September Edition 2023 IsraelDesks Presented by In Partnership with
Whichever way you slice and dice it, these are challenging economic times around the world, and yet one trade relationship is holding up well. The UK-Israel trade relationship continues to show some strong numbers. Worth around £7 billion, there are more than 400 Israeli tech firms operating in the UK, while Israeli investment into the UK has added around £1 billion gross value to the UK economy and created about 16,000 jobs in the last 8 years, according to UK Foreign Secretary, James Cleverly. We speak to lawyers in the UK and Israel - from White & Case, Dechert, Bird & Bird, Charles Russell Speechlys, and Epstein Rosenblum Maoz – about this relationship. In our other main feature, we dive deeply into the impact of AI on law firms and General Counsel, especially since the November 2022 launch of ChatGPT. Together with other AI-powered tools, they have transformed the business landscape and firmly driven the technological fox into the corporate henhouse, raising many concerns for business leaders, including data protection, privacy, and IP infringement. Experts from Arnon, Tadmor-Levy, Shibolet, Lipa Meir & Co., The Luzzatto Group, Dechert, and Penteris share their latest views on the opportunities, challenges, and regulatory hurdles that continue to surface in this rapidly developing field. Lawyers in the know also weigh in on recent trends in both capital markets (lawyers from Bird & Bird, Mayer Brown, and Carter Ledyard) and real estate (Herrick, Asserson, Aird & Berlis of Canada, Taylor Wessing, Charles Russell Speechlys). Benjamini & Co. discusses a Bill proposing new definitions around Israeli residency for taxpayers, Yossi Ben-Dror examines the legal aspects of Smart Contracts, and the Luzzatto Group explores the Israeli IP attracting investors. Follow us and if you wish to know more and contribute to our bi-monthly IsraelDesks magazine, reach out. We would love to hear from you. Lee Saunders, Editor IsraelDesks
Industry Focus » Being smart about artificial intelligence Recent Market Trends » Impacts of the evolving legal landscape on General Counsel » The Luzzatto Group, In femtech, foodtech, and agritech, Israel’s intellectual property beckons investors » Benjamini & Co., Congratulations (or maybe not)!!! You are an Israel Resident: A Bill Proposing New Definitions and Presumptions for Establishing Israeli Residency for Taxpayers » Amidst capital markets rollercoaster, shoots of optimism » Israeli businesspeople, companies, and institutional investors invested USD 2.3 billion in overseas real estate in 2022 » Y. Ben-Dror Law Firm, Smart Contracts – Legal Aspects and the Israeli Perspective Jurisdiction in the Spotlight » Israel and UK: A new roadmap 25 29 35 41 45 51 Table of Contents 04 14 24
Jurisdiction in the Spotlight Israel and UK: A new roadmap
5 Israel and UK: A new roadmap UK-Israel Trade Relationship worth appx. £7 billion This past March, the UK and Israel signed the 2030 Roadmap for UK-Israeli Bilateral Relations, the prime goal being to boost economic, security and technology ties and to ensure the partnership remains modern and innovate so as to address shared challenges. The Roadmap included new multi-millionpound programmes, joint funding commitments on technology, and a plan to keep both countries at the forefront of the technological revolution. Adopting a thematic approach, the Roadmap contains detailed commitments for deepening cooperation across a broad range of sectors, including on cyber (with the UK elevating Israel to a tier 1 cyber partner), science and tech, R&D, security, health, climate and more. In this latest feature, we take a deep dive into the state of the UKIsrael relationship, the challenges being faced, and the prospects going forwards, hearing the views of some of the most active and prolific lawyers in both markets. The UK-Israel trade relationship has already delivered huge benefits to both economies. The UK-Israel trade relationship is worth around £7 billion, up from £5.1 billion at the end of 2021. According to the UK Foreign Secretary, James Cleverly, who signed the Roadmap in March: “There are more than 400 Israeli tech firms operating in the UK. Israeli investment into the UK drives growth and jobs, adding around £1 billion gross value to the UK economy and creating about 16,000 jobs in the last 8 years.”
