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Autonomous Vehicles – Smoothing the Commercial Creases

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Autonomous or “driverless” vehicles are in tech-vogue, a movement perhaps exemplified by the rise of Elon Musk’s Tesla, Inc. Almost every major car manufacturer has invested in the research and development of autonomous vehicles, with beta testing of semi-autonomous cars being conducted with varying degrees of success.

Their commercial viability is evident, with human safety a work in progress. But how will vehicle manufacturers, technology suppliers and service providers throughout the supply chain manage what could otherwise become a contractual and logistical nightmare?

The Route to Full Autonomy

The current state of the technology is Level 2 autonomy, whereby the vehicle assists its human driver through the use of cameras and ultrasonic sonar sensors which analyse the vehicle’s surroundings. An on-board computer processes this information in real-time and the vehicle adjusts to traffic conditions accordingly.

Through a series of incremental software updates, functions such as: acceleration, braking and steering can now be taken over by vehicles themselves, subject to the driver keeping their hands on the wheel and eyes on the road.

Full (Level 5) autonomy heralds the removal of the steering wheel and pedals, with the entire spectrum of driving functionality on every road type performed by the vehicle’s system.

Driving data streams

With a multitude of sensors constantly recording data and perennial interconnectivity, autonomous vehicles will test the limits of data protection legislation.

Much of the data produced, transferred and stored is considered “personal”, with individuals being personally identifiable. This raises questions around which party is responsible for the security and integrity of that data and where liability lies for any breach thereof.

The complexity here lies not only with the volume of data transferred but also the array of parties involved. At its most basic, various suppliers will provide technology to vehicle manufacturers and data generated on behalf of these manufacturers and suppliers will be processed by relevant service providers.

Issues around consent to the sharing of personal data to third parties, how this data can be used and which party is liable for breach will be increasingly magnified. The agreements in place between the parties must therefore make clear which aspects of the data each party is responsible for and the level of security that each party must have in place. Prescriptive industry standards will facilitate this, but such standards must be complied with across the supply chain to avoid complex disputes, costly penalties and brand damage.

Securely Fastened

Concerns around data sharing and cyber security become yet murkier when an autonomous vehicle crosses national borders. Without a common, joined up approach to data protection, it may be unclear as to how autonomous vehicle data can be shared and the extent to which a vehicle can interact and connect with other vehicles and external data.

The incoming EU General Data Protection Regulation (GDPR) may go some way towards fixing this fragmentation, though its application to autonomous vehicles is not without its gaps, such as in respect of automatically profiling the location and movement of individuals.

Data usage restrictions must be managed carefully – whilst security and privacy are paramount, excessive restrictions will erode the effectiveness of data analytics, which may adversely impact performance, safety, personalisation, operability and infotainment.

It appears that bespoke legislation is the most practical outcome to tackle these issues as well as relatively more pedestrian difficulties such as data privacy between multiple “drivers” of the same vehicle and the retention or deletion of data when used cars are bought and sold.

Vroom Vroom – Balance of Power

Traditionally, the balance of power in the vehicle industry has heavily favoured manufacturers rather than suppliers, due to the size and bargaining power of the former. This has had a profound impact on contractual negotiations, contributing to the inflexibility of clauses like delivery, risk and liability exclusions benefitting the manufacturer as compared with its suppliers.

This is likely to shift in line with the relative importance of the technology underlying vehicular autonomy compared to the physical components surrounding it. Since autonomy leans heavily on software, which can be updated wirelessly, rather than hardware, suppliers of vital vehicle software will be in a better position to impose their own terms into the relationship.

Carmakers must beware of conceding excessive liability to end users and should ensure that necessary indemnities and exclusions are in place, particularly given the greater risk of product recalls and obscure faults arising out of the byzantine fusion of software and hardware.

The perspective of the end user may veer away from owning a vehicle outright and toward the consumption of mobility as a service, with a likely increase in subscription-based car clubs. Vehicles may turn up at a user’s door through the tap of a button within a smartphone app - similar to Uber yet without a human driver. This in itself opens up opportunities and further complicates the supplier-manufacturer-service provider relationship.

Mirror Signal Manoeuvre

Since autonomous vehicles require a complex array of hardware and software to come together, businesses will find it difficult and costly to gain access to all the technology required for manufacture. Consequently, there is a growing trend of joint ventures between tech giants and automakers, such as Google & Ford and IBM & Groupe PSA.

Amidst the confusion of whether firms will benefit more from purchasing the material technology or otherwise attempting to build it in-house, lie pitfalls pertaining to intellectual property protection. Safeguarding IP is paramount for such new, burgeoning tech, and contractual boundaries must be drawn around who owns which hardware and software and to what extent know-how and other IP rights are licensed.

Outside of the growing appetite for joint ventures, commercial arrangements must be dealt with vigilantly. Exclusivity agreements must be carefully drafted to avoid being anti-competitive, such as where they limit supply to certain partners, agents and distributors, particularly where components vital to autonomy are concerned.

As with the mobile industry, the salient technology at the heart of autonomous vehicles is likely to be standardised, in which case relevant patents must be licensed to third parties on fair, reasonable and non-discriminatory terms. Otherwise we may soon see protracted cases in this sector similar to the smartphone patent wars between Samsung, Apple and Motorola.

The Road Ahead

Outside of the technology itself, there are a broad range of variables affecting the implementation timeline - user attitudes, relative cost and suitable infrastructure to name a few. Given the time taken for previous vehicle technologies to permeate the global fleet, it has been projected that approximately 20% of all vehicles will be autonomous by 2030.

This is a rather conservative estimate, especially since Ford has claimed it will begin shipping fully autonomous cars by 2021. Whilst previous technologies like automatic transmission and GPS took several decades between availability and market saturation, the commercialisation and adoption of new technologies are far more agile now than was the case 20 to 30 years ago.

Notwithstanding the ambiguous autonomous vehicle timeline, the commercial and logistical complexities are evident, requiring diligent management of business relationships, regulatory compliance and contractual protections.

 

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