By Sandra Link King & Wood Mallesons’ Frankfurt group

1. German Automotive Industry

Germany is famous for its cars such as Mercedes (Daimler), BMW, Audi and Volkswagen. But not only the big names characterize the automotive industry in Germany. In the automotive supply sector, the German Mittelstand that is often characterized as the engine of the German economy, dominates the industry. The German Mittelstand is mainly composed of small and medium-sized family companies that have a special leadership style and a strong regional base (often outside the big cities) and are not seldom global hidden champion in their business field.

The German automotive industry is by far the most important industrial sector in Germany with a turnover of around EUR 405 billion and more than 800,000 employees in 2016.[1]

To what extent the players of the German automotive industry will manage to seize the economic opportunities arising from new technology and to what extent they will manage to stand out against increasing competition from global technology companies remains to be seen.

2. Opportunities

a. Governmental Support: Subsidies and Testing Fields

In September 2015 already, the German government announced its strategy for automated and connected driving focusing on infrastructure, law, innovation, IT security and data protection. The aim of the strategy was to allow Germany to become the leading supplier for automated and connected vehicles and the leading market in this field.

In December 2016, in implementation of this strategy, the German ministry for traffic and digital infrastructure has made available EUR 100 million as subsidies for projects on the development of autonomous driving technology as part of its program “Automatization and Inter-connection in the area of road traffic”. As of July 2017, EUR 69.2 million had already been granted.

Further to the initiative of the German ministry for traffic and digital infrastructure, the German ministry for economics and technology also subsidizes projects of small and medium-sized enterprises in the area of autonomous electronic driving.

Currently, all over Germany subsidized testing fields are set up that allow enterprises to test their systems for autonomous driving. In 2017, a cross-border testing field was agreed between Germany, France and Luxembourg. In spring 2018, an additional testing field for autonomous driving shall become operational in the state of Baden-Württemberg including all different types of roads.

b. Good investment environment

For foreign investors, Germany has an open and welcoming attitude towards foreign direct investment. The German foreign investment control law allows the German authorities only to intervene in or prohibit transactions which are deemed to constitute a threat to public policy or security. In July 2017, new requirements have been stipulated with respect to security relevant technologies, tightening the regime a little and focusing in greater detail on critical infrastructures in various sectors including transport and traffic. According to relevant legislative material, however, this does not cover car travel but relates to public transport and transport of goods.

But there might be further changes: Ministers from Germany France and Italy have called for more effective defence instruments at the European level to review politically motivated takeovers of highly technical firms by investors from non-European country. On 13 September 2017, the European Commission has made a proposal establishing a framework for screening of foreign direct investments into the European Union. Such screening would states to consider potential effects of the investment not only on critical infrastructure and security, but also on critical technology which could affect investments in companies developing autonomous driving technology. The decision whether to carry out or prohibit the investment, however, would still be made on national level based on national legislation. Currently, the proposal is under discussion at EU level.

3. Challenges

a. Global Competition

Germany is the country of origin of the diesel motor and the otto engine (gasoline engine) – both named after their famous German inventors. German engineering has strongly shaped the automotive industry for more than 100 years. It is obvious that the automotive industry will change tremendously in near future due to new technology. Of course, this bears the risk that Germany loses its competitive advantage. However, Germany seems to have kept its innovative environment: most patents relating to autonomous driving filed globally are still filed by German companies (see 3c) below).

German news magazine Spiegel reported in July 2017 that German chancellor Angela Merkel is concerned about the future of the automotive industry, in particular because Chinese investors systematically acquire promising start-ups in the high-technology sector[2]. This is one reason for the EU proposal on foreign direct investment (see 2b) above) and the call for a tightening of foreign investment control until German companies are allowed to make similar investments in China.

b. Liability

General German Law Rules on Liability of Driver, Owner and Manufacturer

In case of a damage to life, body or property caused by a car, either the driver, the car owner or the car manufacturer can become subject to liability. According to the German Road Traffic Act, the car owner is subject to a strict liability irrespective of fault. The driver is also liable unless there is proof that the damage was not caused by the driver. The liability is capped at EUR 5 million for damages to life or body and EUR 1 million for damage to property.

If the damage to life, body or property is caused by a defect of the car, the car manufacturer is liable irrespective of fault according to the German Product Liability Act. Such liability, however, does not apply if the defect could not have been detected based on the state of science and technology at the time when the product was put on the market – an exception that might be triggered with respect to new systems on automated driving. However, to avoid product liability, the car manufacturers need to optimize and monitor the existing systems on an ongoing basis. Liability for damage to life or body caused by the same defect is capped at EUR 85 million.

Apart from the strict product liability, a car manufacturer is subject to the uncapped general liability under general German tort law if it violates its duties.

Statutory Changes relating to Automated Driving

In June 2017, an amendment to the German Road Traffic Act was introduced. The amendment does not go so far to fully trust a software to run a vehicle without human supervision (often referred to as autonomous driving in contrast to automated driving that requires human supervision). Note that running a vehicle without human supervision is also not yet permitted under the Vienna Convention on Road Traffic.

Automated driving systems are permitted, but – although allowed to take the eyes from the road while the computer takes over – the driver is obliged to remain aware of the traffic and the vehicle to a degree that he or she can react in case of a malfunction or any other situation which cannot be handled by the automated driving function. Further, the driver must use the automated driving function as intended (e.g. a function intended for use on highways should not be used in town).