6 “We have seen decent deal flow both ways this year, with many formal and informal delegations exploring collaboration opportunities,” says Dan Turgel, London partner at White & Case, and co-head of the firm's Global Technology Industry Group. “The Roadmap is definitely a step in right direction.” “While it is too early to predict how the new trade agreement will play out, it is definitely a positive step,” agrees Simon Marks, partner at Epstein Rosenblum Maoz (“ERM”). He continues: “We will need to see what specific initiatives aimed at promoting bilateral trade come out of the agreement, and how successful these are; however a deepening of the formal and informal connections is certainly a good thing for Israeli business.” "We expect that this will soon be complemented by a new free trade agreement,“ adds Adam Meisels, London partner and head of Israel Desks at Bird & Bird. “That will further strengthen the relationship between the countries by focusing on the trade of services and technology and be more suited to the technological advancements of the future." Current status of the UK-Israel relationship Source: UK Government (released August 2023) Trade Figures Year to Q1 2023 Change on year to Q1 2022 Total Trade in Goods & SWervices £7.3 billion +29% Total UK exports to Israel £3.8 billion +32% Export of goods £1.8 billion %14+ Export of services £1.9 billion %55+ Total Israel exports to UK 3.6£ billion %28+ Export of goods 2.5£ billion %28+ Export of services 1£ billion %28+
7 “Given the UK’s recent drive to turn the UK into a ‘science and technology superpower by 2030’, a partnership between the two nations is of no great surprise,” says Alexander Gold, partner at Charles Russell Speechlys, and head of the firm’s Israel Desk. “The relationship between the UK and Israel today is perhaps the strongest it has ever been. The agreement is a recognition by both nations of the strengths that they possess in science and technology, and that information and technology sharing between the two countries will be of mutual benefit. It should lead to greater support for science and technology businesses in both countries (including start-ups) and greater ability to fund leading science and technology projects. That is good news for all involved.” This deepening of commercial ties has become especially significant considering the domestic concerns of both nations. Once plastered all over the business press, Brexit remains a concern but how much? White & Case’s Turgel, states: “We have not seen the flow reduce post Brexit in our business. In fact, some trade has increased due to additional flexibility.” “Not in our experience,” says Gold of Charles Russell Speechlys. “Years post-Brexit, the UK remains Israel’s third largest trading partner. £2.7 billion worth of British exports went to Israel in 2020. And, given this year’s news of this new economic and technological partnership and the two nations continuing to develop closer ties, the relationship still looks extremely strong. It’s been our experience on the ground too – overwhelmingly, we see enthusiasm on both sides for doing business and engaging in new projects.” Bird & Bird's Meisels added: "Overall I would say that Brexit has not put off Israeli entrepreneurs or start-ups. London remains the top destination in Europe for tech investment and one of the best places in the world to scale a tech business. The UK government provides a range of support for entrepreneurship and start-ups including financial assistance such as grants, loans and tax efficient R&D and investment schemes. Furthermore, the UK remains a hotbed for incubators and accelerators that support and promote innovation and business growth.” How much is Brexit still a concern? Not so much…
8 In fact, there are many organizations engaging in Israeli-UK relations, such as the UK Israel Tech Hub, which, since its inception in 2011, has facilitated over 250 partnerships, with an estimated £1.2 billion economic impact to the UK. There is also the Israel UK Chamber of Commerce, the UK Israel Business, and the Israeli Business Club. Many of these remain as vibrant as ever, while there are also Facebook groups bringing professional Israelis from the local landscape. Some of these include the Israeli Startups in London and the Israeli Tech Parliament in London. This agreement has also become all the more pressing for Israel, given controversial judicial reforms that have concerned the tech sector, banks and global ratings agencies. According to Start-Up Nation Central, which tracks the local tech ecosystem, almost 70% of Israeli startups are taking active steps to pull money and shift parts of their businesses outside the country due to the uncertainty. Adam Levin, London partner at Dechert: “Unfortunately, the relationship has been overshadowed by the political issues in Israel relating to the judicial reform. We are aware that risk committees are having to include it in their assessments of deals, and this has led to several deals falling over at the last minute. It is not possible to see the long term implications for the Roadmap clearly at this point as a consequence. Valuations are being driven down as the supply of investors is slowing due to the additional risk currently associated with Israel as a consequence of the judicial reform. It is evident everywhere from the approximately 20% slide in the Shekel against the US Dollar and GBP, which means that existing investments are now worth less in US Dollar and GBP terms, to the slowing tech sector in Israel with many people losing their jobs. UK investors will be keenly watching for the outcome to the challenge before the Israeli Supreme Court to the judicial reforms and the fallout and consequential events from that. Israeli investors will be watching for the next General Election in the UK which may bring about a change of Government and the policy consequences which will arise from that.” Judicial reforms: Investors hesitant but interest remains
9 White & Case’s Turgel: “There any many reasons why investor appetite may have subdued over the past 18 months or so which are not Israel-specific. Nevertheless, investors have been very aware of the political climate.” Jeremy Seef, partner at ERM adds: “There seems to be a general nervousness about inward investment into Israeli tech at the moment, and this is not specific to the UK. For now, a lot of this nervousness arises due to uncertainty and no doubt, as the advancement or amendment of the proposed reforms become clearer, we expect the business relationships to settle, although likely with some shifts in focus. Notwithstanding, we are still seeing activity where the right opportunity arises.” Fellow partner, Marks at ERM goes on: “Political and legal developments relating to judicial reforms should continue to be monitored, as should the U.S.-China relationship which we have seen affect the business considerations of Israeli businesses for some time, in particular in the past year. In addition, the implementation of EU rules on platforms and digital markets, as well as the fast-moving AI landscape will continue to be important in terms of opportunities, and risk mitigation too.” There is scope for alignment and collaboration in this fast-moving sector – and we have explored the state of AI in our other main feature. Bird & Bird partner, Meisels, also indicated: "UK investors are concerned by the judicial reforms and the general uncertainty around how long Israel’s constitutional crisis will continue has likely impacted appetite from investors to some degree. That said, investors remain deeply interested in Israeli innovation and a number of our VC investor clients are continuing to actively explore investment opportunities in Israel and are raising new funds with Israel as a focus area." Gold of Charles Russell Speechlys adds: “The judicial reforms certainly have not been helpful to international investment in the short term, and that can be seen quite clearly in the markets. It is far too early to say how any of this will affect business and investment in Israel over the longer-term, and for the time-being it is a case of keeping a watching brief.”
