Connectivity in the Automotive Sector

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1 The Most Innovative Law Firm in Europe Connectivity in the Automotive Sector Meeting today s legal challenges in a connected world

2 Introduction The connected car has moved from being a futuristic concept to the here and now. The development of connectivity in the automotive industry is firmly in the fast lane, and is soon to become a must have feature in standard modern cars, with numbers expected to reach more than 350 million connected units in 2017 (ABI Research). Original Equipment Manufacturers (OEMs) are chasing tomorrow s customers, the digital natives, with infotainment and driver assistance connectivity features that make cars a mobile device, enabling users to be on the move but always on. With the current pace of development, the GSMA predicts that by 2025 almost every car will be connected. Connectivity: A New Era of Technology & Business Convergence The phenomenon of the connected car has triggered enormous investment in R&D by players in the automotive sector, with car manufacturers increasingly dominating the Financial Times published lists of top business innovators. In-car entertainment and connectivity features in today s cars are controlled by 100m lines of code more than a fighter jet. Financial Times, January 2014 Connectivity heralds a new era of technological and business convergence involving, among others, OEMs, mobile network operators, and insurance, finance, energy, media and entertainment firms. Alongside major technology players like Apple, Google and Microsoft as well as the crowd (through crowd sourcing or open collaboration initiatives); the business interests and activities of these differing parties are converging and overlapping in a connected world with the car at centre stage. Organisations increasingly need to play the role of a mobile link in the processing and delivery of huge amounts of data, the new gold fuelling Big Data based business. From Legacy to Digital: A Challenge for Automotive CIOs Through connectivity, the digital ecosystem is fundamentally disrupting the economics of the legacy automotive industry. It is moving from an essentially engineering based environment to a more digital focus, with CIOs challenged with integrating ever increasing volumes of cutting edge IT products and services. Players from the information technology industry are also actively involved in the automotive sector like never before not only keen on securing commercial supply arrangements with OEMs and Tiers but also pushing schemes such as Google s Open Automotive Alliance with the intention of setting the standards in tomorrow s cars

3 Pinsent Masons Connectivity in the Automotive Sector By 2022 there will be 1.8 billion automotive M2M connections. This will comprise 700 million Connected Cars and 1.1 billion aftermarket devices for services. Telefonica, 2014 Connectivity is a melting pot for what used to be standalone business approaches and interests. This, naturally, has a similar effect on applicable legal principles and frameworks; the internet of things and connectivity demands that we revisit and rethink many of the applicable legal concepts that applied to previously standalone business solutions. Automotive & Connectivity & Legal Challenges In this White Paper we explore the most substantial challenges arising and potential legal implications faced by automakers, tier suppliers, app developers, IT consultants, mobile network operators and any business innovative enough to recognise and take advantage of escalating automotive connectivity. (Big) Data: Powering New Business Models The phenomenon of connectivity is powered by data be it technical car-sensor data, personal data of the owner or data delivered by related infrastructure and services. Collecting, intelligently analysing and delivering derived data products will be a key revenue stream. Stakeholders are keen to know and understand their customers better, aiding their product manufacturing R&D, and to commercially exploit the available data sources themselves including vehicle, social media and customer relations data driving a variety of new or evolved business offerings and functionality. Some examples: Maintenance: Remote diagnosis and after sales services, such as maintenance reminders or automatic notification to an allocated repair workshop if key parts start to wear out. Marketing: Tailored messages to different consumers through the connected car e.g. push notifications via branded apps sent at the same time as on-air radio commercials. Fleet Management & Car Sharing: Approaches to car ownership and use are no longer fixed. This is especially the case in busy urban environments, where off-street parking can cost a small fortune. People are increasingly attracted to car-share schemes, where drivers can use their mobile devices to locate and rent nearby cars. Location-based, vehicle related services: What is already standard in the mobile device market will be adapted for automotive use cases, e.g. local weather information, parking space locators, intermodal navigation that integrates other means of transportation. Such data can also be used for forecasting a driver s behaviour in the future. Insurance: Car sensor data can be used to provide personal profiles of insurance customers, as well as laying the ground for pay as you drive schemes offering premiums that fit customers driving styles. New architectures In the pre-connectivity era manufacturers knew relatively little about the end-user the dealer was often the sole interface with the customer. Connectivity instead offers an unprecedented opportunity for manufacturers to engage directly with their customers. Branded apps and app stores, ongoing upgrades to software solutions and sharing of vehicle data all provide automotive OEMs with opportunities to maintain brand awareness among customers, as well as to improve service and maintenance offerings. Distribution channels: By embracing connectivity, OEMs enter the arena of e-commerce and telemedia services, which they can either develop and offer entirely themselves in their own ring-fenced webshops or open up the distribution channels and offer API and SDKs to reduce their own development costs whilst enticing innovative developers towards the auto environment. IT Infrastructure: Integration of OEM, dealer network and the customers is key for the purposes of connectivity but requires legacy data processing infrastructure to be brought up to speed and made fit for purpose. Such processing must also be tailored to legal requirements around connectivity, another case of privacy by design. The same applies to cloud hosted services, with on board units acting as clients to cloud services and remote firmware update capabilities. Big Data: The increasing digitisation and connectivity of modern vehicles, including connections to the OEMs, are generating huge volumes of data available for analysis. With an estimated 80% of cars being connected to some degree by 2016, data traffic will skyrocket. This means OEMs, Tiers and service providers will need to invest in IT infrastructure, the ability to deliver services over highly scalable cloud platforms and Big Data capabilities, including software and data analytics experts to process and analyse vast quantities of data and make subsequent predictions at high frequency and velocity. New Alliances Technology companies are increasingly entering alliances with companies from other industries which traditionally applied different operating methods, business models and talent profiles. Google has teamed up with a number of OEMs and a chip supplier to form the Open Automotive Alliance and bring the Android platform to cars, while international automotive supplier Continental announced a collaboration agreement with IBM that will see the companies jointly develop fully-connected mobile vehicle solutions for car manufacturers around the world. It makes little sense for OEMs to collect and provide relatively generic information and services, such as weather and navigation data or music streaming, themselves. To offer these services they are looking to find new partners or expand existing alliances. For this reason, Daimler and Deutsche Telekom recently announced their future collaboration in online services and web applications. 2

