NVCA Updates Its Series A Model Legal Documents

Dror Futter, Partner
Rimon, P.C.

Since the early 2000’s, the National Venture Capital Association has maintained model legal agreements for Series A venture financings.  These forms are the templates for most of the Series A financings in the United States and are periodically updated to adjust to changes in the market and the legal/regulatory environment.

The most recent update includes additional provisions for life science investments, shareholder approval rights for ICOs and an option for alternative dispute resolution under the Delaware Rapid Arbitration Act.

Rimon Law partner Dror Futter, a member of the NVCA model forms drafting group, provides an expanded summary of the changes in the most recent update in the following client alert you can read right here: NVCA Updates Its Series A Model Legal Documents.

If you have any questions or want further information, feel free to contact Dror Futter directly and, of course, you can contact me, Joe Rosenbaum or any of the attorneys at Rimon Law with whom you regularly work.

The Blockchain Ecosystem

Dror Futter, a Venture Capital and Technology Partner at Rimon, P.C. has authored a comprehensive update on the state of blockchain law, which has been published by The Journal of PLI Press, the quarterly journal of the Practicing Law Institute The Current, (Winter 2018 Edition; Vol. 2, No. 1, Winter 2018 – Page 21.   The article summarizes developments in the blockchain ecosystem to date, draws attention to considerations that participants in that ecosystem should take into account and also highlights many currently unanswered legal questions.

In addition to a growing blockchain practice, Mr. Futter focuses his practice on startup companies and their investors, and has worked with a wide range of technology companies.  You can read the entire article right here: Blockchain Law ICO Regulation and Other Legal Considerations in the Blockchain Ecosystem and if you need more information you can contact Mr. Futter directly or if you want to know more about his practice click here.  Of course, you can always contact me, Joe Rosenbaum, or any of the Rimon lawyers with whom you regularly work.

 

Streaming Music to be Streamlined

A bipartisan Congressional group wants to bring the Copyright Act into the digital age of streaming with the Music Modernization Act. Somewhat unusual in the world of new legislation, the bill seems to have garnered support from music publishers, songwriters and the digital streaming services that distribute the music.  The House version is H.R. 4706  and Senate version is S.2334.

While there are a number of areas the proposed legislation seeks to update, the heart of this legislation is a major change in the way streaming services pay ‘mechanical’ royalties – the commissions paid to songwriters and publishers when their musical compositions are recorded or reproduced. Currently, under Section 115 of the Copyright Act, anyone can automatically get a license to reproduce a musical composition – to get access to the song, simply file a Notice of Intention through the Copyright Office and pay a set rate. But streaming music services complain they can’t find the authors for every single song and songwriters view the music services claims as an excuse to avoid paying royalties until (and if) they are sued.

Although the new Act won’t prohibit the digital music business from negotiating license agreements directly with the copyright owners, the new Act would create a central database called the “Mechanical Licensing Collective” and instead of requiring individual “Notices,” streaming music companies could pay a blanket license fee for their on-demand, digital music services (e.g. streaming music). The ‘Collective’ would be responsible for allocating payments of these mechanical royalties, which go to songwriters and publishers when their musical compositions are recorded or reproduced, to the rightful owners. The blanket license would cover every song in the Collective’s database – a database funded by the streaming music services, but administered by the music publishers. For the digital music companies, it would eliminate the liability associated with infringement lawsuits from songwriters and publishers since now the database administrators would be responsible for identifying the owner and making sure payments are made.

Which brings us to another major change the Act would implement. Currently, the Copyright Royalty Board, sets the rates paid for mechanical licenses, based on a set of public-interest directives known as 801(b)(1) factors which are intended, in essence, to balance competing interests – availability to the public versus the disruptive effect on the parties in interest. The new Act would use a more ‘fair market value’ type system (already used to set digital radio performance royalty rates) that would be intended to more closely resemble free-market dynamics.

There are numerous other changes the legislation would make to existing licensing and royalty schemes. For example, today, the major music licensing services (e.g., ASCAP, BMI) consistently have the same 2 judges that oversee the rate courts which decide compensation for songwriters. The new legislation would eliminate that process and assign judges, as with other Federal litigation, on a randomly rotating basis. The Act would also repeal the current rule (Section 114(i)) that prevents courts from hearing certain types of evidence when considering the calculation of performance royalties – the money paid when a musical composition is broadcast on radio or otherwise publicly (e.g., elevators, health clubs, etc.).
With broad bipartisan support and industry consensus, it seems likely the the Music Modernization Act, at least in some form closely resembling the bills introduced in both the House and Senate, will become law in the current Congressional session. Stay tuned – literally!

