On March 13, 2024, the European Parliament adopted the Artificial Intelligence Act, a far-reaching, 400-plus-page piece of legislation that seeks to establish a uniform legal framework for the development of AI.
The Act reaches beyond the EU&#8217;s borders, regulating AI providers and users regardless of location provided that the AI «output» is used in the EU. Although Switzerland has taken a <a href="https://www.homburger.ch/de/insights/swiss-federal-council-launches-ai-regulatory-regime-review" target="_blank" rel="noopener">wait-and-see approach</a> to regulating AI, its position in Europe means that most Swiss AI will be subject to EU regulation and Switzerland may be compelled, whether de facto or de jure, to adopt equivalent regulations.
The Act largely takes a risk-based approach to regulating AI. Closely tracking the draft leaked in January (discussed <a href="https://www.homburger.ch/de/insights/leaked-draft-of-eu-ai-act-sheds-light-on-proposed-regulation" target="_blank" rel="noopener">here</a>), it bans certain practices that threaten fundamental rights, such as social scoring and the exploitation of age or disability, and subjects «high-risk AI», such as biometric identification, credit scoring, and employee evaluations, to data governance, human oversight, impact assessments, and other restrictions.
The Act departs from the risk-based approach in two key respects:
<ul>
<li>First, it imposes basic transparency requirements on nearly all individual users of AI. These measures seek to ensure that AI-generated content is labeled, including deepfakes, and users know when they are interacting with AI.</li>
<li>Second, the Act singles out for specific regulation «general-purpose AI models» and «general-purpose AI systems». These measures, which were added following the generative AI explosion in 2023, depart from the Act&#8217;s technology-agnostic risk-based approach and may prove complicated to interpret and enforce as the technology evolves.</li>
</ul>
The penalties for violations are potentially substantial. Member states will establish their own rules, but the Commission&#8217;s «AI Office» is empowered to fine prohibited AI practices up to EUR 35 million or, if the offender is a company, up to 7 percent of total worldwide annual turnover, whichever is higher.
Restrictions on «unacceptable» uses come into force later this year. The «general-purpose AI system» regulations in early 2025. The transparency requirements and the regulation of «high-risk» systems become effective in 2026.
The EU&#8217;s efforts to regulate the risks of AI are laudable. The EU is trying to set early boundaries for an emerging technology that may have a profound social and economic impact. The Act sets important guardrails, but it contains only limited provisions to support the AI tech sector in Europe. Time will tell if the regulations stifle innovation and progress and weaken Europe&#8217;s competitive position vis-à-vis the United States and China, contributing to Europe falling further behind. To avoid these pitfalls, the new law will need constant re-evaluation to determine whether new developments require new approaches and safeguards.

EU Adopts AI Act 

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Investment Control Act: Swiss Government Proposes Minimal Solution

<h3>Risk-Based Approach</h3>
The draft regulation generally takes a risk-based approach depending on use, but foundational and general purpose models are subject to additional requirements. The draft classifies AI into different risk groups summarized below. Some particularly sensitive applications are banned outright. Other high-risk applications, which have clear benefits but can also cause material harm, such as AI that chooses applicants for jobs or determines creditworthiness, will have to meet minimum standards. The data used for these AI systems must be selected in such a way that no one is disadvantaged, and a human must always have the final say.
<ul>
<li>Unacceptable risk. AI that threatens fundamental rights will be banned. This includes cognitive behavioral manipulation, untargeted scrapping of facial images, emotion recognition systems in the workplace, certain systems for categorizing people based on suspect classifications, such as religion, race, or sexual orientation, and, subject to narrow exceptions, real-time remote biometric identification for law enforcement in public spaces.</li>
<li>High-risk AI includes systems used for critical infrastructure, medical devices, recruitment, law enforcement, government, biometric identification, and emotion recognition. Systems classified as high risk will be subject to human oversight, risk-mitigation systems, and heightened transparency and registration obligations.</li>
<li>Minimal-risk systems, said to include the majority of AI applications, such as algorithms that make recommendations based on past use—so called «recommender systems»—and spam filters, will not be specifically regulated.</li>
</ul>
All AI systems will be subject to general transparency obligations to ensure users know when they are interacting with machines or machine-created content, including so-called «deepfakes».
Foundation models, large systems capable of performing a wide range of tasks, such as generating video, text, images, must comply with specific transparency obligations. Foundation models trained with large datasets and with advanced complexity, capabilities, and performance, which can create systemic risks, are considered «high impact» and subject to a stricter regime.
General purpose AI models that could pose systemic risks will be subject to additional obligations relating to risk management, monitoring, model evaluation, and adversarial testing.
Regulatory sandboxes, controlled environments for developing, testing, and validating AI systems, will allow for innovation in real world conditions.
The Act will not apply to systems used exclusively for military or defense purposes, research and innovation, or non-professional uses.
<h3>Enforcement</h3>
National authorities, coordinated at the EU level by a new AI Office, will supervise implementation of the Act. Penalties for violations will be either a percentage of the offending company’s global annual turnover in the previous financial year or a predetermined amount, whichever is higher. For violations of the Act&#8217;s prohibitions, the fine could be 7 percent of global annual turnover or €35 million; 3 percent or €15 million for violations of the Act&#8217;s obligations; and 1.5 percent or €7.5 million for the supply of incorrect information. Fines for SMEs and start-ups will be lower.
<h3>Observations</h3>
After years of negotiation, agreement on the Act&#8217;s text marks an important further step toward regulating AI, but once adopted many aspects of the Act will not take effect for a year or two. Meanwhile, developments in AI continue apace. During this transitional period the Commission will encourage AI developers to implement key obligations of the Act voluntarily by joining an «AI Pact». There is a risk, however, that the EU&#8217;s regulatory approach may not keep pace with the fast developing reality of AI, and could hamper its use, putting Europe at an economic disadvantage vis-à-vis China and the United States.
The EU&#8217;s regulations will have a significant impact on Switzerland&#8217;s vibrant community of academics, large tech companies, and smaller start-ups working on AI. As we previously <a href="https://www.homburger.ch/de/insights/swiss-federal-council-launches-ai-regulatory-regime-review" target="_blank" rel="noopener">reported</a>, in November 2023 the Swiss government launched a review of regulatory approaches to AI. The Swiss Federal Council intends to use this review as the basis for issuing an AI regulation proposal in 2025. This review period will afford the Swiss government an opportunity to review the AI Act and its early implementation, and hopefully enable it to strike a balance between regulating Switzerland&#8217;s growing AI industry and innovation.

