Creditor protection given to cigarette maker suspends order to pay billions to victims

MONTREAL — The Quebec Council on Tobacco and Health said Monday that smokers who won a recent court victory are being denied justice after an Ontario judge granted cigarette maker JTI-Macdonald Corp. protection from its creditors last week.

JTI-Macdonald was among three companies that lost in the Quebec Court of Appeal March 1. The court upheld a landmark judgment ordering them to pay billions of dollars in damages to Quebec smokers. Now that JTI-Macdonald is under creditor protection, however, the company will not have to disperse any funds to tobacco victims for now.

The Ontario Superior Court decision suspends legal proceedings against all three companies until April 5, even though only JTI-Macdonald sought protection from creditors. Benson & Hedges and Imperial Tobacco made no such request.

The Quebec Council on Tobacco and Health led two class actions against the companies and won in 2015, when Quebec Superior Court Justice Brian Riordan ordered the companies to make payments of more than $15-billion to smokers who either fell ill or were addicted. At the time, the ruling was believed to be the biggest class action award in Canadian history.

Philippe Trudel, one of the lawyers representing tobacco victims in the class action, called the Ontario court’s decision to suspend proceedings against all three companies “unusual.” Mario Bujold, spokesman for the Quebec Council on Tobacco and Health, said the Ontario court’s ruling can be extended beyond April 5 and he worries victims will never see any money.

“Companies are very good at finding strategies to avoid paying damages they were ordered to pay,” Bujold said, adding the court’s decision will be contested.

“The Superior Court in Ontario is suspending the rights recognized by six judges in Quebec,” he said. “It’s unacceptable.”

In a statement released Friday, JTI-Macdonald said it needed to seek protection under the Companies’ Creditors Arrangement Act in order to “protect 500 Canadian jobs and carry on its business operations with minimal disruption.

“We fundamentally disagree with the court decision and are taking all necessary and appropriate measures to defend our lawful business,” it said.

The three companies are also considering appealing the $15-billion judgment rendered against them to the Supreme Court of Canada.

3 men cop to $21 million vishing and smishing scheme

Handcuffs on a nondescript blue background.

Three Romainian citizens have pleaded guilty to carrying out a scheme that used recorded messages and cellphone texts to trick thousands of people into revealing their social security numbers and bank account information, federal authorities said.

The “vishing” and “smishing” scams are variations of phishing that use voicemails and SMS messages instead of email, federal prosecutors in Atlanta, Ga., said on Friday. From 2011 to 2014, the three Romanians compromised computers located in the US and installed interactive voice response and bulk emailing software on them. The hacked computers initiated thousands of phone calls and text messages that tricked recipients into disclosing personal information including account numbers, PINs, and social security numbers.

“When a victim received a telephone call, the recipient would be greeted by a recorded message falsely claiming to be a bank,” federal prosecutors said. “The interactive voice-response software would then prompt the victim to enter their PII. When a victim received a text message, the message purported to be from a bank and directed the recipient to call a telephone number hosted by a compromised Voice Over Internet Protocol server. When the victim called the telephone number, they were prompted by the interactive voice response software to enter their PII.”

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Venezuela congress declares ‘state of alarm’ over blackout

Venezuela’s opposition-run congress on Monday declared a “state of alarm” over a five-day power blackout that has crippled the OPEC nation’s oil exports and left millions of citizens scrambling to find food and water.

Theresa May wins ‘legally binding’ Brexit assurances from EU ahead of crucial votes

Prime Minister Theresa May clinched legally binding Brexit assurances from the European Union on Monday in a last ditch attempt to win over rebellious British lawmakers who have threatened to vote down her divorce deal again.

U.S. rule changes could mean more startups would need government approval to hire immigrants

Big changes in DC could mean that more startups will need the government’s permission before foreign nationals do work at the company.  In some cases, the foreign national will need to leave the company if the government is wary of granting that permission. 

This is tied up in the same new law that gave a once obscure government body—CFIUS—enhanced abilities to scrutinize minority, non-controlling investments by foreign entities. 

CFIUS changes have grabbed most of the headlines, but a Commerce Department process to define “emerging technologies” could have a huge effect on startups that employ foreign nationals.

Here’s what you need to know: the U.S. government has long controlled exports of sensitive technology for national security reasons.  This is done through the export controls regime, which impacts things like arms and ammunition, but also telecommunications and encryption software, among other items. 

Today, many venture-backed companies are not impacted by export controls because their technology is not on one of the control lists.  But that stands to change soon. 

Recent legislation requires the Commerce Department to evaluate controls on “emerging technologies.”  To kick off this process, in November the government identified 14 categories of technology it is looking at.  This included tech in the sweet spot of the bat for venture: AI/ML, robotics, 3D printing, and biotechnology to name a few.  It is an open question as to which of these technologies will ultimately be subject to controls and to what degree.

Image: Bryce Durbin/TechCrunch

Once something is determined to be emerging technology, the government can establish controls on the export, re-export, or transfer (in-country) of that technology.  Export controls is often thought of as the need to get a license from the government before sending a technology outside the U.S., and that is indeed a major part of what startups will need to contend with. 

