage to a service provider, the court is empowered to invalidate it. In practice, 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, are not binding. Many class actions are also based on claims alleging the invalidity 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 100 lawyers and interns. Many of the firm’s partners and associates are multi-lingual and have studied or are admitted to practice in overseas jurisdictions. The firm’s Litigation and Dispute Resolution practice group is consistently recommended by international legal publications and directories, including Legal 500, Chambers and Partner, , and by domestic legal directories. The firm has a reputation for excellence and provides its clients with tailor-made solutions and top-quality service. ABOUT THE AUTHOR Yechiel Kasher is partner and head of 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 31 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 on 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 petitions before the Israeli Supreme Court. Alongside his litigative career, Yechiel has also taught Negotiable Instruments and Corporate Law at the Tel Aviv University School of Law. 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 108 The US-Israel Legal Review 2020 US: MERGERS & ACQUISITIONS Global dealmaking slowed dramatically in 2020, as the world grappled with the health, economic and political consequences of the COVID-19 pandemic. Lockdowns hobbled economies across the globe, driving deal value and volume down to levels not seen since the global financial crisis. Israel tracked the global trend. In 2019, the value of M&A in Israel reached US$17.1 billion on a record 131 transactions. In the first three quarters of 2020, value was down to US$7.19 billion, a 40 percent decline compared to the same period in 2019. Volume fell 33 percent to 66 deals over this period. THE DEVIL’S IN THE DETAILS: Q3 REMAINS SLUGGISH BUT TRENDS UP A closer look at the numbers shows that Israel’s path differed somewhat due to local dynamics. Globally, the second quarter was the bottom for both value and volume so far in 2020, with Q3 value up about 140 percent compared to Q2. A number of countries Israel M&A tracks global deal downturn, but US remains a bright spot Activity fell dramatically in 2020, but the US provided a cross-border boost and Q3 shows signs of recovery The US-Israel Legal Review 2020 109 experienced a similar Q3 rebound, including the US and the UK. In China, Q1 was the bottom so far this year, with Q3 value spiking to near all-time record levels. But in Israel, Q3 has marked a low for both value and volume year-to-date. The global spike in value was largely due to a resurgence in megadeals. Global volume rose only about 1 percent in Q3 compared to Q2. That helps to explain Israel’s Q3 doldrums. Historically, megadeals have not been a prominent feature of the Israeli M&A market. But the monthly figures show that there may be signs of a rebound in Israel. While Q3 totals are lower than Q2, figures rose month over month in Q3. Deal value in September reached US$489 million, nearly a 300 percent increase compared to August. And September volume returned to levels last seen in May and April. COLIN DIAMOND PARTNER TALI SEALMAN PARTNER DANIEL TURGEL PARTNER 110 The US-Israel Legal Review 2020 US: MERGERS & ACQUISITIONS US LEADS THE INBOUND CHARGE US companies were the top inbound acquirers in Israel by a wide margin, having invested US$4.18 billion on 25 Israeli deals in 2020. In fact, that’s almost twice what Israeli companies spent on 26 M&A deals through Q3. Indeed, US buyers were involved in six of the top-ten largest Israeli deals of the year so far – and all six of which were in the TMT sector. The largest of these deals was the US$1.2 billion sale of Checkmarx, a developer of security tools for the software development process, to US-based PE houses Hellman & Friedman and TPG Capital. The deal was the second-largest in Israel over Q1 – Q3 and one of the largest ever for an application security firm, in another endorsement of Israel’s status as a cybersecurity powerhouse. The second-largest TMT transaction of the year was Intel’s US$900 million acquisition of Moovit – a provider of traffic data to third parties. The startup applies AI and Big Data analytics to monitor traffic and provide recommendations to an estimated 800 million people globally. The acquisition marks the chipmaker’s latest move in the autonomous driving space, following its landmark US$15 billion acquisition of Israeli autonomous vehicle sensor company Mobileye in 2017. Automotive technology has proven to be one of the hottest subsectors in the Israeli tech sector in recent years – the country’s expertise with both hardware and software has fueled its success in developing technology for the future of transportation. In another bet on Israel’s technological talent, Bain Capital’s Tech Opportunities fund led an US$145 million Series C investment in behavioral biometrics startup