What is ahead for American companies doing business in Europe?

                                                                                 

The business climate in Europe is changing quickly, and so are the legal repercussions for US companies. As they attempt to keep up with the changes in the legal landscape, many US firms are finding themselves in a state of upheaval. Given the wide variations in the laws and regulations across Europe, this can be a challenging process.

What are the key sectors that US firms should pay the most attention to in 2023? Global compliance, data privacy, cross-border M&A, international expansion, fintech, international HR, environmental, social and governance (ESG), life sciences and healthcare, patents and intellectual property (IP), retail and consumer are among the 10 key business sectors that our US-based experts discuss, along with their emerging themes for the coming year.

global adherence

Enforcement of consumer laws: We anticipate stronger enforcement of consumer laws. With the implementation of the EU New Deal for Consumers, new laws and instruments have been created, including a form of collective consumer redress akin to class actions in the US. Consumer advocacy organizations have also filed lawsuits to compel price transparency standards and the unusually intricate German regulations on "cancellation buttons" and subscription auto-renewal caps.

Online intermediaries must report user numbers by February 2023 and should use the rest of the year to get ready for compliance, in particular by implementing strong flagging and moderation procedures that adhere to the detailed requirements of the DSA. While the transparency, consumer protection, and content moderation obligations of the EU's Digital Services Act (DSA) do not fully apply until February 2024. Fines for violations might reach 6% of the annual revenue.

Antitrust law in the digital age: The EU's Digital Markets Act, which will take effect in May 2023, aims to limit the influence of powerful online platforms, or "gatekeepers," in the best interests of both consumers and the companies that depend on them. It imposes restrictions on self-preferencing and the use of client data, among other requirements, and specifies specific rules for ethical business conduct. Fines for violations might reach 10% of annual income. The cloud services industry will be investigated, along with other digital services, by the UK regulator Ofcom. The examination will end in March 2023.

Companies would be obliged to exercise due diligence concerning their supply chains. The EU is putting together a directive that is anticipated to call for diligent checks to assure suppliers' compliance and damage claims in the event of willful or negligent mistakes. As of January 1, 2023, enterprises in Germany with more than 3,000 employees are already subject to new supply chain diligence regulations; after that date, the barrier will be lowered to 1,000 people. Companies subject to the regulations must show that they are attempting to adhere to human rights and environmental standards, including by exercising due diligence and negotiating contractual protections with direct and indirect suppliers.

Whistleblowers: The Member States intended to implement an EU directive on the protection of whistleblowers in 2021, but not all of them were prepared in time. Germany's implementation is anticipated to take effect in April 2023, with a further grace period until the end of the year for businesses with less than 250 employees. Spain recently enacted its implementing law. Companies must establish an internal reporting system and look into all reports, even those that are anonymous. Whistleblowers are protected from retaliation by a shift in the burden of proof; employers are now required to demonstrate that any negative treatment is not retribution.

Data security

The EU-US Privacy Shield in a new form: Following Schrems II (the ruling from July 2020 invalidating the prior EU-US Privacy Shield as a method of transferring personal data from the EU to the US), businesses in the EU and the US have been eagerly expecting a new solution to make data transfers simpler in a global business environment.

Presidents von der Leyen and Biden declared in March 2022 that they had reached a preliminary understanding of a new EU-US Data Privacy Framework. President Biden issued the enabling executive order on October 7, 2022, to bring about this. Since then, progress has been under the control of the European Commission, which in December 2022 put up a draft EU-US Privacy Framework. Even while it's not final, the finish is in sight. Since the process is expected to take another six months, businesses might be able to anticipate a new Privacy Shield in the summer of 2023.

A UK-US Adequacy Agreement: The UK was impacted by the decision to invalidate the previous EU-US Privacy Shield since it was still subject to changes in EU law at the time. However, any newly proposed Privacy Shield would not apply to the UK because it is no longer a member of the EU. This implies that a different method of transferring personal data would be required. The UK and US may, however, reach a new sort of data adequacy agreement for the transfer of personal data in 2023. The UK stated on October 7 that it will "expediently assess the improved safeguards and redress mechanism," indicating that it would also try to create a simpler transfer method for corporations.

