United States: The Internet Of Things And The Inevitable Collision With Products Liability PART 2: One Step Closer

The Internet of Things and the Inevitable Collision with Products Liability, published in February 2015, identified a number of factors leading to the emergence and phenomenal growth of the Internet of Things (IoT).  It also identified issues relating to potential product liability exposures and the impact that IoT-connected devices could have on risk assessment and risk transfer due to the consequences of foreseeable vulnerabilities and failures with IoT-connected products.

This second article addresses in more detail the emerging liability risks for the stakeholders at the forefront of the development and implementation of these technologies who, in turn, will be forced to confront those liabilities whether or not they are prepared to do so.

Several documented IoT failures have already occurred in 2015. Notably, Wink's wireless hub, which is connected to a variety of devices in homes via a single app, experienced a failure in April that disabled the connected devices, potentially leaving consumers vulnerable to breach of their home security systems or other failures. Chamberlain and Ooma also experienced failures, both of which involved compromised IoT connective services and resulted in disruptions that had the potential to affect customers' home security.

The first IoT class action was brought in March 2015 spurred by the February publication of a report by U.S. Senator Edward Markey (D-MA), which was also covered on a CBS broadcast of 60 Minutes. The action was brought against Toyota Motor Corporation, Ford Motor Company and General Motors LLC. (See Cahen, et al. v. Toyota Motor Corporation, et al., U.S. District Court of Northern California, San Francisco Division, Civil Action No. 4:2015cv01104.)

Senator Markey's staff questioned 16 auto manufacturers regarding how they protect against vulnerabilities of vehicles to the threat posed by outside hackers infiltrating vehicle systems that could lead to loss of control over vehicles or disabling of safety devices.  (See Tracking & Hacking: Security & Privacy Gaps Put American Drivers at Risk.)

The investigation was prompted by studies that disclosed that hackers can get into the controls of some popular vehicles, causing sudden acceleration, turns, loss of brakes, activation of the horn, faulty operation of the headlights, and modification of the speedometer and gas gauge readings.

Senator Markey's investigation was therefore directed at determining what automobile manufacturers are doing to address these issues and protect drivers.

According to the report, based on the auto manufacturers' responses, a number of serious vulnerabilities were identified:

  • Nearly 100 percent of cars on the market include wireless technologies that could pose vulnerabilities to hacking or privacy intrusions.
  • Most automobile manufacturers were unaware of or unable to report on past hacking incidents.
  • Security measures to prevent remote access to vehicle electronics are inconsistent and haphazard across all automobile manufacturers.
  • Only two automobile manufacturers were able to describe any capabilities to diagnose or meaningfully respond to an infiltration in real time, and most say they rely on technologies that cannot be used for this purpose at all.

Additional concerns about driver privacy were identified as navigation systems and other features can record and send location or driving history information. This topic will be explored in greater detail in a future segment of this series.

The complaint filed in the resulting class action brought against the auto manufacturers closely mirrors the threats identified in the Markey report. The core allegations made against each auto manufacturer are based on breach of warranty claims that the vehicles are not free of defects:  "Because defendants failed to ensure basic electronic security of their vehicles; anyone can hack into them, take control of the basic functions of the vehicle, and thereby endanger the safety of the driver and others."

The complaint further alleges that each vehicle has up to 35 separate electronic control units (ECUs) that interact with controlled area networks (CANs) and "vehicle functionality and safety depend on the functions of these small computers, the most essential of which is how they communicate with one another." As a result, a "hacker could take control of such basic functions of the vehicle as braking, steering and acceleration – and the driver of the vehicle would not be able to regain control."

This action is still in its early procedural stage, so forecasting the merits and outcome is premature, but nonetheless it should provide cause for concern for manufacturers and software companies that are actively developing products for the IoT marketplace.

Other Threats Identified
In April 2015, the U.S. Government Accountability Office (GAO) issued a report addressing commercial aircraft safety from cyber threats. GAO noted that "modern aircraft are increasingly connected to the internet, [but this] interconnectedness can potentially provide unauthorized remote access to aircraft avionics systems."  (See Air Traffic Control – FAA Needs a More Comprehensive Approach to Address Cybersecurity as Agency Transitions to NextGen.)