Biocatch. The firm uses biometric technology to identify online users and prevent online fraud. As the COVID-19 pandemic pushed the global population online, vulnerabilities were left open for cyber-criminals to exploit. This trend will continue to drive interest in innovative cybersecurity solutions that protect online users from cybercrime. OUTBOUND FAVORS THE US, DESPITE CFIUS AND COVID DYNAMICS Israeli companies invested in 25 deals worth US$.55 billion in the first three quarters of 2020, down almost 70% compared to the same period in 2019. But US deals accounted for more than US$.45 billion, or 80%, of Israel’s outbound value during this period. Indeed, US companies have accounted for at least 80% of the value outbound Israeli M&A in three of the last five years running. By value, TMT tops the list of sectors for Israeli The US-Israel Legal Review 2020 111 outbound M&A during the last five years, beating the number two sector, energy, mining and utilities, nearly by a factor of three. The remaining top-five slots are filled by the pharma, medical and biotech; industrials and chemicals; and defence sectors. More than half the deals targeting US companies in the first three quarters of 2020 were in the TMT sector. All five of the highest value outbound deals during this period involved US targets, with three in the TMT sector and one each in the financial services and pharmaceuticals sectors. Many of the sectors Israeli investors target are heavily regulated and may be likely trigger scrutiny by The Committee on Foreign Investment in the United States (CFIUS), which conducts national security reviews of foreign direct investment (FDI) into the US. CFIUS is particularly likely to scrutinize deals in the tech and defence sectors. Experienced practitioners may be familiar with CFIUS, but it’s important to know that The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) significantly overhauled the CFIUS process in recent years. Final regulations fully implementing FIRRMA’s reforms took effect on February 13, 2020, significantly expanding CFIUS’s jurisdiction, mandating filings for certain transactions, adding the expedited declaration filing option, and making other changes to the CFIUS process. The legislation that contained FIRRMA also included the Export Control Reform Act of 2018, which requires the Department of Commerce to establish export controls on “emerging and foundational technologies, such as sensitive technologies not currently captured under the export control regime.” A few controls of “emerging technologies” have been released, and more are expected to be issued on a regular basis in the near future. We discuss CFIUS in detail in the US section of our recent report “Foreign direct investment reviews 2020: A global perspective.” Moreover, the dependency of US companies on foreign supply chains to satisfy COVID-19 needs – such as personal protective equipment and pharmaceuticals – has become an area of focus for US regulators, including not only CFIUS but also Federal agencies such as the US Department of Health and Human Services. COVID-19 also brought FDI restrictions into sharper focus and accelerated movement towards enhanced screening on a national level across Europe and elsewhere. Germany, Italy, Spain and France are among countries that have already increased their FDI control measures in response to the pandemic, while others are set to do likewise. We discuss these and other countries in the “Foreign direct investment reviews 2020” report mentioned above. With the recent revisions of national FDI regimes following the outbreak of the pandemic, we would 112 The US-Israel Legal Review 2020 US: MERGERS & ACQUISITIONS expect almost any significant healthcare deal to face FDI scrutiny now. STRONG FUNDAMENTALS BUT UNCERTAIN FUTURE Though the pandemic severely affected M&A activity in Israel, fundamental drivers of deal activity remained evident in the country. Israel is a center for technological innovation, and the TMT sector continued to perform solidly in 2020, providing a highlight for Israeli dealmaking in an otherwise unpredictable year. In particular, appetite for Israeli startups among US acquirers continues to be strong. Increasing demand for approaches such as special-purpose acquisition companies (SPACs) suggests strong interest among investors. One such deal was the 2020 merger of US-based DraftKings with Israeli-based SBTech and the Diamond Eagle Acquisition Corp., a US-based SPAC. The resulting company, called DraftKings, was valued at about US$3 billion when the deal completed in April and reached US$13 billion by August. Israel’s deep culture of innovation and businessfriendly regulatory environment will ensure it remains an attractive location for dealmaking, including for other countries in the region. The recently ratified Abraham Accords, which formally normalized relations between Israel and the United Arab Emirates (UAE), will open opportunities for investment between the two