Worldwide: Global AV And EV Regulatory Approaches In Focus Recently At Frankfurt Roundtable

Guest Author: Ruth Knox, Managing Associate, Linklaters LLP

Given the pace of change in the automotive industry and related technologies, combined with increasing regulatory scrutiny and recent developments in trade and M&A, there are several risks and challenges the global automotive industry can expect to deal with for the remainder of 2018 and beyond across Europe, China, and the United States.

Recently,  Foley & Lardner LLP and Linklaters LLP held a roundtable on the "Future of the Automotive Sector in Europe, China and the United States." Participants addressed four major points during the roundtable, which are summarized below.

Law and policy developments on electric and autonomous vehicles across the globe

Participants shared the most recent developments at the EU and Member State level with respect to regulation of autonomous and electric vehicles. While the EU is essentially letting Member States take the lead on regulation, a number of key documents are anticipated in the next few quarters, including some guidance on how the Product Liability Directive will apply to AVs, along with the European strategy on Cooperative Intelligent Transport Systems (C-ITS) Delegated Act, which will focus on the exchange of information between vehicles and infrastructure and the cooperation between national authorities to ensure interoperability.

Ruth Knox, Managing Associate of Linklaters, noted that while the Road Traffic Act (which took effect in June 2017) legalizes the operation of SAE Level 3 and SAE Level 4 autonomous driving functions in Germany, fully autonomous vehicles are not yet recognized under German law. From a liability perspective, the vehicle holder remains strictly liable and the maximum liability has increased to EUR 10 million (for personal injury) and EUR 2 million (for property damages).

In France, a May 2018 report sets 2022 as the deadline for the circulation of an SAE Level 3 and SAE Level 4 regulatory scheme, and a bill known as the Action Plan for Business Growth and Transformation would amend the Highway and Roads Code to say that the driver is not criminally liable when the autonomous driving system is "on"; rather, liability will sit with the holder of the authorization should a fault in the operation of the autonomous driving system be established. The driver will be criminally liable for offenses committed while driving when the autonomous driving system prompts the driver to regain control of the car or when the driver has knowledge that the autonomous driving system is not working properly.

Knox also said that incremental changes are coming to the EU, in the form of an amendment to the May 2018 Energy Performance of Buildings Directive, which requires the installation of electric vehicle charging stations in new residential and nonresidential buildings alike. In Germany, the federal government aims to increase the number of EVs to one million by 2020 and to six million by 2030. There, a 2016 law stipulates that all new charging stations must be equipped with a standard European charging plug. Germany has also developed a  regulatory framework on hydrogen refueling infrastructure, where 46 hydrogen re-fueling stations have been opened, with 33 more expected to be operational by the end of the year.

The French government is predicting to have 1.9 million electric vehicles and 7 million electric charging points installed by 2030. A bill for clean mobility, which will specify the legal framework for the development of EVs, is expected to be discussed later this year in France. The bill should help define the priorities for infrastructure investments, along with proposed financing methods. The existing framework is far-ranging and harmonizes technical specifications applicable to charging infrastructure. It also requires new buildings/car parks to be equipped with charging stations and provides subsidies for the acquisition of Low Emission Vehicles.

Participants also discussed the development of the automotive sector in China, beginning in 1986, when it was asked to address emissions and climate change, to the 2016 publication of the [ASICs-3] plan, which proposed a shift to electric vehicles. Today, the production of "new energy vehicles" entitles manufacturers to a state subsidy, which ultimately results in a tax reduction for  the consumer and a "new energy credit" for  the OEM. Linklaters Partner Simon Meng observed that it is easier to develop electric vehicles at a lower cost in China than in Europe.  Since 2015, the Chinese government has licensed 13 electric vehicle makers. While there is no industrial norm on AVs in China, three Chinese cities have published guidelines for self-driving vehicles. To some extent, China has followed the U.S. approach by not being prescriptive and by enabling cooperation between technologies.

Foley Partner Steve Hilfinger commented on how little binding regulation of autonomous vehicles there is in the U.S., though several states including California, Michigan, Florida, Arizona and Nevada, have enacted legislation or regulation permitting  testing and development.  At the federal level, the U.S. House of Representatives passed the SELF DRIVE Act, which would permit NHTSA to regulate the design, construction and performance of autonomous vehicles (including cybersecurity requirements). Meanwhile, similar legislation that would support the development of highly automated vehicle safety technologies is stalled in the Senate and may not be considered during the current term. To date, NHTSA has shown a preference for a cautious regulatory approach when it comes to AV's, issuing voluntary guidance on safety/design elements, such as object detection, robust validation and determining failsafe mode, as well as the interface between human and machine.

Foley Partner Mark Aiello touched on the development of a liability regime under U.S. law, which in the end may resemble the tort liability schemes that exist under various state laws.  This subject is receiving a  lot of discussion, including input from the insurance industry, and is expected to receive further scrutiny and review.

What challenges has the General Data Protection Regulation created and what opportunities does it bring for the automotive industry?

Participants also spoke about the opportunities and challenges for the automotive sector presented by the EU General Data Protection Regulation (GDPR). Daniel Pauly, a technology, media & telecommunications partner at Linklaters, explained how the advent of new technologies that collect and share data (such as passenger monitoring systems, traffic flow management systems, diagnostic and preventative repair and warranty management systems) may not comply with the regulatory framework.