10 With an interest in innovation, many industries continue to attract attention, interest and funds. According to UK Government data, mechanical power generators, medicinal and pharma products were among the largest exports to and from Israel in the year to Q1 2023, while travel, business and insurance were among the services where there were collaborations – as per the table above. Seef of ERM confirms: “Technology generally, and specifically fintech, media, cyber and data driven technologies are strong. As a firm with very strong links to the UK market, we continue to see a lot of activity. Some of the transactions we have advised on in the last 12 months include representing the buyer of an English FinTech company, representing the sellers of an English company by way of a share transaction with an Israeli buyer, the investment by an English VC into an Israeli start-up, and a great number of finance transactions with Israeli links (where the English loan markets remain dominant)." White & Case’s Turgel adds: “Tech, energy and financial Institutions remain the most active sectors for our practice,” while “healthcare, financial services, cybersecurity and climate tech are a few key areas of activity,” states Bird & Bird’s Meisels. “Given Israel’s position as a key wealth center and a private capital hub, we are particularly active in the Private Client and Private Wealth Disputes fields in Israel,” says Gold of Charles Russell Speechlys. “Unsurprisingly, tech also continues to be particularly active in Israel. The startup scene is particularly busy, and it still holds its reputation as the ‘Silicon Valley of the Middle East.’ Real Estate continues to be buoyant for us as a firm, as high-net-worth individuals in Israel continue to buy and sell valuable assets in London.” Over the past year, UK-Israeli transactions cut across a plethora of industry sectors. In April 2023, UK public company Entain agreed to buy the Israeli sports app, 365Scores for USD160 million, while last October, the Israeli digital insurance company, Lemonade launched in the UK with British residents able to buy Lemonade Contents Insurance. Strong interest persists in cyber, AI, healthcare, fintech and more
11 Israeli companies and the London Stock Exchange – 23 listed and growing interest Given the challenges of raising funds at present, the London Stock Exchange has held up well adds Levin of Dechert: “London remains a key global financial centre and the London Stock Exchange trying to attract global companies to list on it in preference to a New York listing. Good companies from Israel will surely receive a warm welcome should they decide to list in London.” This has played out well with Israeli companies. There are currently 23 Israeli owned / operated companies on the Main Market (13) and the AIM (10). This includes cyber company, KAPE, fintech company, PLUS500 Ltd., gambling software company, Playtech PLC, among many others. Last November, Israel’s Delek Group completed the flotation of its Ithaca Energy subsidiary on the London Stock Exchange - at a valuation of £2.5 billion. White & Case’s Turgel points out: “We do expect more Israeli issuers to list on the LSE. Against the backdrop of a global race by the principal stock exchanges, including the NYSE, Nasdaq, and LSE to streamline their listing requirements to attract issuers, we anticipate that the LSE, especially following the completion of the recent FCA reform, will become an even more attractive venue for Israeli issuers to raise capital. With its established reputation and a diverse investor base, the LSE is poised to become an attractive platform for Israeli unicorns looking to expand their funding options and enhance their international visibility.” Michael Dawes, equity capital markets partner at Bird & Bird: “The UK has held its own in recent months when compared to global capital markets activity, with the London Stock Exchange reporting 179 IPOs and follow-on raises in H1 2023, raising £11bn. Globally equity capital markets have been depressed for the past year, but I think that we’re reaching peak inflation and interest rates, and there are definite signs of activity in the UK IPO market. We’re working on a number of listings that are looking to position themselves for autumn 2023 or spring 2024, when we expect appetite to return in certain sectors.” Fellow Bird & Bird partner, Meisels adds: “While it is no secret that in recent years Israeli (and other) tech companies have often favored IPOs in the US, there are advantages to listing in the UK and regulators are actively streamlining the UK listing regime to further encourage high-growth companies to choose London as their IPO destination. Further attention to this is likely to take place given Arm’s recent high profile decision to list in New York rather than London.
