Austin, Texas, downtown skyline at sunsetThe American Bar Association is holding its upcoming 2018 Business Law Section Annual Meeting at the Austin Convention Center in Austin, TX, from September 13 to 15.

Fox partners Emily Yukich and Matt Kittay are organizing a panel discussion entitled “Austin’s Startup Community Global Impact: Featuring SXSW and Central Texas Angel Network.

The panel will feature Claire England (Executive Director of the Central Texas Angel Network (CTAN)) and Chris Valentine (SXSW Pitch Event Producer). It will provide unique insights regarding Austin’s early stage investment community gleaned from CTAN’s 160+ angel investment deals and SXSW’s tenured status as an annual gathering for the world’s startup community.

The event will take place on Friday, September 14 from 10:00 AM to 11:00 AM at the Angel Venture Capital Subcommittee Meeting of the Private Equity and Venture Capital Committee.

For more information and to register to attend the section’s Annual Meeting, please visit the ABA website.

BitcoinOur colleague Kristen Howell has published an alert reporting on an important development in the cryptocurrency industry. The U.S. Securities and Exchange Commission has declared that Bitcoin, Ethereum and other coins operating on truly decentralized platforms are not securities. The agency’s reasoning was revealed in remarks by William Hinman, Director of the SEC’s Division of Corporate Finance, at the Yahoo Finance “All Markets Summit: Crypto” on June 14. Hinman explained that since the value of cryptocurrency is not based on the expectation of profits resulting from the success or failure of the issuer, it does not compare to a typical security. You can read Kristen’s alert on the Fox Rothschild website.

Recently, we discussed generally the NVCA’s updated model legal documents on this blog. Of particular interest in the new forms is the NVCA’s attention to anti-discrimination and anti-harassment policies for emerging companies. Discrimination and harassment issues have impacted many industry-leading companies in the last year – and investors, board members and company executives all have aligned interests to ensure that the companies they are building are actively working to prevent discrimination and harassment.

Word cloud of harassment-related termsTwo of the documents published by the NVCA are the “Sample H.R. Policies for Addressing Harassment and Discrimination” and the “Sample H.R. Best Practices for Addressing Harassment and Discrimination”. Although the sample documents state that they were developed for use by venture capital firms and are not designed to be used as models for other companies without legal guidance, the documents provide a general framework that may be useful to many growing companies when considering how to implement such policies.

Key provisions covered by the documents include: the company’s mission statement, provisions explaining the company’s policies relating to harassment and discrimination, definitions of prohibited conduct, and examples of prohibited conduct. The documents include bracketed optional provisions that apply in certain states and localities, as well as a link to California’s anti-harassment pamphlet that must be given to all new hires.

In addition to these general documents, the NVCA has published documents that apply in several key jurisdictions where startups are frequently located. Examples include the sample Diversity and Inclusion Policies for San Francisco businesses and a Diversity Policy designed for use by businesses located in New York.

These documents provide a useful starting point for emerging companies as they develop policies relating to anti-discrimination and harassment, even if the documents are not designed to be used in the same off-the-shelf manner as the NVCA’s model legal documents.

Copyright: maxkabakov / 123RF Stock Photo

On Fox’s Privacy Compliance & Data Security blog, associate Michelle Rosenberg provided a breakdown of the EU’s General Data Protection Regulation (GDPR), a widely discussed and substantive change to European data privacy rules going into effect on May 25, 2018. Michelle notes the global impact on companies large and small that possess, transfer and process personal data of EU individuals. She also provides an overview of the methods of compliance available to such companies, namely binding corporate rules (BCRs), model contractual clauses and certification mechanisms like Privacy Shield, in relation to EU-U.S. data transfers.

We invite you to read Michelle’s informative post.

On Fox’s Franchise Law Update blog, partner John Gotaskie recently discussed an important upcoming deadline for businesses, including emerging companies, and entrepreneurs that operate websites that accept user-generated content:

If your franchise–or your franchisees–operate a website that accepts user-generated content, NOW is the time to contact the Copyright Office.