The announcement indicated that adequate legislation will be introduced in the UK Parliament in early 2023, but given the country's shifting political climate since that time, it's probable that this deadline may be pushed back to later in the year.

An increase in regulatory action: In the US and EU, 2022 saw some high-profile regulatory initiatives. For instance, the French data protection authority CNIL fined Clearview AI €20 million for violating the EU's General Data Protection Regulation (GDPR) in their facial recognition tool. The US Federal Trade Commission fined Twitter $150 million for using account security data for targeted advertising in violation of a 2011 consent decree. Businesses are less likely to believe that there is uncertainty over how to comply with data protection laws because numerous regulators have provided thorough guidance and reminders in addition to significant fines. It can also be a hint that authorities will be less understanding of businesses operating in these sectors.

Data and AI will remain a priority: Data privacy and AI will probably be a hot topic for 2023, with the EU AI Act likely to be completed in 2023 and media interest surrounding ChatGPT at the end of 2022. While the UK government is not moving quickly to regulate this field, it will have a consultation on its governance in November 2022. The EU has established a framework in which it seeks to regulate the use of AI. Regulators are going to be closely monitoring how personal data is utilized with AI in the wake of the Clearview AI fine. Businesses will need to understand how the EU and UK will be regulating AI.

worldwide expansion

Multiple market entry strategy: This practice will likely continue, with US corporations typically establishing their first operations in the UK and then expanding to another European country either simultaneously or shortly after. Despite Brexit, the UK remains a top contender for early growth, while Germany and the Netherlands remain favorites within the EU.

Develop a more flexible, compliant market entry plan for your business. This is more important than ever. Organizations should not underestimate the legal difficulties they need to take into consideration given the rapid change in technology and new regulatory legislation that are on the horizon in the UK and EU. To keep ahead of COVID-19, work from anywhere, environmental goals, data, and privacy protections, and supply chain vigilance, businesses will need to quickly adapt to numerous regulations and compliance policies.

Drivers: Access to talent and remote workforces, simplicity of starting a business, diversifying supply chains, and gaining market share will be the main drivers for US companies looking to expand internationally.

Cross-border M&A

Although 2023 is likely to see a modest recovery in M&A activity, there are still many excellent opportunities: Strategic buyers and investors with deep pockets who construct deals with creative deal structures, such as roll-up purchases or the consolidation of enterprises in fragmented markets, will prosper in the next year. Sectors in technology, media and communications, fintech, and energy are defying the norm and opening the door for novel agreements. Early optimism gave way to turbulence in 2022's European M&A trends.

VC firms will keep managing escalating trends in international M&A markets for buyers asking difficult exit terms: More and more foreign buyers are putting up off-market exit arrangements, maybe persuading venture capitalists to accept them or at the very least spending valuable time negotiating warranties and indemnification over their share capital position after departure. VCs are focusing on this tendency at the term sheet stage and are becoming more aware of it.

Boardrooms will keep emphasizing the value of international compliance: Being recognized and respected at the board level is ensuring that corporate behaviors are being led from the front, which is a crucial component of global corporate plans.

Globally, environmental, social, and governance (ESG) initiatives are expanding. Investment managers and their funds will be impacted by changes to the European ESG regulatory framework. The Financial Conduct Authority (FCA) issued its eagerly awaited consultation document on sustainability disclosure standards and investment labeling, among other regulatory developments. The FCA has attempted to align its policies as closely as feasible with the EU's Sustainable Finance Disclosure Regulation and US Securities and Exchange Commission plans.

Fintech

The focus of regulators will remain on ensuring just and efficient fintech regulation as well as problems related to consumer protection. Despite the regulators' receptivity to new fintech businesses, the laws and regulatory framework have gotten more stringent. With the launch of the historic Marketplaces in Crypto Assets Regulation (MiCAR) framework, which represents the first-ever licensing regime for crypto wallets and exchanges to operate across the EU, the crypto-Web3 markets are progressively moving toward being fully regulated.