12 “This will lead to opportunities in M&A and alternative routes to fundraising” However, overall, London is home to one of Europe’s largest stock exchanges and Europe’s largest tech ecosystem which remains resilient despite a challenging macro-economic environment. While the US markets may still be favored by many Israeli tech companies, some of these factors may eventually help draw more Israeli companies to consider listing on the LSE.” “The Israeli market is at an interesting phase with many VC backed and other tech companies likely to or already running out of funding,” asserts ERM’s Marks. “Our view is that this will lead to opportunities both in M&A as well as more interest in alternative routes to fundraising (e.g. IPOs) in the next 12 months. Historically Israeli companies tend to look to the U.S. capital markets (the Nasdaq and NYSE) rather than London. The LSE and its advantages need to be consistently promoted, and there needs to be a few success stories (both IPO and post IPO) to generate more interest. It is worth noting that the capital markets (and in particular the experience of Israeli companies on the capital markets) have been hit hard so though we are confident that the capital markets (and the LSE specifically) will continue to prove attractive, we expect it to be an incremental process of increasing deal volume.” The Roadmap may be new but there are encouraging signs.
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Industry Focus Being smart about artificial intelligence
15 Being smart about artificial intelligence Artificial intelligence will continue to grow in its usefulness but will always rely on the creative input and vast real-world experience of lawyers and General Counsels – not merely to avoid mistakes, but also to propel companies to the next level. Within two months of its November 2022 launch, the ChatGPT chatbot was being used by 100 million people, one of the fastest adoptions of a new consumer application ever. This AI language model developed by OpenAI is essentially a computer program designed to help you generate natural language, replicate human-like text-based conversations, and retrieve information. A recent study of 4,000 respondents in the U.S., UK, Australia, and India by Israeli CRM platform developer Salesforce revealed that such ‘Generative’ AI has been embraced by an astounding 49% of respondents - in less than a year. A recent article in the Jerusalem Post asked if corporations were going to ban the use of ChatGPT, after a recent survey showed businesses in the U.S. have begun to question the extent to which ChatGPT should be embraced. Generative AI has already attracted regulatory scrutiny, particularly in Europe, where data collection practices have come under the microscope of privacy watchdogs. Particular fears relate to potential data security breaches and intellectual property leaks. As the speed of change accelerates, both private practice lawyers are weighing up the benefits and risks associated with the integration and use of AI in their practices, and GCs are also increasingly exploring how AI tools can enhance legal operations within their companies. In this broader discussion, experts from Arnon, Tadmor-Levy, Shibolet, Lipa Meir & Co., The Luzzatto Group, Dechert, and Penteris shared their thoughts and experiences with us, how this field is impacting or beginning to impact clients, as well as the great opportunities and immense challenges for companies, governments, and consumers. What is AI and what do lawyers use it for? At its most basic level, AI is the ability of machines to carry out intelligent tasks typically performed by humans, using algorithms (a series of rules written into computer code) and combining computer science with data to
16 solve problems or make predictions. Generative AI takes vast amounts of raw data, learns the patterns within it, in order to generate the most likely correct response when prompted with a question. In Israel, in August, AI21 Labs- the only company in Israel developing a "large language model" based on AI, became a unicorn after it raised USD155m in a Series C financing round, giving it a valuation of approximately USD1.4 billion (Meitar acted for A121 Labs, Herzog and H-F & Co. represented flagship investors, Nvidia and Google respectively). Generative models have been used on numerical data for several years. However, as deep learning and natural language processing have become more advanced, Generative AI has been applied to images, audio, and text. The term became more well known after OpenAI released its chatbot ChatGPT at the end of last year. Lawyers are familiar with AI; but today’s changes unparalleled Lawyers have been deeply familiar with AI for some time. AI-powered software has been widely adopted for managing and reviewing documents, as well as due diligence tasks, with machine learning algorithms capable of analyzing reams of documents, helping lawyers identify relevant information more efficiently during legal research and discovery processes. Other software allows for the analysis of market trends, tracking of legal developments, and identification of potential business opportunities. Some law firms are also using AI to predict case outcomes and assess potential risks. By analyzing past legal cases and relevant data, AI algorithms can provide insights that assist lawyers in making strategic decisions for their clients. However, caution was thrown to the wind when, in June, a New York lawyer used ChatGPT to help with a brief for his case against the Colombian airline, Avianca. It provided him with entirely fictitious case law and was immediately called out by opposing counsel and the judge. After several humiliating headlines, the lawyer was fined, underlining the dangers of relying on Generative AI. As this one case highlighted, there are many legal issues arising from the prolific use of such technologies. In addition to the inaccuracies through an improper review of AI’s output, Generative AI raises a number of complex legal issues around data privacy, intellectual property and the potential leakage of confidential information, as well as compliance violations, breach of contract, copyright infringement, as well as damaging communications with customers, and more.
