Inter­net of Things (IoT) & Co.

When does the GDPR app­ly to manufacturers?

Poli­tics, busi­ness, socie­ty – they are all cal­ling for more digi­ti­sa­ti­on. More digi­ti­sa­ti­on of work, schools, admi­nis­tra­ti­on and pri­va­te life. Fre­quent­ly men­tio­ned buz­zwords are Inter­net of Things (IoT), smart home and auto­no­mous dri­ving. Howe­ver, if manu­fac­tu­r­ers over­shoot the mark by fai­ling to com­ply with the legal frame­work for digi­tal pro­ducts, espe­ci­al­ly in cyber­se­cu­ri­ty and data pro­tec­tion, the (regu­la­to­ry) aut­ho­ri­ties react strict­ly, some­ti­mes even with pro­duct bans. The­se can cau­se signi­fi­cant dif­fi­cul­ties for manufacturers.

A very well-known exam­p­le is the ban of the play doll “My fri­end Cayla” by the Fede­ral Net­work Agen­cy in 2017. The doll was Internet-enabled and could thus com­mu­ni­ca­te with the play­ing child in simp­le sen­ten­ces. The expan­si­on of the pro­duc­t’s func­tions with the help of the Inter­net is cha­rac­te­ristic of the IoT. Howe­ver, a Blue­tooth con­nec­tion that the doll requi­red was not sta­te of the art and it was pos­si­ble for third par­ties to lis­ten in on con­ver­sa­ti­ons and also access the dol­l’s spea­k­er. Hence, it lacked suf­fi­ci­ent cyber­se­cu­ri­ty and thus also suf­fi­ci­ent data pro­tec­tion. The doll was quick­ly regard­ed as a “spy in a chil­d’s room” and the Ger­man Fede­ral Net­work Agen­cy - after recei­ving a cor­re­spon­ding noti­ce - clas­si­fied it as a “pro­hi­bi­ted trans­mit­ter” in accordance with § 90 of the Ger­man Tele­com­mu­ni­ca­ti­ons Act (TKG) and issued a sales ban. The Gene­ral Data Pro­tec­tion Regu­la­ti­on (GDPR), which sets the EU-wide legal frame­work for data pro­tec­tion, has now been in force sin­ce 2018. How can regu­la­tors now address data pri­va­cy brea­ches by manu­fac­tu­r­ers, inclu­ding in IoT? Does the GDPR address and obli­ge manu­fac­tu­r­ers at all?

I. How does the GDPR address manufacturers?

1. What data may manu­fac­tu­r­ers coll­ect and process?

The regu­la­ti­ons of the GDPR pri­ma­ri­ly ser­ve to pro­tect per­so­nal data through pro­ces­sing. Per­so­nal data is any infor­ma­ti­on rela­ting to an iden­ti­fied or iden­ti­fia­ble natu­ral per­son. Machi­ne and device data must be distin­gu­is­hed from this. Sin­ce machine-generated data regu­lar­ly ori­gi­na­te from pro­duc­tion pro­ces­ses or the machi­nes used the­re and rela­te exclu­si­ve­ly to the­se pro­ces­ses, the­re is usual­ly no refe­rence to indi­vi­du­als. Manu­fac­tu­r­ers do not have to pay atten­ti­on to the legal frame­work of the GDPR for such data.