MICR will change the game because it will not only steady the market but also improve its dependability and transparency. Although the cryptocurrency industry will be a primary target, this regulatory tendency should also appear in sectors like digital brokerages or purchase now, and pay later (BNPL). The US will closely study EU legislation because it is expected to use a similar procedure.

Open Banking: The foundation of a new generation of financial service platforms, open banking is rapidly changing how consumers and banks manage their finances and services. Through open banking, customers may increase the transparency of their funds, boost their financial literacy, and maintain all of their security measures. To assist increase financial knowledge, trust, and engagement with customers and their financial institutions, open banking still has a ways to go.

These platforms have already started to gain traction across Europe as a result of the legislation established by the EU's updated Payment Service Directive, or PSD2. Thanks to increased consumer awareness of these solutions, it is hoped that many more countries will soon follow suit. It is expected that this year will see significant growth from current EU companies expanding into the US and the creation of new fintech. The US will be one of the leading non-EU countries paving the way for the adoption of open banking more widely. Open banking has made data-driven business models possible and will help the financial sector liberate client data.

Blockchain technology and decentralized finance : The emergence of blockchain-based projects like non-fungible tokens (NFTs), metaverse, and decentralized finance are driving the cryptocurrency market's explosive expansion. Users can now borrow, save, lend, or exchange cryptocurrencies without the use of conventional financial market institutions thanks to these services. This decentralization idea will advance as NFTs, blockchain, and other cryptocurrencies (like stablecoins) develop. However, the recent changes in the makeup of the cryptocurrency industry have sparked a more aggressive regulatory agenda that will eventually have an impact. 

Pay later if you buy now: BNPL services have shown consistent growth throughout 2022, however, this has coincided with greater regulatory scrutiny. Plans are already underway in the UK to alter the Consumer Credit Act 1974 to include the payment option. Additionally, the Financial Promotion Regime will soon apply to advertisements and incentives for BNPL loans to make sure they are neither deceptive nor unfair. Similarly to this, BNPL loans in the EU are below the minimum amount and are therefore exempt from existing EU regulations.

The EU is considering legal measures that would ultimately compel lenders to confirm that customers can afford repayments, are signing more agreeable contracts, and are subject to fair credit checks. In the next ten years, BNPL will attract traditional banks and fintech to invest more substantially to maintain a competitive business advantage thanks to increased compliance and consumer protection. All BNPL products must abide by the laws governing financial marketing, the Financial Conduct Authority cautioned in an open letter in August. Otherwise, enforcement action may be taken.

                                                                     

Technological advancements: By incorporating customer authentication technology, fintech will continue to invest in minimizing fraud. The 3-D Secure card authentication method has seen tremendous growth in the EU and is likely to catch on with retailers in the US. Similar to how embedded payment systems, which let companies control their processes, will become commonplace in the upcoming years and support a robust software market, will become more prevalent. (Osborne Clarke recently provided advice to an embedded payments company and plans to help additional companies in 2023 with this fascinating innovation sector.)

Fintechs commonly sought loans in 2022, including venture debt and convertible debt, or offered small amounts of equity instead of raising equity at huge declines in value from prior years (known as "down rounds"). Although quality fintech is likely to return to issuing equity where necessary for their businesses, this activity could continue in 2023. (albeit potentially alongside debt).

Consolidation and M&A: The fintech sector still offers a lot of room for consolidation, and there are some early indications that M&A activity will pick up. We anticipate that this will continue into 2023, especially given that enterprises frequently fail as a result of recessionary pressures and a lack of finance.

HR internationally

It's no secret that the rise in prices and the recession in the global economy have contributed to a substantial trend in corporations announcing restructures, layoffs, and reductions in force (RIFs), sometimes on a sizable scale. As more businesses attempt to position themselves in the best possible way to withstand the potentially challenging months ahead, the RIF trend, which began with some of the biggest tech companies in the world, will continue until 2023. Companies may find it difficult to negotiate the many labor laws regarding employee sackings on a global basis.

Many people anticipate that despite increased unemployment rates, the labor market will remain competitive and that "quiet hiring" will go place as businesses focus their recruiting on the finest talent, which may include people who have retrained during this time.