17 It is very important for clients to understand how it affects their obligations and contracts in potentially new ways. Other issues that have surfaced also relate to trade secrets - how to keep prompts and Generative AI workflows secret; ethics - how to supervise someone else using gen AI if you yourself have never used it; and the comingling of client data. While embracing the latest generation of AI technology, the vast majority of lawyers appear to be proceeding with caution. The impact of AI on the lives of lawyers and their clients Eyal Oren, partner at Shibolet & Co: “We have already established an AI team to monitor closely the evolution of AI in terms of technology, the regulatory landscape and that of the judiciary to be able to give advice in an uncertain environment. In addition, the firm is working on the constant review of AI tools for internal implementation.” Partner, Roy Keidar, who heads the Emerging Technologies practice at Israeli law firm, Arnon, Tadmor-Levy adds: “We see the impact across the board. The growing use of Generative AI tools by lawyers entails significant benefits for lawyers which are still at its nascent stages, but also poses significant challenges to protect privileged information of clients, to ensure adequate use to avoid issues of professional liability, and to develop the right program for training the future generation of lawyers.” “A real game-changer for clients” “Before the use of AI-assisted diligence technology, we would frequently be asked to just review the top material contracts, says Adam Levin, co-head of Dechert’s corporate group in London. “Now, we can have our AI check every single agreement in a transaction. It’s a real game-changer for clients to be able to have that extra level of comfort.” Keidar of Arnon, Tadmor-Levy, adds: “Generative AI won't replace lawyers so quickly in the crucial crossroads of a company (such as strategic deals, regulation analysis or litigation). But it can influence some of the clients’ willingness to pay lawyers by the hour, for services they can get almost free, even if they are of inferior quality. General counsels were looking for guidance on how to formulate internal policies for their companies. Such policies should be tailor-made for each organization, as the use of AI varies across
18 organizations. For some, it’s integral in what they make or sell, some use it as input for decision-making (e.g., employment, customer service), and in many others, it is used sporadically by employees for smoother operations.” “Also, the risks and potential liabilities are already drawing the attention of investors and potential buyers in financial rounds and M&As, and we encourage companies, even startups, to be ready with solutions to some of the risks AI, and specifically Generative AI poses to their operation,” he adds. Do these trends concern you or excite you? Keidar of Arnon, Tadmor-Levy points out: “Excitement and concern may strangely come together. We are excited by these tools and are still in the process of learning how to best utilize them, for the best of the firm and for the benefit of the clients. The use of Generative AI in drafting papers, analyzing documents, Due-Diligence, legal research, E-discovery, and data management addresses many pain points in our legal day-to-day. At the same time, we need to be concerned about how we train the next generation of top legal professionals who would grow into this world where AI is going to be embedded in almost all of our platforms. We already understand that some tasks could be given to AI and make associates' lives easier and more efficient, yet we also bear in mind that adequate training requires maintaining some types of assignments which are essential for making them into excellent professionals.” The industries most affected “Most affected are the industries based on copyright paradigm, most notably software, music, visual, and so on” adds Oren of Shibolet. AI could also help people with improved healthcare, safer cars and provide tailored, longer-lasting products and services. It can also facilitate access to information, education and training. AI can also make workplaces safer as robots can be used for the more dangerous parts of jobs, and open new job positions as AI-driven industries grow and change. AI used in public services might also reduce costs and offer new possibilities in public transport, education, energy and waste management and could also improve the sustainability of products. Data privacy is a real concern AI can play a crucial role in enhancing cybersecurity measures and protecting sensitive client data. It can detect and respond to potential security breaches
19 more effectively – and yet, with this advance comes a myriad of concerns. GenAI applications leverage extensive sets of data, carrying the potential for unauthorized access and breaches of privacy regulations, data loss, and subsequent legal consequences. In a recent GC survey conducted by Nishlis, data privacy and security were high on the list of concerns, especially with regards to data protection when using AI tools and ensuring compliance with relevant regulations like GDPR or HIPAA. Vered Zlaikha, partner and head of the Cyber Affairs & Artificial Intelligence practice at Lipa Meir & Co., says: "I believe that in order to mitigate privacy and data protections challenges, organizations would, firstly, prefer using closed and separate technological environments (of AI systems) for their activities, and secondly, we may see further development of de-identification and anonymization methods, and more organizations implementing them for their AI activities. Moreover, organizations should adopt dedicated policy and internal guidance for employees, in relation to privacy and data protection, tailored to their activities and the AI system they use.” Shibolet’s Oren adds: “When it comes to our clients, some of them are worried about the implications of their employees using GEN-AI tools in the framework of their duties and wish us to develop rules of conduct, and others want to take advantage of these tools while doing so carefully. When it comes to us as a firm, we are already in the midst of reviewing diverse levels of AI tools to be implemented in our work.” Training both management and staff to understand and use the tools effectively and understand the potential on the work and caseload will be vital, as firms will increasingly look at the cost-benefit analysis of the time, accuracy and operational efficiencies involved. Fears surround intellectual property GenAI has the capability to produce content that closely emulates the creations of content creators, raising the possibility of intellectual property conflicts. This, in turn, could trigger legal disputes and potential harm to one's reputation. In August in the U.S., in Thaler v. Perlmutter, the U.S. District Court for the District of Columbia affirmed the Copyright Office’s decision that a work generated entirely by AI with no human input is not copyrightable. As Shimon Maman, associate in The Luzzatto Group, a specialist IP firm in Israel, pointed out: “It should be noted that, unlike the United States, there is no official Copyright Registry in Israel, but, if a similar question of copyright
