Legal advisers who open doors for pioneering products
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
When compiling a list of the types of expert involved in the innovations that are changing our world, you might write: data-whizz, researcher, and entrepreneur. ‘Lawyer’ would probably not be the first to come to mind. But behind many of today’s most bold and groundbreaking advances is an army of legal pioneers challenging old laws, shaping new ones, and stitching together novel financial instruments to bring new products to the market.
“Lawyers are often seen as complicating matters, stifling innovation, focusing too much on things like compliance,” says Eveline Van Keymeulen, a partner at law firm Latham & Watkins. “But, increasingly, lawyers are business partners, helping companies to innovate and develop products. On a day-to-day basis, my job consists of interpreting the law in a pragmatic, forward-looking way.”
Van Keymeulen is a regulatory specialist with a particular focus on the bioscience sector, who is often involved in winning regulatory approval for unfamiliar or controversial products.
One such case involved defending the manufacturers of Kanavape, a brand of electronic cigarettes that contain CBD, a naturally-occurring chemical in the hemp plant. When Van Keymeulen took on the case, the company’s two founders were facing criminal charges because French law prohibited the marketing of many products derived from hemp.
The battle had been long and winding. The case was lost; it had gone to appeal. Some questioned the reasoning behind taking it on. But Van Keymeulen saw an opportunity to tackle a “groundbreaking question”. A question that “could have much broader repercussions, not just for French rules, but for the whole European CBD market”.
Her hunch was vindicated. The team tackled the ban both by questioning its breach of the EU principle of the free movement of goods and the contradictory nature of French law that barred the sale of some cannabis-related products. In the end, in November 2020, the Court of Justice of the European Union (CJEU) agreed.
The ruling rippled across the CBD industry — not just in France, but throughout the EU.
“What’s important about that case is that it originated from a small French criminal case, related to one company [with] two founders but, because of its referral to the European Court of Justice, it has changed French law,” says Van Keymeulen.
“And, even more significantly, following the case, the European Commission changed its stance on CBD — they had been taking the restrictive view not just on e-cigarettes, but cosmetics, food, beverages . . . The case legalised the use of CBD in Europe and opened up the whole market,” she adds.
One reason lawyers are often essential in bringing innovations to market is the necessity of first challenging outmoded rules. Regulations hatched decades ago are ill-equipped to deal with future-facing technologies. “Very often, with these emerging technologies, you need to challenge the rules because they are no longer adjusted to innovation,’‘ says Van Keymeulen. “That’s where lawyers come in.”
For the legal team at Hogan Lovells, the regulatory challenge was similar, though the ask quite different: could they change the law to validate insects as a food source for animals and humans?
Start-up company Ynsect had approached the law firm in some distress. Its ambition to breed and process billions of insects to feed livestock and humans was coming up against two hefty obstacles.
One was financing. Ynsect had built a demonstration plant but needed substantial investment to construct a cathedral-sized factory and reach commercial viability. Then, there was the law. Existing European regulations imposed complex restrictions on the use of insects as feedstock for farmed animals and direct human consumption.
“These super deep tech products cause all sorts of challenges,” reflects Matthieu Grollemund, a corporate partner at Hogan Lovells in France. “You have to push the line without crossing it and that requires legal engineering, risk management, and a team of experts.”
Step by step Ynsect, its industry peers and its advisers, set about winning wider approval from the European Commission and European Food Safety Authority for the use of insects in the food supply chain. But, as regulations were confronted and approvals gained, an even larger challenge loomed. How could they secure investment for a business that was not only unfamiliar but unappetising as a proposition in Europe? A need for huge capital expenditures and the fact Ynsect was years from profitability made it a hard sell.
“It was a very ambitious planned project,” recalls Grollemund. “If you’re trying to fund a windmill, everyone knows what that is and it’s pretty easy to finance. For Ynsect, there was a lot of uncertainty. And so our job was to manage that uncertainty.”
Hélène Parent, another lawyer on the case, adds: “It was a chicken-and-egg situation because the banks wanted the company to have raised funds in order to provide loans. And the new shareholders and investors wanted the loan to be secure as well.”