Artificial intelligence and the metaverse: The metaverse will become much more beneficial for HR as a tool for employee training, fostering inclusion, and fostering collaboration in international virtual teams. For employees to feel at ease interacting in the metaverse, HR will need to continuously update contracts and regulations. The buzz surrounding ChatGPT, DeepL, and other technologies that use artificial intelligence (AI) is just the tip of the iceberg. For handling the daily burden, including hiring, training, and firing staff, HR will use AI tools even more. All departments will use AI apps, thus HR needs to plan and monitor employee training to ensure that employees are following data protection laws, protecting firm trade secrets, and protecting the organization's cybersecurity.

Defining remote and hybrid work solutions and the future of work: In a post-pandemic workplace, employees still seek flexibility. Companies will still need to meet these expectations in 2023 as they struggle to find and keep talent. Companies will continue to strike a balance between allowing employees to work when, how, and where they choose and developing more formal procedures to offer flexibility fairly and consistently. To strike a balance, businesses should plan to clarify their remote and hybrid work risks and strategies in 2023.

Sustainability in the workplace and "green HR": In 2022 and 2023, large organizations will continue to prioritize environmental, social, and governance (ESG) challenges. HR must concentrate on "green HR" or "green jobs" through upskilling and reskilling current employees and, where practical, reducing work-related emissions. Sustainable workplace practices go hand in hand with diversity and inclusion initiatives in the workforce, and HR should view them as a tool to assess employee performance. In particular, to start having a bigger impact, HR should link executive compensation to ESG and diversity, equity, and inclusion (DEI) metrics.

Social effect and DEI: Younger workers in particular increasingly expect businesses to have a positive social impact and to integrate it into all facets of their operations. This implies that DEI will continue to be a primary focus for organizations together with the company's social initiatives. These will still put a lot of effort into making people feel like they belong and that their thoughts and opinions matter. This will eventually result in a staff that is more effective, engaged, and devoted.

Compliance with HR regulations will continue to be one of HR's primary issues in 2023. To provide an umbrella of employee protection, the UK, EU, and Member States are developing new regulations. The proposed regulation of platform work will be very significant in the EU (EU Platform Work Directive). These regulations in the UK address topics like remuneration for time off, protecting employees from sexual harassment, pregnancy, and family leave, and restrictive covenants. This will include flexible working under separate systems in Germany and the UK. Focus areas in Germany include whistleblowing (the German Whistleblower Protection Act is expected to become law in 2022), social security thresholds, rules governing the recording of working time, and the expiration of vacation claims.

While Spain has advanced with digital nomad visas, Germany and France are also focusing on local minimum wage improvements. And these are just a few of the modifications taking place in Europe that will keep HR teams busy, particularly in businesses using crowd employees, gig workers, freelancers, and contractors.

social, environmental, and governmental

Environmental: In 2023, Dubai will host the Conference of the Parties (COP) series in the hopes of fostering even more international cooperation to address the climate catastrophe. With the growth of businesses committed to combating climate change through programs like the We Mean Business Coalition and the United Nations Climate Change Race to Zero Campaign, the momentum from past COP is having an immediate impact at the corporate level (which Osborne Clarke joined last year). Companies will need to put in a lot of effort in 2023 to examine and comprehend their climate impact as well as to submit planned activities to track and lessen the impact of upcoming requirements for disclosures on both sides of the Atlantic.

Investor demand for comparable reporting from companies outside the regulatory catchment is anticipated to have a trickle-down impact, even if the laws only apply to the largest companies.

Social: The argument for diverse workforces has increased results and put pressure on society for all enterprises to allow workforces to contribute fully. In 2023, more change is likely to occur to accelerate this advancement. International companies will put in more effort to assure adherence to each jurisdiction's approach to using regulation to drive change and encourage diversity, equity, and inclusion. A standard approach to meet the highest common factor to items like hiring and working practices, benefits, and awareness training will simplify the workload for multi-jurisdictional businesses, although the lack of regulatory harmonization will, unfortunately, add to the "to-do" list in 2023.