20 ownership is discussed in Israel through a copyright infringement litigation case, the decision will likely be similar as well, that AI alone cannot be considered a creator under the current Israeli copyright law.” Shibolet’s Oren added: “The future of copyright in relation to GEN-AI tools is indeed a new terrain, and the regulatory and judicial authorities should balance carefully between all the players in order to keep incentives for human creators while pushing forward the benefit we all can gain from AI tools.” Keidar of Arnon, Tadmor-Levy notes: “The reality is that there is little guidance by regulators or case law as to the legal norms in this space. Clients would typically look for certainty and risk management. We are investing efforts to assist client in a creating an AI legal-safe environment within the organization mainly through working with the GC or management. Usually, it involves AI risk mitigation policy, internal monitoring to ensure AI usage aligns with existing policies, tracking high-risk activities, ensuring proper disclosures and representations, adjusting commercial agreements and proper training for management and employees.” Current regulatory landscape: EU; UK; US and Israel While there is widespread agreement on the need for protective measures, finding the right balance between innovation and safety, ethics and accountability is a real challenge. Debate remains ongoing on how best to regulate these innovative technologies. As the world’s regulators grapple with concerns such as algorithmic bias, misinformation from chatbots like ChatGPT, and misuse of personal data, there is a lack of consensus on a regulatory framework. The result: the regulatory landscape surrounding AI varies by country and region. “The EU has taken a leading-edge approach in shaping the regulatory landscape for AI in recent years,” says Jeremiasz Kusmierz, Head of Compliance at Warsaw-based international law firm Penteris. “Central to this effort is the proposed "Artificial Intelligence Act," which is a framework designed to establish unified rules for the development and deployment of AI. Key to this framework and a defining characteristic of the EU's approach is the adoption of a risk-based paradigm, which involves regulating the diverse applications and functionalities of AI systems rather than the technology itself. This strategy sees technology as a versatile tool that can be beneficial, neutral, or even harmful to society depending on its
21 application. This approach, often referred to as “narrow” regulation, focuses on identifying potential benefits and risks,” he adds. ChatGPT triggered a debate whether “narrow” regulation is sufficient to mitigate the risks associated with this technology, with such concerns leading to key amendments to the proposed AI Act, which were agreed upon and adopted by the European Parliament this past June. Striking the right balance is vital. The UK and U.S. have adopted a more permissive approach to AI regulation. According to the UK’s House of Lords Library in July: "Ministers contend that UK laws, regulators and courts already address some of the emerging risks posed by AI technologies. However, they also concede that, while AI is currently regulated through existing legal frameworks like financial services regulation, some AI risks have arisen and will arise across, or in the gaps between, existing regulatory remits.” Writing in April 2023, the U.S. think tank, the Brookings Institute contends that the U.S. federal government’s approach to AI risk management can broadly be characterised as risk-based, sectorally specific, and highly distributed across federal agencies. While this can be advantageous, this approach also contributes to the uneven development of AI policies. Israel has also followed a sectoral approach. “Israeli Governments took a conscious decision not to develop a comprehensive regulatory framework towards AI, but rather, adopted a "sectorial approach" allowing each regulator to monitor and enforce AI activities in their respective fields,” said Keidar of Arnon, Tadmor-Levy. He goes on: “Such approach was anchored in a policy paper titled "Draft Regulation and Ethics Policy in the Field of Artificial Intelligence", published by both the Ministry of Innovation, Science, and Technology and the Ministry of Justice in October 2022. We believe this approach is a good reflection of Israel's position as a hub for technology start-ups, where innovation should not be stifled by strict regulation. However, while Israel is indeed a technological leader in several domains, when it comes to AI development, permissive regulation is not enough, and there are expectations from the government to address market failures (one of which is training foundation models in Hebrew) and incentivize more AI innovation across industries for the benefit of Israelis and the entire industry.” “Israel is quite behind when it comes to regulatory advancements in the field of AI, however,” adds Oren of Shibolet. “However, a few principal papers
22 were published by the Ministry of Justice and the Ministry of Health which can serve as a benchmark, although the advancement in the EU and U.S. is also a strong point of reference.” Although global consensus is needed, it is unlikely to emerge any time soon with a fragmented approach likely for some time. Staying updated on local laws and international developments is crucial. There is cautious optimism about AI overall, presenting many possibilities but as firms continue to navigate this new landscape, continued vigilance and proactivity in managing the associated cybersecurity risks will be part and parcel of life in this new era.