Whether you realize it or not, your website probably accepts user-generated content. Examples of such content include e-commerce websites that accept product reviews, franchise-sponsored blogs that publish user comments on posted articles, and brand fandom sites that permit users to share photos or videos.

It can be very difficult for you to determine whether user-generated content posted to your brand’s website was created by the user who posted it, or whether the content infringes someone else’s copyright.

To learn how to protect your brand from liability for copyright infringement in such content, we invite you to read John’s full discussion.

For investors and founders of emerging tech companies, leaving money on the table is a tragedy which can never be remedied once it occurs. An exit sale to or investment from a large strategic buyer is for many young tech companies a once-in-a-lifetime event with enormous economic consequences impacting both the company’s founders and investors. They must “get it right” with respect to the enterprise value of the emerging tech company.

For reasons explained in a 2014 article by Fox Rothschild partner Mark V. Santo, the failure by the emerging tech company to conduct ‘reverse due diligence,” and undertake a deep dive into the operations and management of the acquirer, is tantamount to leaving money on the table.

Under Section 3033 of the 21st Century Cures Act, a drug is eligible for regenerative medicine advanced therapy (“RMAT”) designation. To obtain this designation, the treatment must be “a cell therapy, therapeutic tissue engineering product, or any combination product using such therapies or products, “intended to “treat, modify, reverse, or cure a serious or life-threatening disease” and have preliminary clinical evidence that the drug has the potential to address unmet needs. In its Guidance for Industry entitled “Expedited Programs for Serious Conditions-Drugs and Biologics,” the FDA has defined its interpretation of whether a disease or condition is serious or life-threatening and whether a drug is intended to treat a serious disease or condition.

Copyright: kentoh / 123RF Stock Photo
Copyright: kentoh / 123RF Stock Photo

The RMAT designation provides an easier path to approval by lowering the bar for unmet medical need for serious or life-threatening diseases. The request for RMAT designation must be made either concurrently with submission of an Investigational New Drug (“IND”) application or as an amendment to an existing IND.  Additional data other than that required for an IND will not be required for a RMAT request.

This designation will provide additional resources from the FDA to expedite the approval process.  The agency will take an active role in assisting the applicant with advice during review.

Time will tell how well this provision is executed under the new law. For now, we have our first publicly disclosed RMAT designation for Humacyte and its product Humacyl, announced in March.

Robot Builder with Wrench
Copyright: kjpargeter / 123RF Stock Photo

A recent comment by Bill Gates that robots that take human jobs should “pay” taxes, or be taxed, has stirred debate in the artificial intelligence, economic and legal worlds. Numerous questions emerge from this debate, the most pertinent being who will actually be paying the tax. This may be solved by creating a legal entity for the robot to pay taxes, just as is done to tax corporations.

Many innovators in the emerging companies sector believe that automation, or at least partial automation, is inevitable in a capitalistic society, as we constantly strive for more efficient and accurate solutions.

Technology companies researching and developing robots have astronomically high costs, which is passed on to their customers, the businesses who purchase the robots. From an economic standpoint, a tax on the businesses for purchasing such robots is akin to a price increase, which lowers sales. If the companies sell fewer robots, it will be harder to justify their high initial investment in developing new technologies.  Overall, innovation in this sector could suffer if the robotic industry is burdened by heavy taxes.

Customers, on the other hand, simply will not see any of the savings inevitably reaped by businesses.  Assume a factory (or a restaurant, or customer service center) that is not automated employs 200 workers at $10 an hour (8 hours a day, 5 days a week, 52 weeks a year). This factory wishes to purchase “robots” to automate processes (an initial investment of up to millions of dollars) to decrease the burden of paying $4,160,000 in wages each year. This one time investment would bring their costs down and allow for lower prices. Most factories around the globe have already embraced this concept to some extent, and are not currently taxed for their automated processes. Any tax imposed on robots would narrow the savings gap that consumers would share in the form of lower prices.