To the extent that the driver (who is still a driver within the meaning of the law even if the automated driving function takes over) has complied with its duties, he or she is not liable, while the car owner remains liable based on the general concept of strict liability irrespective of fault. The liability caps for liability of the driver and car owner are increased from EUR 5 million to EUR 10 million (for damages to life or body) and from EUR 1 million to EUR 2 million (for damage to property).

According to the new law, the car manufacturer must confirm in a binding way in its description of the system that the car is equipped with a highly or fully automated driving system that is able to

  • drive the vehicle after being activated;
  • comply with the traffic rules in line with the driving situation;
  • be manually overridden and deactivated by the driver at any time;
  • recognise situations when the driver must take manual control;
  • notify the driver sufficiently in advance of such situations by means of optical, acoustic, tactile or other warning; and
  • indicate that there is a use that is contrary to the description of the system.

These prerequisites not only describe when a vehicle with a highly or fully automated driving system can be permitted to road traffic but also allows to establish liability of the car manufacturer, if the confirmation turns out to be wrong.

Taking into account the expected technical progress in the near future, the amendment to the Road Traffic Act should be subject to further review in 2020.

c. IP Protection

According to a study of the German Economic Institute in August 2017, 52 % of all patents that are filed globally relating to autonomous driving are from German manufacturers. Bosch, Audi and Continental are the top 3 companies for autonomous driving. In the supply sector, 76% of relevant patents are from Germany. With patented technology being important in the sector of autonomous driving, big players and financial investors will probably try to acquire relevant companies merely for the purpose to get access to relevant patents and technology.

Namely patents relating to communication technology are usually protected by so-called standard-essential patents, that is to say, a patent the use of which is indispensable to all competitors who envisage manufacturing products that comply with the standard to which it is linked. To use such patents, a license is needed. The owner of the standard-essential patent is usually obliged to license the relevant patent against payment of a fair, reasonable and non-discriminatory license fee (FRAND conditions) based on a promise given by the patent owner to the relevant standardisation body. However, there is no clear definition of the terms of such FRAND conditions. The German vehicle manufacturers’ association (Verband der Automobilindustrie) expects similar litigation on patents needed for automated vehicle as in the smartphone sector[3].

d. Data Protection

The Road Traffic Act in its version as amended in June 2017 requires manufacturers to equip vehicles with automated driving functions with a specific black box. This black box will record, besides other data, if the driver or the software actually drives the car. The data is to be saved for no longer than six months, unless the car has been involved in an accident. If this is the case, the data can be stored for up to three years. The data can be accessed by the relevant authorities upon request, but also by any third party providing plausible evidence that the data is necessary for asserting, satisfying or defending claims resulting from an accident involving the vehicle. By this provision, the car becomes a possible witness against its own driver but also helps to investigate the cause of the accident. Further data can be processed to third parties in anonymous form for purposes of accident research.

The new law has been heavily criticized by data protection specialists. The Federal Commissioner for Data Protection and Freedom of Information has criticized the new rules as being too vague, in particular with respect to the requirements for transmission of data to third persons.

Following the guidelines of the ethics commission published in 2017 (see 3e) below), the German government has decided to further identify measures to find a balance between data processing required for security purposes or in order to further innovation and fair competition and the right to data protection of the individual. As a general principle, it should be the driver who decides on the use of its data and a system of total surveillance should be avoided. Taking into account that the driver is not always the person who bought the car and who can give its consent with required data processing when buying the car, data protection remains a challenge.

Another challenge both from technical as well as from legal perspective is how to best safe the automated driving systems from manipulation and hacker attacks.

e. Ethics

As Germany is not only the country famous for its car industry, but also for its philosophers, it is not surprising that ethics of automated driving is heavily discussed in Germany and has become the topic of an ethics commission on automated driving composed of 14 scientists and experts from ethics, law and technology including traffic experts, lawyers, IT specialists, engineers, philosophers and theologists. The ethics commission, that considers the development of autonomous driving a moral duty to reduce road accidents, has published its guidelines in June 2017.

Main principles are: Humans before animals and property. No discrimination as to who should survive. Safeguards against malicious hacking. Whether the human being or the machine is in control, must be clear and documented to establish liabilities. The driver must be in control of data processing.

The German government has appreciated these principles and, on 23 August 2017, has decided on an action plan including further adoption of changes to road traffic law, data protection law and the development of a legal framework for the programming of car computers.

Main ethic challenge to which the ethics commission did not provide an answer is how to deal with a situation where a computer instead of the driver is in the dilemma to decide on which of two humans to hurt or even kill in an accident, i.e. whether to overrun a child on the road or to kill himself or a by-passer by making an evasive manoeuvre – a debate that will continue.

4. Conclusion

If German automotive industry wants to remain at the spearhead of the development of the automotive industry, also with respect to autonomous driving, not only the technology but also the law has to be innovative and follow new paths to face the challenges imposed of the new technology. Competition, in particular from China, is not asleep and ready and willing to take over Germany’s market leading position.

This area of law is just about to develop, and many legal questions are not yet solved and still heavily discussed. German government and legislator are well aware of these issues so that we are sure that there will be more to come.

[1] See https://www.bmwi.de/Redaktion/DE/Textsammlungen/Branchenfokus/Industrie/branchenfokus-automobilindustrie.html

[2] http://www.spiegel.de/wirtschaft/angela-merkel-sieht-schwarz-fuer-deutsche-autoindustrie-a-1156453.html

[3] See for the mobile phone sector the decision of the European Court C-170/13 of 16 July 2015 on Huawei Technologies Co. Ltd / ZTE Corp., ZTE Deutschland GmbH