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Recent Market Trends Impacts of the evolving legal landscape on General Counsel
25 According to a recent survey of General Counsel by Nishlis, the evolving legal landscape has impacted the role of in-house counsel in many ways. Regulatory change, compliance, data protection and global and/or geopolitical uncertainty were among issues worrying GCs. Factors like increasing business complexity, growing regulatory scrutiny, and the changing needs from external legal counsel have indeed led to an expansion of in-house legal departments, and is also altering what they need from external counsel and how they need it. As showcased in the Nishlis annual GC survey, GCs are focusing their work with fewer law firms than in the past, with today 41% hiring 3-5 law firms. More work is done in-house due to tighter budgets and a concentration of work. The volume of legal work sent to law firms has held up well, however, more work (25%) has remained in-house. GCs have recently preferred to handle regulatory and real estate work in-house, where possible, but are somewhat more likely to require external counsel on employment and IP issues, especially with the rising importance of data protection and privacy. Litigation is out in front as the type of legal work most likely to be outsourced to private practice firms, but M&A also remains very high on the list of work outsourced, as well as tax and intellectual property law, as companies look to protect their bottom lines and IP assets. Much of this is backed by The General Counsel Report 2023, which examines the risks keeping general counsel up at night – which include compliance, regulation and technology “modernization,” while concerns relating to employment issues and data privacy and security remained somewhat steady. 60% of respondents in this survey witnessed an increase in new regulations that require policy refreshes and additional headcount; 47% experienced more contract management demands; 33% noted a rise in M&A activity; 30% reported increases in privacy violations and notifications; and 27% mentioned increases in class action litigation. ESG matters were more common this year than in any of the prior years of The General Counsel Report. In fact, 60% of the participating general counsel Impacts of the evolving legal landscape on General Counsel By Idan Nishlis
26 noted that their organizations are concerned about ESG as a business imperative. It’s an imperative for so many because companies are being measured in this area, and the quality of their efforts are increasingly linked to their business success. Investors will screen a company for ESG risk, and if you don’t score well enough, there is a potential risk they will not fund the company. When choosing a law firm, personal connection is the highest source of influence, according to about 70% of respondents in Nishlis’ survey. This could be through a previous relationship, legal engagement with a given firm or lawyer, or a personal recommendation. In recent years, GCs continue to push for a better service to justify fees, especially in this economic climate. When selecting a law firm to work with, client service unsurprisingly comes in at number 2, behind a high standard of professionalism. This mirrors the way many corporate clients behave in their own operations and with their clients. Given the current global downturn, legal fees, which were at #4 in the last survey, climb to 3rd place. More GCs are active today on LinkedIn, with two-thirds of GCs proactive on the social media platform, as opposed to under half two years ago. With that in mind, it is important to make time to reach out and strengthen those connections. As the Nishlis survey underlines, GCs point out the importance of client updates and content in general. However, many law firms have been reluctant to oblige this, thinking it is a burden. In a market saturated with content, value-add, readability, and relevance will be key. A survey of General Counsel in the UK and US by Passle supported this, revealed that 77% of GCs spent 5 hours or more staying up to date each week – although not in a structured time slot, with weekends most popular, followed by time after work, during lunch and in between meetings. More interestingly just 8% of GCs thought law firms enough timely, relevant content to the market. In the Passle report, 61% of GCs would prioritize suppliers that kept them up to date with the latest industry developments and best practices and 100% of GCs felt that law firms had a responsibility to keep their clients and prospects informed about news and developments that include legal updates, industry trends, industry appointments, and content that could generate ideas and opportunities. Newsletters, webinars and podcasts are over 1/3 of the ways GCs receive updates, with many visiting a law firm’s website weekly or monthly to consume the relevant updates there.