2. Are manu­fac­tu­r­ers also con­trol­lers within the mea­ning of the GDPR?

The body that ulti­m­ate­ly car­ri­es out the pro­ces­sing of the data by deci­ding on the pur­po­se and means of the pro­ces­sing is also respon­si­ble for it. The GDPR addres­ses data con­trol­lers direct­ly and obli­ges them to com­ply with data pro­tec­tion prin­ci­ples. But manu­fac­tu­r­ers often do not car­ry out this pro­ces­sing of per­so­nal data them­sel­ves. They “only” pro­vi­de the pro­duct or tech­no­lo­gy on the basis of which the pro­ces­sing is car­ri­ed out by the con­trol­ler at a later stage. The­r­e­fo­re, they do not fall direct­ly within the scope of the GDPR and, from a strict­ly for­mal point of view, do not have to ful­fill its obli­ga­ti­ons. Nevert­hel­ess, manu­fac­tu­r­ers should take a clo­se look at data pro­tec­tion prin­ci­ples and requi­re­ments and, ide­al­ly, com­ply with them. This is becau­se a user of their pro­duct will ulti­m­ate­ly have to choo­se not to use the pro­duct if they can­not com­ply with data pro­tec­tion prin­ci­ples becau­se of the pro­duct. The­r­e­fo­re, the GDPR “encou­ra­ges” manu­fac­tu­r­ers to “take into account the right to data pro­tec­tion when deve­lo­ping and desig­ning such pro­ducts, ser­vices and appli­ca­ti­ons and, with due regard to the sta­te of the art, to make sure that con­trol­lers and pro­ces­sors are able to ful­fil their data pro­tec­tion obli­ga­ti­ons” (Reci­tal 78 of the GDPR). This “obli­ga­ti­on” then indi­rect­ly affects the manu­fac­tu­rer of a  pro­duct even if the manu­fac­tu­rer its­elf does not pro­cess any data, but the user is sub­ject to the GDPR. Mean­while, a manu­fac­tu­rer has a direct obli­ga­ti­on even if it beco­mes respon­si­ble under data pro­tec­tion law as an ope­ra­tor at a later point in time, e.g. when ope­ra­ting backend ser­vers for IoT devices.

II. The obli­ga­ti­on to design pro­ducts that can be used in com­pli­ance with data pro­tec­tion requirements

The GDPR may not direct­ly address manu­fac­tu­r­ers, but the­re is nevert­hel­ess an obli­ga­ti­on to design pro­ducts in line with data pro­tec­tion due to poten­ti­al civil lia­bi­li­ty claims.

1. War­ran­ty for defects and manu­fac­tu­rer’s lia­bi­li­ty in the event of errors in data protection

First­ly, lia­bi­li­ty can ari­se in accordance with the law gover­ning purcha­se con­tracts and con­tracts for work and ser­vices. This is becau­se the breach of data pro­tec­tion can con­sti­tu­te a defect that leads to lia­bi­li­ty if the manu­fac­tu­rer knows that per­so­nal data will be pro­ces­sed at a later point in time. Second­ly, manu­fac­tu­r­ers must obser­ve data pro­tec­tion prin­ci­ples becau­se of poten­ti­al manu­fac­tu­rer lia­bi­li­ty. This ari­ses from § 823(1) of the Ger­man Civil Code (Bür­ger­li­ches Gesetz­buch – BGB) in con­junc­tion with the right to pro­tec­tion of per­so­nal data (e.g. pur­su­ant to Artic­le 8 of the EU Char­ter of Fun­da­men­tal Rights and Artic­le 16 TFEU), the fun­da­men­tal right to infor­ma­tio­nal self-determination and the gene­ral right to pri­va­cy. Manu­fac­tu­r­ers should place par­ti­cu­lar empha­sis on two points: com­pli­ance with the requi­red safe­ty stan­dard (sta­te of the art in sci­ence and tech­no­lo­gy) and the jus­ti­fied safe­ty expec­ta­ti­ons of the anti­ci­pa­ted user group. This also results in an indi­rect bin­ding of the manu­fac­tu­rer to the requi­re­ments of the GDPR.

2. Sub­stan­ti­ve requi­re­ments of the GDPR

The sub­se­quent pro­duct should com­ply with the sub­stan­ti­ve requi­re­ments of the GDPR. The­se include, in par­ti­cu­lar, the prin­ci­ple of data era­su­re and data mini­mi­sa­ti­on, the imple­men­ta­ti­on of tech­ni­cal and orga­ni­sa­tio­nal mea­su­res in accordance with Artic­le 32 GDPR, and com­pli­ance with and ful­fill­ment of data sub­ject rights (trans­pa­ren­cy, infor­ma­ti­on, etc.). In addi­ti­on, manu­fac­tu­r­ers should be awa­re of the pos­si­bi­li­ty of job data pro­ces­sing and trans­fers of data to non-EU count­ries through the pro­duct, espe­ci­al­ly in the field of IoT, and take this into account during deve­lo­p­ment. Curr­ent­ly, data pro­tec­tion super­vi­so­ry aut­ho­ri­ties are focu­sing pri­ma­ri­ly on third-country transfers.

