Understand Your Rights. Solve Your Legal Problems
Ortoli Rosenstadt LLP represented Lichen China Limited on its $16 million listing on the Nasdaq Stock Market.
Lichen China Limited is a specialised taxation and financial service provider based in China. It has now announced the closing of its initial public offering (IPO) of 4,000,000 Class A ordinary shares at a public price of $4 per share. Trading of these Class A ordinary shares on the Nasdaq Capital Market began on 6 February 2023 under the ticker symbol “LICN”.
Ortoli Rosenstadt LLP advised Lichen China Limited with a team including Jason Ye (Partner and Co-Chair of Asia Practice), Yarona L Yieh (Counsel), Grace Bai (Associate) and Crystal Hsu (Associate).
Lichen China Limited, through its operating subsidiaries, is one of the leading financial and taxation service providers in China. They have operated as a dedicated financial and taxation solution service specialist in China for over 18 years, focusing on providing (i) financial and taxation solution services; (ii) education support services; and (iii) software and maintenance services in China. Leveraging their relationships with numerous local educational institutions, their expertise in the financial and taxation solution services market and experience in developing financial and taxation training and analysis software, the company also offers software product to enterprise customers, universities, colleges and educational institutes.
Lichen’s IPO was significant in a sense that it was the first small-cap IPO by a China-based issuer to be listed on the Nasdaq in 2023. Going into 2023, there was some uncertainty given the market condition at the time and the geopolitical environment between China and US as a backdrop. Everyone in the industry was paying close attention to Lichen to see on the one hand, whether it would be approved by the regulators as a Chinese issuer and on the other hand, whether it would successfully close its offering in a rather soft market.
Fortunately, and giving credit to the underwriter, Univest Securities, the company was able to get past the finish line and successfully list on the Nasdaq on 6 February 2023, during the Chinese New Year celebration period. The deal gave confidence to the market because everyone saw that the US stock market is still welcoming of China-based issuers and companies can still raise significant amount of money to help expand their business even though the equity market has been slow as of late.
Lichen engaged our firm to represent them as their US counsel for their IPO onto the Nasdaq Stock Market and I was their lead attorney for their IPO process. We worked closely with the company on almost all aspects of their US IPO, including their prospectus, application to Nasdaq and responses to questions given by the regulators, as well as transaction documents with the underwriter and its counsel.
We were also crucial in helping design a deal structure that would work both for the company and, more importantly, the regulators. This was the case especially towards the end of the process, because the market condition had changed significantly comparing to when Lichen first launched its IPO effort. We, as the company’s counsel, had to pull every trick in our sleeves to come up with legal solutions to make sure that they were able to get through the regulators with as little modification in the documents as possible, but at the same time assuring them that the company was worthy of their consideration for approval.
Lichen’s IPO was significant in a sense that it was the first small-cap IPO by a China-based issuer to be listed on the Nasdaq in 2023.
We also understood that in today’s market, things could change in a matter of hours and the longer the process drags, the bigger the risk is to our client in finishing their IPO. Knowing timing was of the essence, our team worked tirelessly with all parties involved, including our client Lichen, regulators and the underwriter on a practically 24/7 basis, with multiple versions being prepared at the same time to make sure that we had the necessary legal documents ready for everyone when they were needed.
We were very glad and relieved when we saw Lichen finally close its IPO and begin trading on the Nasdaq. At the same time, I am extremely proud and grateful for our team members that were involved in this listing. It would not have been possible without their dedication and commitment.
First, we consider ourselves business lawyers. What that means is that we always dissect the laws and regulations coming from the perspective of a business owner. I come from a business background before becoming a lawyer so I understand that ultimately the lawyers are here to serve the needs of the business owner, while making sure that the business decisions are legally compliant. We try not to create more legal issues for our clients, but rather provide them with a practical solution to solve their day-to-day problems.
Second, we consider ourselves experts in dealing with companies based in Asia. Most of our staff, including myself, are multi-lingual and actually spent a significant amount of our lives in Asia. At the same time, we are well-versed in bridging the differences the Eastern and Western values. This is particularly important when we work with the regulators. Most of my clients are based in Asia and some of them may have never been to the US. Because of that, we are often not only serving as their lawyers, but also serving as their only voice when their profile is being presented in front of the regulators and investor community. Our strength is to bridge any gap or difference in views the best we can because we truly understand where both sides come from.
Lastly, we take pride in our ability in anticipating any potential issue before they become an issue. Like everything else, success is all about the preparation you put in. While we are good at tackling the issues in front of us, we try to plan many steps in advance before making one move. Because of our experience in dealing with many issuers from the past, we have built in certain standard protocol to streamline the process. In addition, we are constantly thinking the unpredictable to make sure that there is no surprise in the process. As doctors always say, the best medical care is preventive care. We have the same mindset.
We consider ourselves business lawyers. What that means is that we always dissect the laws and regulations coming from the perspective of a business owner.
The entire IPO process can be a rather lengthy journey, one filled with uncertainties. As an issuer’s counsel, we try to prepare for as many potential issues as possible, but it is almost impossible to cover all of them. In today’s world, market conditions could change overnight. As a result, regulatory response in reaction to that could suddenly change as well. In our eyes, this is the inherent risk that we will need to deal with when taking a company public because these changes could potentially prolong the process or sometimes even jeopardise the outcome. I always advise my clients that if we have a chance to close a deal, just do it as soon as practicable. The longer one waits, the bigger the risk of failure there is.
Besides the market risk, we also need to be mindful of the local regulations as we deal with many overseas clients. Even though we are US lawyers, I always try to first educate myself on the applicable regulations in the jurisdiction that our client is located in. I then either pass on the information to our staff or ask them to further research the local laws in details. Sometimes the biggest concern is what you do not know and you do not want to step onto that regulatory landmine. Because we are often dealing with two or more sets of laws at the same time, we have to learn to navigate and find an equilibrium where the client is compliant both in the US and locally.
As I always say, nothing is ever easy. Nothing can be taken for granted these days, especially in today’s world, where everything must be accomplished in a collaborative manner. Everyone is a small piece of a bigger puzzle and yet everyone is interconnected. However, things often do not go the way you envision them to when you first start, for whatever reason. In our world, there is no such thing as an ‘easy deal’; every one of them has its own hairs. You just need to find a way to pull it out.
When Lichen began its IPO journey in 2021, the market was at its peak with tons of cash up for grabs. The market took a 180-degree turn in 2022 and because of that, the regulators also became more cautious about approving companies to list. The combination of market and policy changes were definitely some of the biggest challenges we faced along the way, as it forced us to constantly go back to the drawing board and come up with solutions that would work in that particular moment. Regardless of the changes, the company’s management showed their perseverance by having only the end goal, which is the final listing, in their eyesight. We, as their legal counsel, are very appreciative of their determination because we have seen others bail in similar situations.
When Lichen began its IPO journey in 2021, the market was at its peak with tons of cash up for grabs.
The bread-and-butter product of my practice area is to help Asia-based companies getting listed on a US stock exchange. Lichen China’s main operation is based in Fujian Province, China. Their management team has very little experience about the US capital market, and in fact speaks very little English, yet they have their own version of the American dream. We were called upon to represent them during their IPO process. Our team drafted their prospectus, prepared their Nasdaq application and assisted the company with their response to the comments provided by the regulators.
The representation of Lichen China is the epitome of what our firm is about. We are a New York law firm that serves clients with international vision and ambition.
As the issuer’s counsel on an IPO, we would be considered the ‘quarterback’ of the entire listing process. We would need to coordinate and control the documents with all parties, including the company, underwriter and its counsel, auditor and others. We were fortunate that the underwriter, its counsel, and the auditors were all teams that we had previously worked with and therefore the familiarity made the process easier. We were also fortunate to have the trust that the company placed in us in dealing with the professional parties rather than micromanaging everything themselves.
Knowing the working style of each professional party in advance was helpful in terms of our preparation throughout the process. Just by knowing the expectation of what the other side wanted, we cut down the communication time needed to achieve the results that we and our client wanted. We would prepare documents knowing the nuances involving the other parties to ensure that the back-and-forth on the documents did not become an endless process. In my nine years of law practice, there has never been a true ‘friendly’ transaction. There would always be some sticking point that became an issue for some party. Lichen’s IPO was no different, but we respected the requests of other parties while representing our client’s interests zealously. We were pleased that the collaboration with other others led to a satisfactory outcome for everyone.
The IPO raise gave the company a fresh injection of cash to help them execute on their business plan. In China, it is very difficult to obtain financing from traditional means with the banks unless there are significant assets being collateralised and personal guarantees from those with vested interest. Lichen’s success story in accessing the US equity market, being a Chinese company, gave many similar companies the confidence that they could do the same.
As the issuer’s counsel on an IPO, we would be considered the ‘quarterback’ of the entire listing process.
