As we approach the start of a new year we have asked our legal experts supporting technology & communications clients from around the world to identify some of the challenges and opportunities the sector is likely to face in 2019.
A cross practice team of fee earners based in Australia, Belgium, China, Denmark, Finland, France, Germany, Hong Kong, Italy, the Netherlands, Poland, Spain, the UAE and the UK have contributed to this article but many of the trends and developments will have a global reach and a significant impact on the Technology and Communications sectors in the year ahead.
As the market for Artificial Intelligence (AI), continues to grow, the European Patent Office has amended its Guidelines for Examination to add a short section on the issues relating to the patenting of AI and machine learning, giving examples of what might be considered to give an invention in this field sufficient technical character to be patentable.
Further reading on patentability of AI systems and their ‘inventions can be found here.
The European Commission is increasing scrutiny around the ethical, legal and socio-economic aspects of AI, which can drive the digital economy while at the same time serving European citizens by offering solutions to societal issues, e.g. tackling the spread of disease of minimising the environmental impact of farming. The European Commission published a coordination action plan on the development of AI on 7th December 2018 and is due to follow up with AI ethics guidelines in March 2019.
The European Union's forthcoming Directive on Copyright in the Digital Single Market will require Member States to introduce an exception to copyright infringement for text and data mining techniques. This will potentially open up a wide range of data sources for use as training data for machine learning, although the currently proposal is to limit the exception to only those undertaking non-commercial research for scientific purposes which will significantly limit the circumstances in which it will be of use.
AI systems and software platform have entered the mainstream market globally and are being used for B2B and B2C applications.
The legal implications on liability and accountability of AI systems are very relevant and are likely to start producing relevant litigation and force the stakeholders to improve their contractual and insurance protection and induce governments to issue dedicated legislation.
Contractual protection will have to include specific provisions to rule and share liability within the players of the AI system solutions supply chain, including software and service providers, telecommunication providers, professional users and insurance providers.
We have seen a dramatic rise in the applications based on AI and Machine Learning (ML). Such technologies have changed the software, internet, manufacturing and automotive industries amongst others. Throughout 2019 and beyond we will witness an advancement of AI and ML that will begin to introduce these technologies to the wider public. One of the main trends to watch out for in 2019 will be in the fields of chips for AI-enabled applications.
Increased adoption on hybrid AI, by which I mean AI with more conventional IT as a means of drastically reducing time consuming tasks. As AI develops we are seeing it not as a universal panacea but as an extremely tool to be used for specific functions for which it works well, leaving other applications or humans to do those things they are better suited for.
Blockchains will become recentralised. Blockchain technology is primarily about two things: distributed data and decentralised decisions. The latter gives immutability and irreversibility because in a decentralised market nobody is in control. But enterprise and government use cases need control and reversibility for e.g. GDPR compliance or general error correction. So we are seeing Digital Ledger Technology (DLT) compromising on decentralisation and moving toward traditional centralised decision making models. However, DLT still builds on the data to be distributed in copies to all the nodes of the network.
Use cases for blockchain based data exchange are shaping up outside the financial services sector. They could develop into a significant game changer for Industry 4.0, in particular in manufacturing, transportation and logistics in 2019. The International Data Spaces Association (www.internationaldsdataspaces.org) has a significant role to play here.
The buzz around blockchain (and smart contract) technologies has continued to grow as more and more industries look at its application to their sector. Clients are becoming more knowledgeable of blockchain technology (including the pros and cons). With the success of platforms like R3's "Corda" and the successful testing and implementation by some companies of their own proprietary blockchain technology, expect to see more use cases moving out of the PoC/MVP phase and into (limited) live production. Click here to view our video on Blockchain.
Further reading: How Blockchain works.
Currently and predominantly used in the financial services and banking industry, 2019 will see a rapid uptake and adoption of blockchain technology used in other sectors in the APAC region, including retail and manufacturing. APAC Governments are also keen to explore how blockchain technology can be used to better serve the public. In China for example the Chinese government is exploring potential use of blockchain for the recently established internet courts.
