Fiat Chrysler Recall Highlights Potential Need for Regulatory Changes

Last week, Fiat Chrysler issued a recall of more than 1.4 million vehicles after security researchers from Wired Magazine exposed major security flaws that would allow potential hackers to take over a vehicle’s crucial systems remotely.

In a controlled demonstration, Charlie Miller and Chris Valasek hacked into a Jeep Cherokee as it was traveling 70 m.p.h. down a St. Louis highway. The hackers were able to take control of the vehicle’s air conditioning, entertainment system, and at one point were able to cut the Jeep’s accelerator. The hackers also revealed the capability to cut the Jeep’s brakes, as well as the ability to track a targeted vehicle’s GPS coordinates via its navigation system.

The experiment revealed vulnerabilities contained within Fiat Chrysler’s Uconnect system, the internet-connected computer feature that controls navigation, enables phone calls, and even offers a Wi-Fi hot spot in hundreds of thousands of Fiat Chrysler vehicles. According to Wired Magazine, a hacker need only know a car’s IP address in order to potentially gain access to the vehicle from anywhere in the country.

Last week’s recall illustrates how the rapidly-developing “Internet of Things” (i.e., the increasing use of interconnected devices in everyday life) can implicate not just issues of personal privacy and data security, but physical safety. It also raises serious questions of accountability for both automakers and government regulators. On July 21, 2015, Senators Edward J. Markey (D-Mass) and Richard Blumenthal (D-Conn.), who followed Miller and Valasek’s research, introduced legislation that would direct the National Highway Traffic Safety Administration (NHTSA) and the Federal Trade Commission (FTC) to establish federal performance standards that would protect drivers’ privacy and secure vehicle software systems. The Security and Privacy in Your Car (SPY Car) Act would establish a rating system that would inform consumers about how well the vehicle protects drivers’ security and privacy beyond the minimum standards set forth by the Act. The SPY Car Act also contains proposed limitations on automakers’ disclosure, retention, and use of information collected by the on-board software systems featured in most modern vehicles.

Whether or not the SPY Car Act becomes law, it is not difficult to imagine that future real-world data breaches or injuries resulting from vulnerabilities in on-board computer systems could result in significant liability for car manufacturers, especially if they were to occur on a widespread scale. Accordingly, the auto industry should be cognizant of these vulnerabilities and take steps to ensure their vehicles are secured from digital attacks.

Gordon & Rees LLP’s Privacy & Data Security Group will continue to monitor and report on the implications of vehicle security breaches.

Privacy and Security on the Internet of Things

Like it or not, technology is becoming inextricably entwined with the fabric of our lives. Our cars, our homes, even our bodies, are collecting, storing and streaming more personal data than ever before. In 2015, Gartner, Inc. forecasts the number of connected “things” will reach 4.9 billion, up 30 percent from 2014. By the year 2020, that number is expected to reach 25 billion.

5-22We are moving toward a world where just about everything will be connected. Yes, this will include smartphones, computers and tablets. It will also include everyday objects like car keys, thermostats and washing machines. Google is even developing ingestible microchips that could serve as “electronic tattoos.” This disruptive shift, known as the Internet of Things (IoT), will be a powerful force for business transformation. Soon all industries and all areas of society will be impacted directly by the transition.

As companies evolve to adapt to meet the consumer expectations in this new uber-connected world, they must be aware of the risks involved. No, I’m not talking about machine turning on man in a Terminator-like scenario. But make no mistake, the challenges and risks for both businesses and consumers are no less scary than a shape-shifting cyborg.

In the rush to jump into this connectivity, companies will face multiple considerations. Strategic decisions might involve an upgrade in technology, a move to cloud-based storage, or network integration of all new products or services. However before taking any action, it is essential to weigh the privacy and security risks that go hand in hand with the collection of personal data.

While data breach might be the first risk that comes to mind, there are a number of legal issues that could become major problems if not addressed.

Data Security

The IoT will create massive amounts of data that will necessarily be linked to personal identifying information to be useful. Employees, customers and affiliates will be interacting with countless devices all day long, usually without being aware they are doing so. There will be many new and perhaps unforeseen opportunities for data breaches.

Unintended Consequences

Designers and manufacturers of devices for the IoT may be accountable for unintended consequences. We have already seen instances of persons taking over video cameras connected to computers to “spy” on people. It’s not a stretch to think that these spies will also monitor devices connected to the internet to find out when a home is unoccupied.

Liability

The IoT will rely on devices to perform many tasks that are now subject to the risks of human error. Even with the best of designs there will be issues of where liability falls when, for example, a self-driving car or some other automatous device malfunctions or is otherwise involved in an untoward outcome. There will likely be an evolving body of law establishing the allocation of fault in such circumstances.

Regulation

The federal and perhaps state governments will regulate the IoT. Such regulations will impact how organizations design and use IoT devices. As in other fields, regulation can both strengthen and impair an organization’s position in its market. Proactively addressing such issues can save an organization considerable expense and allow it to better control its risk.

Companies and organizations must plan for the regulations, potential liabilities, and consumer privacy issues related to the IoT now to avoid crippling legal nightmares later. In the absence of regulations, corporations will need to be cognizant of the need to self-regulate by developing and enforcing an effective set of best practices. While the “Internet of Things” may sound futuristic, in reality… the future is now.

Leon Silver is a co-managing partner at Gordon & Rees’ Phoenix office, Chair of the firm’s Retail & Hospitality Practice Group and a member of the firm’s Commercial Litigation, and Privacy & Data Security Practice Groups. Andy Jacob is a member of the Appellate and Commercial Litigation Practice Groups.