In addition to the capital raise, the prestige of being a Nasdaq-listed company has helped Lichen increase its brand value in its own industry. Many business partners would feel much more comfortable in doing business with a publicly listed company than with an unknown private company.
Lastly, as a publicly traded company, companies like Lichen can now use their stock in lieu of cash to acquire other businesses to support or expand their existing business lines. Lichen’s Nasdaq listing really led the way for many Chinese issuers with respect to their own IPO effort in 2023. To date, it is estimated that almost two dozen China-based issuers have listed on a US exchange in 2023.
Taking a company public is never a one-man effort. First and foremost, all of our staff are amazing lawyers, incredibly hardworking and knowledgeable about what they do. I have also received unlimited support from my partners within our firm to complete each transaction. When we take on an IPO client, we always carry with the mindset of ‘we go in as a team and we come out as a team’. We have really built a very collegial environment, which I am personally very proud of myself.
The short answer is yes and no. Our New York office will continue to service our global clients the way it always has been. However, we are also particularly excited for the opportunities being presented to us in 2023. In October 2022, we opened our Singapore office and sister firm under the brand of “Ortoli Rosenstadt Ye Ptd. Ltd.”.
We are a fully registered foreign law practice approved by the Ministry of Law in Singapore. This is our first flagship office outside of New York. Much of the firm’s resources have been put into the initial setup of the Singapore affiliate firm and we have started investing in top local talents and marketing efforts to build a local presence in the ASEAN region. While we are a New York law firm by blood, we want to take a more localised approach in meeting the needs of the clients in the region. Things have been put in motion with the goal to showcase the US capital market world to the companies in the region and educate those who are interested how the US capital market can benefit and accelerate the growth of this particular region.
Going into 2023, China still remains to be our largest market and we do not expect that to change in the near term. However, the launch of our Singapore office really expands our coverage within Asia into Southeast Asia, allowing our firm to cover companies in countries such as Singapore, Malaysia, Indonesia, Thailand and Vietnam. It could also reach as far as Australia given the closeness of the time difference, thus allowing our firm to service our overseas clients around the clock.
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I think that this is a region that has been a bit overlooked in the past and I see with my own eyes that a lot of exciting things are happening there. Given that, our goal is to bring cutting-edge legal expertise from the US to their footsteps. Also, this is not just limited to the capital market practice. It would apply to other practices as well, such as real estate, corporate M&A and even litigation or arbitration matters. This was a strategic move for us with a long-term vision.
Jason Ye, Partner
366 Madison Ave, 3rd Flr, New York, NY 10017, USA
Tel: +1 212-588-0022
Jason Ye is a Partner at Ortoli Rosenstadt LLP and Co-Chair of the firm’s Asia practice. Jason’s practice is focused on cross-border corporate and capital market transactions and he has represented many domestic and international companies, investment banks and institutional investors on a broad range of transactions. Recognised as one of the most prolific attorneys in the field, Jason also regularly represents public companies, particularly those based in Asia, regarding their NYSE or Nasdaq initial listing and post-listing compliance.
Ortoli Rosenstadt LLP is a full-service New York law firm that represents US and international clients. Its multilingual team provides services in the areas of corporate law, securities, international transactions, litigation, employment law, franchising and international tax both domestically and across multiple jurisdictions.
The state of Baden-Württemberg in southern Germany is known for its inspired technical innovators, including – to name but a few – inventors of world renown such as internal combustion engine pioneer Gottlieb Daimler (Daimler, Mercedes), ‘father of the chainsaw’ Andreas Stihl and automotive supplier Robert Bosch. But that’s not all – it has been, and remains, the land of small and medium-sized enterprises. Of almost 500,000 businesses there, 99% are SMEs under the European Union’s definition.
The services of Stuttgart-based tax consultancy RTS are tailored to this target group. RTS provides guidance to SMEs on all taxation matters, as well as in other areas including management consultancy, succession planning and various structural aspects. The firm has more than 50 branches and over 1,000 staff. For its clients, strong trust relationships with their tax consultants – built over many years – are the norm; they see their advisers as valuable sparring partners. RTS offers ‘one-stop shop’ consultancy solutions, with the group encompassing M&A experts, lawyers, headhunters and a family office.
Below, Anne-Marie Nicolas and Noémi Gémesi at Loyens & Loeff offer their unique insights.
The Luxembourg Stock Exchange is the world’s leading exchange for the listing of international debt securities and green bonds. Luxembourg holding and finance companies are also incredibly popular with international conglomerates or in LBOs for tax and/or single point of enforcement purposes, including in bond deals. Therefore, bond restructuring processes often involve Luxembourg law aspects.
In that context, Loyens & Loeff Luxembourg regularly advises clients on both the issuer and the creditor/investor side on the restructuring of bonds, including, for instance, in the following landmark bond restructuring deals:
Our advice generally includes structuring, insolvency, finance and strategic legal advice as to how to handle the bondholders or the Luxembourg issuer company in light of possible restructuring options and security enforcement options, but also the Luxembourg board’s liability concerns and duties. We are also often involved in the tax structuring of the warehousing structure and in considering the structuring of exit options.
Consequently, our combined expertise in terms of bond restructurings encompasses legal advice with respect to Luxembourg capital markets, debt restructuring, corporate, finance and tax matters to help our clients navigate the negotiations with the stakeholders, the relevant board members and/or the litigation risk. New money funding options are varied and range from debt-to-equity swaps, extension of maturity, warrants or hybrid or preferred equity instruments issues, collateralisation of existing notes and/or new loan facilities.
Loyens & Loeff Luxembourg regularly advises clients on both the issuer and the creditor/investor side on the restructuring of bonds.
Typical key Luxembourg legal points that are often encountered in bond restructurings include the following:
One key skill is the ability to navigate complex restructuring and insolvency scenarios while remaining agile and able to adapt the legal advice to quickly changing and sometimes tense situations while keeping in mind that the goal is (normally) to get to a deal. When acting for the issuer or its board, we also must take the board’s potential liability into account. We bring considerable creative expertise in the field of bond restructurings and recognise the specifics of listed bonds and the mindset of bondholders and boards, depending on their corporate culture.
The other key skillset we use is our knowledge of certain foreign markets. Based on precedent experience, we have the ability to compare and clarify the differences in markets, liability standards and corporate governance aspects in both foreign markets (such as the US, the UK, Germany and Brazil for instance) and the Luxembourg legal frameworks as well as the practices of the respective courts in these jurisdictions. This also helps in our advising on (litigation) risk assessments in the context of the negotiation with the bondholders.
Anne-Marie Nicolas, Partner
Noémi Gémesi, Counsel
18-20, rue Edward Steichen, L-2540 Luxembourg
Tel: +352 466 230 314 | +352 466 230 291
E: anne-marie.nicolas@loyensloeff.com | noemi.gemesi@loyensloeff.com
Anne-Marie Nicolas is a partner at Loyens and Loeff, as well as the head of its Luxembourg Banking & Finance practice and co-head of its Luxembourg Restructuring practice. Her practice focuses on secured lending, including acquisition finance, and real estate. She also handles distressed financings, security enforcements and debt restructurings.
Noémi Gémesi is a counsel at Loyens and Loeff and a member of its Banking and Finance practice group. Her focus is on capital markets regulation and securities laws.
Loyens Loeff is a leading legal and tax advisory firm headquartered in Rotterdam. With over 1,000 advisors across its Netherlands, Belgium, Luxembourg and Switzerland offices, the firm offers full-service legal advice and specialist support for businesses internationally.
Jorge Isaac González Carvajal, an independent arbitrator in Venezuela, shares the insights he has gained over a lengthy career in ADR and offers his predictions for how the sector will continue to grow.
The dispute resolution system underwent a radical positive change in the 1999 Venezuelan Constitution. First, rights and guarantees of access to justice, due process and the right to defence are recognised under the traditional organisation and structuring of a professional, independent, and impartial Judiciary. But what is interesting is that the idea and concept of the ‘justice system’ are created by the Constitution as a set of actors and mechanisms that interact in and for the resolution of controversies. Parts of that system are the ADRs.
Obviously, the idea of the justice system is to think of the coordinated operation of a series of pieces that mesh to provide people with adequate mechanisms to resolve their disputes. So, for the justice system to work, it is necessary for the ADR sub-system – one of its cogs – to work.
Since the 1999 Constitution came into force, there has been support and promotion of ADR from the express provision of the Constitution. Thus, article 258 CRBV establishes: “The law will organise justice of the peace in the communities. Judges or justices of the peace will be elected by universal, direct, and secret ballot, under the law. The law will promote arbitration, conciliation, mediation, and any other alternative means for conflict resolution”.
This rule has been recognised as the constitutional foundation of ADRs, addressed to public powers (including courts) and of course to private parties. This places Venezuela in a pro-ADR position in tune with the global evolution of dispute resolution mechanisms.