countries – and may serve as model for greater cooperation with other neighboring countries. Yet the global recovery from COVID-19 is proving uneven, as governments look for ways to mitigate the risk posed by the virus while protecting their economies. Though many advanced economies have seen rates of COVID-19 cases decline, many are expecting or experiencing a wave of infections as they head into winter. The macroeconomic environment remains difficult to predict. Let’s hope the rising monthly figures in Q3 are the beginning of a longer and accelerating trend for Israeli M&A. ABOUT THE AUTHORS Colin Diamond, is a partner based in the firm’s Capital Markets Group and the US-based Israel practice co-head, is currently recognized among the leading US-based experts in Chambers Global: Capital Markets (Experts Based Abroad) – Israel. Colin’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 the firm’s Mergers & Acquisitions Group, as well as the UK co-head of the firm’s Israel Practice. He is widely recognised as a leading practitioner on Israel-related 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 the firm’s global Mergers & Acquisitions practice, based in Silicon Valley. Tali’s practice focuses on private and public M&A and general corporate representation of emerging technology and life science companies and venture capital investors. Tali represents strategic and financial buyers and sellers in public and private acquisitions. Tali 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. Tali is listed as a “Leading Lawyer” for M&A in the United States by Euromoney (2020). Email: [email protected] Tel: +1 650 213 0315 White & Case’s commitment to the Israel market spans several decades and is widely recognised as a stella practice, receiving band one in Chambers Global: Israel 2020. We offer a regular on-the-ground presence, advising on transactions across a broad range of industries, including high-tech, healthcare and medical devices, cleantech, agriculture, real estate, energy and oil and gas, chemicals, consumer products and financial services. Our practice has deep roots in M&A, capital markets and project finance, and we have been leveraging this corporate experience into other areas, notably litigation. n The US-Israel Legal Review 2020 113 114 The US-Israel Legal Review 2020 ISRAEL: HEALTHCARE MORNING, SEPTEMBER 2030 You wake up, it’s a regular day. “Mom, I’m not feeling well” yawns the toddler. Hand on forehead. Hmmm… Maybe he’s sick. You log into your local telehealth provider, which recommends performing a home swab test. If you don’t do it, the provider will automatically inform the toddler’s nursery school and he won’t be allowed in. Swab the child’s throat and process as instructed – the data is on its way to the lab. An alert from the telehealth portal - an artificial intelligence software has analyzed the data and determined that the child is well. Perfect! Off to preschool. In the afternoon the child’s temperature rises. The physician’s office, automatically alerted by the toddler’s wearable bracelet, has already sent an alert that a prescription is on the way. The child’s medical insurance has also been notified automatically and sends you a notification that the doctor’s prescription will be 85% covered. While this morning of the future differs significantly from the typical morning in 2020, artificial intelligence (AI), telemedicine and wearables are already integral parts of today’s health landscape. By one expert estimate, within ten years the vast majority of surgical procedures will be performed by robots using artificial intelligence and the majority of hospitalizations will be replaced by monitoring and treatment via telemedicine. This article explores uses of telemedicine services, AI applications and wearables in the health sector, and addresses challenges that are endemic in these technologies. ARTIFICIAL INTELLIGENCE Artificial intelligence means the performance by a computerized system of tasks that would be considered intelligent were they to be performed by humans. AI has been implemented in healthcare in patient diagnostic and screening applications, medical data analyses, medical treatment recommendations, pharmaceutical development, and in robots, used to perform surgical procedures. For example, Microbiologists at Beth Israel Deaconess Medical Center demonstrated that AIenhanced microscopes can be used to identify bacteria quickly and accurately. John Hopkins Hospital partnered with GE Healthcare Partners to implement AI-based systems and predictive analyses in order to better manage patient safety, experience, volume, and movement. AI-enabled wearables and connectivity devices are bringing diagnostic tools to patients, empowering them to manage their health condition AI fertility software and trackers promote women’s health, and AI software and bots are used to treat mental health conditions – a field where there is Digital Health – Developments and Challenges This article explores uses