Among GAO's conclusions, the report found "...FAA has taken steps to protect its ATC (Air Traffic Control) systems from cyber based threats; however significant security control weaknesses remain to ensure the safe and uninterrupted operation of the national airspace system."

The FBI is reported to be investigating an individual who claimed through social media that he had hacked into passenger airplane controls while on board flights and had taken over command of certain airplane functions. The intrusion was reportedly made through Wi-Fi access via the plane entertainment system.  (See The Washington Post,  May 18, 2015.)

Swiss Re in May 2015 published a global risk assessment report in which it identified the Internet of Things as among the highest potential risk impact comparable only to de-globalization, the great monetary experiment and supernatural category storms.  (See Swiss Re SONAR, New Emerging Risk Insights.)

More recently, AIG has published part one of a series of white papers addressing IoT risks, The Internet of Things: Evolution or Revolution. The report predicts significant risks for businesses entering the global market for IoT-connected products:

"From cyber breaches to shifting questions of property and products liability, businesses cannot afford to enter this new technological world unprepared. For example, every object that connects with the Internet is another entry point through which the cyber-criminals can enter a business' [sic] enterprise system. Equally dangerous, in a world where machines replace humans as the decision-makers and sensors are continually capturing data, serious questions of liability, resulting physical damage and privacy arise."

As to liability concerns, the paper posits a number of thought-provoking scenarios:

"When it comes to autonomous vehicles, like driverless cars, we are faced with an obvious ethical dilemma: In the seconds before an accident, should an autonomous vehicle do anything it can to protect the passengers, even if it means harming other motorists or pedestrians? When humans are behind the wheel, collateral damage, as terrible as it is, doesn't pose much of an ethical problem. A human being in danger can't be faulted when its survival instincts make it swerve its car into a pedestrian. But when machines are the decision-makers, does a pedestrian harmed in accident have a case against the car manufacturer? Does a driver have a case against a car manufacturer following an accident in which he or she was injured?

"IoT devices also raise troubling questions when it comes to device malfunction. Sensors can be embedded in critical infrastructure like dams, bridges, and roadways to monitor structural integrity as well as environmental conditions that could undermine structural integrity. A road near a flood area could be embedded with sensors that know the moment rainfall has exceeded a point that gives engineers advanced warning of flooding. Indeed, protecting infrastructure is one of the most exciting aspects of IoT. Yet when we turn more and more of our critical infrastructure and security systems over to IoT objects, we run the risk of a catastrophe if and when those objects fail. We can apply this to the private sector as well. To cite a non-lethal example, in April 2015 several American Airlines flights were delayed when a software malfunction rendered pilots' tablets, which they use for navigational purposes, useless. Although the malfunction was easily fixed with a software update, these examples show just how exposed we already are because of our connected devices. When—not if-- they fail, will we be prepared?"

Supply Chain Considerations
Software vendors and sensor manufacturers are now critical component part suppliers in the development of IoT-connected products. Major players in the development of IoT products and applications are acquiring software companies and partnering with Internet start-ups to take strategic advantage of the emerging market. Google, Microsoft, Samsung and Amazon have all made recent acquisitions of companies that will accelerate their penetration of the multibillion-dollar IoT marketplace. Strategic joint venturing between technology companies and other business enterprises seeking to catch the wave are also occurring weekly. These new strategic partnering initiatives will have an impact on component part suppliers' product liability exposures, most notably the software vendors and sensor manufacturers.

Component parts manufacturers have long been subject to product liability exposures when a critical component part causes or fails to prevent a product failure.

Sensor manufacturers will face greater liability exposure in part simply because of the greater use of sensors in all manner of IoT product applications. Sensors have already been the subject of product liability claims and lawsuits for alleged failures in products such as smoke detectors, carbon monoxide alarms and automobile airbag systems.