There are currently laws that govern private arbitration (Commercial Arbitration Act of 1998) and justice of peace (Organic Law of the Special Jurisdiction of Communal Justice of Peace of 2012) and a flourishing jurisprudential doctrine in favour of alternative dispute resolution mechanisms (see judgments SC/TSJ No. 1541/08 published in Official Gazette No. 39,055 of 10 November 2008 [today leading case in arbitration], SC/TSJ No. 1067/2010, published in Official Gazette No. 39,561 of 26 November 2010, and SC/TSJ No. 1784/11 dated 30 November 2011).
The dispute resolution system underwent a radical positive change in the 1999 Venezuelan Constitution.
The Venezuelan Commercial Arbitration Act of 1998 is inspired by the 1985 UNCITRAL Model Law of International Commercial Arbitration, although with some peculiarities of the national idiosyncrasy. This law is adapted to the attempt and global desire to harmonise (and in some cases standardise) the arbitration practice.
Additionally, Venezuela is part of the 172 countries that have signed the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which has been in force since 1995. Likewise, it is part of the Inter-American Convention on International Arbitration (Panama Convention of 1975), in force since 1985.
Unfortunately, Venezuela has not developed a law that governs mediation and conciliation, but there are regulations inside some legislation. Those are the Civil Procedure Code and the Labour Procedure Law. This last instrument establishes a mandatory mediation phase before the trial, which in practice has given very good results.
Venezuela is also a signatory party to the United Nations Convention on International Settlement Agreements Resulting from Mediation of 2019 (Singapore Convention on Mediation). Although it has not entered into force in the country, it shows the vocation and commitment for ADR promotion.
The ADR landscape has been undergoing important development for more than 20 years. For example, in arbitration, since the adoption of the 1998 Law, the paradigm of understanding commercial arbitration has changed, giving way to a pro-arbitration regulatory framework. To this is added the 1999 constitutional normative provisions that, together with an early jurisprudence of the Supreme Court, have served as the basis for progressive and consolidated development of arbitration (and other ADRs mechanisms) in Venezuela.
This was evidenced in the increase in the number of arbitrations administered since 2000 by arbitral institutions in Venezuela which were slowed down by the severe crisis between 2014 and 2019, and with the arrival of the COVID era and with a gradual increase in recent years in arbitration cases administered by Venezuelan institutions.
Since the adoption of the 1998 Law, the paradigm of understanding commercial arbitration has changed, giving way to a pro-arbitration regulatory framework.
Some institutions oversee managing mediation and conciliation processes, independently or as an integral phase of arbitration proceedings, with satisfactory results. Subjects such as ADR, arbitration, or mediation have been incorporated into university curricula, both in undergraduate and postgraduate courses and important postgraduate educational programs in arbitration and mediation have been developed.
Interest in ADRs has increased in the legal community. I would say that the main reason is circumstances that affect the proper functioning of the judiciary, but not only this. Progress has been made gradually towards a general level of awareness of the advantages (and disadvantages) of ADR. In other words, the legal community has enough professional maturity to identify when to choose one way or another.
In general terms, I would not say that there are legislative obstacles against ADRs. On the contrary, both the Constitution and the laws and jurisprudence have been in favor of ADRs. And this is not new, since Venezuela has an almost bicentennial tradition, uninterrupted since its independence as a sovereign country, in favouring non-judicial dispute resolution mechanisms (e.g. arbitration).
I also don't think there is a cultural obstacle. ADR, like any area of law, requires awareness of its existence, and of course, there is a particular ADR vision, which is often not in tune with the traditional culture of litigating in court. But as I have mentioned, more and more lawyers and individuals are incorporating ADRs as operating tools for their businesses.
Furthermore, for some time there has been a permanent academic and professional movement in the promotion and study of ADR, through workshops, congresses, courses, publications, or the creation of initiatives from which ADR is permanently promoted – for example, the creation and operation of the Venezuelan Association of Arbitration (AVA) or the Venezuelan Association of Mediation (AVEME).
My advice to less experienced legal practitioners in Venezuela would be to try to understand the general dispute resolution framework and how it works. From there, having a clear picture, get involved and specialise if that is your intention. This allows having a sufficiently general and useful vision to identify which problems can be submitted to one ADR mechanism or another. Everything must go hand in hand with a constant review of what is happening in the world, which is not difficult today since ADRs tend to be more global and uniform every day.
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I think it would be interesting to further develop the interaction between the bodies of the Public Power, the ADR community and ADR institutions (academic and professional). These bodies should focus on ADR’s promotion and seek to maximise its practical utility and promote the incorporation and recognition of new ADRs and the promotion and consolidation of traditional ADR methods, turning Venezuela into a pro-ADR international hub.
Jorge Isaac González Carvajal, Independent Arbitrator
González Carvajal Abogados
Tel : +58 414-100-5498
Jorge Isaac González Carvajal is an independent arbitrator with more than 18 years of experience in litigation and dispute resolution. As founder of González Carvajal Abogados, he primarily advises on avoidance and resolution of conflicts in legal, tort and contractual matters, as well as arbitration and litigation. He brings a wealth of experience in national and transnational litigation, oil and gas, commercial, maritime, agriculture and consumer law matters.
Experienced DPO Lukas Lezzi examines Swiss DPOs’ many obligations and the possibility of mitigating them in the feature below.
The Swiss Federal Act on Data Protection (FADP) in its current version gives the controller the possibility to appoint a DPO voluntarily. This appointment grants the controller an exemption from the obligation to report data processing activities of sensitive data to the Federal Data Protection and Information Commissioner (FDPIC).
However, since this law is only going to be in force until 23 August 2023, we will instead focus on the new revised FADP, which will enter into force on 1 September 2023 without any grace period. Article 10 of the revised FADP determines the role of the DPO (in Switzerland called the Data Protection Advisor) in greater detail.
The appointment of a DPO is voluntary for private controllers in Switzerland. However, the appointment enables the controller to invoke an exception from the consultation obligation of the FDPIC in the course of a Data Protection Impact Assessment.
According to the FADP, the DPO acts as the contact point for the data subjects and for the competent data protection authorities responsible for data protection matters in Switzerland, namely the FDPIC. In particular, he or she has the following duties:
If a DPO is appointed and the controller wants to benefit from the above-mentioned exemption to the consultation obligation, the following requirements must be met:
Furthermore, the controller ensures that the DPO:
Generally speaking, the role of DPO in Switzerland under the new FADP will be very similar to the GDPR, but will remain voluntary for the controller. However, many companies in Switzerland have opted to create such a role, if they did not already have one (due to being subject to the GDPR).
For many actors in the Swiss financial market, there is a professional secrecy obligation to be considered. These secrecy obligations for client data are relevant for banks, securities firms, asset managers, trustees, mangers of collective assets, fund management companies and financial market infrastructures (e.g. trading venues, payment systems or central security depositories).
For these regulated entities, the Swiss Financial Market Supervisory Authority (FINMA) lays down rules for handling critical data, a term which entails personal data. Thus, a DPO of a regulated entity in the financial market needs to consider not only the FADP, but also the respective regulatory framework, when advising their business.
Generally speaking, the role of DPO in Switzerland under the new FADP will be very similar to the GDPR, but will remain voluntary for the controller.
FINMA will also regularly audit regulated entities regarding their data protection and general information management framework. Consequently, it can be very challenging for a DPO to consider not only the relevant data protection laws, but also any regulation concerning the handling of data.
Finally, as in many industries, outsourcing is very important topic for any DPO in the financial market. However, due the various regulations, outsourcing can be a bothersome and complex process, particularly if FINMA has to be involved.
The EU commission has decided that Switzerland has an adequate level of data protection regarding the GDPR and vice versa. Thus, data transfer between the EU/EEA and Switzerland is usually uncomplicated. However, when transferring personal in countries without an adequate level of data protection, it can be difficult for the DPO to advise on any necessary additional technical or organizational measures that will need to be taken.
Furthermore, the professional secrecy obligation can complicate such international data transfers even more. Conservative Swiss scholars seem to be still of the opinion that personal data covered by the professional secrecy obligation may not be transferred outside Switzerland without the consent of the clients. However, lately, an argument has emerged that such data may be transferred outside of Switzerland without the explicit consent of the client, provided that the security of the data is ensured.
Given that a DPO is involved in various internal operational processes within a company, such as data subject requests or privacy impact assessments, and usually lacks the time and resources for in-depth legal research, an external counsel can support a DPO with the latest know-how. The highly regulated financial market, the regulation and practice of the supervisory authority tend to change particularly quickly.
Usually, external legal support is advisable for reviewing privacy policies, for international data transfer or for designing internal processes (e.g. access requests, data breach notification, privacy impact assessments, etc.). Particularly important is external advice when conducting substantial internal project, such a migration to a new cloud (particularly if this cloud is hosted outside Switzerland). Generally, an external counsel can offer a DPO insight on how other, similar companies resolve similar issues regarding data protection, which can be very beneficial for the DPO.
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Given that the revised FADP brings many new requirements and new processes, it is advisable that a DPO tasked with designing a data protection framework engage an external counsel in order to get the necessary know-how.