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Recent Market Trends In femtech, foodtech, and agritech, israel’s intellectual property beckons investors
29 Could the Israeli tech sector be any hotter? It's hard to imagine it could. With freshly patented ideas leading the way, a recent international survey once again found that the country leads the world in the ratio of tech investment to the total size of its economy. And that investment is paying off in startling innovation, seizing the imagination of IP-savvy investors worldwide. At 75 years of age this spring, Israel is still one young country. Its technological know-how continues to astound the world, drawing capital and trading partners from places as far-flung as China, Japan, Russia, and of course, Israel's favorite trading partner, the United States. A disproportionate number of those foreign investors and entrepreneurs engaging with the Israeli tech sector are represented by one Israeli entity—The Luzzatto Group, an Israeli IP law firm and consultancy. The Group, with thousands of tech patents in Israel and abroad under its belt, is leading in the development and spread of talent and innovation in "Silicon Wadi,"-the nickname for the Israeli Silicon Valley. The Luzzatto Group is a proud five generations and 154 years old, with preIsraeli-roots in the Jewish community of Milan, Italy. The Group provides full service for inventors, entrepreneurs, and investors seeking IP protections or IP investments, as well as legal support. We'll come back to one of the fifth-generation partners who make up the modern leading edge of the Luzzatto legacy. In this article, we'll look at three of the many tech subsectors driving the excitement around IP developed by Israeli entrepreneurs, to the benefit of investors worldwide. The Birth and Growth of FemTech Whether you are a woman, a man, or neither: Have you ever considered just In femtech, foodtech, and agritech, israel’s intellectual property beckons investors By Joshua M. Peck
30 how little regard technology seems to have for women and girls? Almost every medical device, pharmaceutical, and even consumer product is attuned primarily to the physiology and psychology of the human male. This may not be news to you, but it's an enduring issue that hasn't yet been adequately addressed. And it's not just medicine. You've probably noticed how an average-sized woman in an average-sized car wears a seatbelt? It's as if the designer didn't know that more than half of human adults have...breasts. How about the apps on your phone? Many of them are geared to the singly focused male attention span and male sensibilities. Don't believe us? Look at the list of women's favorites, which departs significantly from men's. And no, they're not all menstrual period trackers, though three of them are. Israeli entrepreneurs are stepping up and focusing on the gender gap in technology and across all industries, and making use of intellectual property protections to safeguard their inventions. More and more inventors and entrepreneurs are pouring time and energy into the sector called FemTech, a name coined by an American entrepreneur just seven years ago. Publicly disclosed FemTech deals hit the $2.5 billion mark in value worldwide in 2021, spread over some 300 transactions, according to a McKinsey survey. With some half the world's population identified as female, one need not be a prophet to see the profits coming--and Israeli tech is seriously in on the FemTech mix. "The Israeli economy is leading the way on FemTech, among many other sectors," says Lilach Luzzatto Shukrun, one of the current generation of The Luzzatto Group, and the head of the Engineering and Medical Devices division in the Luzzatto patent law firm. "Women's needs have often been ignored by the tech world, and, over the last few years, the Israel entrepreneurs I work with are starting to change that." Woman-Specific Medical Tech on the Way An example? "Endometriosis," Luzzatto says, "which falls under the definition of a 'transparent disease'; 10 percent of all women suffer from it, but little effort is invested in studying the condition and researching solutions. I wonder what would happen if 10 percent of all men suffered from a similar condition. At last, our Israeli FemTech community is beginning to study it in depth and even attack it." The medical profession may still lead the way, with a recognition that, for example, cardiac problems and physical pain plays out differently in women
31 than in men, and may call for different approaches, for example, in anesthetic intervention. "We have to look at every product and service with fresh eyes, and not only in the medical industry. The way everything is engineered must be re-geared to make it work for women, Luzzatto adds. "Our clients from our tech sector are doing that, with great success. Those who see the value of this technology and its patented innovations should get in on the act." "As a group with 80 percent women in management, our mission is to develop the FemTech industry worldwide", Luzzatto says. "That is why our team members are key players in live conferences and social media groups that are looking at the many paths to making technology woman-friendly. Up until recently, it was solely about fertility, gynecological issues, and sexual health, but they now understand that women's concerns and perceptions are relevant to...everything." One Luzzatto client and financial partner is Pulsenmore, which has pioneered the development of home ultrasound scanning during pregnancy. The patient scans her own uterus with a specialized instrument the company delivers to her, and her smartphone then communicates with her obstetrician so both can observe her growing baby. This technology has begun to spread around the world, and recently has seen utility in Ukraine, where women within the war zone have had difficulty getting to medical offices or hospitals for care. Luzzatto fully expects more promising innovation in FemTech to follow in the years and decades to come. The Seeds of AgriTech To highlight another of Israel's rapidly-growing sectors, we will go to the ground—specifically AgriTech, which in many cases goes hand in hand with Food Technology ("FoodTech)." Both demand multi-disciplinary knowledge. The Luzzatto Group, also with a northern Israeli office in Qiryat Shemona—the heart of the Galilee region's agricultural land of plenty--has deep roots in the innovation of the agricultural sector, working with companies that manage such technologies as drip irrigation; developing and perfecting fertilizers and pesticides; working with start-ups focused on yield and harvest management; and the growing field of cannabis technology and processing for medical use. "A simple example of AgriTech innovation is that now Israeli farmers can treat each plant as an individual and provide customized care," Luzzatto says. "A camera, a drone, or a sensor-based system will reveal that one plant