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EU Announces Agreement on AI Act

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On May 16, 2024, Homburger received the «Impact Deal of the Year» award at the LMG Life Sciences EMEA Awards 2024 for advising VectivBio in connection with the public tender offer by Ironwood. The Homburger Team was led by Andreas Müller and Margrit Marti and comprised lawyers from the Corporate / M&amp;A, Capital Markets, Tax, Financing and Investment Products, IP / IT, Data Protection, Employment and Executive Compensation, and Competition and Regulatory teams.
The awards recognize complex and impactful transactions in the life sciences industry.

Homburger honored with LMG Life Sciences EMEA award for «Impact Deal of the Year»

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The Legal 500 has ranked Homburger Tier 1 in the categories Banking and Finance; Capital Markets; Commercial, Corporate and M&amp;A; Competition; Data Privacy and Data Protection; Dispute Resolution: Arbitration; Dispute Resolution: Litigation; Employment; Healthcare and Life Sciences; Intellectual Property; Regulatory, Compliance and Investigations and Tax.
Six partners and one senior counsel were honored with the «Hall of Fame»: <a href="https://www.homburger.ch/en/team/daniel-daeniker" target="_blank" rel="noopener">Daniel Daeniker</a>: Commercial, Corporate, M&amp;A; <a href="https://www.homburger.ch/en/team/marcel-dietrich" target="_blank" rel="noopener">Marcel Dietrich</a>: Competition, <a href="https://homburger.ch/en/team/balz-gross" target="_blank" rel="noopener">Balz Gross</a>: Dispute Resolution – Arbitration; <a href="https://www.homburger.ch/en/team/felix-dasser" target="_blank" rel="noopener">Felix Dasser</a>: Dispute Resolution – Litigation; <a href="https://www.homburger.ch/en/team/georg-rauber" target="_blank" rel="noopener">Georg Rauber</a>: Intellectual Property; <a href="https://homburger.ch/en/team/flavio-romerio" target="_blank" rel="noopener">Flavio Romerio</a>: Regulatory, Compliance and Investigations; and <a href="https://www.homburger.ch/en/team/rene-bosch" target="_blank" rel="noopener">René Bösch</a>: Banking &amp; Finance – Zurich and Capital Markets. The Hall of Fame of The Legal 500 recognizes lawyers that receive constant praise from their clients and that have been ranked top tier for eight consecutive years in The Legal 500 rankings.
The Legal 500 as a part of Legalease, a provider of legal market information, analyses the capabilities of law firms across the world and publishes annual rankings based upon extensive research.

The Legal 500 ranks Homburger Tier 1 in 12 categories and selected 7 lawyers for the Hall of Fame

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Candence Design Systems Inc. aquires BETA CAE Systems

Homburger advises Cadence on its  USD 1.24 bn acquisition of BETA CAE Systems

On March 5, 2024, Cadence Design Systems Inc. (Nasdaq: CDNS), a leading global EDA and Intelligent System Design provider, announced that it has signed a definitive agreement to acquire BETA CAE Systems International AG, a leading provider of multi-domain, engineering simulation solutions headquartered in Switzerland.
Under the terms of the definitive agreement, Cadence will pay approximately USD 1.24 bn for the transaction, with 60 percent of the consideration to be paid in cash and 40 percent to be paid through the issuance of Cadence common stock to current BETA CAE shareholders. The transaction, which is subject to customary conditions, is expected to close in the second quarter of this year.
Homburger advises Cadence Design Systems Inc. on the Swiss aspects of the transaction. The Homburger team is led by Daniel Hasler and includes Léonard Aeschlimann, Bianca Nedwed, Daniel Bötticher, Paula Delissen and Luc Huber (all Corporate / M&amp;A), Gregor Bühler and Kimberly Amrein (both Employment and Executive Compensation), Kirsten Wesiak-Schmidt and Marc Wang (both IP / IT), Jonas Krull (Competition, Regulatory), as well as Peter Müller (Tax).

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EU Adopts AI Act

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Homburger advises Cadence on its USD 1.24 bn acquisition of BETA CAE Systems

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