On the other hand, if robots are taking over jobs ordinarily performed by humans, we could see a rise in unemployment and thus a corresponding drop in tax and social security payments made to the government. A tax on robots could help offset these losses.

Although robots have been replacing humans for years in many industries, the creation of more advanced robots has once again raised the question as to whether robots should be taxed like the humans they are replacing. Overall, despite the debatable philosophical standpoints on taxation, it is safe to say that there are consequences lying beneath the surface of such a proposed tax.

U.S. Supreme Court
Copyright: mesutdogan / 123RF Stock Photo

In a recent opinion column for Wired, Laurence H. Tribe and Joshua Matz took an interesting look at the Supreme Court’s views on emerging technology. Tribe, a professor of constitutional law at Harvard University, and Matz, a practicing attorney and former law clerk for Justice Kennedy, examined how those views have led to surprising alliances on particular cases that cannot be explained by the more traditional dichotomy of originalists versus those that view the Constitution as a living document.  They also suggest that a judge’s views on technology should be examined when considering prospective judges.

For example, Tribe and Matz describe Brown v. Entertainment Merchants Association, a 2011 case in which the Court examined a California law that required parental approval for the sale or rental of violent video games to minors.  The late Justice Scalia, an originalist icon, authored the majority opinion striking down the law. That opinion was surprisingly joined by Justices Kennedy, Bader Ginsburg, Sotomayor and Kagan, who did not typically find themselves on the same side of a case with Justice Scalia due to their differing views on constitutional interpretation.  In Scalia’s view, video games presented the same issue as other forms of violent entertainment that were once viewed as potentially harmful to minors, and California’s law was impermissible censorship that violated the First Amendment.  Chief Justice Roberts and Justice Alito concurred in the decision, but wrote a separate opinion because they believed that “[t]here are reasons to suspect that the experience of playing violent video games just might be very different from reading a book, listening to the radio, or watching a movie or a television show.”  Justice Breyer dissented, citing social science papers that indicated a link between simulated violence and actual violence as justification for the law.

The issue of new technology arose again when the Court heard Maryland v. King in 2013, which examined the constitutionality of a law that required police officers to collect DNA samples from individuals charged with certain crimes.  In this case, the Court upheld the law in a 5-4 decision, with the majority opinion authored by Justice Kennedy and joined by Justices Alito, Roberts and Breyer.  Although Alito, Roberts and Breyer seemed wary of the effects of new technology in Brown v. Entertainment Merchants Association, they did not appear to have similar concerns in this case.  The majority determined that Maryland’s DNA sampling was for the purposes of identification, comparable to photographing and fingerprinting that police typically perform during the booking process.  Justice Scalia’s dissent, in contrast, discusses in detail Maryland’s DNA collection process and how that DNA is checked against the FBI’s DNA database (known as CODIS), and uses this discussion to argue that the purpose of Maryland’s DNA collection is not to identify the individual in custody, but rather to check that DNA against unidentified DNA collected at crime scenes.

Occasionally, as Tribe and Matz mention, the Court shares similar views regarding new technology.  One example occurred in 2014, when the Court unanimously determined that a warrant is required to examine the digital information on a suspect’s cell phone.  The opinion discussed the rapid development of “smartphone” technology and used the huge amount of information that could be obtained from searching a phone and the digital nature of the data to distinguish this type of search from the brief physical searches that the Court had previously approved of in connection with custodial arrests.

According to Tribe and Matz, the Court is likely to encounter new cases involving emerging technology such as 3-D printers, smart-home devices and encrypted cell phones, and their understanding of, and attitude towards, these technologies could have big effects on technological innovation.  Instead of limiting our examination of judicial candidates to the traditional debates over originalism, textualism, attitudes toward business or attitudes towards criminal defendants, Tribe and Matz suggest that we should ask how a prospective judge views technological innovation, and should prefer judges that have the capacity (and willingness) to understand the technological issues presented to them.

We recommend reading the article in full, which can be found here.