In 2016, a joint declaration by German data protection authorities and the German Association of the Automotive Industry (VDA) stipulated that any data generated by such systems qualifies as personal data if it includes the Vehicle Identification Number (VIN) or license plate.  The GDPR prohibits the processing of such data unless expressly allowed pursuant to statutory permission or individual consent. The legislation also stipulates three principles:

  • Privacy by design (any product or service needs to be designed in light of the applicable data privacy framework)
  • Data minimization (any product or service which processes personal data may only process the amount of data that is required to fulfill the specific purpose for which it is designed). A privacy impact assessment must be undertaken to understand whether the processing of personal data involves a significant risk to the rights and freedoms of each individual (this will be triggered by the use of automated functions). If you think there is such a risk, you need to discuss the potential impacts with the relevant supervisory authority.
  • Individuals have enhanced rights as data subjects, including the right to data portability, enabling subject access requests. Modern control units process 50,000+ categories of personal data – countless software which are not designed for GDPR, including as to the requirements for deletion of data. It is important to bear in mind that huge fines are payable for GDPR breaches, including up to 10 million EUR or 2 percent of total revenues for lesser offenses and up to 20 million EUR or 4 percent of global revenues for more serious offenses.

The future for trade in the automotive sector

Participants also addressed recent developments on Brexit, which have become "cloudier" in the past six months. According to Lorand Bartels, External Senior Counsel with Linklaters' international trade law practice, in the event of a "hard" Brexit (Brexit without a consensual agreement on transition),  there will be significant short-term disruption, which the European Commission will seek to mitigate. Mr. Bartels noted that there is no obligation under the World Trade Organization (WTO) law for customs duties to be applied. Tariffs on cars are 10 percent, which fluctuates depending on the type of vehicle. WTO law states that if you do have customs duties, you apply the Most Favored Nation principle to the same product supplied by a WTO member. There is a cap on customs duties following WTO law, which, legally speaking, should apply but tensions and disputes can be expected. Unfortunately with respect to remedies, it takes four years on average for a case to be determined; and (2) an awarded sanction calculated on an annual basis may not adequately  compensate the disputing company.

If a withdrawal agreement is reached, it is expected to result in a continuation of EU law until the end of 2020 (thereby granting extra time to adapt). Post 2020, there will need to be a permanent trade relationship with the EU in the form of a Free Trade Agreement (FTA). An FTA does not deal with regulation in any sophisticated way and as such, mutual recognition would be required. This begs the question of how much the UK can and will want to diverge – otherwise what is the point of Brexit? An FTA will also not eliminate the need for border checks because of the Rules of Origin, which highlights a particularly important point: that is, on Brexit Day, regardless of the terms of the withdrawal agreement, UK products and content will all fall out of EU third-country free trade agreements. Not a single third country has publicly indicated it will say yes to continuing its existing relationship with the UK as if it were an EU Member State without some changes, and the EU will not ask third countries to do so until a withdrawal agreement is agreed to, which is not likely to happen until later in 2018.

Steve Hilfinger of Foley & Lardner also addressed the recently amended CFIUS (the Committee on Foreign Investment in the United States) regime, and the tariff environment in U.S. trade relations. According to Hilfinger, these recent changes focus on  U.S. economic security as an element of national security. The reason it may be of concern is that if CFIUS concerns are raised due to a foreign investment where the process was not followed, the transaction can later be unwound. Key risk areas include transactions or targets that include defense activities, export control licenses, government contracts, access to sensitive data and critical infrastructure. As a result of these changes, a broader group of transactions need to be reviewed for CFIUS  considerations.

Mark Aiello expanded on the tariff environment, explaining that most FTAs (such as NAFTA) are under negotiation. Recently, the United States, Canada and Mexico have agreed in principle to change and rebrand NAFTA, which has been renamed the U.S.–Mexico–Canada Agreement (USMCA). From a legal perspective, Foley has been examining automotive supply chain contracts in an effort to mitigate the risks of potential tariffs, including contractual terms, duty increases and how these might be addressed in the supply chain.

Key cooperation models emerging in tech M&A around the world

Participants gave an overview of M&A developments in Europe, highlighting deal flows and the novelty of seeing corporate actors investing in start-ups. The M&A processes are not necessarily plain vanilla and the targets are new people- and technology-focused businesses, sometimes involving a product and sometimes not. A minority/majority stake or full control can be purchased. The primary issue is to incentivize key staff, which can be challenging for corporates. (PE funds normally put packages in place to retain management, which is unusual for corporates.) IP is another major issue and a key area for due diligence. This must be protected and owned by the company. Linklaters Partner Pierre Tourres spoke of scenarios in which employees have asserted claims over IP rights and separate negotiations were necessary in order to consummate a transaction. GDPR is also fast becoming a due diligence issue. Employment and tax are two other major issues of interest.

Linklaters partner Simon Meng addressed M&A developments in China, pointing out that the New Energy car industry has been heavily promoted in China and represents a major economic development goal in China.  He acknowledged that CFIUS is "top of mind" for many potential Chinese buyers of U.S. technologies.  In terms of talent attraction and retention in transactions, some Chinese companies implement dual incentive regimes, which grant two percent of the company during its lifetime. Other companies establish another stock option pool in China, with a six-year period for vesting stock options.

Finally, Steve Hilfinger and Mark Aiello discussed the current North American automotive market, which is in the midst of  one of the longest automotive expansion cycles in North American history.  Currently, the industry is plateauing from peak levels and valuations have come off 2017 highs, while still attractive.  Even more attractive have been valuations venture capital-backed companies in the autonomous vehicle space.  In addition, corporates are setting up their own VC funds (e.g. Toyota AI) to get access to technology and talent through investments that they lead, often that include a commercial component.

Mr. Aiello spoke of seeing more customer investment in technology companies than ever before, citing the examples of Ford, Google and Intel, which is indicative of changes to the future business models of traditional automotive companies.  One issue to be addressed early in negotiations is the scope of the relationship, including exclusivity asks by larger partners.   This is often a tricky balance the value of establishing a key customer relationship with the potential limitations that such relationship may bring on the overall growth of the technology company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions