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  

rroyse@rroyselaw.com  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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RoyseLaw AgTech

RoyseLaw AgTech Incubator

Royse Law Firm, PC

RoyseLaw Legal Clinic

www.rroyselaw.com          @RoyseLaw    

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