Technology, Media & Telecommunications Forum 2016


Overview



For the first time, IFLR, International Tax Review and Managing IP came together to host the Technology, Media & Telecommunications Forum on 18 & 19 May at the Hotel Pullman London St Pancras.

This sector-specific event looked at legal and tax issues from the business imperative and enabled counsel to drive their businesses forward. In-house counsel, private practice and advisers had an opportunity to understand market trends in the TMT sector; new technologies; the regulatory landscape – its obstacles and opportunities – and ways to support businesses through their next challenges.

Focussing on the single digital market, innovation, data and M&A, delegates were able to:

  • Discuss what role general counsel will play in the future of innovation and where private practice can provide support
  • Analyse recent M&A deals and new markets within the TMT sector to pinpoint global opportunities and threats
  • Determine where to base value chains for tax and VAT purposes
  • Make the most of Big Data and discuss how far your investment in cyber security should go

Missed the event? See the photos here and the key takeaways summarising the two days below:


DAY ONE

EU plans for the digital single economy

  • The European Commission (EC) aims to create a regulatory space that allows companies to grow without barriers
  • We are at the beginning of a digital revolution. It will be one of the determinants of the EU
  • The Digital Single Market (DSM) strategy has three pillars: better online access to goods; an environment that digital networks can prosper in; and digital as a driver for growth
  • The EC wants the rules to encourage innovation and ways to scale up businesses
  • The DSM programme has 16 strategic actions for proposals between consumers and suppliers of goods and services. They include:
    • Realising the potential of e-commerce across the EU
    • Modernising copyright rules to reflect new technology and make legislation simpler
    • Simplifying VAT arrangements


Does current EU regulation enable European TMT champions to compete on a global scale?

  • The concept of ‘users as producers’: increasingly Google et al are seeing themselves as ‘platform providers’ rather than product creators
  • The EU can streamline legal aspects as they affect control points in platform ecosystems
  • The support of innovation depends on a number of factors, not just regulatory factors
  • We have an opportunity with the EU. It is huge market and could be an innovation powerhouse but we still have to negotiate 28 regulatory environments
  • If we force disruptive innovation into a regulatory environment that’s not ready for it, problems ensue
  • It’s important to see how innovation is doing in the market, and wait to see the impact before squeezing it into a regulatory framework


What can we do to reduce the risks and expense of operating across borders?

  • The European Commission is trying to harmonise 28 jurisdictions and each member state has its own regulations and legislation, including differing copyright laws
  • Data protection – will the commission be able to make it work in Europe?
  • Geoblocking is also a challenge
  • There is an argument that there is a single market in indirect tax (in VAT at least) in Europe
  • No harmonisation of direct tax in the EU
  • Tax authorities are more informed now around transfer pricing and direct tax. It impacts business models and creates fears of cross-border business
  • In media many businesses are moving from print to digital, changing the tax implications


Where should we base our value chain?

  • Base Erosion and Profit Sharing (BEPS) has made businesses realign
  • Profit allocation is driven by location
  • Tax is applicable where the value is created but identifying where the value is created can be difficult. Sometimes there is no profit to tax at that point in the chain
  • Some argue tax should be applied where a digital service is downloaded. But is that where a person is based for work? Where their head office is? Or where they happen to be travelling?
  • Countries offer tax incentives for doing business but you can’t set up shop just for tax reasons – when all other things are equal then saving tax becomes a factor
  • BEPS is motivating companies to ensure the public sees them paying tax. Corporates may not want to set up in low tax jurisdictions for fear of reputational risk
  • Emerging economies made themselves valuable to developed economies with tax incentives. Digital economies have changed that
  • Multinational teams contribute to the IP so it’s difficult to allocate a share of the profit
  • It can take years to determine if you have a permanent establishment
  • Substance requirements for Special Purpose Vehicles (SPVs) in low tax jurisdictions have changed post-BEPS


Tomorrow’s world: What do we need to be ready for?

  • • All companies are now tech companies. Established companies have a legacy of old tech.  New companies without that baggage do well
  • • The way we consume media is changing. The disruption is more on delivery than product. Established players have changed their content as a result
  • • Internet of Things (IoT) means that more data will be captured
  • • Today there are 10bn connected devices. In 10 years that will be 50bn
  • • Brilliant platforms drive the model and push out the competition
  • • There is lots of talk about connected vehicles –traffic data, predicting maintenance, safety
  • • There is a debate about whether consumers would pay for such add ons
  • • Gartner Hype Cycle demonstrates that for emerging technologies to succeed they need to be workable
  • • 5G will support many of these technologies
  • • What companies consider competition is changing e.g. Uber list online delivery services as competition
  • • As consumption has changed advertising is getting harder e.g. Adblockers
  • • Financial services is under attack from FinTech and Blockchain

The role of counsel in innovation

  • Horizon scanning helps you to anticipate change
  • Use your networks to debate issues
  • Lessons learned inform future risk taking
  • To advise your business effectively you need to know how the tech works
  • It’s important to understand terminology and language between business, legal and tech people
  • Legal should be involved in tech development early to give the best advice
  • Put yourself in the consumer’s shoes
  • Educate your organisation about risk. Risk is a necessary element of business and your job is to mitigate it
  • Some firms have a partner of innovation
  • A panel of external counsel can collaborate