of telemedicine services and AI applications in the health sector, and addresses challenges that are endemic in these technologies. The US-Israel Legal Review 2020 115 Digital Health – Developments and Challenges often a scarcity of treatment options. However, AI’s special characteristics raise novel challenges. AI can in certain instances lead to output that is at least partially tainted by prejudice, racism, or sexism. AI’s algorithms are trained on certain data sets. Where the data set does not represent the totality of the patient population but only a subset thereof, the AI may make false recommendations or predictions when treating a patient from unrepresented group. According to a study published in Nature, widespread racism was revealed in decision making software used by US hospitals.1 Therefore, careful attention must be paid to the data set input before adopting recommendations based on artificial intelligence, to ensure that discrimination or faulty presumptions do not lead to poor decisions. In cases where AI serves as a physician decision support tool, questions are raised as to the delineations of the physicians’ responsibility and how much weight will be accorded the software’s “judgement,” at the expense of the physician’s own judgement. This is a challenge that will need to be overcome as the field develops. Special attention is required in a “black-box” situation, where AI tools are employed but one cannot explain the causality between the input and the output – i.e., we are unable to explain how certain input (medical data on a disease for example) leads to a specific output (such as a recommended treatment). Physicians rely on their experience and on medical literature to explain the linkage between the disease and potential treatments. AI may generate insights and achieve better results than any individual health professional, however, the black-box output does not communicate why a specific course of treatment is recommended. This may leave a health professional lacking the ability to “understand” the AI’s recommendation and to explain it to patients. In addition, a “learning algorithm” improves its performance over time. Therefore, at a later point in time an AI algorithm may reach different conclusions regarding the same case, yielding inconsistent recommendations.2 HOW CAN THE CHALLENGES OUTLINED ABOVE BE ADDRESSED OR MITIGATED? Algorithmic transparency can assist in identifying bias before it affects patients at a large scale. Algorithmic transparency demands that developers should consider explaining the reasoning for and document the following: where did the data come from? How was the data processed? How was the algorithm developed and validated and how does it reach its results? Increased transparency with regard to AI’s training data set and algorithms will enable monitoring of both input and output of AI TAMAR TAVORY, ADV. SPECIAL COUNSEL NETANELLA TREISTMAN, ADV. PARTNER YOHEVED NOVOGRODERSHOSHAN, ADV. PARTNER 116 The US-Israel Legal Review 2020 ISRAEL: HEALTHCARE systems to ensure that decisions are unbiased, fair and equitable. This of course may involve a risk of disclosing trade secrets, but there are solutions which can be employed to mitigate this risk. Another possible solution to the challenges outlined above is explainability. Explainability means use of methods and techniques in applying AI such that the results of the solution can be understood by humans. Explainability is aimed at making AI systems transparent and understandable so that regulators and experts can examine and analyze them. Developers are asked to provide both process-based explanations and outcomebased explanations for that purpose. Explainability can help identify potential bias. Currently there’s no binding legislation that addresses AI’s special characteristics and challenges in medicine (other than the general medical device’s regulation). When AI is embedded in a medical device, or when an AI tool functions as “software as medical device” under United States Food and Drug Administration (FDA) regulations and the European Union Medical Device Regulation (EMDR), it is subject to regulations that apply to medical devices. In Israel, the regulator has historically embraced the FDA and EUMDR approach to medical device regulation, and we can expect the same to be true with respect to regulation of AI products and applications. The FDA recently published a proposed framework for regulating AI. A particularly noteworthy aspect of it is a pre-certification pilot program in which the FDA first looks at the company rather than primarily at the product, relying on certain companies’ robust culture of quality and organizational excellence, as well as their commitment to monitoring real-world performance of their products. In addition, several EU and US federal bodies have issued practical, mostly non-binding, guidance concerning the use of AI generally, discussing, among other possible solutions, transparency and explainability