4 Mass auto manufacturers will need to partner with systems integrators to create comprehensive service bundles based around use of third party IT infrastructure, integrating a large variety of content providers with app stores and payment functions. Addressing the Legal Challenges As development of connectivity dramatically accelerates a range of legal challenges are becoming apparent across the product lifecycle. Some of these issues are readily addressed by existing legal practice but others raise novel questions. Their impact on the players involved, be it OEMs, dealerships, Tiers, content providers, app developers, system integrators or telecom services providers is yet to be fully assessed and understood. Commentary on a sample of the issues arising is provided below: Data Ownership Whoever intends to monetise data collected in the course of providing connectivity services must assess who actually owns the data? If the owner of the car also owns the data generated by it, any subsequent use of the data would be subject to their consent. If it can be established that another party, e.g. the OEM, has invested in collating such data into a database, this can give rise to separate IP rights, which need to be taken into account in related processing. Privacy Privacy law aspects should be considered as early as possible in system, process and product development. Addressing such matters at a later stage can be difficult if not impossible the underlying concept is often referred to as privacy by design. It is important to take heed of data protection law right from the start in order to avoid unwanted media attention from ill considered activities. T-Systems, Whitepaper on Big Data & Automotive Connectivity data can constitute personal data for the purposes of data protection laws (on the basis that it records the activities of individual drivers or a number of individuals). OEMs, insurers and other companies that handle telematics data might therefore be obliged to act in accordance with these data protection laws. In some jurisdictions personal data is not necessarily limited to information typically considered personal, such as an individual s name or their photograph seemingly technical data can also fall within data protection legislation, e.g. if technical data is collected together with a unique device identifier such as the vehicle identification number. Anonymous data is not subject to privacy law restrictions and anonymising data, thus, can be a way forward. However, anonymity in a legal sense may require it to be virtually impossible to establish a link to a natural person. Particularly with Big Data processes, data protection authorities are questioning to what extent data can be truly considered anonymous. For example, even for transaction data collected seemingly anonymously over a period some Big Data solutions can derive profiles that link data to a particular individual, thus triggering legal requirements. Where it is essential to use personal data or technical data that can theoretically be linked to an individual, manufacturers and providers might have to obtain express consent, where such use goes beyond merely providing the originally purchased services (e.g. purposes such as personalised advertisements or other marketing proposals). In any case, a certain degree of transparency towards data subjects is recommended. Telecoms Law Features such as embedded SIM cards in a connected car potentially raise aspects of telecoms regulatory law. This can be of particular concern because telecom service providers are subject to substantial supplementary requirements relating to customer protection, data protection, public safety and requests for information by security authorities etc. Telecom laws have not generally been designed taking into account M2M, car2car, car2infrastructure communication. Consequently, many questions towards applicability in the context of the connected car might have to be discussed with the regulatory authorities. This does not only affect mobile service providers but also OEMs, dealerships or other third parties that could be considered as contributors to the connectivity services offered to customers. Competition Law Insurers, to take one example, want access to databases of telematics data to help them set personalised premiums for individual drivers. However, arrangements governing how that information is gathered, managed and accessed could be subject to scrutiny by competition regulators for example competition concerns may arise if one company dominates the market for either gathering telematics data or analysing and marketing the information. Liability Providers of connectivity hardware, software and services may face liability for accidents involving connected cars. Such liability questions may be complex. For example, which party would be liable for accidents caused by defects in software that lie in the interface between two connected cars? Was an accident caused by defects in the connected car itself or by an information provider sending, for example, incorrect details regarding road conditions? If there was a connectivity problem caused with network issues, can the network provider be held liable? Who is responsible for ensuring that connectivity services and applications that customers can buy comply with any applicable statutory requirements with regard to driver distraction? Players within the arena of connectivity should carefully assess the risks involved in the course of developing products and services for the connected car and how liability can potentially be limited

