Want a glimpse of the future?  We may have seen it in January at the annual Consumer Electronics Show (CES) in Las Vegas. A showcase for innovative and transformative new technology, participants often have the opportunity to see technology that will shape our lives.

This year the future of autonomous vehicles and connected cars was on full display and in some ways, the future is now. The anticipated revenue opportunities for this emerging market are significant –McKinsey & Co. recently estimated a $215 billion opportunity for auto OEMs. It is therefore no surprise that this emerging market is drawing not only leading auto OEMs, but also leading technology companies such as Amazon, Microsoft and Nvidia.

In this four part series we will outline key policy, regulatory, privacy/security, insurance and transactional issues arising in the development of autonomous vehicles (AVs). Part 1 will focus on the emerging regulatory/policy landscape; Part 2 will focus on privacy, data security and cybersecurity challenges in this environment; Part 3 will explore risk allocation and insurance issues presented by this emerging sector; and, Part 4 will focus on strategies for collecting, using and protecting data used in the AV environment.

Part 1 - The Emerging Regulatory Landscape for AVs

Current Administration Adopts Light Touch Regulatory Approach

As the AV industry continues to move towards the release of fully autonomous systems, one unanswered question is how much of the existing regulatory regime will apply (if at all) to the rapidly evolving, AV industry. The current administration has clearly signaled its intention that it will be taking a hands-off light-touch approach to the nascent AV industry. For example, in his recent comments at CES 2017, Michael Garris, a co-chair of the White House’s committee on Machine Learning and Artificial Intelligence, said that DOT would not reflexively apply all legacy rules to AV.

The National Highway Traffic Safety Administration (NHTSA), an agency under the Department of Transportation, outlined the current administration’s perspective in a document released in September, 2017 that outlines a framework of best practices and voluntary guidelines, but which specifically eschews any command and control regulations. NHTSA’s Automated Driving Systems 2.0: A Vision for Safety (ADS 2.0 Guidelines), is offered as a means to “pave[] the way for the safe deployment of advanced driver assistance technologies by providing voluntary guidance that encourages best practices and prioritizes safety.” Citing the fact that 94 percent of all fatal crashes are attributable to human error, NHTSA’s ADS 2.0 Guidelines stem (in part) from a recognition that AVs have the potential to significantly reduce fatalities and crashes. In this vein NHTSA’s framework puts forward 12 priority safety design elements as proposed best practices for developers to adopt. These safety design elements include several key AI-related functions and systems, such as:

  • Human machine interfaces – ensuring that information and control must be able to pass seamlessly between human operators/passengers and AV control systems
  • Object event detection and response – establishing that AVs can detect and appropriately respond to external forces, such as other vehicles, pedestrians, cyclists and infrastructure
  • Post-crash automation and recovery – enabling systems to return to a “safe state” after a crash or adverse event; and
  • Vehicle cybersecurity – ensuring that developers and OEMs follow a system safety/safety by design approach to cybersecurity, and incorporate other best practices established by industry and regulators

The NHTSA ADS 2.0 guidance very conspicuously replaced an earlier policy document issued during the prior administration (Federal Automated Vehicles Policy), which envisioned a more traditional command and control regulatory framework for the AV industry. Notably, NHTSA made clear that the new guidance is intended to support the development of safe AVs, but not to dictate formal standards or requirements. Indeed, the agency specifically acknowledged that regulations in this emerging sector could impede development, and articulated its intentions to prevent impediments to AV progress that could result from imposing “unnecessary or unintended barriers to innovation.”

This “light touch” approach to oversight of the emerging AV industry is certainly consistent with other regulatory frameworks that have fostered innovation and growth in other nascent industries, such as Internet access in the early 2000s. While this approach is undoubtedly welcomed by the industry, it does not provide any potential regulatory “safe harbors” or defenses often utilized by service providers in more heavily regulated industries. Thus, risks arising from the operation and deployment of AVs must be managed without reliance on such authorities.

Notably, NHTSA’s ADS 2.0 guidance does not include any recommended standards or best practices focused on consumer privacy, even though that was a focus of the prior administration.  While acknowledging that privacy and ethical issues are presented in the development of AVs, the agency’s position is that it lacks authority to address such issues, which are more properly considered by the FTC.

States Expected to Play Important Role in Emerging AV Regulatory Regimes

Any emerging regulation and oversight of the AV industry will certainly include a potentially significant role for states that have historically been responsible for licensing, registration, insurance, infrastructure, traffic law enforcement and other key elements of the motor vehicle ecosystem. Indeed, numerous states have already adopted formal policies or passed legislation covering many aspects of the new AV industry.

For example, Florida has already adopted rules that permit anyone with a valid driver’s license to operate an autonomous vehicle on private roads. Michigan has enacted state law that permits AVs to be driven on public roads, and permits commercial use of AV technology. In California, the Contra Costa Transportation Authority is authorized to test the first fully AV not equipped with a steering wheel, brake pedal or accelerator on certain public roads. Tennessee has adopted a preemption provision that prohibits localities from banning the use of AVs in those communities. Other jurisdictions, including Louisiana, Alabama, North Dakota and Utah have passed legislation to study and evaluate best practices and safety standards for AVs. To date, fifteen states and the District of Columbia have passed legislation related to AVs.

Because many states are actively engaged in adopting new laws or regulations, the potential for overlap and some duplication of federal oversight efforts is quite high. Exactly where the lines will be drawn on this question remains unanswered. However, the NHTSA guidance does include a proposed framework of recommended best practices for states to consider as these issues arise. Designed to clarify federal and state roles, the NHTSA guidance outlines best practices for both state legislatures, and state highway administrations. NHTSA recommended best practices for state legislatures include:

  • Technology neutrality: any new laws governing testing or deployment must not be limited to certain automobile OEMs or existing suppliers, but should also include technology, software and other innovators to ensure a technology-neutral framework exists
  • Update/remove outdated rules: eliminate antiquated or outdated rules that may limit, or preclude the adoption, deployment, and use of AVs
  • Expand licensing and registration to AVs: update regulations and procedures governing licensing and registration of vehicles to ensure that AVs may be properly licensed and registered without delay or unnecessary impediments

For state highway officials, NHTSA also recommends:

  • Consider updates to liability and insurance standards: consider how best to allocate liability among AV owners, operators, passengers, and manufacturers when accidents occur; also clarify which entity is required to carry motor vehicle insurance, if any
  • Establish regulatory bodies with sufficient expertise: consider creating new agencies or departments to lead AV testing and permitting, facilitate communication, recommend and implement policies, and manage coordination with relevant agencies, and develop guidelines for applications, permissions, and operator treatment under state law
  • Develop application and permitting procedures: establish guidelines for applications, permissions, and operator treatment under state law

Whether, and to what extent, the states will heed the call of a light-touch approach is yet to be seen.  Certain jurisdictions are more likely to actively adopt new regulations on some aspects of this emerging industry, notwithstanding the administration’s proposed light-touch framework.  Companies engaging in this space, whether OEM, software vendor or platform provider, will need to understand and address this emerging policy framework in order to reduce regulatory risk and navigate the likely maze of rules and regulations that may soon emerge.