To get around it, the team developed a novel financial package that involved exploring different debt and equity structures and securing government sponsorship. The aim of the complex arrangement was to make it an attractive investment with the flexibility to change milestones and deadlines. Ynsect raised some €350mn under the scheme. The legal team is now using the experience gained to devise similar financing structures for other clients.
These cases highlight how an alliance of lawyers and start-ups can have far-reaching impacts on what the world consumes, buys and sells. As technology continues to advance, firms providing innovative legal solutions are likely to play an ever more crucial role.
Case studies in best practice: Long-term strategies for success; Market firsts; and Creating new standards
Researched, compiled and ranked by RSGI. ‘Winner’ indicates the organisation won an FT Innovative Lawyers 2022 award.
Long-term strategies for success
Winner: Vieira de Almeida
Originality: 8 Leadership: 9 Impact: 9 — Total 26
The firm tackled the discriminatory application of a withholding tax on dividends paid by Portuguese companies to non-resident funds. VdA lawyers advised AllianzGI-Fonds AEVN, the German investment fund, to choose arbitration to challenge the inconsistent application of the tax. This led to a fast turnround and a preliminary ruling from the European Court of Justice that the application of the tax created a disadvantage for non-resident funds compared with resident funds.
Standout
Hogan Lovells
O: 8 L: 9 I: 6 — Total 23
In January, a Belgian court ruled that the estates and families of 39 victims who died while being illegally trafficked from Belgium to England in 2019 should receive an award of damages. The award recognises that trafficking victims are entitled to compensation from their traffickers.
This case forms part of a broader endeavour by the firm to ensure that confiscated funds are awarded to victims.
Commended: Liam Naidoo
Commended
Pinsent Masons
O: 7 L: 8 I: 6 — Total 21
The lawyers assisted NatWest, the British banking group, with a high volume of outstanding claims for mis-sold payment protection insurance.
Uría Menéndez Abogados
O: 7 L: 8 I: 6 — Total 21
Lawyers used a 50-year silent partnership as a passive investor to secure the private equity firm CVC a €2bn investment in the Spanish football league’s right to market broadcasting and other commercial deals. The buyout group will receive 8.2 per cent of the league’s commercial revenues in exchange for funding.
Paul Hastings
O: 7 L: 6 I: 7 — Total 20
The firm advised Respons-Ability Investments, a Swiss impact asset manager, on creating a social bond with a partial guarantee from the Swedish government to fund several ventures to help meet UN sustainable development goals. The company, which ended last year with $3.7bn of assets under management, was taken over by UK investment house M&G in May.
Paul, Weiss, Rifkind, Wharton & Garrison
O: 6 L: 7 I: 6 — Total 19
The firm helped design a staff retention scheme following the takeover of sustainability consultancy ERM by private equity group KKR.
PLMJ
O: 7 L: 6 I: 6 — Total 19
The firm and impact investor group Maze helped Start Campus to win local support for construction of a data centre on the site of a redundant power station south of Lisbon in Portugal.
Market firsts
Winner: Hogan Lovells
Originality: 9 Leadership: 9 Impact: 8 — Total 26
The firm helped to raise €350mn of equity financing for Ynsect, a French company that farms insects for human and animal consumption. After working to gain approvals during a regulatory review at the European level, the lawyers took inspiration from the US to create a system of warrants for investors, and milestones for the company, which facilitated investment in tranches. This was novel for a French company and ensured commitment while maintaining flexibility.
Standout
White & Case
O: 8 L: 8 I: 8 — Total 24
The firm harnessed its experience with special purpose acquisition companies, or Spacs, in other jurisdictions to deliver the first so-called “blank cheque” company listing on the London Stock Exchange, following a relaxation in listing rules last year. The Hambro Perks acquisition vehicle raised about £146mn last November under the new regime, which bypasses some previous requirements for an initial public offering.
Shoosmiths
O: 8 L: 8 I: 6 — Total 22
The first two privately run “nitrate neutrality” schemes in the UK, at Meon Springs and Roke Manor Farm, sell nitrate credits to real estate developers to mitigate the environmental impact of new residential housing developments. The firm created covenants in the land use agreements and is presenting the concept nationally.