Blockchain as a means of proof of record. When blockchain first came to our attention it was all about bitcoin, however what we are now seeing is the security offered by blockchain affords, with blockchain now used for AML/KYC. Rights holders are looking at blockchain as a means of restricting piracy, etc. I firmly believe the advantage of blockchain will be used in an expanding variety of areas.
At the time of writing, there is a danger that we will have a "no-deal" hard Brexit on 29 March 2019. As a result, many of the EU Digital Single Market measures, or at least the characteristic cross-border elements of them, will not apply in the UK. This includes for example the Geo-blocking Regulation and the Cross-border portability of online content services Regulation. Audio-visual media services providers in the EU27 will not be able to rely on freedom of reception in the UK under EU law and UK audio-visual media services providers will likewise not be able to transmit to EU27 countries without local authorisations. The UK electronic communications regulator, Ofcom, will no longer need to refer its market definition and remedies proposals to the European Commission. However, the UK government has stated that, despite any hard Brexit, it is minded to transpose the Electronic Communications Code into UK law even though the implementation date will be after such a Brexit. For further information read our No-Deal Brexit checklist for the Tech & Comms sector.
2019 is another crucial year for the application of EU competition law in Tech & Comms, topical issues include:
- to what extent the European Commission should allow the creation of European champions;
- whether recent merger approvals in the mobile sector are a run-up to increased flexibility for further Tech & Comms consolidation;
- whether further enforcement will occur following recent multi-billion euro fines imposed on tech companies for alleged exclusionary practices (the use of algorithms playing a major role in some of them); and
- in the area of State aid, what implications for investment plans (including for 5G) the hundreds of millions of euro in State funding available for broadband development in Europe may have.
- Last but not least, a fundamental debate has arisen in the antitrust community and beyond about the role and effectiveness of antitrust laws in today's society – whereas some argue that big tech giants are the Standard Oil of our day that must be broken up (as happened in the US more than a century ago), others argue radically against that notion pointing at increased consumer welfare that the tech wave in their view has brought about. In Brussels, Competition Commissioner Vestager has set up a working group reporting on challenges of the digital world for competition law expected to be released in March 2019 - a high-level Commission conference in January entitled "Shaping competition policy in the era of digitization" may give a first flavour of what the debate is heading for.
The coming into force of the GDPR and the ratification of the NIS directive in most EU member states will oblige suppliers of essential services (transport, health, utilities, telecom) and all other relevant market players to review entirely their approach to cybersecurity.
There is clear need to step up or introduce cyber policies to address the increased risk, manage the consequences of cyber-attacks and show that the entire organisation is ready to prevent and react to attacks.
This implies the need of an integrated approach that will take account of all technical, legal, insurance and PR aspects of an attack to avoid or limit as much as possible the consequences of the same, in connection with applicable data protection policies aimed at preventing data breaches.
Data sovereignty is becoming an increasingly important issue for the deployment of global communications services (including OTT and IoT services) as more and more countries enact data localisation requirements. These requirements can directly impact on how a network is architected and the way in which data (both personal and non-personal) is handled in conjunction with the provision of a communications service or solution. Countries are enacting these types of requirements for a number of reasons, including surveillance, trade and data privacy. The EU has acknowledged the detrimental impact that data sovereignty/localisation can have on communications service provision and, in October 2018, agreement was reached on a Regulation prohibiting the Member States from requiring the localisation of non-personal except in circumscribed instances.
As indicated in the 2017 Communication “Building a European Data Economy” the value of the EU data market could potentially amount to more than 106 billion in 2020. In this regard, encouraging the free flow of data and building a legal regime for data ownership have been identified as two major drivers to unleash this potential. Regulation Proposal on free-flow of personal data aimed at improving mobility of such data across borders through the removal of unjustified governmental data localisation requirements and making it easier for professional users to switch hosting/ data storage providers and avoid any lock-in syndrome should be adopted in 2019. Reflections around data ownership and ways to protect value data assets will also remain a key topic over the coming months.