as reviewed above.3 While this guidance is not specifically directed to use of AI in the healthcare context, we can expect that future regulatory schemes that target use of AI in the health environment may use this general guidance. TELEHEALTH Although use of telehealth technologies has been on the rise in recent years, the COVID-19 pandemic has caused a large uptick in proliferation of telehealth services. Distancing and isolation guidelines in various countries have made in-person visits to healthcare professionals more difficult; the ability to provide healthcare services at a distance has become a valuable tool in providing access to healthcare. A recent survey in the US revealed that 93% of patients were either satisfied or very satisfied with their telemedicine experience, and 92% would use telemedicine in the future.4 Telehealth is used to build ground-breaking healthcare tools and together with AI is expected to increase the quality of patient care immensely; Tele-ultrasound is used to track a pregnancy condition from afar, accompanied by live guidance and an explanation from a telehealth ob/gyn; Hospitals remotely monitor patients’ conditions with mobile medical devices in order to minimize the medical team’s exposure. In critical care units, telehealth is used to monitor patients’ condition with AI based platform that can predict possible deterioration; It has been reported that in China, an internet hospital is being established – a centralized 24/7 medical command, staffed by physicians and nurses, that delivers telemedicine services for patients at home or at local medical centers, backed by digital pharmacy services. Regulatory regimes have responded to the rise of telehealth services by issuing targeted guidance. The US’s Coronavirus Aid, Relief, and Economic The COVID-19 pandemic has caused a large uptick in proliferation of telehealth services The US-Israel Legal Review 2020 117 Security Act (“CARES Act”) aimed at offering economic aid to the American people, included numerous measures intended to encourage the use of telehealth systems. As part of the CARES Act, the Federal Communications Commission provides $200 million in funding to the COVID-19 Telehealth Program. Even prior to the Covid-19 pandemic, Israel’s Ministry of Health issued guidance on how to apply general medical regulations in the telehealth setting. This guidance addressed the following, among other issues: when patients should be referred to face to face treatment, medical confidentiality, patient identification, informed consent, privacy and information security. However, many practical and legal issues are still unresolved. On the regulatory end, ensuring that telehealth providers are properly accredited- even where a healthcare provider in one country treats a patient in a different country – is important to ensure quality of care and compliance with legal and safety requirements. Perhaps a global licensing framework should be considered which would recognize healthcare providers’ licenses outside their home countries. In addition, legally, it is not clear yet how the “old” liability legal regime will address the new technology. Who is responsible when something goes wrong in a clinical care unit supported by telehealth providers or in a tele-ultrasound guided by a remote physician? How quickly is the physician required to review results of the medical examination and would patient involvement in monitoring herself detract from the physician’s responsibility if the monitoring was done in the wrong way? (Probably not). On the technological end, standardization, connectivity and interoperability between different apps and telehealth platforms are required. Without these, it is and will continue to be very difficult to incorporate and use emerging technologies in healthcare. These challenges are yet to be met. WEARABLES AND OTHER PERSONAL HEALTH TECHNOLOGIES Smart health devices, such as mobile apps, wearable devices, and digital assistants can provide tracking and monitoring, personalized recommendations to users, and even diagnostic services. Wearable devices can track activities and other indicators such as heart rate, temperature, and oxygen levels. Wearable devices can also use AI technology to make health assessments such as early detection of risk factors, and to provide recommendations such as exercise and fitness recommendations. Smart devices can also help patients managing chronic diseases, for example by performing continuous blood sugar tracking for individuals managing diabetes. Telehealth can also benefit from use of smart devices as they may allow healthcare providers to assess patients at a distance by means of such devices. The WHO has rolled out an AI digital health assistant to help individuals quit smoking. However, wireless and wearable medical devices are potentially subject to cyber-attacks that can affect their efficacy and threaten patients’ privacy. In April 2018, the European Commission published a Communication