Ercüment Erdem Att. Ali Sami Er

Industry 4.0 and Its Impact in the Legal World

June 2017

The internet has a huge impact on people's lives. As people have learned to cope with this great power, it has become inevitable for the internet to exercise influence over objects. Consequently, the greatest benefit of the internet nowadays is not communicating with people, but rather, making objects communicate with each other and people. In this article, we examine legal effects of these new developments.

Development

Industry 4.0, one of the ten main projects announced by the German Federal Ministry of Education and Research in 2011, was first discussed at Hannover Messe 2011, and the “Industry 4.0 Strategy Document,” which was prepared under the leadership of the German National Academy of Science and Engineering. The Industry 4.0 Platform (www.plattform-i40.de) was also established to define the basic standards of the Industry 4.0.

Industry 1.0, being the First Industrial Revolution, is defined as the mechanization, the Second Industrial Revolution is the serialization, and the Third Industrial Revolution is the automation of the production[1]. On our way to the Fourth Industrial Revolution, i.e. Industry 4.0, inter-networking of things and shortening time-to-market are aimed. Because the key point of reaching a high profit rate is the fast release of the product to the market after the design and R&D phase.

Industry 4.0, which allows the West to survive the East’s cheap labor and mass production, focuses on individualized production and incorporates the whole chain, including idea, development, production, end-user distribution and recycling processes. Instead of machines that focus on a single duty, machines and robots that switch between different modes, and which engage in personalized and flexible production, shall play an essential role during this revolution.

Internet of Things, Self-Learning Robots, Smart Factories

In the flexible production process that the Industry 4.0 shall provide, the machines and robots in the production process will communicate with each other and people, as we communicate on various platforms through smartphones via internet. As the smart refrigerator sends messages to our phones when it runs out of an ingredient, these machines will also be able to communicate for the repair of a breakdown in their systems.

These factories, where machines communicate and analyze, are called smart factories. The ultimate goal of smart factories is, by means of advanced automation, to transfer human power to different areas, and to pace toward the lights-out manufacturing where production is carried out by robots without the need of lighting. A smart factory example is the Speed Factory established by Adidas, one of the world's largest sporting goods manufacturers. In this factory, production is made with high-tech machines and 3D printers, and it has only 160 workers, while in peer factories, there are thousands[2].

The internet of things may not only affect the production process, but also every step of the supply chain. For example, a digital currency system called blockchain uses cryptographically chaining blocks of data together to make payments between two entities without the need of an intermediary. Now this new method allows us to execute online smart contracts. Furthermore, Industry 4.0 cause an evolution in the supply chain by introducing intelligent and inter-networking machines, resulting digital supply networks capable of capturing data to inform each other.

It is accepted that Industry 4.0 shall have great impact on both workforce and organizational structure in the near future, and that machines and robots shall replace manpower. This may not only have consequences for low-skilled blue-collar workers, but also for highly skilled white-collar workers[3]. As new professions with new duties appear, there shall also be a decrease in hierarchical levels. By Duke University Professor Cathy N. Davidson’s estimate, 65% of children entering primary school today shall ultimately end up working in completely new job types that do not yet exist. Thus, the futurist, Thomas Frey, believes that by the year 2030, two billion jobs disappear and new business areas will be developed[4]. Because all data should be processed securely, and must be turned into knowledge, we have already started to see job advertisements titled, “Big Data Analyst” and “Cyber Security Analyst.”

Legal Effects

In production facilities where Industry 4.0 will show its effects, one should take a close look at the relations between company-employee, company-supplier and company-customer. In this new era, laws shall evolve, and new regulations must be made to provide legal protection in these relationships.