The GDPR gave data subjects enforceable access rights. There several circumstance where they either clash with current practices (e.g. providing access to succession planning lists) or challenge big data analytics. This will mean that adjustments in IT systems will have to be done to react appropriately to requests.
2019 will mark the first anniversary of Australia's data breach notification laws. With the number of breaches being reported increasing as expected, it seems likely that it is only a matter of time before Australians can expect to see a high profile data breach and a regulator that may be seeking to flex its new found muscles.
Data management / Big Data
Most rapidly developing new technologies (AI, 5G, AR and/or VR) are either dependent on data or aimed at enhancing processing, transmitting or storing of data. Thus, having access to well organised data which legal status is fully checked will become of critical importance and may give competitive advantage. Companies from different sectors (financial, automotive, telecommunication, social media other) will start or continue to organise their data, and based on that data develop new offerings not strictly related to their core sector business.
eGovernment initiatives have tried to promote electronic identities. When it is appropriate to identify someone? When is anonymity the better way? On the one hand, the army of twitter bots pretending to be human is something that might be fought with better identification and verification schemes. On the other hand, government provided identity evokes also questions of government control and the possibility of giving citizens social credit scores.
Data driven solutions providers
2019 will see an increasing number of more traditional Tech companies (e.g. software licensors) looking to make the transition to become data driven solutions providers. Their customer's increasingly want data analytics driven services providing real time business insights. But this transition from a sales to a services solutions requires significant investment up-front and an appreciation that the revenue stream will initially appear lower. As a result, in 2019 the trend for the purchase of Tech companies by venture capital companies and other entities with "deep pockets" will increase. Tech companies that attempt to transition without significant financial resources may become attractive purchase targets.
The real value of Tech companies is becoming a combination of technical and business understanding, IP-ownership and access to and control of data. Data is becoming a key asset, rather than an overhead. Tech companies are starting to question their management structures. Chief Data Officers with a wide data governance remit (well beyond the scope of traditional privacy issues) are starting to emerge as C-suite level positions. Lawyers need to re-orient their data practices away from data compliance to data management and data monetisation. These will be "hot topics" for 2019.
Digital Business & eCommerce
Consistent with previous predictions, Australian regulators have indeed started to step into the gig economy with the Fair Work Commission confirming a Foodora rider was an employee. We can expect to see emboldened regulators start to test other boundaries on the new gig economy platform.
Electric Connected and Autonomous Vehicles
The market for electric connected and autonomous vehicles (ECAVs) in Europe is growing rapidly. This transition in mobility creates legal challenges for manufacturers of ECAVs and for operators which roll out networks of charging points. Read about the legal challenges facing ECAV manufactures in Europe and the contractual and liability issues regarding the rollout of electric vehicle charge points.
In the UK, the Law Commission has started a three-year consultation to examine likely areas of changes to the legal and regulatory framework for automated vehicles. This provides a useful indication of where current laws and regulations may not be fit for purpose for driverless cars. Key issues are as follows:
- Whether an automated vehicle should have a person, who is qualified and fit to drive, present at all times?
- Whether every automated driving system should be backed by an entity which takes responsibility for that system's safety?
- Amending product liability law so it is clear that liability can be imposed for defective software updates that are not supplied in a physical way.
- The creation of new criminal offences, including for corporations where serious negligence by a developer of a driverless system results in death or serious injury.
- Modifying road rules to account for artificial intelligence decision-making.