III. Powers of the super­vi­so­ry aut­ho­ri­ties in accordance with the GDPR

The mea­su­res taken against data con­trol­lers are mani­fold. They ran­ge from the obli­ga­ti­on to pro­vi­de infor­ma­ti­on and the obli­ga­ti­on to imple­ment data sub­jects’ rights to the ins­truc­tion and pro­hi­bi­ti­on of pro­ces­sing ope­ra­ti­ons and, in the case of serious data pro­tec­tion vio­la­ti­ons, to fines. The Dam­o­cles sword of fines is well known to most: the amount can be up to EUR 20 mil­li­on or, in the case of a com­pa­ny, up to 4% of its total annu­al glo­bal tur­no­ver for the pre­vious finan­cial year (Artic­le 83 GDPR). Howe­ver, the­se mea­su­res usual­ly affect the data con­trol­lers, who ulti­m­ate­ly pro­cess the data accor­ding to their own spe­ci­fi­ca­ti­ons. The manu­fac­tu­rer is not addres­sed in the mea­su­res by the super­vi­so­ry aut­ho­ri­ties in the GDPR. Nevert­hel­ess, the aut­ho­ri­ties are of the opi­ni­on that pro­vi­si­on obli­ga­ti­ons and inspec­tion powers also exist vis-à-vis third par­ties and thus also vis-à-vis manu­fac­tu­r­ers. In addi­ti­on, they deri­ve an aut­ho­ri­ty for pro­duct war­nings from their public rela­ti­ons task (Artic­le 57(1)(b) GDPR). In May 2021, for exam­p­le, the Sta­te Com­mis­sio­ner for Data Pro­tec­tion and Free­dom of Infor­ma­ti­on of Baden-Württemberg advi­sed against the use of Micro­soft Office 365 in schools due to data pro­tec­tion risks. Howe­ver, whe­ther the GDPR real­ly empowers the super­vi­so­ry aut­ho­ri­ties to warn against pro­ducts is – right­ly – con­tro­ver­si­al and will pro­ba­b­ly ulti­m­ate­ly have to be cla­ri­fied by the courts. Howe­ver, the­re is likely to be agree­ment that the data pro­tec­tion super­vi­so­ry aut­ho­ri­ties are not entit­led to ban pro­ducts as they did with the “Cayla” doll.

IV. Chal­lenges and stra­te­gic implementation

The GDPR and its imple­men­ta­ti­on by the data pro­tec­tion super­vi­so­ry aut­ho­ri­ties some­ti­mes pose major chal­lenges for manu­fac­tu­r­ers, resul­ting in par­ti­cu­lar from legal ambi­gui­ties and a high level of dyna­mism in tech­ni­cal deve­lo­p­ment. Manu­fac­tu­r­ers are the­r­e­fo­re urgen­tly advi­sed to imple­ment the regu­la­ti­ons stra­te­gi­cal­ly and as ear­ly as pos­si­ble by means of a sui­ta­ble manage­ment sys­tem. In doing so, they should first iden­ti­fy the appli­ca­ble regu­la­ti­ons, deri­ve the con­cre­te spe­ci­fi­ca­ti­ons and then imple­ment the­se in the deve­lo­p­ment and pro­duc­tion pro­cess. Due to the dyna­mics invol­ved, regu­lar con­trol and con­ti­nuous moni­to­ring are essential.

V. Sum­ma­ry

To date, the GDPR has not impo­sed any direct obli­ga­ti­on on manu­fac­tu­r­ers. Only if manu­fac­tu­r­ers later beco­me data con­trol­lers them­sel­ves or if the pro­duct is later to pro­cess per­so­nal data and the manu­fac­tu­rer is awa­re of this, are they indi­rect­ly obli­ged to com­ply with the GDPR and obser­ve data pro­tec­tion requi­re­ments. The ext­ent to which regu­la­tors can take action against third par­ties, such as manu­fac­tu­r­ers, is con­tro­ver­si­al. In prac­ti­ce, howe­ver, the­re is a thre­at of infor­ma­ti­on requests, exter­nal audits and pro­duct war­nings. To be well pre­pared for this, manu­fac­tu­r­ers need a sui­ta­ble manage­ment sys­tem to imple­ment the requi­re­ments of the GDPR and other cyber­se­cu­ri­ty and data pro­tec­tion regu­la­ti­ons in a legal­ly secu­re fashion.

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