Emmanuel Macron makes bid for Silicon Valley on the Seine

Frances’s 49 year old president, Emmanuel Macron, is betting high on the development of startups and new tech businesses in France and it’s starting to work! As a result, France´s tech sector is becoming more and more attractive to entrepreneurs that were once discouraged by the countries rigid labor laws and high taxes.

What Macron’s government is trying to do is improve the chances of startup companies in becoming worldwide leaders.  “I want this country to become a country of unicorns (private companies valued at more than 1bn)” said Macron at the Viva Tech conference in Paris in June.

By reforming France’s strict labor law framework while injecting state backed venture capital funding, Macron plans to create an atmosphere were France’s great talent in engineering can be directed to create leading billion dollar tech companies. The countries great engineering talent is specially noted in areas such as software, healthcare, deep tech and artificial intelligence.

Even though France still faces great challenges in pushing through the labor market and fiscal reforms as well as creating more next stage investment opportunities, the governments actions are already having positive results.  During this year, French venture funds managed to raise more cash (€2 billion and counting) compared to other leading tech countries in Europe like Germany and Britain.

Where private capital was lacking, government funds have been feeling the void to help jump-start the countries tech sector.  Today, the largest investor in the country is BPI France, a government owned investment bank that has spent more than €4 billion over the last four years in both direct startup investments and funding for local venture funds.

Furthermore, to expand their knowhow in the wider tech world and to incentivize funders to come to France, the state bank also invested in U.S and pan-European venture capital firms. The new “French Tech Visa” that implements a visa program for foreign tech talent is another example that proves how France wants to expand and open their tech environment to the world.

Regardless of the government’s positive intentions to boost France’s tech sector, a valid concern for entrepreneurs in France is that the government’s central role in the industry might upscale into market interference.  Let’s not forget that in 2013, the French government blocked Yahoo’s intention to buy DailyMotion, a French video streaming startup who was then sold to the French media giant Vivendi, for a lower price.

Furthermore, the industries incredibly fast paced growth tends to suggest that state-backed programs and funding are not enough to create successful global tech companies but rather these efforts should be combined with efforts and involvement from the private sector.  Regardless, we can say that Macrons efforts have caught the eye of the industry and we look forward to seeing what France’s tech sector can accomplish during his government.  We might see Paris turn into the next French Silicon Valley.

“All the entrepreneurs who are here today, I want to give you back your freedom but I also want to make you realize that it is an immense responsibility. The world that we currently live in, the world that I want to lead with you, the world in which France is a leading nation, it is a world that cannot share the same values as the world of yesterday.”  Emmanuel Macron VivaTech 2017.

Emmanuel Macron makes bid for Silicon Valley on the Seine (PDF)

CVS and Aetna: First Signs of Amazon’s Effect on the Pharmaceutical Industry

Last Thursday’s report that Amazon has obtained wholesale pharmacy licenses in 12 states has caused a ripple in the healthcare field. Public records indicate that Amazon’s ambitions may include distribution of medical devices. First alleged in May, Amazon’s entry into the pharmaceutical industry would be its second attempt into retail pharmacy. Amazon previously owned 40% of the unsuccessful online pharmacy company, Drugstore.com.

CVS Health is vulnerable to Amazon’s move on both the retail pharmacy and pharmacy benefit manager areas. Unconfirmed reports have surfaced that CVS has submitted a bid to buy Aetna, the third largest U.S. health insurer. A joint CVS-Aetna is expected to leverage patient data to manage healthcare costs, whether in drug price negotiations or customized health plans that encourage use of lower-cost clinics. As a defensive measure, a joint CVS-Aetna would help CVS recover its stock price, which has dropped amid speculation of Amazon’s entry into the healthcare field. Meanwhile, Aetna’s revenue has been affected by Obamacare policies and the company expects to lose $200 million this year. An industry-wide health insurance tax of 3% is expected to affect profits for 2018.

Analysts have noted that Amazon’s move into pharmaceuticals is expected to most affect retail pharmacy chains like Walgreens Boots Alliance, CVS Health Corp., and Wal-mart Stores Inc. However, Amazon has not previously entered into a regulated market and without readily available assets to purchase, building out pharmacy capabilities may prove to be a challenge for Amazon.