5 Pinsent Masons Connectivity in the Automotive Sector IT Contracts OEMs, system integrators, service and content providers will need to make their IT systems fit for the massive volumes of data processing capabilities which will be required when connectivity truly hits the market and customer rates develop as expected by experts. Drafting and negotiating contracts for procurement of IT infrastructure, services, outsourcing and content supply agreements requires highly specialised legal skills and a real understanding of the subject matter of connectivity with its legal implications. Such skills include allocating specific risks as well as addressing service level agreements, liability issues and data protection and telecom law aspects of connectivity, to name just a few. About Pinsent Masons Automotive team The Automotive Industry has entered the global arena of IT, communication and infotainment and grapples with opportunities and challenges presented by the ever increasing connected world. Companies in this sector are often at the leading edge of international investment in new frontiers in order to find the customers of tomorrow. Automotive companies, tier suppliers and suppliers of IT and telecom solutions and services that embrace the paradigm shift of connectivity have access to unprecedented opportunities in the 21st century. In a sector which is sensitive to a litany of regulatory frameworks, it can be difficult to navigate the changing business environment. Our focus is on providing pragmatic advice that makes a real difference by providing solutions, not just identifying problems. We help our clients to steer a clear path through the multijurisdictional regulatory and legal minefields that stand between them and success. Our TMT, Commercial IP, Data Protection, Insurance regulatory, Supply Chain and Corporate teams all have a wealth of experience within the sector and regularly draw upon the complementary and specialist skills each other offer within the field. Our Automotive Team, operating out of hubs in Munich, Paris, Shanghai and the British Midlands have advised clients on the legal solutions required for original equipment and parts manufacturers, IT and telecom suppliers operating in an increasingly global market. The team has extensive expertise advising clients on their contractual arrangements, the procurement of software and hardware solutions, content for applications and on distribution schemes, regulatory issues against the background of telecom and data protection laws as well as giving operational support regarding risk management, compliance and intellectual property. By 2020, 90% of new cars will feature a connectivity platform, growing from less than 10% in Machina Research 4

6 For further information please contact our Automotive specialists: Germany Dr Stephan Appt L.L.M T: M: E: Dr Florian von Baum T: M: E: France Dr Christoph Maurer T: M: E: christoph.maurer@pinsentmasons.com Emmanuel Gouge T: M: E: emmanuel.gouge@pinsentmasons.com

7 Pinsent Masons Connectivity in the Automotive Sector UK Nicole Livesey T: +44 (0) M: +44 (0) E: Cerys Wyn-Davies Birmingham T: +44 (0) M: +44(0) E: Asia-Pacific Liu Wei T: E: Philipp Senff Legal Director T: M: E: 6

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