New technologies such as ‘distributed ledgers’, the ‘internet of things’ and artificial intelligence can of course have an impact on data protection provided personal data is processed. It can be very challenging and time-consuming to design such products and services compliantly. This is where an external counsel can provide valuable support providing their know-how to the DPO.
Lukas Lezzi, Founder
Etzelstrasse 3, Postfach, 8038 Zürich, Switzerland
Tel: +41 79 315 10 10
Dr Lukas Lezzi is a qualified lawyer in Switzerland and holder of the IAPP certifications CIPP/E and CIPM. He studied law in Zurich and received his doctorate in financial market law, and has worked as the data protection officer for a major Swiss financial infrastructure provider and a major Swiss law firm before founding his own boutique firm. He advises national and international client in data protection and Swiss regulatory matters. Currently, he and his team are advising several companies in the implementation of the new FADP.
Yoshie Midorikawa, partner at Miura & Partners, provides her own insights on the Japanese ADR landscape in this article. What developments are on the horizon for this year?
Traditionally, most legal disputes between Japanese companies were solved either before Japanese courts or by voluntary settlements between the parties privately. With the increasing number of Japanese companies doing business globally, the forum for dispute resolution for Japanese companies has slightly shifted from Japanese courts to international arbitration. In litigation before Japanese courts, the parties need to present their case in Japanese, which becomes an issue when Japanese companies wish to choose the forum for dispute resolution in an international contract with international business partners.
Aside from this, the lack of a global mechanism to ensure enforceability of foreign judgments is also a reason why arbitration might be a preferable method of international dispute resolution. Therefore, I observe that more Japanese companies have begun taking ADR, and especially international arbitration, more seriously.
The JIDRC was launched in 2018 as the first ever organisation designed for international arbitration or other types of ADR in Japan. Before the launch of the JIDRC, it was not easy for parties of arbitration in Japan to find an appropriate place to conduct hearings and other conferences. The JIDRC offers a state-of-the-art experience for the dispute resolution process, and it streamlines hearings both online and in person.
When it comes to dispute resolution procedures in Japan, litigation has been chosen in most cases, but as mentioned earlier, Japanese parties often choose arbitration due to the enforceability of awards under the New York Convention. Although Japan has not often been chosen as a seat of arbitration, an increasing number of Japanese companies are recognising the advantages of resolving disputes in their place of business. To respond to this demand, the Japanese government has been supporting the promotion of arbitration in Japan since 2017. The establishment of the JIDRC was also supported by the government.
Civil conciliation (minji chotei) is a dispute resolution procedure that differs from mediation (a private dispute resolution procedure facilitated by a neutral third party without the involvement of the state). Civil conciliation under Japanese law is a court procedure, and thus requires the involvement of the state. However, civil conciliation shares some of the characteristics of mediation in the sense that it aims to resolve disputes privately and by agreement of the parties.
I observe that more Japanese companies have begun taking ADR, and especially international arbitration, more seriously.
Even though Japanese litigation procedures can be time-consuming, Japanese companies have often chosen litigation for resolving disputes, likely due to both the fact that there is trust in the court process and trust that the court will take initiative to encourage settlements within the litigation process. Civil conciliation, in which the court is also involved and aims for settlement in a closed-door procedure, seems to match the needs of Japanese companies, which tend to prefer avoiding the excessive process of proving their claims.
In the case of litigation, it is common that the parties need to submit pleadings multiple times, and in some cases, if the legal or factual issues are complicated, it may take years before the court renders the judgment at the court of first instance. Such a procedure is not required for civil conciliation, allowing a more flexible resolution of the dispute.
To date, our team has often been involved in cases that are large in scale and extremely complex, such as accounting fraud, energy-related investments, information technology services and construction projects, where not only legal arguments but also fact-finding to support the claims are often important. In order to pick up meaningful facts and evidentiary materials from a complex series of events, an understanding of industry practices and business models is essential. It is not an easy task, as each case requires a new understanding of the energy industry, the construction industry, the information technology industry, and other businesses.
However, in a highly complicated dispute about oil field development that I handled when I was a junior associate, the manager of the client told me one day that I understood the facts and background of the case better than he did, despite the fact that it was he who was in charge of the project. At that moment, I felt that while reconstructing and presenting the case to the decision makers in the dispute resolution process was challenging, it was also fulfilling when I did it right. Since then, I have followed a simple principle in doing my job: “Understand the case better than your client”.
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Civil litigation procedures in Japan are currently done mostly offline. For example, lawyers still need to file a case by hand or by post, and online hearings are not available. Court proceedings came to a temporary halt in 2020 when COVID-19 placed restrictions on this routine. Not only have court proceedings normalised after this critical situation, but in 2022, the Diet passed a bill to amend the Code of Civil Procedure to accommodate the demands for enabling civil litigation procedures to be conducted online. The reform of the related legislation will be implemented in a few phases, enabling, among other things, online submission of documents and online witness hearings in Japanese litigation. Part of this reform will come into force on 1 March 2023.
In addition, a bill will be submitted to the Diet this year to amend the Arbitration Act to align it with the UNCITRAL Model Law on International Commercial Arbitration (2006) and to bring it in line with the Singapore Convention, which gives enforceability to settlements based on a certain degree of mediation. On a more practical note, in 2022, a ‘business court’ has been established in Tokyo for the first time in Japan to aim to handle business-related and international cases involving intellectual property, commercial matters and bankruptcy. As the dispute resolution field in Japan becomes increasingly international and digital, I expect that the updated system will offer an effective dispute resolution experience both domestically and internationally. I hope to be able to be part of this change by representing clients before Japanese courts.
Yoshie Midorikawa, Partner
3F East Tower Otemachi First Square 1-5-1, Otemachi, Chiyoda-ku, Tokyo 100-0004
Tel: +81-3-6270-3515
Fax: +81-3-6270-3501
E: yoshie.midorikawa@miura-partners.com
Yoshie Midorikawa was admitted to the Bar in Japan in 2007 and New York in 2015. Her areas of expertise include many aspects of litigation, alternative dispute resolution, corporate governance and commercial disputes, and her insights on Japanese law have been published widely. The Legal 500 Asia Pacific listed her as one of the Next Generation Partners in Japan for Dispute Resolution in 2023.
Miura & Partners was established in 2019 as an independent law firm in Tokyo with the aim of creating a new platform for innovative and business-minded professionals. Ever since, the team has handled various cutting-edge cases in the areas of commercial disputes and M&A. Asian Legal Business has listed Miura & Partners as one of the FAST 30: Asia’s fastest-growing law firms in 2021 and 2022.
What new challenges does the art world face amid rising digitalisation and continuing global conflict? Below, Professor Felicity Gerry KC & Fahrid Chishty take a close look at these developments and their impact on cultural heritage.
As modern criminal lawyers, we have found that the art and antiquities trade deserves close attention. This multi-billion-dollar market increasingly gives rise to questions of criminal law. For instance, how should domestic laws combat art fraud carried out on cryptocurrency platforms? How are private collectors to guard against purchasing ‘blood antiquities’ linked to transnational organised crime? And how does the international community respond to the destruction of cultural heritage in conflict zones?
According to studies, the annual transaction volume in art and antiquities is approximately $60 billion. During the COVID-19 pandemic, the contemporary art market proved remarkably resilient and witnessed an appreciation in the region of 15.1%. Post-pandemic, the art market continues to boom, with projections pointing towards more economic growth in the wings.
The imperviousness of the art market to economic decline may owe to the proliferation of online auctions in recent years, which not only served as a saving grace during the height of lockdowns, but also established a long-term infrastructure for executing and expediting end-to-end transactions between art houses and purchasers. For buyers and sellers, these are welcome developments. But art market participants would do well to keep an eye of the novel challenges looming on the horizon.
In terms of digitisation, the focus falls inevitably on the digital marketplace. A significant inflection point for the global economy, the digital marketplace has revolutionised our commercial practices. It has provided new platforms for transacting, which have expanded and accelerated business operations internationally. But its advent has also initiated strict controls at the domestic level, which often take the form of complex legal and regulatory regimes targeting a triad of evils: money laundering, terrorism financing and antiquities trafficking. Whilst necessary, these legal frameworks impose stringent duties on art market participants, which can create obstacles in terms of compliance, due diligence and risk management.
Art market participants would do well to keep an eye of the novel challenges looming on the horizon.
In much the same vein, the entry of cryptocurrencies and non-fungible tokens (NFTs) into mainstream economy has reconfigured traditional approaches to law and dispute resolution in the art market. It has blurred the contours of contract and fraud law, allowing their substantive provisions to bleed into one another. For instance, we are seeing litigation play out in which digital assets are increasingly implicated in disputes relating to fraudulent misrepresentation vis-à-vis the provision of services. Evidently, cases of this nature require holistic, sophisticated solutions that draw on expertise in the criminal law in addition to traditional commercial principles.
