Autonomous cars and the new legal landscape of transportation

SAN FRANCISCO -- Discussions about autonomous vehicles have to date been largely theoretical. But think about it -- very soon we're going to have cars operating on American roads that don't have steering wheels, pedals or any human control.

This will profoundly alter the nature of the relationship between automakers and consumers, and the legal implications of this transition need to be considered this year.

Experts have long been split on whether autonomous cars will become popular quickly or if it will take a decade or more for full consumer adoption, making legal considerations largely theoretical. But in January, the need for practical answers rose significantly when General Motors sought permission from the U.S. Department of Transportation to start operating fully autonomous cars in a commercial ride-hailing service as soon as next year.

It's increasingly urgent that the industry work out the potential legal implications of this sea change to personal transportation, especially given the recent accident in Arizona, in which an autonomous Uber car struck and killed a pedestrian. Steps are already being taken overseas. China is considering adopting some of Germany's laws related to driverless cars, and this month the U.K. kicked off a three-year review of its regulations before autonomous vehicles are allowed on its roads. But the time is now to make sure the U.S. is ready to address these concerns as well.

IHS Markit forecasts there will be 21 million autonomous cars globally by 2035. While the legal ramifications of this shift can only truly become apparent with time, initially three areas are worthy of particular legal attention.

The business-consumer relationship: Immediately, the shift will inexorably change the relationship between automakers and consumers. Today, when an automaker sells a vehicle to a consumer, the dealer hopes the customer returns for service, but may not actually interact with them again for years.

When a consumer buys an autonomous car that's dependent on software and machine learning to operate, however, the consumer will have to return for services and upgrades that will be available only at dealerships. That will immediately transform what has been a one-off relationship into an ongoing relationship similar to those that exist today between consumer tech companies and their users. When you buy an Apple iPhone or shop at Amazon, one purchase tends to lead to others and often to monthly or annual subscriptions.

With these relationships, it will no longer be good enough for automakers to have consumers sign boilerplate legal documents and hope for the best. Instead, automakers will have to educate consumers in greater detail about the contents of disclosures and the legal nature of the agreement they are signing, as well as potential liabilities they might incur as the owner of an autonomous vehicle.

Liabilities and warranties: There are currently six different "levels" of driverless cars, from zero to five, according to the National Highway Traffic Safety Administration and Society of Automotive Engineers -- where zero is a human driver and five is fully automated driving. How the balance of liability shifts along that scale is an overarching issue that the industry now must figure out.

However, there are also narrower liability issues related to the maintenance of the car itself, ranging from the mundane to the more foundational. What will happen if the owner allows others to drive the car? Will the owner be responsible for ensuring all drivers are properly licensed to operate it, depending on how much there is for them to do? Will the buyer of a car be legally obligated to upgrade the car's software annually?

But think about the more life-and-death decisions that happen when we drive. Will autonomous driving software be able to choose between two equally bad choices -- drive over a group of schoolchildren or swerve and instead hit an elderly woman?

If the industry does shift to mandating that car owners must buy annual software upgrades, automakers might consider adopting a subscription model -- a business model that's popular in the tech sector. Instead of buying a car outright, a user might "subscribe" to one. General Motors is already experimenting with this model — last year, launching a $1,500-a-month service where users can swap in and out of Cadillac models up to 18 times a year. BMW, Mercedes-Benz and several other auto brands are experimenting with the idea. A subscription model would also make it easier for automakers to add subscription services, adding to revenue streams.

McKinsey & Co. estimates that connectivity services, upgrades and new business models can boost automotive revenue by about 30 percent by 2030, adding up to $1.5 trillion in new revenues.

Data and privacy: Autonomous cars that are connected to the Internet of Things will gather a growing amount of data. Your car will know where you have been and what you said over the phone while in your car. What happens with that data will raise numerous legal issues.

If a car can prove a person was at the scene of a crime by location and voice-recognition software, could prosecutors seek that information from the individual or from the automaker? If a car knows if a driver takes risks or is dangerous -- information that insurance companies would want -- can the automaker sell that information to the insurance firm?

With cars gathering so much data, automakers should be wary of using that information for commercial purposes. Companies such as Google and Facebook have been sued for using cookies to track behavioral patterns.

The fact that cars can cross borders raises other issues. For example, Canadian privacy policies are more rigorous than U.S. policies, so automakers may need to comply with the highest regional standard.

To date, most of the regulation around autonomous cars has been left to the states, but these and other legal issues will soon need to be resolved at the national level, introducing a new mindset for both automakers and consumers about their relationship and their obligations. The time to puzzle through these issues is now.

Glynna Christian is co-head of Orrick's Global Technology Transactions practice in Silicon Valley.