Governance: In 2023, a greater emphasis on good governance and on punishing bad actions in corporate boardrooms will be felt as a result of recent corporate scandals, such as FTX's collapse and Bed Bath & Beyond's "pump and dump" claims. All organizations will consider it "table stakes" to require a firm to have competent independent advice and controls, timely and thorough investor disclosures, and adequate investments to maintain firms fit for purpose.

Washington authorities' attention to South West Airlines' underfunding of IT systems, which aggravated the holiday travel turmoil, should serve as a message to all firms that further delays in infrastructure improvements to boost investor returns will not be permitted. Therefore, 2023 will be a year for reviewing tasks that keep getting put off as well as for documenting decisions to proceed.

In conclusion, 2023 will be a year of activity for all ESG components. We will all be busy as we translate our intentions and goals into action. Organizations are unable to complete this work list on their own because they typically lack the necessary tools, information, and expertise. There has never been a greater pressing need for sound assistance in this dynamic and changing economy.

healthcare and the life sciences

Capital investments: As the market continues to struggle and absorb a large number of newly public biotechs from recent years, initial public offerings are projected to taper off and maintain a moderate pace in 2023. Startup evaluations are now subjected to greater scrutiny, with a focus on the achievement of developmental milestones. The top therapeutic area for investment will continue to be oncology, but to be valuable, new technology platforms and treatment modalities will need to demonstrate differentiated evidence. Private equity firms continue to invest in and support certain service sectors, like contract research organizations.

Collaboration is becoming more common in the market due to the slow pace of fundraising, co-development amongst biopharma businesses, holistic treatment modalities, companion diagnostics, and digital solutions. This entails licensing assets and sharing IP to not only maintain operational viability but also to reap the benefits of lowering risk and responsibility. For both in-patient and out-patient care, differentiating modalities and comprehensive ecosystem approaches—including prescribed digital treatments, companion diagnostics, medications, and patient monitoring technology—will continue to develop.

Combining the best pharmacological compounds based on experimental evidence from huge data sets and extracting information from unprocessed raw data will continue to play a significant role in drug discovery in finding new disease targets and predicting the effectiveness of treatments. The use of surgical robots integrated with artificial intelligence (AI) will also increase. Regardless of the length, AI will help boost the consistency and precision of operation.

Real estate development: Life science startups have been compelled to abandon their plans for lengthy leases of offices and lab space in favor of flexible co-working space, incubators, modular labs, remote staff, and outsourcing portions of the research process. This is due to the slowdown in seed funding. In particular, investors and developers anticipate leasing rates to be more lucrative than other options like residential homes, so converting and renovating existing buildings from offices, retail stores, and former facilities into lab space will continue to be encouraged by local governments and become appealing options for life science companies.

Manufacturers of non-medical products have a limited amount of time to get ready for new risk management and clinical data obligations under the EU Medical Device Regulation. Common requirements will be necessary for a wide range of products, including those in the electronics, gaming, hardware, and cosmetics industries. This amendment to the EU's Medical Device Regulation (MDR) aims to extend coverage past conventional medical equipment, related items, and clinical research. Additionally, risk management and a clinical assessment of safety are covered.

Intellectual property and patents

The Unified Patent Court (UPC), which is slated to go into effect on June 1, 2023, will compel businesses to assess their patent portfolios to determine which kind of European patent best meets their goals and circumstances in terms of business. Additionally, new avenues are opening up for contesting the validity of a European patent that is subject to the UPC's jurisdiction; these avenues will apply to both unitary and conventional European patents.

One of the most important concerns facing Europe in 2023 is the metaverse: The business landscape is expected to undergo a metaverse-driven transition, but there are still unsolved concerns concerning how the metaverse will be created, governed, and regulated, as well as how transactions will take place. Applying current legal frameworks to new technology brings particular difficulties, as with other technological advancements. The General Data Protection Regulation, the Digital Markets Act, and the Digital Services Act are three European laws that an exploratory report suggests being modified for the French metaverse. Additionally, the European Commission intends to launch its non-legislative metaverse effort in the second quarter of 2023. The metaverse will come up in conversations about the future now, as in years past.