on enabling the digital transformation of health and care in the Digital Single Market which highlights the importance of technology and lays out the context, needs, and recommendations for using digital solutions to improve health and healthcare. Among other issues the Communication encourages collaboration among different EU actors, promotes exchange of information, investment in digital solutions, increased use of data, and use of person-centered digital tools. The World Health Organization (WHO) has announced the creation of a Department of Digital Health intended to “…maximize opportunities for digital health”. In 2019, the WHO has released guidelines entitled “Recommendations on Digital Interventions for Health System Strengthening”, A key challenge in the commercialization of digital health technologies such as AI and telehealth is privacy compliance 118 The US-Israel Legal Review 2020 ISRAEL: HEALTHCARE which provides an “assessment of the benefits, harms, acceptability, feasibility, resource use and equity considerations” and is intended to provide health policy makers with recommendations and considerations for implementation of digital health solutions. In September 2019, the US Food and Drug Administration (FDA) issued guidance regarding use of software and hardware in “mobile medical applications”, including wearables. Many wearables are not regulated as medical devices subject to FDA regulation; of those that are subject, the FDA has stated that it only intends to apply regulatory oversight in cases where there may be a risk to patient safety in the case of malfunction. Wearables are often used together with artificial intelligence, which accelerates their performance, and are often used as platforms for telehealth, both in hospitals and in patients houses. Wearables are expected to change the face of healthcare provision, personalizing it and increasing accessibility of care within patients’ home. The use of wearables raises additional questions relating to patient involvement and its effect on healthcare providers’ responsibility. When is the healthcare provider required to intervene? What is the patient’s role in handling electronic health records and what are the patient’s rights in these records? What special training should be mandated for medical staff? However, a primary issue concerning wearables are the risks of infringement of privacy; these risks are discussed below. PRIVACY A key challenge in the commercialization of digital health technologies such as AI, telehealth and wearables is privacy compliance. AI, telehealth applications and wearables all involve the collection, processing and transfer of large amounts of personal data. Where a digital health solution is deployed in a cloud environment across country borders, solution providers must consider the privacy requirements of the country in which the data subject is located as well as each country in which data are collected, processed, and stored. The GDPR governs processing of personal data in the EU, as well as processing of data of EU individuals (“data subjects”) regardless of the location of the processing, or the location of the data controller or data processor. Since health data is considered particularly sensitive data, it is subject to certain additional restrictions compared to non-sensitive personal data. Data controllers and data processors are subject to different requirements under the GDPR. A “data controller” determines the purposes and means of processing. A “data processor” processes data solely on behalf of a controller and not for its own purposes. Data controllers must ensure that they have a legal basis for processing data; the GDPR provides a list of legal bases for processing, one of which must be met in order for the processing to be lawful. Since the uses of personal data must be identified and legitimized prior to processing, secondary use of personal health data – such as for medical research – requires an independent legal basis. For example, personal data may be collected on the legal basis of explicit and informed consent between a doctor in a private clinic and a patient for the purpose of medical diagnosis. Where the doctor or the private clinic may then want to engage in secondary use of the data for research purposes – for example to analyze trends across all patients – this secondary use of data will often require separate explicit data subject consent. The GDPR also requires adequate data security measures and regulates transfers of personal data of EU data subjects to recipients outside of the EU. In Israel, privacy and data protection is governed by the Protection of Privacy Law-1981 (Privacy Law), various regulations, sector-specific laws that target health information and regulatorissued directives. Unlike the GDPR and certain other national The extent to which offshore providers of digital health technologies that involve the handling of data of Israeli data subjects are subject to Israeli privacy law