Previous reports have indicated that Amazon was hiring an internal pharmacy benefit manager to serve its 128,000 employees. These managers often negotiate with drug makers to obtain discounts and also help patients save by converting them from name brand versions to generic versions. Amazon’s technology and experience in purchasing and inventory management may give them an advantage and eventually serve as a platform when the program is expanded and added to the plethora of other goods and services offered by Amazon.

Express Scripts Holding, the largest standalone pharmacy benefit manager, sees potential in partnering with Amazon. The company indicated that it saw no threat to its business that sold pharmaceutical drugs to cash-paying customers. Most people are guided in their pharmaceutical drug purchases by their insurance plan coverage and such strategic partnerships may be vital for Amazon to enter this market. Regardless of how this plays out, Amazon’s entry is likely to shake up the pharmaceutical drug distribution business.

CVS and Aetna First Signs of Amazon’s Effect on the Pharmaceutical Industry (PDF)

Privacy, Antitrust, or Utilities? Finding the Best Way to Regulate Big Tech

In the face of the increasing economic, cultural, and political influence of big tech companies, there is a growing sentiment that the ‘Frightful Five’ (Amazon, Apple, Facebook, Google, and Microsoft) need stronger government regulation.

When you consider Facebook’s recent revelation that Russian entities purchased ads to influence American political opinion and myriad examples of the use of social media to radicalize individuals, it is becoming increasingly clear that big tech firms have created the means to do immense harm, all the while still raking in immense profits. British Prime Minister Theresa May and the EU feel that “enough is enough” when it comes to the freedom of big tech companies, but does Washington feel the same?

One New York Times author, Farhad Manjoo, writes that it is unlikely that the growing cultural influence and marketplace dominance of big tech companies will be effectively combated by Washington lawmakers. These companies’ increasing political clout and a lack of consensus among representatives of Big Tech’s potential harms are two main reasons many argue Washington will be unable to curtail the power of Big Tech.

Even if the legislature mobilizes against tech companies, the methods further complicate the issue. Lina M. Khan, a fellow at Open Markets Institute (a liberal think-tank that opposes concentrated corporate power), argues that our antitrust laws are out of date. Because antitrust legislation is focused on punishing corporations for unfair prices, tech companies (who typically offer their services at little or no cost) are overlooked by regulation. Khan suggests that modernization of our antitrust laws could be an effective solution.

On the other hand, EU lawmakers are demonstrating a willingness to crack down on big tech companies, using both current and future legislation. After fining Google $2.7 billion in June for violating European antitrust laws, regulators have also chosen to implement new privacy laws to combat tech companies’ misuse of consumer data. Beginning in 2018, EU data protection authorities will be permitted to slap fines of up to 4 percent of a company’s worldwide revenue for violations of new privacy rules approved by the European Parliament.

A unique solution is to regulate tech firms like utilities. This method would treat the Frightful Five like monopolies that provide essential services. In this scenario, users would not only be given more control of their information by retaining the choice of whether to sell their personal data to advertisers, but would also profit by providing advertisers with access to their information.

Though big tech companies have generally experienced tremendous freedom from government oversight thus far, legislatures around the world, recognizing the cultural, economic, and political implications of allowing tech companies free reign, are trending towards imposing control on how big tech companies influence our society. Whether through antitrust legislation, privacy laws, or more creative alternatives, tech companies should prepare to brace themselves for stricter regulation.

Privacy, Antitrust, or Utilities Finding the Best Way to Regulate Big Tech (PDF)

Recap: “BCLBE Leadership Lunch Talk: So You Want to be a General Counsel?

On October 30, 2017, the Berkeley Center for Law, Business and the Economy (BCLBE) welcomed Erika Rottenberg, a Boalt alumni who is on the board of both Twilio, a leading cloud based communications platform, and Wix.com, a leading cloud based development platform, for a talk and Q&A with the law students regarding the practice of law as a general counsel, what a general counsel does, and the differences between being a general counsel and an in-house lawyer.

