IRS Circular 230 Disclosure: To ensure compliance with the requirements imposed by the IRS, we inform you that any tax advice contained in this communicaCon, including any aEachment to this communicaCon, is not intended or wriEen to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding penalCes under the Internal Revenue Code or (2) promoCng, markeCng or recommending to any other person any transacCon or maEer addressed herein.
Roger Royse Royse Law Firm, PC
Menlo Park, San Francisco, Los Angeles
[email protected] www.rogerroyse.com www.rroyselaw.com Skype: roger.royse TwiEer @rroyse00
Current Developments in AgTech Law
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Royse Law AgTech
Recent Ac;vity in AgTech Financings
Source: AgFunder, AgTech Industry Takes $ 4.6 Billion in 2015
AGTECH FUNDING REPORT 2015: YEAR IN REVIEW | AGFUNDER.COM
There was a step-change in agtech investment activity in 2013 when it jumped 75% year-over-year to $900 million.
This activity followed some successful exits in the biologicals arena in 2012 such as when German chemical company BASF acquired seed treatment company Becker Underwood for $1 billion[3]. But it was The Climate Corporation’s $1 billion exit to Monsanto at the end of 2013[4] that really breathed life into the sector and 2014 investment volumes reached $2.36 billion.
2015 has now completely eclipsed these figures, as we report a 94% increase on 2014 volumes[1], and surpassing our mid-year expected run rate of $4.1 billion[2].
$0.4 $0.5 $0.5
$0.9
$2.4
$4.6
2010 2011 2012 2013 2014 2015
Annual Financing 2010 – 2015[1,2]
DEAL ACTIVITY BY QUARTER
Financing | $Billions
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How Has Farming Changed?
• Global Farm Economy Slump
• Family farms are thriving.
• Farm Labor Shortage. • Consumers are reconnec;ng with food produc;on.
• A PlaGorm of Hardware and SoHware Technologies – Op;mize efficiencies – Increase produc;on – access new markets, – capture useful data, – reduce agricultural inputs Data and privacy standards
• Highly specific and automated applica;ons • “push every acre to its maximum poten;al”
What is Precision Agriculture
• Customer data – Is the data truly anonymized? – Is the data accurate and presented in a useful way? – Who owns the data?
• Data and privacy standards • Use of drones
– Benefits/problems – Legality
• Regulatory issues • Market Issues
Overview of Due Diligence Issues
• AgTech Licenses: tech startups using standard EULA – SaaS, Terms of Services, Browser and Click Wrap
• Issues – Who owns the data?
• Personal grower data v. algorithm generated data
– How can growers access the data? • Export all of their imported, generated, and recommended data from a company’s soHware program
– Is the data accurate and presented in a useful way? • Data and privacy standards
– American Farm Bureau Founda;on
AgData: ownership, access, and use
Anonymity of customer data • Most agriculture technology providers (ATPs) collect data
– Data is used to provide info to farmers – Data is some;mes mone;zed through aggregated data or reports
• Data privacy laws – Personal informa;on or business informa;on?
• Personal informa;on usually gets higher degree of protec;on, but line is oHen blurred with family-‐run farms
– Data oHen tagged with GPS informa;on • Has the data truly been anonymized?
– Could users guess who the data belongs to as a result of the informa;on provided? (NeGlix)
Customer Data
Accuracy of the data • Collected by humans or machines? • Does the data rely on input by humans?
– Suscep;ble to errors and possible manipula;on – Some farmers provide their data to dealers who then pass it on to the ATP
– Is all the data being uploaded or just select data? • How reliable is the data collected by machines?
– Connec;vity/network issues in the fields could cause gaps in the data
Customer Data
Presenta;on of data • Is the data presented in a format that is useful to the end user? – Many farmers collect data but don’t use it because it is nor presented in an understandable format
• Are there mul;ple par;es involved in collec;on and presenta;on of data? – Do all the par;es understand the needs of the end user?
Customer Data
Ownership of data • Farmers want to retain ownership of their data
– Can they take the data with them if they discon;nue use of the service?
• Do all the par;es have the appropriate rights to use the data?
