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Unlocking industrial data: why the EU should rethink the Data Act

Zach Meyers / Jul 2022

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The ink is not yet dry on the EU’s two flagship tech laws, the Digital Markets Act and the Digital Services Act. But EU member-states are already turning their attention to a new tech priority: the Data Act, a proposal from the European Commission intended to help EU businesses better exploit industrial data.

Industrial data includes any non-personal data. This includes most of the data generated by connected consumer and industrial devices, such as connected cars, industrial sensors, factory robotics, and smart household appliances. Industrial data is a sensible focus for Brussels. European firms do not dominate global markets by commercialising personal data, like US firms such as Google, Meta and Amazon do. But the EU remains a powerhouse in manufacturing consumer and industrial devices. It therefore has a realistic chance to become a global leader in the ‘Internet of Things’ – an emerging sector where data is generated from consumer or industrial devices to produce insights and efficiencies.

The EU also has more gain more from the Internet of Things than the US. Most economic value in this sector will arise from analysing data in worksites and factories – which could generate large productivity gains – rather than in consumer-facing digital services where Europe is comparatively weaker. Nevertheless, the EU’s existing data market – the aggregate value of demand for digital data in the EU – significantly lags the US. A total of 80 per cent of industrial data collected in the EU is never used. This suggests future productivity gains could be significant.

But the Data Act would be unlikely to help Europe achieve its ambitions of helping industry unlock better use of data. There are three reasons why.

First, the Act would wrestle control of industrial data away from device manufacturers and gives it to users – so they can access their device’s data directly and give or sell it to third parties. This probably reflects concerns about how US big tech firms use personal data to maintain their market positions. But these concerns do not necessarily apply to industrial data. The Internet of Things is a nascent set of markets with many strong European players. Depriving these European firms of the automatic right to exploit their devices’ data in Europe could disadvantage those firms, relative to American or Chinese equivalents. Furthermore, the Data Act risks being counterproductive: manufacturers would find it more costly to collect data, and would have less ability to exclusively exploit that data, so they may simply decide to reduce how much data they collect. That may lead to less long-term investment in data analytics, putting European firms at a disadvantage against global competitors in the long term.

Second, the Data Act would apply concepts from the General Data Protection Regulation (GDPR) – such as the idea that users ‘own’ control over data. In doing so, the GDPR rightly prioritises privacy over commercial interests. However, this is not the right trade-off for non-personal data, where fundamental values like privacy are not engaged, and innovation may be more important. For example, in several emerging areas of tech, such as training artificial intelligence models, innovative firms will need massive datasets from many users. The Data Act would require these innovative firms to obtain individual consent from each user whose data they collect – even if the data is anonymous. This will make innovation unnecessarily difficult, compared to today’s situation where such a firm can negotiate with a single manufacturer to buy industrial data en bloc.

Third, to lead in the Internet of Things, European industry will need to adapt quickly. Economic value in the Internet of Things sector is quickly moving away from hardware – Europe’s traditional strength – and towards software and services associated with that hardware, such as artificial intelligence systems which use industrial data. Data-driven software and services are not Europe’s traditional strengths. More regulation will not fill that capability gap. The EU instead needs to ensure patient, risk-tolerant funding – of the type which fuelled America’s tech giants – is available for firms to invest in radical data-based innovation. The Commission’s announcement of a New European Innovation Agenda proposes some useful steps to help with the necessary business transformations; the Data Act would do little to help.

What should the EU do instead? The EU should put aside the Data Act proposal. Instead, it should follow through with its Innovation Agenda and adhere to its 2020 data strategy. That strategy rejected widespread mandatory data sharing, and focused instead on strengthening firms’ incentives to collect data; using competition law to address ‘data hoarding’; and making targeted regulatory interventions in particular sectors where data markets are not working well. These interventions will be more painstaking than applying a ‘one size fits all’ approach to all types of industrial data, as the Data Act seeks to do. But they offer a better chance for Europe to finally become a tech leader, not just a tech regulator.

 

Zach Meyers

Zach Meyers

July 2022

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