Rimon has lawyers with decades of experience in the music industry, representing artists, as well as publishers and industry associations and if you have questions, need help or would like to know more, feel free to contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.

Best Wishes for 2018

To all my Legal Bytes subscribers, fans, readers, family and friends, thank you!

I would like to take a moment and wish all of you a joyous holiday season and health, happiness, success and peace in 2018 and beyond. . . and now I would ask you to take about 4 minutes out of your busy schedule, put down your mobile phones, tablets and video game consoles, click to start the video and take your hands off the keyboard to listen and watch and just enjoy . .

 

 

Now That the FCC Has Acted . . . .

In case you missed it (see my previous Legal Bytes post Inter Net Neutrality), the International Law Office was kind enough to post an adapted version of the article in its IT & Internet Newsletter.   If you are not already a subscriber to ILO, you can read a PDF version of my post, Internet Neutrality, right here.  Now that the FCC has rolled back the Obama-era regulations, the battle continues to rage over whether that is good or bad for the Internet, the economy, innovation and each of the groups aligned on one side or the other of this fray.

Note for you historical buffs – the Internet was made available to commercial enterprises in 1981.  By 1984, “.com” had overtaken .gov, .mil and .edu as the largest URL suffix and it wasn’t until recently, during the FCC’s tenure under President Obama, that new regulations regarding neutrality were implemented.  I know, I know, times have changed – but be mindful that someone far wiser than I noted: “Those who cannot remember the past are condemned to repeat it.

What is an “Ad” These Days?

–  Joseph I. Rosenbaum

On Friday, December 8, 2017, I had the privilege of presenting a seminar, hosted by Lawline, entitled “Augmented, Native and Interactive: The New World of Digital & Mobil Advertising.”  This was broadcast live on the Web and recorded for subsequent on demand viewing and was my second presentation at Lawline.  The first “Online & Mobile Digital Interactive Advertising: Video Games, Branded Entertainment, Native Advertising and Beyond” remains available as a web-based, on demand offering at Lawline.

This seminar provided an update on many of the concepts and principles discussed in the first program, including some basic principles of advertising law that applies in both the traditional and digital/mobile environment and provided updated information on game advertising – both advertising the game and in-game advertising – as well native advertising and guidance from the Federal Trade Commission.  This recent session also delved into a number of digital and mobile advertising issues that were not part of the first presentation, such as celebrity endorsements, bloggers, experts & consumer testimonials in social media, augmented reality and advertising in virtual worlds, programmatic buying and the current tensions in the industry concerning transparency and relationships between advertisers and integrated agencies.  You can view the slide images of my presentation “The New World of Digital & Mobil Advertising” and, of course, you can view the recorded session which is available exclusively through Lawline.

As always, if you need assistance or require any additional information, feel free to contact me, Joe Rosenbaum, at Rimon, P.C.

The Digital Economy is So Taxing

– By Stephen Díaz Gavin and Claudio Palmieri

Economic activity is not only transnational, but increasingly digital.   A business is physically located in one country, sells goods or services in another country and then declares its profits in yet a third country?  Who is the taxing authority? Where is the transaction taxed and to which government do taxes get paid? This has never been a simple question internationally, but in today’s digital world, where borderless transactions are more frequent and more common, the leaders of the G-20 countries, in the Summit declaration of 18-19 June 2012 in Mexico, decried the consequences of these developments — tax base erosion and profit shifting to lower-tax jurisdictions.  Even the proposed U.S. tax reform currently before the U.S. Congress addresses concerns about tax base erosion.

In 2013 the Organization of Economic Cooperation and Development (“OECD”) began a project to combat tax base erosion and profit shifting and the first action item of their Final Report of 2015 concludes the digital economy cannot be considered separate from the rest of the economy for tax purposes – it is increasingly becoming the economy itself.   Significantly, the OECD believes solutions lie not so much in creating new rules, but adapting existing regulations to address the new, digital environment.  Meanwhile, the European Union and some countries in Europe are making their own provisions for dealing with changes caused by the digital economy. With its Communication of September 2017, A Fair and Efficient Tax System in the European Union for the Digital Single Market, the European Commission (“EC”) announced a legislative proposal for the Digital Single Market in Europe, that is intended to be available for implementation if an adequate, ready and preferably international solution inside the G-20/OECD project framework is not implemented.  The two main policy challenges addressed by the EC are: (1) where to tax digital services provided by companies with little or no physical presence and (2) what is taxable (e.g., the value created by intangible assets, data and knowledge).  While a long term approach is favored, the EC is focused on short term measures to address some of these problems quickly such as a tax on untaxed or insufficiently taxed income generated from internet-based business activities (whether creditable against the corporate income tax or as a separate tax); a standalone gross-basis withholding tax on certain payments made to non-resident providers of goods and services ordered online; a levy on revenues generated from the provision of digital services or advertising activity.