Keep the intersection of intellectual property law and artificial intelligence in mind: In 2023, artificial intelligence (AI) will continue to grow in popularity and make a significant impact on society. Unresolved legal issues may influence the development of AI platforms like ChatGPT and DALL-E in the future. Intellectual property disputes are anticipated to intensify in the upcoming year, ranging from copyright and design infringement to patent eligibility, copyright ownership, and inventorship.

Green claims and sustainability: Within the scope of the European Green Deal, the EU is awaiting new legislation that would standardize sustainable products throughout the EU and provide consumers more authority to make greener decisions. The European Commission also offered suggestions for promoting sustainable products, such as expanding the eco-framework, developing digital product passports, and taking action to promote sustainable textiles. Consumers will likely place the highest importance on sustainability in the coming year; businesses will need to follow stringent guidelines starting in 2023 if they want to advance the green transition and minimize hazards.

The European Commission presented its legislative proposal for a regulation on the transparency and targeting of political advertising on November 25, 2021, as part of its European Democracy Action Plan in 2020 and as an addition to the guidelines for online advertising found in the Digital Services Act. On December 13, 2022, the General Affairs Council of Council approved a mandate for negotiations with the European Parliament. The lead committee for the proposal's consideration of the submitted amendment and delivery of their opinion will be on the agenda of the European Parliament for 2023.

This suggests that efforts in the upcoming year will be concentrated on increasing the openness of politically-sponsored advertisements and establishing a more equitable and transparent democratic process in the EU.

Influencers #advertising laws: Since the Covid-19 health crisis, social media use has increased and users have become more exposed to social networks and advertising, which has led to a dramatic rise in online buying. The French National Assembly has received numerous legislative suggestions to control, strengthen prevention, and combat the misuse of social media influencers in France. The Competition and Markets Authority in the UK similarly published three instructions to help firms, influencers, and social media platforms adhere to consumer protection regulations. Companies that use influencers to market their products and services will probably need to take further steps in 2023 to make sure that the influencers adhere to the advertising regulations.

consumers and retailers

Fighting against "greenwashing" will remain an issue for merchants. Now is the moment for them to step up their efforts and make decisive movements. Regulators in the US and Europe have recouped millions of dollars from businesses that were found to be making bogus environmental claims in the last six months. Future legislation in Europe will raise the bar for environmental claims made by businesses to change that.

The French Climate and Resilience Law, scheduled to take effect in 2023, and the planned Unfair Commercial Practices Directive of the European Union, scheduled to take effect in 2024–2025, both specifically aim to avoid greenwashing. The new anti-greenwashing standards mandate that businesses gather their data—data that is transparent, unbiased, and verifiable—to support any environmental claims. Additionally, businesses will only be able to assert that a product is sustainable if they reveal the impact of the product's whole life, from raw materials to the end of life. With enhanced producer responsibility and the greenwashing rule, European producers will have additional obligations to reduce carbon emissions starting in 2023.

Metaverse: The majority of retailers say they should have a metaverse strategy and are considering how to give their customers experiences. Numerous companies, including Ralph Lauren and Nike, have developed virtual worlds in Roblox to enable consumers to connect with their products as consumer virtual interaction rises. At the National Retail Federation's Big Retail Show this year in New York, more than 50 forward-thinking tech entrepreneurs from the retail sector will present their innovations in robotics, augmented reality, machine learning, blockchain, augmented reality, and more.

Networks for merchants and brands to deliver highly focused marketing are known as retail media networks. Due to the way, consumers are interacting with businesses, the decline of third-party cookies and data, and the damage it has caused for marketers, the idea has gained momentum over the past year. Brands have a chance to connect with captive audiences by having access to customer data. In the upcoming months, there might be a lot of innovation in this field, which is thrilling to observe.

Supply chains: In 2023, less instability is to be anticipated. Due to Covid and the invasion of Ukraine in the past two years, sourcing and procurement have gained attention. To get a complete insight into the lifecycle of the item and chain of custody, retailers have moved away from operating in crisis mode and toward investing in technologies that enable improved inventory accuracy. For the vast majority of merchants, manual workarounds were ineffective for inventory management, supply chain visibility, and sourcing. Retailers continue to tread cautiously despite acknowledging that robots can be an effective way to lower risk, promote productivity, and support sustainability efforts.

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