On the international stage, the nexus between organised crime and the trafficking of cultural property is becoming increasingly visible. Over the past decade, terrorism networks have carried out acts of mass pillage at cultural heritage sites across the Middle East and South-Central Asia. Very often, the looted assets have been commodified and smuggled into western art markets with the assistance of collaborators in various jurisdictions.
For example, during Daesh’s occupation of large swathes of Iraq and Syria in 2014-19 countless Assyrian, Mesopotamian and Graeco-Roman artworks were reported to have been trafficked nautically into Europe. More recently, Taliban rule in Afghanistan has seen a rise in the illicit export of Hellenic and Buddhist statues across the porous border into Pakistan, and from there into the Middle East, Europe, and the US, where they sell for millions often under the auspices of reputable institutions. As such, there is a real risk that cultural assets from the MENA and South-Central Asia region have passed through criminal hands in transit to western art markets and are connected to terror financing and even narcotics and firearms trafficking.
The nexus between terrorism, transnational organised crime and the arts is inextricably bound to policy positions assumed by both governments and non-state actors. This brings to the fore the realisation that illicit trafficking experience ebbs and flows, corresponding with the policies on cultural heritage protection and export controls enacted in each jurisdiction. In regions where regimes with militant or iconoclastic ideologies prevail, the risk of trafficking and destruction of cultural heritage remains at its highest.
On the international stage, the nexus between organised crime and the trafficking of cultural property is becoming increasingly visible.
Against this landscape, criminal law has a critical role to play in developing protocols for the prevention of trade in blood antiquities. In much the same vein, private collectors need to monitor compliance with domestic legal frameworks when purchasing cultural assets whose provenance is tied to conflict zones or high-risk jurisdictions, the trade in which can come with significant criminal sanctions and financial confiscation.
Internationally, again there is an interaction between law and art. Treaties and legal instruments prohibit the destruction of cultural heritage and impose duties on contracting states to positively protect these sites. Consider, for instance, the Hague Convention for the Protection of Cultural Property in the Event of Armed Conflict 1954, which imposes safeguarding duties on States Parties amid military hostilities. Meanwhile, International Criminal Law has complemented these protective measures with a penal regime. The Rome Statute 1998 makes plain that the destruction of cultural heritage may constitute war crimes in particular circumstances involving attacks on historic monuments and buildings dedicated to religion, education, art, science, or charitable purposes where they are not military objectives. Attacks directed at civilian objects and the act of pillaging, respectively are also proscribed.
Against this backdrop, it is pertinent to reflect on the situation in Ukraine. Since February 2022, Ukrainian authorities have repeatedly reported that Russian forces have deliberately destroyed cultural heritage sites and looted ancient antiquities from its museums. If the preliminary evidential picture is inculpatory, foreshadowing criminal charges, the testing of this will increase the international jurisprudence on cultural heritage crimes and should cause collectors to increase wariness over objects for sale.
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The world of art and antiquities is rife with criminal law issues in 2023. Advancements in the digital marketplace have given rise to unprecedented opportunities and novel challenges for buyers, sellers and domestic governments in kind. Meanwhile, terrorism, black markets and war have opened new vectors for the illicit transmission and trafficking of artefacts and cultural goods. Afghanistan and Ukraine are hotspots of risk where cultural heritage is in danger of destruction, deconstruction or pillage and we anticipate a greater need for criminal law advice for collectors in this specialist area.
Professor Felicity Gerry, Barrister
Fahrid Chishty, Advocate
20 Old Bailey, London, EC4M 7AN, UK
Tel: +44 07956 853737
E: fgerryqc@libertaschambers.com
Professor Felicity Gerry KC is an international KC at Libertas Chambers, London and Crockett Chambers, Melbourne, largely defending in serious and complex criminal trials and appeals, often with an international element. She is a high-profile barrister who is regularly sought out by broadcasters for media commentary upon international legal issues, especially related to international crimes, terrorism and homicide and corporate responsibility for human rights abuses.
Fahrid Chishty is an advocate with Libertas Chambers and practices across its core specialisations, with particular focus on serious and organized crime, fraud and financial crime and public international law. Beyond his Court practice, Fahrid has also developed an extensive advisory practice and has been instructed by business magnates, politicians and members of foreign royalty.
Libertas Chambers are specialists in business crime, professional discipline and asset recovery. Its team offers a range of expertise across a national presence. Libertas Chambers emphasises its modern approach to legal services, utilising new technology and a streamlined business model to assist major corporates, financial institutions and individual clients in complex cases.
The debt recovery process necessarily involves in-depth fact-finding and additional concerns depending on the relevant parties’ attachment to Switzerland. In this feature we hear from Marcel Frey, counsel at Prager Dreifuss, who outlines the obstacles that can be faced during this process and offers his insights on how they can most effectively be tackled.
Switzerland is an important venue with regard to international debt recovery, since assets are frequently located in Switzerland (most often in the form of a bank account or securities located at one of the many Swiss banks, or international banks with offices in Switzerland). Swiss debt enforcement offices and local courts are thus very familiar with cases involving foreign creditors looking to enforce claims in this jurisdiction. Also, proceedings up until the court stages are simple and inexpensive as they involve primarily the debt enforcement office.
Recovering international debts in Switzerland, however, presupposes some link to Switzerland. Such a link may take the form of assets maintained in Switzerland (i.e. bank accounts, securities, real estate or other fixed assets). Another point of connection may be that the debtor actually has its registered seat in Switzerland or – in the case of a natural person – is a Swiss resident.
Where the debtor is resident or incorporated in Switzerland, debt recovery starts with the issuance of a payment summons against the debtor. This process is initialised by the creditor requesting the debt enforcement office at the place of residency or incorporation to issue a payment summons against the debtor. The payment summons contains the information about the debtor, the amount due and the reason for the debt (in summary terms).
The summons requires payment within 20 days. Upon service, the debtor may contest the payment summons, but must do so within 10 days. Doing so then puts the onus on the collecting party to have the objection set aside. This involves a court assessing whether the debt is owed and due, and only at this stage does a judge become involved. Successful proceedings will entitle the creditor to continue with the debt recovery, which will then take the form of a seizure of assets in the case of a natural person or the threat of bankruptcy in case of a legal entity. The same applies if the debtor does not object to the payment summons and the 20-day grace period has lapsed.
Switzerland is an important venue with regard to international debt recovery, since assets are frequently located in Switzerland
In instances where the owing party is not locally resident but assets have been located in Switzerland, the creditor has the option of attaching those assets if an attachment reason is given. The foremost attachment reason in international contexts is where a creditor has a foreign judgement against the debtor. In such instances, the creditor may, for instance, have an account attached based on the foreign judgment. The debt enforcement office will then set short deadlines for the creditor to pursue its claim by means of debt enforcement (as described above, with the difference that the debtor must be served abroad based on the requisite international treaties, which may prove time-consuming and cumbersome).
Debt enforcement is governed by the Federal Act on Debt Enforcement and Bankruptcy (DEBA). International treaties such as the Lugano Convention or the New York Convention may come into play, where a foreign judgement or award forms the basis for the debt. Claims that have not yet become the object of court proceedings are enforced directly against the Swiss resident debtor based on the DEBA process outlined above, which again may require the serving of initial documents by means of international treaties (such as the Hague Conventions).
Where local courts need to ascertain the validity of the debt, the Swiss Civil Code and cantonal court organisation statutes come into play for certain procedural technicalities and the Federal Act on International Private Law as concerns aspects of substantive law.
The fact that a debtor organisation is particularly large does not in itself constitute a significant complexity. Where the debtor is incorporated in Switzerland, a quick online check in the electronic commercial register should suffice to establish the place of incorporation of the debtor and hence the district of the competent debt enforcement office.
A certain degree of complication may enter the fray if there is uncertainty which entity of a conglomerate is the actual debtor (i.e. a subsidiary or the holding company, or whether the debt was entered into by a company or a branch office located in Switzerland). However, these issues need to be resolved on a material level and do not as such impact on the actual enforcement.
Cross-border debt collection may be constrained by the challenge of locating assets in Switzerland, given that Switzerland does not have many publicly accessible registers that would enable creditors seeking satisfaction of their debts to locate assets ready for liquidation. Land registers are currently still maintained by each commune individually and these will only disclose information about ownership of real estate upon an individual inquiry as to a particular parcel.
Switzerland does not have many publicly accessible registers that would enable creditors seeking satisfaction of their debts to locate assets ready for liquidation.
As of 1 January 2023, a national real estate search tool has been introduced, but this is only accessible to public authorities. Authorities can submit queries based on the tool, which are then relayed to the communal real estate offices. This should in effect enable authorities (but not private individuals) to find out whether a debtor owns real estate in Switzerland, even though a central land register still does not exist. There are no central security registers and banks are not permitted to disclose the existence (or non-existence) of client relationships.