In the IoT world, software licensors will not be protected against third-party injury claims. Many software vendors have either (1) been unaware of their product liability exposure to claims and lawsuits for bodily injury and property damage caused to third parties or (2) have failed to provide for such exposures in their agreements. Licensing agreements and their built-in provisions for protection against failures have largely been limited to instances of failures or damages between a software vendor and its customer, and specifically related to the task for which the software was provided. These agreements may not insulate a software vendor from liability resulting from a failure that injures a third party or causes property damage to a third party for which such loss was foreseeable.

Insurance coverage for losses that result in property damage or bodily injury is an area of vulnerability for stakeholders. Traditional cyber-data breach insurance coverage addresses the loss in intangible property as a result of a breach. An IoT product failure that results in property damage or bodily injury will, in the absence of a specifically designed policy, require companies to look to the traditional coverage afforded under CGL, PL, D&O and E&O policies. Inevitably, in the absence of specifically designed coverage there will be instances where gaps will exist and the exposure will be uninsured.

Software companies and product manufacturers need to and will develop contractual language to properly balance and shift the potential third-party liability exposures. However, the enormous financial power differentiations between the big technology players and the medium-sized to small software start-ups and new IoT-centric businesses will require that adequate financial protections in the form of IoT insurance coverage be developed. The insurance industry to date has been slow to recognize the enormous potential market for IoT insurance coverage for commercial liability exposures. It has been predicted that companies such as Google, Amazon and Apple with their huge liquidity may jump in and take a leading role at the expense of insurers. This development has already begun to unfold in personal lines insurance where technology companies have a huge advantage over insurers with the collection and use of data from consumers. Insurers are also coming around to recognize the power of big data and have initiated their own strategic partnering with technology companies such as American Family Insurance Company and Microsoft's joint enterprise to create an accelerator for startups focused on smart home technology.

Lack of Standards
One of the immediate short-term concerns for stakeholders is the lack of uniform standards for the IoT whether it is industrial IoT, consumer goods or other applications. The lack of uniform standards will result in vulnerabilities for IoT companies when the inevitable accidents occur leading to claims and lawsuits. Plaintiff attorneys will be certain to seize on the lack of self-governance within the industry based on the lack of recognized minimum standards for safety and security.

Currently, standards-setting organizations are working on developing standards that will be implemented at some point in the future. These include:

  • Institute of Electrical and Electronics Engineers (IEEE): P2413 Draft Standard for an Architectural Framework for The Internet of Things Working Group
  • International Telecommunications Union (ITU): Y2060 – Overview of The Internet of Things.

Industry security specialists have sounded the alarm over concerns with the fast-paced development of IoT without adequate security safeguards. A June 14, 2015, interview of two security specialists that appeared in The Globe and Mail noted: "The key weakness of most tech companies and their Internet of Things (IoT) customers is a failure to create a 'threat model' and test security against that. If they don't know what they are trying to defend, and who they are trying to defend it against, any security measure and no security measure applies. You attack the weakest device, and an IoT device usually has weak or no authentication with other devices in the same network."

Another security specialist noted in a Pace interview:

"Despite the industry's best efforts, the IoT will never be 100% secure ... We don't know all of the ways that smart devices will interact with each other and how they will be used. The complexity and scale of the IoT will inevitably lead to security holes. A detect-and-respond mindset must be adopted from the start. ... Manufacturers and other businesses should assume that the IoT technology stack will be attacked, and be properly prepared to respond. This means investing in systems that automate the detection of malicious activity so that it can be contained and remediated before data is lost or damage is done.

"Users can't be expected to download antivirus software for every smart connected device – it may not even be possible given the disparity of operating systems. At the same time, businesses can't be expected to deploy patches and updates to disposable, lightweight devices. IoT devices must be built with security and privacy controls baked in. Networks must be instrumented to automatically detect malicious behaviour."

Next up in Part 3. The IoT and privacy as it relates to data collection from IoT devices. Who owns the data? Who is responsible for its security? What steps are necessary to inform and protect consumers' data from unauthorized uses or hacking threats? Also, what will be the reporting obligations for IoT product defects to government safety agencies? Who will be obligated to report? What event may trigger an obligation to report when there is a threat of physical damage or bodily injury arising from an IoT device defect?

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 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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.