is unclear The US-Israel Legal Review 2020 119 data protection laws, the Privacy Law and attendant regulations are silent on the law’s territorial scope, and to date, the Israeli regulator has not issued guidance on how the Privacy Law and attendant regulations are to be applied to cloud-based technologies. The extent to which offshore providers of digital health technologies that involve the collection, export and processing of data of Israeli data subjects are subject to Israeli privacy laws is unclear. Unlike the GDPR, the Israeli Privacy Law does not dictate legal bases for processing. Instead, the ‘purpose limitation’ governs data use – ie – personal data may be used only for the purpose for which it is provided by the data subject, though defenses are available that justify processing on public interest and other grounds. Processing for other purposes including secondary use of identified medical data generally requires data subject consent. Like the GDPR, the Israeli regime adopts principles such as notice requirements and data security requirements (which are far more granular than the GDPR general guidance and data export restrictions). The regulation of secondary use of health data is in flux, and legislative proposals in this area have been proposed. One advantage enjoyed by Israeli cloud services providers is the EU adequacy ruling, which since 2011 has designated Israel’s domestic law as guaranteeing an adequate level of protection for the processing of personal data. This inclusion on the EU ‘white list’ of adequate countries enables the transfer of personal data from the EU to Israel without special arrangements; for purposes of GDPR, data transfers from the EU to Israel are treated as substantially equivalent to transfers from one EU country to another. This designation is particularly helpful to the deployment of Israeli digital health solutions in the EU, and holds particular significance in the wake of the decision of the European Court of Justice in July 2020 which invalidated the European Union (EU) -United States (US) Privacy Shield Framework. There is no question that AI, telemedicine and wearables have the potential to increase the quality of patient care and patient well-being. As AI and telemedicine tools gain acceptance, regulators, healthcare institutions and patients will continue to grapple with the issues discussed above. n NOTES 1 See Heidi Ledford “Millions affected by racial bias in health care algorithm.” Nature 31, Oct. 2019 2 For a detailed analysis of AI in medicine, see Keidar Roy & Tavory Tamar, “Legal and Regulatory Aspects of AI in Medicine” in Emerging Technologies: The Israeli Perspective (Lior Zemer, Dov Greenbaum and Aviv Gaon, eds, Nevo 2021) (Heb) to be published. 3 Examples of AI’s guidance include: The FTC Guidance on Using Artificial Intelligence and Algorithms April, 2020 - https://www.ftc.gov/news-events/ blogs/business-blog/2020/04/using-artificial-intelligencealgorithms; The White House’s Draft Guidance for Regulation of Artificial Intelligence Applications July, 2019 - https://www.whitehouse. gov/wp-content/uploads/2020/01/Draft-OMB-Memo-onRegulation-of-AI-1-7-19.pdf; Ethics Guidelines for Trustworthy AI, High-Level Expert Group on Artificial Intelligence Apr. 2019 (non binding) - https:// ec.europa.eu/digital-single-market/en/news/ethics-guidelinestrustworthy-ai; White Paper on Artificial Intelligence – A European approach to excellence and trust, The European Commission February, 2020 - https://ec.europa.eu/info/sites/info/files/commission-whitepaper-artificial-intelligence-feb2020_en.pdf; The Information Commissioner Officer in the UK and The Alan Turing Institute, Practical Guidance for Organizations on Explaining AI, June 2020 - https://ico.org.uk/for-organisations/ guide-to-data-protection/key-data-protection-themes/ explaining-decisions-made-with-ai/ 4 https://metova.com/survey-high-demand-telemedicine/ ABOUT THE AUTHORS Yoheved Novogroder Shohan, Adv. Partner, High Tech and Life Sciences Practice Group Email: [email protected] Netanella Treistman, Adv. Partner, High Tech and Privacy Practice Group Email: [email protected] Tamar Tavory, Adv. Special Counsel, Life Sciences and Digital Health Practice Group Email: [email protected] Yigal Arnon & Co. Law Firm 22 Rivlin Street, Jerusalem 94240, Israel Tel: +972 3 608-7777 Fax: +972 3 608-7724 www.arnon.co.il PARTNERS & C O CONCIERGE SERVICES BUSINESS ADMIN SUPPORT LOUNGE LOCAL PHONE AND EMAIL CONFERENCE ROOMS & EVENTS OFFICE SPACE FOR OUR SPECIAL OFFERS TO ISRAELDESKS READERS call -972 (54) 522 5280 Or check our website www.partnersco.me Partners & Co. is an exclusive business lounge & work space consisting of International and Israel's prestigious lawyers & law firms. Our spacious, luxurious offices are located in the heart of Tel Aviv on the upper floors of Hagag Towers, nearby Sarona Market, Rothchild Boulevare, in the heart of the city's business and cultural hub. 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