Shareholdings in companies are also still quite discrete. Important stakes in publicly traded companies and certain threshold shareholdings may be visible based on stock exchange regulations, but this is frequently insufficient for creditors. Against the recommendations of the Financial Action Task Force, there are currently efforts underfoot to draft legislation law that would introduce a central register of beneficial owners of companies. However, here too, the legislative intent is that the register would only be accessible to the relevant authorities and not to the public.
Once identified, the owner of an asset can try to halt enforcement if they can invoke valid reasons to contest the debt for either material or formal reasons. The underlying claim documents or court decision may become the object of a local court process which may be subject to appeal. During this time, the creditor can try to prevent the debtor from dissipating its assets and may find some relief through measures provided for in the DEBA, though these again are subject to court review.
Foreign documents evidencing a claim may require translation, though English evidence is regularly accepted by domestic courts which are sufficiently familiar with English. However, a claimant may be expected to assist the court in these proceedings, particularly where foreign law is at stake.
Whenever parties are entering into a commercial relationship where there is a Swiss connection (often by a party being Swiss) or where the parties seek to secure an objective commercially attractive governing law, opting for Swiss law is advisable. This makes enforcement in Switzerland significantly easier, as courts do not have to apply a law unknown to them. Translation issues usually fall by the wayside.
On another level, obtaining advance security for performance and agreeing on a forum for performance and for disputes may take the uncertainty out of contractual deliberations.
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Avoiding legal problems is always smarter than having to deal with controversies once they have arisen. Background research on potential contractual counterparties is thus prudent and reasonably easy in Switzerland. Checking the entries of a person or company in the local debt registry will inform the inquiring party in advance whether there have been any debt enforcement steps against the potential counter party in the past. Though no guarantee, earlier behaviour may give a good indication of how much leeway should be given to the other side with regard to safeguards to performance.
Marcel Frey, Counsel
Mühlebachstrasse 6, CH-8008 Zürich, Switzerland
Tel: +41 44 254 55 55
E: Marcel.Frey@prager-dreifuss.com
Marcel Frey is a member of Prager Dreifuss’s Dispute Resolution and Private Clients Teams. He represents Swiss and foreign clients in court and arbitration proceedings in addition to providing advice to private individuals on enforcing civil claims in complex cases of white collar crime. Marcel also regularly advises clients in international judicial assistance proceedings and the recovery of illegally acquired assets. In addition, he specialises in the enforcement of Swiss and international decisions in Switzerland.
Prager Dreifuss is a prominent Swiss law firm with a highly regarded international practice. Its team of 45 lawyers offers a full range of services to both businesses and private clients, frequently drawing upon its relationships with overseas firms to provide bespoke solutions.
The Turkish startup ecosystem has experienced a significant increase in the number of tech start-ups spearheaded by the gaming, finance, health and eCommerce sectors, which have attracted domestic and foreign investors and grabbed billion-dollar investments by reaching record valuations. At Gökçe Attorney Partnership, we provide legal expertise to a swath of tech start-ups at every stage of their journeys.
Figopara, a pioneer fintech Turkish company, is one of the start-ups to which Gökçe provides its key legal expertise. Figopara offers solutions for cash flow problems arising from the discrepancy between the payments and collections of companies, acting as an intermediary between financial institutions and suppliers with the Figopara online platform. Since Figopara’s establishment, Gökçe has been aiding Figopara and its founders in all legal and financial processes with its years of experience in the start-up ecosystem.
Figopara received an investment of $11 million at a valuation of $50 million in its latest investment round, which was closed in the last quarter of 2022. In this investment round, Figopara has secured investment from 11 local and international leading investors, including the International Finance Corporation, the private sector arm of the World Bank Group, and local and cross-border investment funds.
Görkem Gökçe, the founding and managing partner of Gökçe, aims to transfer his deep knowledge of the start-up ecosystem to Turkish start-ups and to contribute to their aim of becoming influential regional and global actors.
It is easy for me to say that Turkey has risen to a new level and become a core investment area in many different sectors in recent years. In 2021, more than 300 start-ups were established, receiving a total investment of $1.5 billion from nearly a thousand investors.
In the last two years, eCommerce, gaming and data analytics in finance (i.e. AI and machine learning) became the emerging sectors, receiving the most investments. I would like to highlight that most of these investments were made in start-ups that had just received their first investments, while almost half of these start-ups were founded in the last 2 years.
As such, it is safe for me to state that eCommerce, gaming and data analytics have received significant investments and have shown greater development than in other areas in recent years, although their rankings (in terms of the number of transactions) vary. It is because conventional production ideas are being replaced by technology, software, and even blockchain-based applications in today’s world. I find these developments will have positive impacts and believe that the number of such initiatives will only increase in the upcoming years.
Turkey is a regional hub. Having the potential to address a large market and having a young, dynamic, and educated population can be listed as the reasons for the recent increase in investments in Turkish companies. I believe, however, that the most important reason for the surge is the increasing number of creative start-up ideas.
As the world is moving away from conventionality towards a technology-centric understanding, the investments in Turkey are in line with this global trend if not faster. I can easily state that the large number of projects developed by Turkish entrepreneurs, especially in the past 5 years, and the number of incentives and support mechanisms provided by Turkish legislation for investments in start-ups, are the main driving forces behind the development of the start-up sector in Turkey.
Turkish legislation provides many incentives and supporting mechanisms for all investments in Turkey, and in particular for investments in start-ups. For instance, if the share certificates related to the shares acquired through an investment in a joint stock company are held by the investor for at least two years, the income from the sale of such share certificates is completely exempt from tax for real persons and substantially exempt for legal entities. Further, the start-ups and companies carrying out R&D activities have more tax exemptions.
Turkey is a regional hub. Having the potential to address a large market and having a young, dynamic, and educated population can be listed as the reasons for the recent increase in investments in Turkish companies.
As for the venture capital market, the Turkish capital market legislation regulates various financial institutions such as venture capital investment trusts (VCITs) and venture capital investment funds (VCIFs) have many advantages over venture capital investments and, thus, over start-ups.
Firstly, the earnings of VCITs and VCIFs arising from their activities, including the purchase and sale of shares, are exempt from corporate and income tax.
Secondly, they can provide a mix of debt and equity financing to start-ups, which is a method provided only for the shareholders under Turkish legislation and VCITs and VCIFs.
Lastly, carried interest and management fees, which are remuneration incentive mechanisms for the managers, are introduced to enable start-ups to receive professional management support for investment processes from experts in their fields.
It would be best to answer this question from a financial and a legal perspective.
One of the main challenges that foreign investors may face in Turkey is finding business partners with deep knowledge and expertise in the start-up sector and professionals who can provide brokerage and advisory services for the investment. Unlike traditional businesses, start-ups have their own set of dynamics and it is therefore critical to work with advisors who understand the structure, nature, functioning and basic motivations of start-ups, rather than with advisors having a conventional perspective. In this regard, as a firm that always aims to meet the needs of its clients, we provide legal support and expertise for foreign investors new to Turkey through our membership in international platforms and institutions operating in various countries around the world.
As Gökçe, we have deep knowledge and know-how gained from years of working with start-ups. Since our establishment, we have provided legal consultancy in all stages of a start-up journey, from their establishment to potentially their exits. Further, as we operate on a full-service basis, having Corporate, TMC&Privacy and Litigation departments, we can easily meet the needs of our start-up and tech clients.
One of the very unique features of the Gökçe team is having the ability to structure the legal deal in the most appropriate way for the financial outcome that the parties intend to reach. We always prioritise understanding the financial dynamics between the investor and the investee to design the legal relationship.
Last but not least, the long-established and high-quality network that Gökçe has developed in both legal and financial circles over the years plays an active role through its business partners competent in their respective fields, in providing the expertise that foreign investors and start-ups may need in different fields.
One of the very unique features of the Gökçe team is having the ability to structure the legal deal in the most appropriate way for the financial outcome that the parties intend to reach.
The main goal of tech companies is to provide products and services in a more practical, cost-effective and accessible way. Tech start-ups provide more accurate, faster, and more affordable solutions than conventional tools in areas in need of development ranging from the daily needs of people to the financial analysis necessities of the business world. It is much clearer what the core activities of tech start-ups are and how they can advance these activities through the lens of this determination. In this context, the main tendency of tech companies to provide more accurate, fast and affordable services and to automate these services is to collect more data. To achieve this objective, data analytics, artificial intelligence and machine learning activities may be listed as the main trends observed in the activities of tech companies.
The second issue that I can address at this point is ’confidentiality‘. In a globalising world, access to all kinds of information is becoming easier and easier day by day and this has disadvantages as well as advantages. Data analysis has reached the sophistication level to enable personality analysis, and personality analysis is a tool that can be used to direct masses. Consequently, even though data analysis is essential for the advancement of service industries these days, confidentiality and privacy concerns embedded in data analysis are more relevant than ever. However, the solution for these issues is, in turn, technology itself.
