Governance of IoT Data: Why the EU Data Act Will not Fulfill Its Objectives

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Series Details Volume 72, Number 2, Pages 120-135
Publication Date February 2023
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The EU Data Act proposal (DA) seeks to introduce new rights for the users of internet of things (IoT) devices regarding access, use and sharing of the data generated through their use of these devices. This paper presents the results of a first analysis of the effectiveness of this ‘user rights’ mechanism from a ‘law and economics’ perspective. It concludes that the DA will not achieve its objectives of (a) empowering the users of IoT devices (especially the consumers), (b) unlocking large amounts of IoT data for innovation (for IoT-related services and across sectors), and (c) contributing to a fair sharing of the value from the generated IoT data.

Although the DA correctly identifies the main problem arising from manufacturers’ technical design of IoT devices, which grants them exclusive de facto control over the generated IoT data, its proposals for solving it are not close to being sufficient: (1) The proposed user rights mechanism suffers from manifold serious problems which will make it weak and largely ineffective (insufficient scope of data; lacking technical interoperability; high transaction costs, especially through the need for a negotiated contract with FRAND conditions; unclarity regarding data markets). (2) Also, the option for users to gain more control over the use of the IoT data, which operates through the requirement that the data holders can only use the IoT data on the basis of a contract with the users, will not work due to unsolved serious market failure problems in B2C situations

Therefore, all the rights to use the IoT data will end up with the data holders (and leave the consumers with only these weak user rights). The main reason for this negative assessment of the DA is its overemphasis on the protection of the exclusive de facto control position of the data holders. However, it is very doubtful whether in the case of IoT devices, whose price can cover the costs of data generation, any general incentive problem for investing in data-generating IoT devices exists. Therefore, a far-reaching rebalancing in favor of easier and increased data sharing and user empowerment is necessary, especially for enabling more innovation in the data economy.

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