Facial Recognition Technology
Facial recognition (FR) technologies have moved from the realm of science fiction to real life. It allows convenient identification of persons in contexts as diverse as retail, policing and border control. There is clearly a huge potential of FR to make our lives easier, for example we could "pay with our faces" or protect sensitive information effectively that no one but us would be able to open. However, there is a real potential that we enter into a world of constant surveillance. This is particular true as cameras are becoming ubiquitous and FR is improving constantly by machine learning.
Here are the "Top 5" things you need to know about 5G:
- It's a Game changer, not just another 'Generation'
- It's as Fast as Fibre and with similar latency
- It's much more Efficient than 4G and will enable the IoT on a massive scale
- It will spawn a myriad of applications and disrupt supply chains and fixed networks globally
- It's being rolled out at scale in the USA, Europe, China and Australia in 2019!
On 17 December 2018 the European Electronic Communications Code was published with the aim of boosting connectivity and competitiveness. The Code specifically encourages more investments in new very high capacity networks, such as 5G and new fibre optical networks, by adding detailed articles on topics like access regulation and facilitating 5G roll-out. The European Commission regards encouraging investment in very high capacity networks as increasingly important to strengthen the internal market for many sectors of the economy, including education, healthcare, manufacturing and transport.
2018 saw the completion of both 5G Non-Standalone (NSA) and 5G Standalone (SA) specifications, the emergence of the first 5G baseband processors and the launch of a number of networks using propriety 5G technologies to deliver super-fast fixed wireless access (FWA). With over 500 5G network trials already reported, 2019 is set to see the emergence of the first 5G enabled handsets and the launch of commercial 5G networks in the U.S., parts of Europe, South Korea, China and Australia. For MNO's the roll out of 5G will give rise to a number of challenges relating to the acquisition and utilisation of spectrum and the transition from an EPC environment to a full 5G core including the acquisition and deployment of virtualised network functions and a fully cloud based infrastructure. More generally it will give rise to an increased focus on IP licensing strategies and disputes in relation to the technology underlying the 5G ecosystem.
5G is going commercially live in Italy after a field-experimentation in two cities in 2018. Italian Telcos are seeking to cover a significant part of the country by 2019. As such, Italy could be the first large scale test for the roll-out of the new mobile technology and could provide some guidance for other countries.
Low Power Microprocessors
Unintended consequences of chips with everything.
For a few years now having an advanced home-grown microprocessor design and manufacturing industry has been a stated strategic goal for China. In part this was driven by the desire to break into a lucrative global market which had been dominated by a few players, but with the advent of 5G and the "always on" future, the predicted worldwide demand for advanced low power microprocessors has reached a new level. Now, with uncertain trade and economic policies affecting availability of the advanced equipment needed to manufacture and package silicon wafers, out of necessity China has to invest in the upstream part of the manufacturing processes that previously it was content to buy in. For an economy that is influenced by thinking along generational timelines rather than annual stockholder returns, it will be fascinating to observe how this will play out in the years ahead.
Online Platform Regulation
With the EU spotlight increasingly on the role of online platforms in the digital economy and society, the coming year will bring a number of initiatives aimed at recalibrating the relationship between platforms, users and consumers. Such initiatives include forthcoming negotiations focused on the proposal for an EU Regulation on promoting fairness and transparency for business users of online intermediation services: monitoring and evidence gathering by the new Observatory on the Online Platform Economy; expected new responsibilities regarding copyright-protected content in the forthcoming Directive on Copyright in the Digital Single Market; and further evaluation of the impact of the Code of Conduct aimed at countering illegal hate speech online.
Open source code is everywhere. In all software stacks open source code provides critical applications and libraries. Business developers and programmers have known for a long time that you either embrace open source or you lose out on innovation. In-house lawyers and the C-suite are finally coming around to understand that their businesses have to engage with open source in a pro-active way to support cost saving and generate new types of revenue. We will see more large firms opening up for, not just use of open source software, but also for releasing their software as open source and for allowing their own resources to contribute to external open source projects.