Whilst there have been several high-profile privacy violation cases and tracking of cryptocurrency transactions, blockchain-based solutions such as decentralised identity and zero-knowledge proof prove to be useful in allowing individuals to have control over their data and privacy. It is clear that this will be at the forefront of the considerations of most financial actors in the upcoming years.
Since our establishment, as Gökçe, we have played a key role in the investment rounds and exit transactions of our clients’ start-ups as well as the ongoing operational advisory services. Even in 2022 we were involved in several transactions of similar size to the investment round of Figopara or even larger, whether publicly announced or not. The number of investments we provide our legal expertise has been rapidly increasing in the past few years. It is no surprise that we continue to play a key role in transactions of such sizes considering the number of start-ups to which we have provided our expertise in the past, be it in the stage of establishment, pre-seed investment round or seed investment round.
Since our establishment, we always had a diverse client portfolio including both conventional companies and start-ups.
The ongoing worldwide crisis and manoeuvres of financial actors, including central banks, to curtail cash flows have made it difficult to access funds in many sectors. As a principle relevant to the markets and economy in general, every crisis contains the seed of an opportunity. In recent years, both the economic crisis and other crises, such as the pandemic, have led to a contraction in some conventional sectors, while paving the way for others. Figopara is a great embodiment of this principle. Figopara, as a fintech company mediating solutions for cash flow problems, has been able to bring in a solution to the cash flow problem faced by market actors. This idea was happily welcomed by investors as a solution to the current crisis and led to one of the largest investment rounds in Turkey in 2022.
Apart from this, the other start-ups that we provide consultancy have developed solutions to shift physical services to online mediums responding to a pressing necessity during the pandemic; therefore, they were able to grow fast amidst the crisis.
Finally, due to the impact of the economic crisis on investors’ risk perception and behavioural finance attitudes, many investors have shifted from traditional investment instruments to start-up investments.
Figopara, as a fintech company mediating solutions for cash flow problems, has been able to bring in a solution to the cash flow problem faced by market actors.
These realities have shown that shifting circumstances create new business areas with new challenges and opportunities for expansion within existing business areas. I would like to underline that, by providing consultancy services to our clients operating in various fields, we can easily adapt to the new conjuncture brought by the rapidly changing and sometimes shrinking market and, in the meantime, be affected minimally by the floating structure of the economy.
The fundamental challenge faced by all start-ups is the same as the basic assumption of economics: the demands of financial actors are unlimited; however, the resources are limited. This fundamental assumption is present in all aspects of everyday and commercial life. The situation of investors and start-ups participating in investment rounds can also be perceived through this assumption. At this point, the main challenge in all start-up investments is balancing the demands of the parties to the transaction. Considering multilateral and cross-border transactions, achieving a common consensus can be characterised as an objective challenge in any transaction.
As Gökçe, we also analyse the financial demands of the parties to the transaction and strive to ensure that the demands of the parties are reasonable and in line with market conditions and that the transaction is carried out in accordance with the joint and mutual will of all parties. With the expertise we have accumulated over the years, we try to reflect the economic demands of the transaction parties to the legal realm, both through the tools already regulated in the legislation and through new legal fiction to the extent permitted by the legal order. Therefore, this situation, which can be characterised as an objective difficulty, is subjectively manifested as an added value for us when considered together with Gökçe’s depth of experience.
NAZALI is an international full-service law firm that provides a broad spectrum of advisory services to its clients with a qualified team of lawyers and other experts in different practice areas. These practice areas comprise tax, competition lawantitrust, IP, finance, privacy, customs, social security and audit. The Corporate and M&A team at NAZALI is co-led by partners Nilay Göker Duran and Ayşe Ülkü Yalaz. With more than 15 years of combined experience, the team provides advisory services to its international and local clients on all stages of buy-side and sell-side M&A transactions and represents investors, entrepreneurs, and start-ups in growth finance deals as well as fund raising and structuring. Considering highly interdisciplinary processes, such deals are evaluated by a wide range of other experts led by highly reputable partners, making NAZALI the best fit for such transactions. NAZALI reflects its deep sectoral knowledge in sector-specific M&A transactions in the healthcare, energy, fintech and automotive sectors, along with others.
NAZALI’s core objective is to establish a long-term and trust-based relation with its clients. What distinguishes NAZALI is its ability to evaluate matters from all related aspects under one roof to create comprehensive solutions and to develop solid strategies by virtue of interdepartmental communication.
We represented the leading investor, L2G Ventures, who was referred to us by our existing client and one of the investors of this deal, ScaleX. We always feel privileged to work with highly reputable and experienced clients. We conducted a thorough legal and tax due diligence and advised L2G Ventures on drafting and negotiating the deal documents. We also assisted our client during the signing, closing and post-closing stages.
This was an in-depth legal due diligence process that required analysing numerous regulations entangled with one another, including banking and finance, eCommerce and privacy. Yet there are some non-regulated aspects to markets supported by fintech and technology. In that respect, legal due diligence was quite challenging as it also involved certain unregulated matters. To refrain from disrupting the innovative and dynamic nature of this sector and to overcome problems encountered, we liaised on such issues with the Figopara team to systemise and understand their operations, which allowed us to identify advantages and risks accurately with a business-minded approach. Thanks to our client, we also adopted an entrepreneur-friendly approach with an open dialogue by sharing our due diligence findings with the Figopara team, allowing them to clarify such issues in a prompt manner ahead of closing. With the valuable cooperation of Figopara and their legal counsels, we were able to run such a complex process swiftly. We believe that such an approach provided significant benefits for the other investors as well.
Finalisation of the SHA was quite intricate considering Figopara’s relatively complicated shareholder structure and complex clauses accustomed to growth finance deals including liquidation preference, anti-dilution and others. Since SHA was subject to English law, we had to prevent conflicts to make it compatible with directly applicable rules under Turkish law. Finding a balance and reaching a viable SHA and articles of incorporation was vital and challenging. We overcame these challenges and tailored the SHA by working together with the counsels of all parties, making invaluable contributions.
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Furthermore, tech M&As are under scrutiny in Türkiye. The Turkish Competition Authority, which has amended its communiqué concerning mergers and acquisitions recently, is particularly interested in such deals. We established that obtaining approval from the Authority was also vital for this deal. Accordingly, the deal was tailored to allow certain control change clauses to be enforced following such approval and hence those were dealt with, designed and tailored separately in a way that could be legally enforced.
Representatives of Figopara and Gökçe Attorney Partnership as well as other parties’ counsels made invaluable contributions to the process with their cooperative, constructive and open approach. We had previously worked with our colleagues on different transactions, which allowed us to overcome challenges in a more amicable and prompt manner. Such a big deal with so many parties involved would not have been possible without the support of all parties involved with great harmony and teamwork.
Growth finance deals are not short-term transactions. Processes following the closing are also vital as ensuring stability is imperative. We also prepare a ’closing bible‘ that outlines what needs to be considered after a deal is sealed. Accordingly, we continue to assist and support our clients for the post-closing actions.
Last but not least, we also observe that sometimes the legislation falls behind emerging technology-related markets. As legal practitioners we are keen to understand the dynamics of these technologies, be a little less conservative by finding a balance, and determine an appropriate perspective for innovative and dynamic sectors with a solution-oriented approach.
Below, we take a deeper look at the process of patent prosecution in India with Dr Anju Khanna, partner and head of the Patent Department at Lall & Sethi. Drawing upon more than 20 years’ worth of experience in the sector, she shares her insights as to the most effective patent application techniques and likely developments for the future of patent law in her jurisdiction.
Patent prosecution is regulated by the Patents Act 1970 in India. The inventions covered by patents in India pertain to only utility inventions. Industrial designs are protected under the ambit of the Designs Act. The Patents Act 1970, along with the Patent Rules 1972, came into force on 20 April 1972 (after replacing the Patent Act 1911). Since then, various amendments in the Patents Act (hereinafter referred to as the Act) and Rules have been brought about from time to time. The Patents Act 1970 was last amended by the Patents (Amendment) Act 2002 (38 of 2002). It is read together with the Patents (Amendment) Rules 2021.
The patent prosecution process begins with the filing of a patent application (provisional/complete specification) at the Indian Patent Office (IPO). In case a provisional is filed, a complete specification is required to be filed within 12 months of filing the provisional, failing which the provisional automatically gets abandoned. A foreign filing license is required for an invention for which the inventor resided in India at the time of the invention, if the first application is to be filed outside India.
An application submitted to the Patent Office with a complete specification is published 18 months from the earliest priority date under section 11A of the Act. A request for examination under section 11 B can be filed within 48 months from the earliest priority date. Thereafter, the application is referred to an examiner for technical examination with respect to the patentability of the subject matter of the invention. Following a detailed examination, a First Examination Report (FER) is issued containing both formal and technical objections. The applicant has six months’ time from the date of issuance of the examination report to put the application in order for grant, with a one-time extension of one, two or three months.