• Farmers are concerned about who ends up with the data – Wall Street traders could manipulate market prices – EPA could look for poten;al regulatory viola;ons – Retailers could use the informa;on to sell new parts when an exis;ng part needs replacing or to set prices
Customer Data
• Farmers are becoming increasingly aware of the need to protect their data and enforce their ownership rights
• Stakeholders are trying to implement a common set of data and privacy standards to guide ATPs, farmers, and other contrac;ng par;es on what are appropriate contract terms
• Privacy and Security Principles for Farm Data released in November 2014 – Prepared by groups represen;ng farmers and ATPs, including
American Farm Bureau Federa;on, Na;onal Farmers Union, The Climate Corpora;on (division of Monsanto), John Deere, and DuPont Pioneer
Data and Privacy Standards
• Standards include the following key provisions that should be incorporated into contracts: – Easy to understand language – Farmers should own informa;on generated through their farming ac;vi;es and any use of that data by the ATP is only with the explicit and affirma;ve consent of the farmer
– ATPs shall no;fy farmers how their data is to be used, with whom it will be shared, and for what purpose
– Farmers should be able to retrieve their data for use with other systems
– ATPs shall not sell or disclose a farmer’s data to other par;es without no;fying the farmer and without that other party agreeing to the same terms as the farmer
– ATPs shall use reasonable security safeguards to protect against risk of loss or theH of data
Data and Privacy Standards
• The standards provide strong protec;ons for farmers, but may not be workable – Many farmers are not able to nego;ate terms and may feel like they
are in a “take it or leave it” posi;on – The business model of some ATPs is the collec;on and presenta;on
of data and a subscrip;on model is common • The ATP will not want to let farmers take this data with them once they are no longer paying for the service
– The contract terms are necessarily complicated because of the mul;ple agreements in place
• Not easy to reduce the terms down into something easily diges;ble
Data and Privacy Standards
The global market for agricultural drones, currently es;mated at $494 million is
an;cipated to reach $3.69 billion by 2022
Agriculture Drones
• Use of drones for agriculture – Monitor land for weeds and weather damage – Collect data on land
• Concerns/problems with the use of drones – Privacy issues: Not a huge concern with farmland,
– Safety issues: Collisions and Crashes – Use problems
• Cost of entry: hardware is cheap, soHware is not. • Bagery life • Connec;vity • Presenta;on of data
Agriculture Drones
• Legality – Commercial use of drones is s;ll illegal!!
• As with other disrupted industries (e.g. taxis, hotels, etc.) technology is moving quicker than the law
• FAA has power to levy fines, but rarely does so
– FAA jurisdic;on has been challenged • FAA issued a fine of $10,000 on a photographer who was hired
to fly a drone over the University of Virginia • Photographer claimed the FAA lacked jurisdic;on • Photographer and FAA segled at $1,100 fine
Drones
• Legality cont. – Sec;on 333 exemp;ons permit commercial agricultural
use – The FAA’s first Sec;on 333 exemp;on issued to an
agriculture company was announced in January 2015 – specific persons to fly drones
• Already a long wai;ng list for exemp;ons (>1,000) • A farmer has obtained permission to fly drones over land to
determine measurements and health of crops • Strict condi;ons on use imposed
Drones
• Legality cont. – Proposed rules
• In early 2015, the FAA released proposed rules on the commercial use of drones
• Rules are open for comments from the public and interested par;es
• Not likely to be finalized un;l 2016 at the earliest (more likely 2017 or later)
• February 2015 proposed Small UAS Rule: dis;nguishes UAV’s from UAS’s and the May 2015 Commercial Moderniza;on Act introduced in the Senate
Drones
• Legality cont. – Proposed rules cont.
• Opera;onal limita;ons on drones – Weigh less than 55lbs – Remain in the operator’s line of sight at all ;mes – Maximum airspeed of 100mph – Maximum al;tude of 500 feet
• Operator limita;ons – Pass an ini;al aeronau;cal knowledge test at an FAA-‐approved
tes;ng center – Be veged by the Transporta;on Security Administra;on – Obtain an unmanned aircraH operator cer;ficate – Pass a knowledge test every 24 months
Drones
• GEC is the new unregulated GMO • CRISPR Cas-‐9 technique • No more foreign DNA or transgenic gene delivery • Cut DNA at targeted loca;on in the genome and insert
desired genes in that place • Cheaper and quicker than GMO technology
Gene Edited Crops
• Legality: There is none!!! – Zero regulatory oversight for GECS. – Coordinated Framework for Regula;on of Biotechnology only
regulates GMO technology.
• April 2016: USDA confirmed twice it cannot regulate GECs but the GM regulatory framework was wrigen to only handle GM modified products.
• Hope that new regula;ons will be science-‐based and more flexible to evolve with new technologies rather than piece meal technology based legisla;on.
Gene Edited Crops
• May be an;-‐trust issues with ATPs that collect and share data on prices of products or inputs
• Knowledge of prices could reduce compe;;on in the market and stabilize prices which is oHen seen as bad for consumers
An;-‐Trust
• Contracts – ATPs must balance complex contracts with the need to provide farmers with straighGorward informa;on
– Lots of inherent complexity, especially when the ATP sells combined hardware and soHware
• For example, there could be soHware on the hardware, separate soHware sold to the farmer for use on a personal computer, and a SAAS subscrip;on all as part of one service
• All the soHware will have different terms of use – Farmers oHen work with dealers
• Dealers some;mes collect and input the data • Who has the rela;onship with the dealer? The farmer or the ATP? • Need to ensure all the par;es have the correct licenses
– ATPs should consider using FAQs on their website to answer ques;ons from farmers
• Need to ensure answers to FAQs are consistent with privacy policies, end user agreements, etc.
IP Issues
• Mone;za;on – Sale of soHware and add-‐ons – Patents
• Hardware and soHware – Big Data
• Reports • Aggregated data • Must have rights to use the data in this way
– Subscrip;on services
IP Issues
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Royse Law Firm, PC
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www.rroyselaw.com @RoyseLaw
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