Data Act: New European Legislation Coming for Data Economy

Analysis

Eszter Sieber-Fazakas LL.M., Head of Commercial & Trade/Digital Business Practice Groups at Noerr Budapest, Noerr and Partners Law Firm

Now that almost every company and organization has become familiar with GDPR and complies, more or less, with its requirements, a new challenge is on its way. The European Commission has adopted a proposal on a new legal framework for fair access and use of data.

The proposal, nicknamed the “Data Act,” aims to ensure fairness by setting up rules regarding the use of data generated by Internet of Things (IoT) devices. The act focuses on “digital data” (not only personal), which means all data created when using IoT objects. The beneficiaries would not only be consumers or natural persons; in general, a fairer distribution of digital data should be achieved.

The EC sees the concentration of data in the hands of a few big companies as an obstacle to data-driven innovation. The Data Act makes sure that the persons having generated the data by using a product or related service have access to it and can use that data. Data holders, on the other hand, are obliged to make data available to such recipients. Data should also be made accessible to public-sector bodies or EU institutions, agencies, or bodies where there is an exceptional need to perform a task carried out in the public interest.

The practical implementation of specific provisions of the Data Act is not yet clear. A fundamental question is how to keep consistency with GDPR: the data holder will be obliged to make data available to the recipient due to the Data Act but is prohibited from disclosing any personal data according to GDPR. Both European regulations threaten heavy fines; the Data Act determines sanctions of up to EUR 20 million, or 4% of the total annual revenue, if its provisions are violated.

Further distinction difficulties may arise in cases where several parties are involved in a legal relationship: for example, in the automotive industry, where the features of smart- or connected cars are concerned. Who will be entitled to have access to the data: the owner, the registered keeper, and/or the driver of the car? And who will be responsible for making the data available since it is not easy to define who controls the technical design of data flow in a complex supply chain.

For example, in the case of an automaker, it is not sure that it is in control of the technical design of all software components and their interoperability. The protection of trade secrets also raises questions. If the right of access to data concerns a trade secret, the data can only be transferred if the user takes measures to protect the data. Will it be sufficient to refer to the existence of a trade secret? If so, this will eliminate many data access claims.

To equalize the unequal power relations between contracting parties, the Data Act regulates the prohibition of unfair contract terms applied to micro-, small- and medium-sized enterprises for all data usage or license agreements. This practice was previously only applied to consumers. The Data Act also contains a catalog of contractual terms deemed to be unfair. The buzz here is that companies will need to set up a fair data sharing contract or adapt their existing documentation.

Data processing service providers, meaning cloud or edge providers, must make it easier for customers to switch between services, which should be free of charge in any case. Further, they must ensure interoperability. Reasonable steps are to be made to prevent government access to non-personal data stored in the EU, or the transfer of data that is incompatible with European or national law.

In summary, companies dealing with the IoT must prepare themselves for massive change. The good news is that there is still some time, as the Data Act is not expected to enter into force before 2023.

This article was first published in the Budapest Business Journal print issue of June 3, 2022.

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