Besides being on the board of two companies, Mrs. Rottenberg is also a mentor to women, executives, young professionals and students, and advises companies that are scaling globally, particularly in matters evolving global privacy, data security and corporate arenas. Beforehand, she was a very successful general counsel at LinkedIn, and also served as a Consultant of SumTotal Systems and as Vice President of Strategic Development and General Counsel at Creative Labs Inc. During the beginning of her career, she was an attorney at Cooley Godward, practicing corporate and employment lay.

When asked about how she became a general counsel, she mentioned how it is almost the traditional path for law students to leave law school and go to work in law firms. She got a job in Cooley Godward straight after law school, but after a few years decided to change her career and go to work in-house in LinkedIn. Concerning this change, she mentioned how even though she did not have the knowledge in technology matters, she did not want to be just a lawyer at a firm, but rather be part of the business. For Mrs. Rottenberg, if you are a great in-house lawyer, you do not simply give legal advice, but rather become a business partner.

When talking about the difference of environment that is to work in a law firm and a big company, Mr. Rottenberg mentioned how in a law firm, the entire company revolves around the lawyers. On the other hand, on a company such LinkedIn, lawyers are on the expense side, and newcomers need to be aware of the necessity to be humble and accept that engineers and entrepreneurs will be much more on the center of the company’s attention.

Mr. Rottenberg also advised on how it is crucial for lawyers building their careers to always say yes to a project, and to take advantage of any opportunity to rotate around several areas of law. Furthermore, she talked extensively on how important it is for law students and young professionals to know how to make requests and how to be insistent in the appropriate manner in order to achieve their goals. Additionally, she mentioned how young lawyers should not be afraid to apply for opportunities even if they don’t meet the minimum requirements for the position, because what the hiring part is actually looking for is someone who will be productive and helpful.

Recap BCLBE Leadership Lunch Talk So You Want to be a General Counsel (PDF)

Facebook, Twitter, and Google Testify about Russia Meddling

This week, Facebook, Twitter, and Google testified before the House and Senate Committees about Russia’s interference with the 2016 election.  These hearings revealed that an estimated 126 million Americans were exposed to content disseminated on Facebook generated by a Russian government-linked Troll Farm.  During the hearing, lawmakers asked pressing questions about why it is so easy to spread misinformation on their platforms and how these companies plan to protect their platforms against use hostile to U.S. values.

These social media companies and Congress seem to agree that online political ads require greater oversight, though there is disagreement regarding whether internet companies can adequately self-regulate these ads.

For years, the government has given online companies much freedom for innovation and growth, with little government interference.  But the recent Russian investigations have opened the door to increasing congressional discussions about regulating online advertising.

Republicans and Democrats complain that it has taken Facebook a year to reveal how many Americans were exposed to Russia-linked content, and that Facebook, Twitter, and Google do not grasp the threat that foreign election interference poses to U.S. democracy. Accordingly, House and Senate bills are calling for greater regulation of online political ads. Three senators have introduced a new piece of legislation called the Honest Ads Act, which would require online social media companies to disclose who is buying political ads on their platforms.

Social media companies have an interest in keeping the government out of their business, and are therefore resistant to invasive regulation. Facebook and Twitter have taken pre-emptive steps to prove their ability to self-regulate.  Facebook revealed its plan to invest more in safety and security and to require political advertisers to disclose more information about their campaign and targeted audience.

While social media platforms are critical of government regulation, lawmakers also do not want to hamper innovation.  Accordingly, the proposed bills are very light, only targeting political ads.

Facebook, Twitter, and Google Testify about Russia Meddling (PDF)

SEC fines Zenefits and former CEO Parker Conrad

On October 26, 2017, the Securities and Exchange Commission (the “SEC”) fined a Silicon Valley unicorn startup, Zenefits, and its former CEO Parker Conrad for “materially false and misleading statements and omissions” to the company’s investors regarding non-compliance with state insurance laws. This is a first for a Silicon Valley startup.

Zenefits and Conrad agreed to pay a combined nearly $1 million in fines to settle accusations. The company agreed to pay $450,000 and Conrad agreed to pay nearly $534,000, of which $350,000 represents disgorgement of ill-gotten gains and a penalty of $160,000. But Zenefits did not confirm or deny the SEC’s findings that they violated federal securities laws.

San Francisco-based Zenefits makes software for business to automate their human resources activities, but also acts as a health insurance broker. 90 percent of the company’s revenue comes from brokerage fees from their health insurance business.