Protecting, managing and licensing IP

  • FRAND stands for Fair, Reasonable and Non-Discriminatory, and describes licensing terms
  • Companies usually agree to licensing a patent in FRAND terms before it will be accepted by a standards body
  • It is a voluntary agreement between the holder of a patent and a standard-setting organisation
  • Technology is often put together by peers to gather a standard in the industry (e.g. 4G) Owners of patents (who have patent protection) make the IP available by licensing it
  • These companies give licences on fair, non-discriminatory terms
  • Companies collaborate to create the technology but compete to implement it
  • More people have a mobile connection than a bank account
  • The US have taken an anti-patent position. Europe is supporting a FRAND licensing regime
  • 5G will cost US$4bn to create so it has to be licensed for use or no one will create it
  • There is a concern that a company with a few patents can stop the companies who have invested billions from making revenue


The Unitary Patent and Unified Patent Court: Technology focus

  • The Unified Patent Court (UPC) will be a court common to signed-up member states and therefore part of their judicial system
  • It will have a unitary effect on European Patents. The UPC Agreement is open to all EU member states. To date all member states excluding Spain and Poland have signed
  • The aim of the Unitary Patent is to simplify patent protection and make it cost effective
  • Companies can still access the national route of patent protection in individual member states
  • The court’s main seat will be in Paris, with sub-divisions in London and Munich
  • If the UK votes to leave the EU (in the referendum) the UPC could go ahead but the UK would not be able to access it
  • The agreement has written into it that London will have one of the central division courts. It would take a couple of years to leave the EU so time to amend the location of the courts
  • If cost is a concern the UPC might be cheaper way to file a patent than a national court, some of which act slowly


 

DAY TWO

How do we safeguard our data?

  • All companies should prepare a workable data breach action plan
  • Knowing when to notify third parties of a breach, especially the regulator, is important
  • Encrypt and tag your data
  • An undetected breach or not knowing what data has been breached is serious
  • Be clear on the facts, do your due diligence and be in control of the outgoing information to your customers
  • Someone from Communications should be part of the incidence response team
  • Invest in your data security plan – the costs of doing this well are worth it
  • Provide awareness and training to everyone in your organisation about the impact of lost data
  • General Data Protection Regulation (GDPR) is being introduced in Europe
  • Mandatory reporting of a breach within 72 hours - sanctions if you don’t meet the deadline
  • Safe Harbour Privacy Principles are under review. A new framework for transatlantic data flows is being established. This is impacting companies’ policies of free flow of data
  • IoT will impact cybersecurity – the potential of a breach increased hugely


Are we making the most of our data?

  • The collecting of data isn’t useful in itself the value is from structuring the data into a produce
  • People will share their data if they trust the company and they are getting a good deal for the money they are spending
  • IoT may include wearable tech, home automation, vehicle applications – all can collect user data and risk hacking
  • Do a privacy impact assessment to ensure you look at risks of IoT
  • In emerging markets it’s difficult for non-EU companies providing services to the EU, as they are subject to the same requirements under the GDPR.
  • Data maps allow you to look at the data flow, who is processing it and where
  • Ensure you know where the back up (data centre) is based
  • From a tax perspective it’s difficult to track the value chain in intangibles
  • Tax authorities are losing revenue in Europe
  • From 2017 all companies have to report on every jurisdiction they operate in (country by country reporting). The OECD allows sharing of data between tax authorities


TMT market trends

  • Q1 2016 deal activity is down on Q1 2015
  • Deal volume shows a 45% decrease
  • Growth trends include quad play, block chain, IoT, cybersecurity, data centres, wearables and gaming
  • Buyers of TMT companies may come from across industries
  • European TMT businesses generally are being targeted by China
  • Brexit is the biggest threat to deal activity according to a recent survey of C-suite executives in London


Mergers, acquisitions and new markets

  • There have been around 20 telecoms deals in the EU over 5 years. Vertical deals have been easier than horizontal deals
  • UK has a less well developed quad play market compared to some other EU countries
  • We may need to redefine what the TMT market is e.g. Uber - is it a taxi business or a software company?
  • Long-term recurring revenue is seen as very important. Interesting development in telecoms is that if a customer is out of their contract they are perceived as being worth more because they could have left but haven’t
  • Low interest rates are driving investors to take on more risky investments to get a yield rather than sitting on cash
  • Post-deal, GCs need to manage contractual obligations, engage with stakeholders and ensure integration


Global opportunities and threats

  • Lots of FinTech activity in Africa, particularly in South Africa which is more developed and regulated
  • In emerging markets such as China, dealing with government can be difficult. There is a lack of consistency e.g. Apple trade mark decision in Beijing High court
  • In Africa there is investment in fibres, data centres, towers, digital commerce and fintech. There is a huge unbanked population so mobile is utilised e.g. M-Pesa
  • In Asia, Indonesia might be next focus for tech
  • There is growing Chinese investment in Africa but more in the resource sector. However PCCW (HK telco) has been growing in Africa
  • A change in internet content law means that all content must be hosted on a server in China
  • In 2015 China relaxed foreign ownership of companies in ecommerce


Competition law

  • For the Competition and Markets Authority (CMA) the priority is long term customer welfare
  • BT acquired EE earlier this year to create the UK’s largest telecoms operator
  • The European Commission blocked the acquisition of O2 by Hutchison (Three-O2)
  • The CMA said the deal fell short of the remedies to prevent choice in the UK mobile market
  • Some commentators have said Brexit needs to be taken into account as a factor in the O2/Hutchison failure
  • There is significant interaction between industry regulators and competition authorities during investigations


 

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Delegate list

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