But perhaps far more impactful for the startup ecosystem is what’s called “deemed exports,” or the release of controlled technology to foreign persons situated in the United States, which is “deemed” to be an export to the person’s country or countries of nationality. 

“The ramifications of these changes could be tremendous if the government does not appropriately tailor what it means to be an emerging technology.”

“Release” is defined broadly to include visual inspection and oral or written exchanges regarding the technology; in other words, typical actions an engineer or scientist at a young company does.  One saving grace for some startups will be that the deemed export rule does not apply to green card holders, though does apply to employer-based visas, like the H-1B or O visa.

Let’s think about how this might play out in practice.  Imagine the government decides to control artificial intelligence as an emerging technology and that a U.S.-based AI company employs an engineer on an H-1B visa.  Under these facts, it seems the company would need an export license for the foreign national to work at the company. 

A large company might be able to set up a wall that allows the foreign national to work on non-emerging technologies, but for a startup that only does AI the ability to separate the foreign national from the emerging technology work is severely limited, if not impossible.

Obtaining these licenses would present a tremendous burden for small, high-growth startups that often build teams by attracting the best and brightest from foreign countries.

But that burden could be the least of the company’s problems if the foreign national is from a country like China. The U.S. government could be very reluctant to grant a license for someone from China to work on an emerging technology since the major motivation behind recent foreign investment scrutiny has been China. The result might be the foreign national has to leave the company entirely, exacerbating the severe talent drought in some disciplines.

IvancoVlad via Getty Images

Those working in the startup ecosystem understand the volume of foreign nationals working at high-growth companies, but also how impactful their work is to make the United States the world’s scientific and technological leader. 

In comments to the government, a consortium of life science investors backing companies in oncology, cystic fibrosis, anemia, and other areas sounded the alarm of how deemed exports could make laboratory collaboration between U.S. and foreign nationals difficult or impossible.  Certainly, this is not the result policymakers are shooting for given the public policy imperative of eradicating diseases. The ramifications of these changes could be tremendous if the government does not appropriately tailor what it means to be an emerging technology.

Comments from the National Venture Capital Association, where I work, stressed that many of the technologies the Commerce Department called out in November are not yet well-defined, which of course makes regulating them challenging. 

In addition, because many of the technologies—like AI/ML—will be widely used across many companies and industries, a broad set of controls could sweep in many unintended target companies and technologies. To alleviate these concerns, we recommended a targeted approach to classification of emerging technologies that categorizes only those technologies that have significant defense uses, and not broad commercial applications.

The U.S. government needs to tread carefully. 

The golf professional Sam Snead advised that a golf club needs to be gripped like you’re holding a live bird: firm enough so it doesn’t fly out of your hands but not so tight that you kill it. American innovation is the same in this way. 

Yes, policymakers need to consider the impact of emerging technology on national security and perhaps create some controls. But if policymakers ratchet up pressure too much, then talent, capital, and companies will flock to other countries, which means the United States loses out on the incredible benefits that high-growth startups bring to our country.  The rules of the road on emerging technologies have not been written, and each of us has an opportunity to make our voice heard during the process.

F5 acquires NGINX for $670M to move into open-source, multi-cloud services

Multi-cloud architecture is a huge trend in enterprise, and today F5 made a big move to bring its own business closer to it. The company, which provides cloud and security application services, announced that it has acquired NGINX, the commercial company behind the popular open source web server, for $670 million.

We’d actually been hearing murmurs of this acquisition for a while with a pricetag of around $700 million. On top of that, our sources say NGINX was shopping itself around and other companies that had been looking at it included Citrix. That deal fell apart on price.

NGINX had last raised money nine months ago, a $43 million round led by Goldman Sachs to fuel expansion, and had positioned itself as a strong alternative to F5 in recent years. F5 itself, by coincidence, was said to have retained Goldman Sachs in 2016 to field acquisition interest in itself, although that never led to anything.

“F5’s acquisition of NGINX strengthens our growth trajectory by accelerating our software and multi-cloud transformation,” said François Locoh-Donou, President & CEO of F5, in a statement. “By bringing F5’s world-class application security and rich application services portfolio for improving performance, availability, and management together with NGINX’s leading software application delivery and API management solutions, unparalleled credibility and brand recognition in the DevOps community, and massive open source user base, we bridge the divide between NetOps and DevOps with consistent application services across an enterprise’s multi-cloud environment.”

Indeed, our sources noted that growth had stalled somewhat at the company, which was one reason for its interest in NGINX. The latter company currently runs 375 million websites with some 1,500 paying customers taking additional services like support, load balancing, and API gateway and analytics.

F5 said that it will be merging its own operations with those of NGINX, with current NGINX CEO Gus Robertson, as well as its founders Igor Syosev and Maxim Konovalov all joining the company.

“NGINX and F5 share the same mission and vision. We both believe applications are at the heart of driving digital transformation. And we both believe that an end-to-end application infrastructure—one that spans from code to customer—is needed to deliver apps across a multi-cloud environment,” said Robertson, in a statement. “I’m excited to continue this journey by adding the power of NGINX’s open source innovation to F5’s ADC leadership and enterprise reach. F5 gains depth with solutions designed for DevOps, while NGINX gains breadth with access to tens of thousands of customers and partners.”