3. Potential risks and policy implications
3.6. Responsibility and liability in complex smart home supply chains
In order to operate effectively and in the manner expected, smart home devices are often dependent on a complex supply chain. This can include product designers, developers of the software on which the device runs, developers of the smartphone app by which the consumer controls the device, manufacturers of the sensors, processors and other computer hardware that powers the device, and the device manufacturer and/or provider.
The successful operation of a smart device or appliance can also depend on:
The correct installation of the device in the home, which may be undertaken by a
The device’s remote interaction with the provider, especially where the consumer has a subscription service.
Other devices, including automation hubs, which the device needs to connect with in order to perform a task.
A means of Internet connection (e.g. WiFi) and therefore routers, modems and the home’s ISP.
Remote data storage and processing – e.g. the cloud systems of the device manufacturer and its partners.
Providers of associated services – e.g. a smart refrigerator that can reorder its contents from a retailer as items expire or run low; and related payment services.
This supply chain may become even more complex where one device integrates with others to form a smart home “system”.
The nature of a smart device supply chain presents the risk that when things go wrong, identifying and seeking redress from the responsible party could be as complicated for the consumer as the supply chain itself. For example, a Nest thermostat user seeking to understand their rights and the obligations and responsibilities of the various parties in the device’s supply chain needs to read at least thirteen legal documents (Noto La Diega and Walden, 2016[72]).
A related risk arises wherever hardware-focused device manufacturers attempt to offload or shift liability, for example by claiming the software developer is the real party responsible for any defect, or that the service provider is responsible (Noto La Diega and Walden, 2016[72]). This can hamper the allocation of liability for faults and hinder redress, especially where the costs of pursuing a legal claim exceed the cost of the detriment experienced (Manwaring, 2017[42]).
Where smart home devices involve autonomous decision-making, even more complex questions of liability might arise. There are reported instances of Amazon orders being simultaneously placed by Echo devices in multiple households after the Alexa VPA overheard TV news reports that children had placed orders using Alexa (Liptak, 2017[73]).
There are also reports of Alexa placing orders in response to parrots mimicking their owners (Greatrex and White, 2017[74]). These examples illustrate an important question in relation to autonomous decision-making and liability and redress, namely: who is liable for an unwanted contract entered into by a smart home device or appliance (Manwaring, 2017[42])?
These issues are currently receiving attention in the EU as part of the European Commission’s review of the EC's Directive on Liability for Defective Products (2016[75]).
The review includes an assessment of whether the Directive remains fit-for-purpose in light of new technological developments, including the IoT.
A related question is what should be the role of the consumer in ensuring that their devices, systems, personal data and personal effects are secure? It might be argued that consumers should assume greater responsibility for good digital “housekeeping”. For example, consumers might be expected to secure wireless networks, replace default passwords with strong ones as a matter of course, and act on alerts for software updates and installing them in a timely manner. In practice, however, a significant proportion of consumers do not take these steps.
Determining the various roles and responsibilities will be a key issue for policy makers.
This may be further complicated by the number of regulators that are likely to be involved in protecting smart home consumers. For example, a smart energy meter is an
energy device, a telecommunications device and a data capture device. As such, energy metering is no longer the sole concern of utility regulators. Instead it represents a point where the mandates of four regulators – utility, telecoms, consumer and data protection authorities – converge. If a utility company uses customer data to gain an unfair competitive advantage, competition authorities may also take an interest. This pattern of converging regulatory interests repeats across a range of smart home technologies and highlights the need for co-ordination and co-operation in terms of regulatory oversight and enforcement if effective consumer protection is to be ensured in the smart home.
In its 2015 “Digital Economy Outlook”, the OECD noted that the complex structure of IoT markets can obscure which authorities are responsible for helping consumers, making policy and undertaking enforcement (OECD, 2015[76]). It cautioned that the ongoing development of separate responses to emerging technology developments “risks an overall loss of regulatory coherence” (OECD, 2015, p. 271[76]). It also noted that a single regulatory framework, or at least a joint approach, for addressing the changing dimensions of IoT activities would offer “a more coherent arrangement for both businesses and consumers engaging in such activities” (OECD, 2015, p. 271[76]).
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