The SEC claimed that Zenefits used inadequate compliance procedures under Conrad’s control, allowing employees to sell health insurance without the necessary state licenses. Conrad created and shared a program allowing employees to complete California licensing education requirements in fewer hours than the law required. Separately, in 2016, in a concession to investors, Zenefits slashed its valuation by more than half to $2 billion from $4.5 billion and investors agreed not to sue Zenefits. The SEC asserted that when Zenefits and Conrad raised funds in 2014 and 2015, they failed to adequately disclose their knowledge of these compliance lapses.

In contrast to the SEC’s broad authority to police behavior in public traded companies, it has relatively limited authority in the world of private companies; by law, it can only police misrepresentations and fraud in the sale of private company stock. Zenefits is the first case in which the SEC took action against a privately held Silicon Valley startup for misleading its investors. In the future, the SEC will keep a watchful eye on Zenefits.

SEC fines Zenefits and former CEO Parker Conrad

Johnson & Johnson Wins Reversals in Ovarian Cancer Cases

Johnson & Johnson currently faces suits from 4,800 plaintiffs nationwide alleging that its talc-based products cause ovarian cancer. The women claim that for over three decades, Johnson & Johnson ignored studies linking its talc products to ovarian cancer.

On October 17th, the Eastern District of Missouri reversed a $72 million verdict against Johnson & Johnson. The court ruled that Missouri did not have jurisdiction over the claim brought by Jacqueline Fox, an Alabama resident, in light of a recent Supreme Court ruling in a case involving Bristol-Myers Squibb Company limiting where injury suits can be brought. After the reversal, shares of Johnson & Johnson rose 3.2 percent.

The plaintiff, Jacqueline Fox passed away in 2015 from ovarian cancer, four months before the trial began. She used Johnson & Johnson products for more than 35 years. The Fox family is now considering an appeal. Many of the cases against the company were filed in Missouri by out of state plaintiffs, and are now facing jurisdictional questions as well in light of the recent Supreme Court ruling.

Johnson & Johnson won a similar case in California on October 20th, when a Los Angeles court reversed a $417 million award for plaintiff Eva Echeverria. The court granted a new trial, saying that there were errors and jury misconduct in the previous trial. The judge also ruled that there was not enough evidence that the company had acted with malice, and furthermore, held that the award in favor of Echeverria was excessive. Echeverria’s attorney also plans to appeal the decision.

Johnson & Johnson Wins Reversals in Ovarian Cancer Cases (PDF)

Weinstein Company Under Investigation by New York Attorney General’s Office

On Monday, October 23, the office of New York Attorney General Eric T. Schneiderman launched an investigation into the Weinstein Company. Mr. Schneiderman’s inquiry into the working conditions at the Weinstein Company is at least partially designed to determine if sexual harassment, abuse of power, or any of the other number of claims leveled against Weinstein Company co-founder, producer Harvey Weinstein, are or were present in the environment or policies of the Weinstein Company.

In a statement on Monday following the submission of a subpoena to the Weinstein Company, Mr. Schneiderman said that “no New Yorker should be forced to walk into a workplace ruled by sexual intimidation, harassment, or fear. If sexual harassment or discrimination is pervasive at a company, we want to know.”

In the interest of this objective, the subpoena’s content focuses particularly on the Weinstein Company’s hiring and termination practices. Many commentators suggest that the Weinstein Company may have granted preferential treatment to young women in the initial hiring process, only to later terminate them rather than field their complaints. Similar theories are being proposed as to the subpoena’s focus on casting criteria.

The New York Attorney General office’s probes into the extent of the Weinstein Company’s knowledge of any abuses, comes amidst a firestorm of contentions that Mr. Weinstein’s behavior was an open secret in the film industry. Hollywood icons, like actresses Meryl Streep and Dame Judi Dench, suggest it was well known among film industry insiders that Mr. Weinstein was prone to sexual harassment.

The Weinstein Company is already beginning to see itself named on lawsuits along with Mr. Weinstein as the scandal concerning nearly three decades of alleged sexual harassment unfolds. Moreover, the Weinstein Company’s already precarious financial position in the beginning of October has become increasingly dire. Mr. Schneiderman’s investigation is only the latest in a series of disastrous events for the company. These events include the resignation of nearly all of the Weinstein Company board of directors and the cancellation of some of its most valuable deals.

