INSIGHT: As Cities Go ‘Smart,’ Privacy, IP Liabilities Can Escalate

Private companies have made great strides in incorporating smart technologies into their products, and municipal governments are catching wind of this trend. “Smart cities”—cities are driven by and that use internet-connected technology to provide essential services—are growing throughout the world.

Smart cities do not necessarily develop advanced technologies on their own. They often enlist private entities to design and implement the necessary software and devices. This marriage of private enterprise and public functions may present novel challenges when a product fails or gives rise to unexpected outcomes.

One element of “smart city” technology is smart infrastructure—for example, smart traffic management systems to help traffic patterns on city streets flow smoothly, and smart parking systems to reduce congestion.

Infrastructure Risks, Challenges

Incorporating smart infrastructure in cities poses risks and challenges, however. Data collection is one inflection point. For instance, when San Diego contracted with a private company to implement smart street lights equipped with cameras that collect real-time data on pedestrian and traffic movement, the city was tagged with failing to disclose the data collected, which many citizens viewed as public data.

The potential for data to be mishandled or intercepted by unauthorized users, which exists whenever large volumes of data are collected, could lead to litigation in the smart infrastructure space as it has elsewhere.

Furthermore, infrastructure uniquely has the added risk of personal injury. For example, smart traffic light sensors have proven susceptible to hacking, opening up the possibility for traffic and pedestrian collisions. These cases and litigation risks demonstrate that when private actors are involved in municipal activities, the liability risks can be unpredictable.

Smart Tech Liabilities

Smart cities seek to incorporate smart forms of transportation into citizens’ daily commutes, including the capacity for autonomous vehicles to operate and the advent of on-demand transportation services like e-scooters that use technology allowing users to unlock scooters via smart phones.

But smart transportation also poses risks that may ripen into litigation. Autonomous vehicle manufacturers, for instance, have faced consumer class actions, alleging the vehicles are susceptible to hacking.

Additionally, e-scooter companies and manufacturers have been named in class actions for allegedly deploying defective scooters and deploying them in an unsafe manner. Personal injury has resulted when pedestrians have tripped over parked e-scooters, and the manufacturers have additionally been charged with providing inadequate consumer warnings.

Theories of municipal and manufacturer liability may be implicated if smart cities lack adequate infrastructure to properly support autonomous vehicles or services of these types, or when the vehicles cannot safely interact with the city’s infrastructure.

Smart cities often incorporate technology of so-called “smart buildings.” For instance, smart thermostats allow users to remotely regulate their indoor environments, such as by adjusting cooling and heating. Likewise, smart doorbells and protection systems allow occupants to monitor their homes while they are away by accessing video on their smart phones.

These technologies come with their share of litigation risks. Data security lawsuit risks arise because many of these devices use personal data and video recordings. For instance, a consumer class action was filed against a home security doorbell manufacturer after the device was discovered to have security vulnerabilities.

Patent infringement suits also may arise as many of the smart devices use already patented technology. For instance, a patent infringement suit was filed against a smart thermostat manufacturer for using patented natural language to program thermostats.

These cases highlight current liability risks, but there is added potential risk when individual IoT devices or systems connect to other, overarching systems, such as smart grids. The vulnerabilities of the individual devices risk become the vulnerabilities of the interconnected devices.

Lessons Learned

Smart technology can present litigation risks, but manufacturers can learn from these lessons:

1. Manufacturers should determine indemnity relationships and which party’s insurance will apply under which circumstances.
2. Private entities should consider political risks when they agree to provide services on behalf of municipalities.
3. When personal data is collected, manufacturers should ensure that they are in compliance with applicable privacy statutes and regulations, and collect only data needed for their business model.
4. Manufacturers should ensure that any necessary safety warnings or disclosures are clear, conspicuous, and robust.

When manufacturers proactively take these steps to address these novel challenges, citizens can safely engage in their smart cities.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Mark Raffman is a partner at Goodwin Procter LLP who concentrates his practice on complex product liability and consumer products litigation and advice. He advises on regulatory compliance audits and legislation as well as transactions posing product liability risks.

Briana Whinnie is an attorney in Goodwin’s Litigation Department in Washington, D.C.