A second examination report and/or an oral hearing may be issued for further clarifications and overcoming objections. New art may be cited in these reports. Also, an application, once published, can be opposed by any person by filing a pre-grant opposition until the date of grant under the provisions of section 25(1) of the Act. An application cannot be granted prior to six months from the date of publication. A patent can be opposed by any interested person within one year of grant under the provisions of section 25(2) of the Act. A patent can be revoked any time after grant by an interested person under section 64 until the life of patent either by filing a revocation petition or in a counter claim in a suit for infringement.
A foreign filing license is required for an invention for which the inventor resided in India at the time of the invention, if the first application is to be filed outside India.
India is signatory to various international treaties like the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty and the TRIPS agreement. Hence an application can be filed either as an ordinary or convention or national phase of a PCT application.
Under rule 24C of the Act, an applicant may file for early or expedited examination. The following applicants are eligible to file for expedited examination under the Indian Patent Act:
The Patents Act 1970 is the primary legislation that governs patent filing and prosecution in India. Being a signatory to the various international treaties, India is compliant with all its obligations under the treaties.
Ordinarily, the time to grant a patent depends upon time taken in different stages, which may vary from around three to five years, depending upon the case. The time period for filing request for examination (RFE) is 48 months from the earliest priority date. Once an RFE is filed, the application is examined between six months’ to one year’s time. The first step towards expediting the process is to file for RFE as soon as possible.
The IPO has taken several measures to increase transparency in the process and decrease delays in prosecution. The entire process from filing to grant is now conducted online, including oral hearings and also opposition hearings that are held through video conferencing. File wrappers of published applications are available online for public to access. Dynamic online utility services provide updated information about the status of an application. Vide noticed as of 16 January 2023 that the IPO is undertaking hearings in pending matters in an expedited manner. In addition to these, there are certain categories of applicants who can avail of expedited examination provisions as mentioned above.
In order to increase chances of a patent application being accepted by the IPO, some general considerations that must be kept in mind are as follows:
Many inventions are rejected on the basis of the subject matter of the invention, which should not fall under sections 3 and 4 of the Patent Act, i.e. must fulfil the criteria of eligibility. For example, pharmaceutical inventions are generally objected under sections 3(d) and 3(e); sufficient data must be provided in the specification to justify the technical advancement over the prior art for 3(d) and synergy in case of a composition, combination or formulation comprising multiple ingredients for 3(e).
As mentioned above, CRIs are objected under section 3(k). It is important to show technical effect of the software to overcome 3(k). It is also important to show a hardware component. For devices that are likely to be objected under section 3(f), it must be ensured that it is not a mere arrangement or re-arrangement of a known device. The device must be new and also all its components must act together to produce the desired technical effect.
The IPO has taken several measures to increase transparency in the process and decrease delays in prosecution.
With respect to inventions where biological material is used, a common objection raised is with respect to NBA (National Biodiversity Act) permission. An applicant must ensure that if the subject matter involves use of any biological resource obtained from India, its complete details are provided in the specification and NBA permission is taken, if required, to avoid an objection during the examination stage that normally delays grant.
Enablement is also a very common ground for objection. The claims must be supported with sufficient data and information in the specification. Use claims and method of treatment claims are not allowed in India and must be avoided.
An applicant must ensure that all the formal requirements of an application are complied with and that there is strict adherence to the various timelines. Requirement under section 8 ‘Statement and Undertaking’ must be taken care of by providing the details of the corresponding foreign applications within the stipulated time. Strict adherence to the stipulated timelines with respect to each of the procedures involved must be observed to avoid formality objections.
One of the most common mistakes committed by applicants is that they do not disclose sufficient data while filing the complete specification. It must be borne in mind that if the invention is not sufficiently disclosed and the subject matter of the claims is not enabled, it may lead to rejection of the application. Therefore, a balance must be struck.
Voluntary amendment of the as-filed specification after filing is not always allowed. The scope of amendments that may be allowed is restricted by section 59 of the Act. Therefore, care must be taken at the time of filing of the specification to ensure that it is carefully drafted.
Another common error is disclosure of information related to corresponding applications filed in other jurisdictions that applicants fail to provide. Material information not disclosed can lead to refusal of an application and is a ground for opposition and revocation of patent.
Another matter of concern is the strict adherence to timelines, failure of which may lead to fatal consequences.
Once a patent application enters into the examination stage, its fate depends in the hands of the examiner concerned. Therefore, it is very crucial for an applicant or patent attorney to handle the examination/hearing stage of an application skilfully. Communication skills play a very important role in patent prosecution. Clear, to-the-point and effective communication is a must.
Each of the objections raised in the examination report must be carefully addressed. The prior arts must be properly studied so as to be able to clearly differentiate the subject matter of the invention in question from the cited prior arts. The differences and the arguments must be clearly represented without leaving scope for any ambiguity. It is also important that no statement be made, in writing, at any stage of the prosecution that may act as an estoppel at a later stage, such as during litigation.
During hearings, the objections raised must be clearly understood before presenting a reply. Replies must be precise and to-the point unless a detailed answer is sought by the Controller. The applicant or attorney must utilise the opportunity efficiently.
Each of the objections raised in the examination report must be carefully addressed.
Keeping a tab on all the timelines once a patent application is filed until grant is very important to ensure that they are strictly adhered to. Continuous follow-ups with the IPO and self-audit of files on the IPO website are also important.
Two decades ago, only processes were patentable in respect of inventions relating to pharmaceuticals, food, drugs and substances produced by chemical process. Since 1 January 2005, patents are open to grant in all categories of inventions, which has made a significant impact in India.
Comprehensive e-filing services, including hearings through video conferencing, have facilitated inventors and applicants, which have in turn enhanced patent filing in India. Recording of hearings also help avoid misuse of the system.
Early disposal of the applications has changed the whole working of IPO and has reduced the grant time. The search engine InPass has vastly improved and every document filed with the IPO gets uploaded in the concerned file wrapper within the same day .
Several kinds of applicants can avail discounted official fees and expedited examination as mentioned above. This has given a boost to filings by start-ups and educational institutes.
The IPO has published guidelines for Computer Related Inventions (CRIs), pharmaceutical and biotechnology-related inventions and inventions based on traditional knowledge. It has also published an updated Manual for Patent Practice and Procedures. The Act requires approval from the National Biodiversity Authority for any biological material obtained from India, obtaining which used to delay the grant of the application. This process has now been streamlined by the IPO. In recent times, the IPO has allowed grant of patent right to a right holder even when the approval from NBA has been under process.
India is an IP friendly nation and has shaped and defined its laws and standards as per its global obligations under various treaties .
Establishment of the IPD (Intellectual Property Division) in the High Court of Delhi in 2022 and other High Courts (under process) in India has aligned the country with similar global practices to deal with IPR-related matters. This will help facilitate the efficient disposal of IP matters, as well as bringing consistency in the precedents set by the Courts in the areas of IP law. The IPD deals with all matters which are in the nature of original, appellate or any other proceedings related to IPR, which includes cancellation, revocation applications, other original proceedings, appeals and petitions from the various Intellectual Property Offices.
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2022 saw the notification of the High Court of Delhi Rules Governing Patent Suits, which provides procedures and mechanisms for simpler, effective and efficient adjudication of patent infringement cases. It also prescribes various procedures related to pleadings, hearings etc. Implementation of these rules has led to the setting up of standard procedures that will certainly help in adjudication of infringement suits.
Jurisprudence in patent domain has significantly evolved in the past decade and a half. India is becoming the jurisdiction of choice for Standard Essential Patent (SEP) litigation. In virtually every SEP case, the patentee has received favourable orders from the Court either in the form of an interim injunction (that leads to settlement between parties) or deposition of interim royalties or bank guarantees with the Court. With the advent of 5G technology in the telecommunication space, this is likely to increase further.
Similarly, the formation of specialised IP courts in the IPD has seen rapid advancement in development of jurisprudence, at least in the Delhi High Court. With formation of IPDs in other High Courts, the time frame of patent litigation is expected to see a further significant reduction.
Dr Anju Khanna, Partner & Head, Patents
D-17, South Extension II, New Delhi -110 049, India
Tel: +91 11-4289-9988 | +91 11-4289-9999 (Ext: 124)
M: +91 99-7168-1696
Dr Anju Khanna heads the Patent Department at Lall & Sethi and has also been the firm’s managing partner from 2019-2021. With more than 20 years of work experience and 18 years in the field of patents, she handles both patent prosecution and patent litigation at the firm. Dr Khanna oversees and handles work in various technology domains including chemistry, pharmaceuticals, telecommunications, medical devices, electrical and mechanical inventions, and she is actively involved with the Patent Office and the Department for Promotion of Industry and Internal Trade (DPIIT) regarding policy decisions.
Lall & Sethi is a boutique IP firm that provides a complete range of services relating to contentious and non-contentious IP issues. Its areas of practice include trademarks, copyright, designs, patents, confidential information and trade secrets, information technology and entertainment and sports law.
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