In addition to European-wide solutions, some individual countries are also attempting to address the taxation of the digital economy.  For example, in September 2016, a bill was introduced before the Italian Parliament regarding tax measures applicable to competition in digital commercial activities (DDL S.2526 “Misure in materia fiscale per la concorrenza nell’economia digitale” del 10 novembre 2016).  The bill would not only reinforce the powers of Agenzia delle Entrate, the Italian governmental agency which collects taxes and revenue, but would introduce a “hidden permanent establishment” (“stabile organizzazione occulta”) concept which would consider revenues generated from certain types of international transactions, as income generated in Italy. For example, fees paid to non-Italian companies by Italian consumers for the purchase of software licenses distributed on the Italian market. Thus, if a U.S. company engages in online business regularly, with greater than 500 transactions in any six-month period and collecting more than € 1 Million in that same period, that company would be considered to have a “hidden permanent establishment” subject to tax by the Italian authorities.  In addition, the proposed Italian 2018 Budget Law (not yet adopted), includes a proposal for a 6% web tax on services provided by nonresident companies and individuals on revenues generated from the sale to Italian residents  of fully “dematerialised services” (e.g., intangible services such as video and audio downloads).

The common theme in these new proposals in the European Union and EU member countries suggests that governments will look increasingly to tax where economic value is delivered.   If your business is part of the digital economy you clearly need to monitor these developments and pay attention to the legislative and regulatory initiatives being considered at the national, regional and multinational levels, especially in Europe, an important market and one which appears to be moving more quickly than other regions of the world.  You can read the full Client Alert on this issue and if you need more information, have questions or would like assistance, the International Practice Group at Rimon, with an office in Rome, is particularly well suited to serve your needs.  Feel free to contact Stephen Díaz Gavin, Partner based in Washington, DC and Rome or Claudio Palmieri, Counsel to Rimon and principal of Studio Legale Palmieri – Rimon Italia,  based in Rome.   Of course, you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.

 

Inter Net Neutrality

What an interesting play on words.  According to the Merriam-Webster dictionary, “inter” is a verb that means “to deposit (a dead body) in the earth or in a tomb.”

Earlier this week, the Chairman of the U.S. Federal Communications Commission (FCC) outlined plans to bury the Internet rules promulgated under the Obama administration that required providers of Internet services to treat all web traffic equally.  Those rules, among other things, limit the ability of ISPs to favor content or customers, to block or slow down the online services they provide.  Under the proposed changes, ISPs (wired and wireless) would be allowed to offer web-based services at different speeds and differing quality of service.  In addition, they could enable more favorable speed or quality, or both, for websites that paid a fee – as long as that relationship was disclosed.

Over the years, a lively and heated debate over the nature and extent of regulation needed to protect consumers without stifling innovation has continued.  Proponents of eliminating the rules claim that allowing the market to create different financial and performance models will spur investment and the development of technology, while critics argue that consumer prices would increase and so would barriers to entry and start-up costs for new companies.  Critics point to the airline industry (where the FCC net neutrality rules have never been applicable) as an example of the potential for harm – one U.S. air carrier provides easy access to one online video service which has paid the airline for such priority status, while others are not enabled with the same speed or quality.

Under the previous administration, the Internet and ISPs (both wired and wireless) were treated as utilities, virtually excluding them from regulatory oversight by the Federal Trade Commission (FTC), whose fact-based, case-by-case, analytical approach to regulation is generally perceived as more suitable (and friendly) for emerging technology and evolving markets.  Based on Chairman Ajit Pai’s remarks, in another reversal of the prior administration’s approach, it appears the FCC is now willing to share oversight with the FTC and have the FTC be responsible for monitoring ISP disclosures, determining if consumers are being harmed and determining whether these firms are engaging in anti-competitive or unfair trade practices.  The FCC indicated it plans to enact the new rules early in the new year.  Stay tuned.

If you have any questions or want more information about this or any Legal Bytes’ post, don’t hesitate to contact me, Joe Rosenbaum, a New York based partner at Rimon, P.C., or any of the other lawyers at Rimon with whom you regularly work.