To first start with the implications of Industry 4.0 over employment matters, for example, is it possible to terminate employment contracts due to transition to smart factories, self-learning robots, and lights-out manufacturing? The General Assembly of the Supreme Court’s Civil Chambers decision numbered 2010/9-272 E. 2010/276 K. and dated 02.06.2010 emphasizes that “If the termination is claimed to be based on business, workplace and business requirements, an operational decision must be present, and then the reason preventing the employment and performance of the work must be researched, and if the decision causes a labor surplus, the employer applies this decision consistently (consistency control), terminations made arbitrarily (arbitrariness control), and the inevitability of terminations (the principle of proportionality  - remedy of last resort [ultima ratio]) must be clarified.”[5] In my opinion, the ultima ratio principle should be perceived as the main principle on terminations made in the Industry 4.0 period, and instead of people, the muscular power should be replaced and appropriate training and suitable job positions should be offered to employees.

In the company-supplier relationship, however, blockchain offers fast transactions, lower transaction costs, and has the potential to transform business, and revolutionize cybersecurity[6]. Smart contracts on a blockchain collect any data arising from the contracts, and this helps to track every action taken with respect to the item. Principally, the data cannot be changed once it appears in the blockchain, and this helps to reduce fraud in the supply chain. Although an integral feature of the functionality and usefulness of blockchains, it is also discussed that immutability also poses the most significant challenge for the practical implementation and adoption of smart contracts at the level of industry[7]. The pros and cons of smart contracts are still debatable, because there is an absence of prevailing standards and regulations, and courts are unfamiliar with even the basic taxonomy of blockchains. While parties may simply add a Force Majeure clause to traditional contracts made in writing, for times when performing the contractual duties becomes impossible due to unforeseen reasons outside of the parties’ control, smart contracts may not leave some room for these kinds of demands of the parties. Lawyers will also add new clauses to the traditional contracts to determine who is at fault when a mistake occurs in a digital supply network while processing a transaction. For effective dispute resolution, the courts shall need more IT-experts to determine fault. Perhaps in the future we shall start to see big cyber-attacks and internet-crackdowns as the new Force Majeure.

Unfortunately, two legal issues around big data are protecting the big data within the scope of intellectual property law, and fairly and lawfully collecting, processing and using it within the scope of data protection/data privacy law[8]. Since Industry 4.0 opens up new avenues for ransom software and data theft, the potential for cyber risk shall likely increase. Companies are targeted by so called ransom software in connection with concepts, such as virtualization, cloud computing and big data[9]. Because of the great importance of preventing cyber-attacks, and learning how to deal with them, new business opportunities shall arise in the area of cyber security, and new cyber security solutions and regulations shall be introduced at the same pace as Industry 4.0 applications. It is also debatable whether it is possible to provide cyber security for all businesses, or not. It is clear that small businesses benefit from cyber security systems of big companies that they are suppliers of, but in the long run, effective solutions for cyber security must be made accessible to any company[10].

Within the scope of intellectual property law, there is also another issue to discuss. The question is: if a machine invents something new, can it be patented? Shall robots have ownership rights? Treating robots as inventors and encouraging the development of creative machines and self-learning robots would incentivize the creation of intellectual property. Although patent protection does not cover a robot’s invention pursuant to new Turkish Industrial Property Law No. 6769, this may change. In the current situation, a machine’s owner should be the default assignee of any invention, both because this is most consistent with the rules governing ownership of property, and because it would greatly incentivize innovation. But where a computer’s owner, developer, and user are different entities, such parties could negotiate alternative arrangements through contract[11].