APAC's great leap forward into a cashless future. Leading the way into a contactless and virtual payments for the region are some of the biggest names in APAC tech, such as Alipay, Go-Pay, Grabpay, T-Cash and others, backed by Asian tech titans such as Alibaba, Grab and Go-Jek. The remarkable thing is that for consumers in many of these jurisdictions, the jump from a predominantly cash-based society to one that is entirely cashless, has happened within the span of one tech cycle. Entire financial industries around personal cheques, credit cards and store credit have been skipped. With a huge and eager consumer base, innovation in this space is being driven by the Asian tech companies to the extent that mobile platforms are now being used – with success – to deliver sophisticated financial products.
On 14 September 2019 two of the most controversial elements of PSD2 (the updated EU Payment Services Directive) will become applicable:
- How technically Account Servicing Payment Service Providers (ASPSPS), such as banks, are expected to give access to the payment accounts that they maintain, so that Third Party Providers (TPP) can access those accounts to provide services to customers, including account aggregation services and payment initiation services. In most cases, this access will be provided via APIs (Automated Programing Interfaces) that the ASPSPs will make available to the TPPs.
- The security of payments, in particular online payments, referred to as Strong Customer Authentication (SCA) or two factor authentication (e.g. phone and fingerprint, or phone and PIN, or laptop and card reader). In order to ensure a balance between increased security and consumer convenience (in order not to hamper e-commerce transactions), exemptions to SCA are available to payment service providers (PSPs), which require complex legal assessment on their scope of application, and how to make use of them.
The Year of the LEO Constellation.
2019 will be the year of the Low Earth Orbit constellations with OneWeb and SpaceX engaged in a new "space race" to cover the earth with innovative and affordable satellites. LEO constellations are changing the way we think about satellites because their low cost and even lower latency provides genuine competition for fibre with the benefit of unlimited mobility. The potential complementarity with 5G is also massive.
AI, 5G and smart cities in the Middle East. We anticipate that ambitious plans for smart cities and smart technology adoption will drive fast uptake of 5G in the region. The wide number of 5G use cases will benefit the Middle East consumer.
Each of the GCC countries have devised national strategies to become diversified, knowledge-based economies through digital transformation. Interestingly, governments are more often than not early consumers of the innovative technology driving such transformation. Use of smart technology in the UAE, for example, as a means for consumers to engage with government departments is becoming ubiquitous. KSA's Vision 2030 and its associated large scale infrastructure developments (such as the Red Sea Development) have the potential to completely transform the Kingdom's economy and that of the region.
Dubai will host Expo 2020, which is likely to create a significant boost to the economy and TMT sector.
Software and the Cloud
There will be a steady move to subscription billing for software rather than the current enterprise offerings. This will give software suppliers improved revenue streams but also has a major advantage for IT departments where updates and patches will be automatically installed in small incremental steps.
Cloud computing was a buzz word a few years ago, and now the trend to move to cloud seems to be irreversible. In 2019, it will be interesting to see how cloud computing services, being nothing other than outsourcing, develop in the strongly regulated financial sector, especially that the European Banking Authority's guidelines on outsourcing and cloud computing services will be in full force, and the local European jurisdictions will be expected to follow them.
Apps. More and more customer requirements (both business and consumer) are be handled by specific apps which are developed to provide specific functionality rather than the all singing and dancing programs of the past. A collection of user chosen apps will be increasingly adopted in the workplace.
EU attention is fixed on what some legislators view as an inherent friction between the realisation of a Single Digital Market in Europe and the use of territorial licensing in the audio-visual sector. In 2019, the stage is set for a Commission decision in its antitrust investigation into six Hollywood studios and Sky TV (UK). Territorial licensing will also be restricted to a degree, for certain content, by the forthcoming Broadcasting Directive. In the pipeline, too, is an EU-commissioned study and assessment of whether to propose an expansion of the scope of the Geo-Blocking Regulation to certain copyright-protected content.