The lone stream of capital from Thomas Barrak’s private equity firm, Colony Capital, seems to be the sole source of financial aid for the Weinstein Company. The credit comes amid rumors that Mr. Barrak will be the buyer when what remains of the company is sold.

Weinstein Company Under Investigation by New York Attorney General’s Office (PDF)

Dodd-Frank Liquidation Rules Should Not be Scrapped

The debate regarding how to effectively handle a failure of major financial institutions has reignited under the Trump Administration, prompting critical reaction from overseas regulators.  In April, President Trump ordered the Treasury Department to review current Dodd-Frank rules and determine if an improved bankruptcy process could be a better option. Some Congressional republicans agree that it is.

Under Dodd-Frank regulations, when a big bank fails, the FDIC will step in, unwind nonbank and other financials firms integral to it, and set up a fund, the Orderly Liquidation Authority, to pay for the cost. It would initially borrow from the Treasury Department and recover the funds by charging the bank.

Foreign regulators have threatened to impose higher capital requirements on overseas subsidiaries of American banks if the Dodd-Frank rules are scrapped.

Potential legislation should prevent panic and lack of liquidity throughout the entire American and overseas financial system. Given the FDIC’s ability to coordinate responses to multiple failing banks, Dodd Frank is the superior option. Replacing Dodd Frank bankruptcy rules with a revised bankruptcy process could mean bankruptcy judges would be assigned to one specific case and could not cross coordinate with each other.

Bankruptcy judges do not have the legal mandate, prior experience, nor the incentive necessary to maintain the stability of the financial system as a whole. Their legal responsibility is to adjudicate creditor’s claims against the bank, rather than minimize debilitating effects on the entire economy.

While the bankruptcy process can serve as a useful additional channel for resolving failing financial institutions, wide scale crisis demands regulatory authority to manage it. An outright replacement of the Orderly Liquidation Authority, as administered by the F.D.I.C., could severely undermine our financial system’s stability.

Fortunately, Wall Street’s support for maintaining the liquidation authority, Secretary Steve Mnuchin’s pragmatic policy approach, and threats from overseas regulators make the odds of major deregulation bleak.

Dodd-Frank Liquidation Rules Should Not be Scrapped (PDF)

Uber: Two Stock Prices but Not One Deal

The potential billion-dollar transaction between Uber and the Japanese investment company, SoftBank, was announced several months ago, though the deal has yet to close.

SoftBank’s Chief Executive Officer, Masayoshi Son, plans to invest $10 billion in the ride-sharing giant to become a significant shareholder in the company. The investment is comprised of a $1 to $1.25 billion investment, and the purchase of 14 to 17 percent of Uber’s shares.

There are two different sets of shares under this deal. Uber will issue new shares to sell to SoftBank for the first set, and SoftBank will acquire the second set from current investors through a tender offer.  However, not all current investors will be authorized to accept SoftBank’s tender. Eligible shareholders include (but are not solely limited to) current Uber employees and board members with at least 10,000 shares, who may sell no more than half of their total shares.

Although Son intends to buy the newly issued shares based on Uber’s most recent $68 billion company valuation, he is only willing to make an offer for the second set of shares based on a $50 billion company valuation. Because Uber is a private company, investors like SoftBank can in fact determine the company’s valuation on its own. This of course may have harmful effects on those Uber shareholders who desperately want to exit the scandal-labeled company and may be forced to sell their shares at this lower valuation in order do so.

The SoftBank deal, coupled with Uber’s recent change in its governance structure, may offer hope to those dissatisfied shareholders and investors unable to sell their stocks. In addition to SoftBank appointing two directors to Uber’s new 17-member board if the deal is completed, Uber’s board hopes to carry out an initial public offering by 2019. Investors in public markets have greater freedom to transfer their shares and valuations are much more transparent than in private companies.

Despite the delay and obvious drawbacks, Uber board member Arianna Huffington said she remains “optimistic” that SoftBank and Uber’s massive deal will soon close.

Uber Two Stock Prices but Not One Deal (PDF)