What happens when these machines and robots find themselves in a situation that is deemed to be disadvantageous? Yet we find out that another legal challenge of Industry 4.0 is how to deal with work accidents caused by robots. In 2015, a robot in an automotive factory in the US lost control, and it caused a fatal work accident[12]. Upon his wife's death, the husband claimed that the five companies who designed, built and tested the robots were liable for this accident. This fact shows that the number of co-defendants shall be increasing, because plaintiffs will most likely file the lawsuit against anyone involved in the process, before the statute of limitations expires. But what if this robot made decisions of its own accord? Shall we then have the right to claim the designer or producer’s liability? In order to claim an employer’s strict liability under Article 66 of the Turkish Code of Obligations, an illegal act must have been committed, damage suffered, and a causal link between the act and damage must exist. The employer shall be then obliged to compensate the damage suffered by the others by its employees during the performance of their work[13]. In this case, could the producer and tester be jointly responsible with the owner, or must the claimant prove the producer and tester’s faulty and unlawful behavior? The question continues: What about criminal liabilities? In civil law, it is usually not necessary to prove a subjective mental element to establish liability for breach of contract or tort. But if a tort is intentionally committed, or a contract is intentionally breached, such intent may increase the scope of liability and the damages payable to the plaintiff. The first paragraph of Article 20 of Turkish Criminal Code No. 5237 sets forth that criminal responsibility is personal. No one shall be held responsible for the acts of another individual. Since the strict liability principle is not present in the Turkish Criminal Code, how would it be possible to claim criminal liability of the owner, designer or producer? In this new era, while the number of work accidents caused through the fault of the worker is reducing, we shall be busy sharing liability for work accidents caused by non-humans.

Regarding customer-seller relations, the Turkish Regulation on Distance Agreements shall become crucial. This regulation provides consumer protection, and imposes more obligations on the seller and service provider who enter into distance sales agreements with consumers through websites, emails, faxes, phones or other similar means. Thanks to smart factories, customers may order shoes that designed by them online and which are produced with 3D printers, but could they return these shoes under provisions of the Regulation on Distance Agreements? This may be possible. But some provisions should be added in order to protect the seller if the defect was caused by the customer’s own design.

Conclusion

Although there are various legal issues regarding cyber security, intellectual property rights and labor law, there is no doubt that the Industry 4.0 shall lead companies to greater cost efficiency and productivity, and bring with it new jobs and professions.

The key point, however, is that the technological developments should be followed closely by lawyers, and the law should follow and adapt to these developments in the fastest way possible.

[1] Please see: http://cdn.endustri40.com/file/ab05aaa7695b45c5a6477b6fc06f3645/End%C3%BCstri_4.0_Yolunda.pdf(access date: 29.06.2017).

[2] Please see: http://www.economist.com/news/business/21714394-making-trainers-robots-and-3d-printers-adidass-high-tech-factory-brings-production-back(access date: 29.06.2017).

[3] Please see: http://journal-bmp.de/2015/12/auswirkungen-von-industrie-4-0-auf-menschliche-arbeit-und-arbeitsorganisation/?lang=en(access date: 29.06.2017).

[4] Please see: http://www.futuristspeaker.com/business-trends/2-billion-jobs-to-disappear-by-2030/(access date: 29.06.2017).

[5] Please refer to our article for detailed information on operational decisions: http://www.erdem-erdem.av.tr/yayinlar/hukuk-postasi/isletmesel-karar-ile-is-akdinin-feshi/(access date: 29.06.2017).

[6] Please see: http://cyberlaw.stanford.edu/publications/opinion-tech-behind-bitcoin-could-reinvent-cybersecurity(access date: 29.06.2017).

[7] Please see: http://www.mondaq.com/uk/x/601904/Smart+Contracts+The+Next+Big+Battleground.

[8] Please see: http://www.taglaw.com/ipit/4772-big-data-and-the-law-how-to-successfully-navigate-the-data-minefield.html(access date: 29.06.2017).

[9] Please see: http://www.bbc.com/news/technology-40416611(access date: 29.06.2017).

[10] Please see: http://library.fes.de/pdf-files/wiso/12683.pdf(access date: 29.06.2017).

[11] Please see: http://bclawreview.org/files/2016/09/01_abbott.pdf(access date: 29.06.2017).

[12] Please see: http://www.independent.co.uk/news/world/americas/robot-killed-woman-wanda-holbrook-car-parts-factory-michigan-ventra-ionia-mains-federal-lawsuit-100-a7630591.html(access date: 29.06.2017).

[13] Please refer to our article for detailed information on employer’s liability: http://www.erdem-erdem.av.tr/publications/law-journal/organizational-liability-added-to-art-66-of-the-turkish-code-of-obligations-regarding-employers-liability/(access date: 29.06.2017).