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Connectivity in the Automotive Sector
Meeting today’s legal challenges in a connected world
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.
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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.
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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.
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.
Addressing the Legal Challenges
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.
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
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.
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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.
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 ones 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, IP, Data Protection, Insurance 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 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 2013.
Machina Research
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For further information please contact our Automotive specialists:
Germany
Dr Stephan Appt L.L.M
Legal Director
Munich
T: +49 89 203043 561
M: +49 174 3332856
E: [email protected]
Dr Florian von Baum
Partner
Munich
T: +49 89 203043 537
M: +49 172 368 01 88
E: [email protected]
France
Dr Christoph Maurer
Partner
Paris
T: +33 1 53 53 09 65
M: +33 6 81 98 67 01
E: [email protected]
Emmanuel Gouge
Partner
Paris
T: +33 1 53 53 08 68
M: ++33 6 80 70 34 05
E: [email protected]
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Pinsent Masons | Connectivity in the Automotive Sector
UK
Jayne Hussey
Partner
Birmingham
T: +44 (0)121 626 5774
M: +44 (0)7810 556385
E: [email protected]
Cerys Wyn-Davies
Partner
Birmingham
T: +44 (0)121 625 3065
M: +44(0)7836 527690
E: [email protected]
Asia-Pacific
Dr Bernd Stucken
Partner
Shanghai
T: +86 21 6138 2521
M: +86 138 0183 7601
E: [email protected]
Liu Wei
Partner
Shanghai
T: +86 21 6138 2522
E: [email protected]
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