Commended
Abreu Advogados
O: 7 L: 6 I: 8 — Total 21
Lawyers advised on regulatory requirements for ImpactMarket, a Portugal-based digital platform that aims to alleviate poverty across the world using blockchain technology. The venture distributed about €1mn to qualifying communities in its first month.
Addleshaw Goddard
O: 7 L: 7 I: 7 — Total 21
Lawyers advised United Utilities on the Haweswater aqueduct resilience project, in north-west England. Finance was secured under “direct procurement for customers” model promoted by water regulator Ofwat.
NautaDutilh
O: 7 L: 7 I: 7 — Total 21
Lawyers helped arrange consents from investors for a change in terms for the transfer of covered bonds, backed by pools of mortgages, into another €7.5tn scheme to cut operating costs for Nationale-Nederlanden Bank.
PLMJ
O: 7 L: 7 I: 7 — Total 21
The lawyers assisted with the creation of Ephemeral Ethernal, a Portuguese trading platform in non-fungible tokens (NFTs) backed by Vhils, the graffiti artist.
Vieira de Almeida
O: 8 L: 7 I: 6 — Total 21
Building group Mota-Engil issued the first sustainability-linked bonds through public subscription from a Portuguese company with the help of VdA. Investors will receive an extra payment on top of a fixed annual interest if sustainability targets are not met.
Ecija
O: 8 L: 6 I: 6 — Total 20
The firm advised on the first direct purchase of real estate with the Bitcoin cryptocurrency in Portugal without any currency conversion into euros. A property in Braga was valued at 3 bitcoins, then worth about €110,000.
Arthur Cox
O: 7 L: 5 I: 6 — Total 18
The firm negotiated the implementation of a regulatory model that incentivises the development of electricity interconnectors, for the Greenlink Interconnector, Ireland’s first privately financed interconnector.
Cuatrecasas
O: 7 L: 6 I: 5 — Total 18
The firm repurposed a solar power law to enable Audi, the German carmaker, to combine a repurposed electric engine with a windmill in Mallorca to generate electricity.
This article has been updated since original publication to correct an omission by the research company
Creating new standards
Winner: Latham & Watkins
Originality: 8 Leadership: 9 Impact: 9 — Total 26
The lawyers helped secure a ruling from the European Court of Justice that member states cannot ban the sale of cannabidiol (CBD) extracted from whole hemp plants and that, unlike other cannabis derivatives, the specific product should not be considered a harmful narcotic. The judgment has stimulated a European market for CBD products and resulted in the overturning of criminal charges in France against Antonin Cohen, former director of Catlab, which distributed the Kanavape CBD e-cigarette in France.
Commended: Eveline Van Keymeulen
Standout
Macfarlanes
O: 8 L: 9 I: 8 — Total 25
Tax laws had discouraged many investment funds from basing asset holding companies in the UK. The firm advised the government on the technical changes needed to attract these vehicles and, in April 2022, a new “qualifying asset holding company” regime began, providing tax neutrality for suitable private investors.
Bird & Bird
O: 7 L: 7 I: 8 — Total 22
Lawyers advised Doctolib, a French provider of online healthcare appointments including Covid vaccinations, after professional associations and unions called for its suspension. The Conseil d’État, France’s highest administrative court, ruled that data managed by Doctolib and hosted by Amazon Web Services had been adequately protected in line with EU directives against the risk of conflicting demands for access by US authorities.
Commended
Dechert
O: 7 L: 6 I: 7 — Total 20
The firm helped secure international recognition — despite a challenge from Gazprombank, a Russian creditor — for the first cross-border UK scheme of arrangement since Brexit for investors in DTEK Finance. This is a special purpose entity that issues securities in DTEK, which is Ukraine’s largest private power producer.
Cobalt
O: 6 L: 6 I: 7 — Total 19
Lawyers at the Baltic firm helped to develop Latvia’s new corporate governance code, which is one of the first codes in Europe drafted with the view that it should apply to listed, state-owned and private companies.
Ellex
O: 6 L: 6 I: 6 — Total 18
The firm represented athlete Maris Grenins before the Latvian Supreme Court, which ruled that successful competitors in the Deaflympics — an Olympic Committee-sanctioned event — are entitled to the same cash awards from the state as granted to medal winners at the Olympic and Paralympic Games.
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