Business Law

Who Has To Pay? Major Contractual Elements That Affect Which Party Bears the Cost of Supply Chain Delays and Price Increases in Construction Projects

April 17, 2022
Business Law, Contract Law, COVID-19, Supply Chain

Kristin Thompson, MJLST Staffer

As a result of the COVID-19 pandemic there have been supply chain issues occurring around the world, causing constant price increases and delivery delays for construction materials.[1] While there are numerous factors that will affect exactly where the expenses of those delays fall, this article briefly outlines the major contractual elements that will come into play when determining whether the contractor, subcontractor or owner bears the risk. The first question that should be asked when investigating COVID-19 related supply chain issues is, “what does the contract say?” However, my first area of analysis begins when the answer to that question is “we don’t have one yet.”

 

The contract is not yet executed

This is the first major element to be addressed: what point of the contractual process the parties are in. To be clear, once the contract and subcontracts are executed the parties must rely on contract remedies and their pricing structures for relief. However, if the contracts have not yet been executed the contractor and subcontractors still have the potential to push the risk onto the owner or devise an equitable way to share those risks. They can build the supply chain-related price increases and project delay costs into their estimates, putting the owner in the position to either accept the increased cost and timeline or forego the project. During this pre-execution process the contractors will largely either be bidding a cost plus guaranteed maximum price model (“GMP”) or a lump sum model.[2] Here the GMP is ideal as the contractor can build the increased costs into the contingency. The lump sum model will call for an upward adjustment to their estimated total costs to account for the increases, chancing that those estimates will be enough. After adjusting their price model, the contractor and subcontractors can then add contractual language specifically saying that they are allowed time extensions for any and all supply chain delays, define their force majeure clause as inclusive of a pandemic or epidemic, and include change in law provisions that cover mandates issued as a result of the COVID-19 pandemic.

 

The Contract is Executed

In this case, the parties will need to dive into their contract to see who bears the responsibility for extra costs and find out if they are able to extend their timelines without consequence. Issues relating to extra costs will be almost exclusively determined by whether or not a GMP or lump sum price model was used. Absent provisions stating otherwise, a GMP will allocate the extra costs to the owner up to the guaranteed maximum price as those costs come out of the contingency fee, while a lump sum contract will allocate them to the contractor as the costs will come out of the total bid price.[3] In the latter scenario, the contractor can then hold subcontractors to the price of their contract and make them bear their own price increases which would relieve the contractor from some of the extra cost burden. However, the contractor must keep in mind the reality in which a subcontractor would not be able to bear the extra costs and then either go out of business or refuse to perform. Legal action taken will either be futile if the subcontractor is insolvent, or expensive and time-consuming if they refuse to perform.

The parties then must determine whether or not schedule extensions resulting from supply chain issues are proper. This determination will largely be based on the force majeure clause and change in law provision located in the general conditions.

 

Force Majeure Clause

If the COVID-19 pandemic is found to be included as a force majeure event, the contractor will be allowed a time extension for the extra work relating thereto. Some contracts pre-dating the pandemic already used language relating to a pandemic or epidemic. The most regularly used form contracts, 200AIA.201-017[4] and ConsensusDocs 200[5],include broad force majeure provisions that have been read to include the pandemic.[6] The AIA provides for “other causes beyond contractors control,[7]” and the ConsensusDocs200 for “any cause beyond the control of constructor” and “epidemics.[8]” The specific delays must still be attributed to the pandemic, and proving causation will depend on the amount of proof the suppliers can provide to support that claim. The more challenging situations are those in which the contracts have narrow force majeure clauses or contain catch-all phrases.[9] Interpretation in these cases tend to be dependent on state law and vary widely.[10] If found to not include the pandemic, the contractor will not be guaranteed a time extension for delays and will be held to their original timeline absent other contractual provisions affording them an extension.

 

Changes in Law Provision

The final factor is whether the contract has a change of law provision. If so, executive orders or other changes of law related to the pandemic may allow for time extensions.[11] For instance, a delay in production because a factory producing specified windows had to cut their work force in half to stay in line with federal social distancing mandates would constitute a change in law allowing the contractor an extension while they wait for the windows. ConsensusDOCS 200 currently provides that “the contract price or contract time shall be equitably adjusted by change order for additional costs resulting from any changes in laws…[12]” thus laying out an avenue for relief for those party to a ConsensusDOCS 200 contract. Conversely, the AIA.201-2017 currently does not provide a change in law provision, taking away this option for the large number of contractors that use this form.

In sum, when viewing supply chain delays and expenses in an attempt to ascertain who bears the risk one should look to where the parties are at in their contractual process, the price model being used, the general conditions involved and the breadth of the force majeure and change in law provisions.

 

Notes

[1] Continued Increases In Construction Materials Prices Starting To Drive Up Price Of Construction Projects, As Supply-chain & Labor Woes Continue, The Associated General Contractors of America (November 9, 2021).

[2] Richard S. Reizen, Philip P. Piecuch, & Daniel E. Crowley, Practice Note, Construction Pricing Models – Choosing an Appropriate Pricing Arrangement, Gould + Ratner (2018).

[3] Joseph Clancy, How Do Guaranteed Maximum Price (GMP) Contracts Work?, Oracle (May 20, 2021).

[4] AIA Document 201-2017.

[5] ConsensusDOCS 200.

[6] Force Majeure Provisions: COVID-19, Sheet Metal and Air Conditioning Contractors’ National Association (June 3, 2021).

[7] AIA Document 201-2017 § 8.3.1.

[8] ConsensusDOCS 200 § 6.3.1.

[9] Douglas V. Bartman, Force Majeure in Construction and Real Estate Claims, American Bar Association (July 17, 2020).

[10] Id.

[11] Peter Hahn, Enough About Force Majeure! What Other Options Does a Construction Contractor Have for COVID-19 Pandemic Losses?, JDSupra (April 3, 2020).

[12] ConsensusDOCS 200 § 3.21.1

Google Fined for GDPR Non-Compliance, Consumers May Not Like the Price

February 19, 2019
Business Law, Data, Ethics, Privacy, Social Media

Julia Lisi, MJLST Staffer

On January 14th, 2019, France’s Data Protection Authority (“DPA”) fined Google 50 million euros in one of the first enforcement actions taken under the EU’s General Data Protection Regulation (“GDPR”). The GDPR, which took effect in May of 2018, sent many U.S. companies scrambling in attempts to update their privacy policies. You, as a consumer, probably had to re-accept updated privacy policies from your social media accounts, phones, and many other data-based products. Google’s fine makes it the first U.S. tech giant to face GDPR enforcement. While a 50 million euro (roughly 57 million dollars) fine may sound hefty, it is actually relatively small compared to maximum fine allowed under the GDPR, which, for Google, would be roughly five billion dollars.

The French fine clarifies a small portion of the uncertainty surrounding GDPR enforcement. In particular, the French DPA rejected Google’s methods for getting consumers to consent to its  Privacy Policy and Terms of Service. The French DPA took issue with the (1) numerous steps users faced before they could opt out of Google’s data collection, (2) the pre-checked box indicating users’ consent, and (3) the inability of users to consent to individual data processes, instead requiring whole cloth acceptance of both Google’s Privacy Policy and Terms of Service.

The three practices rejected by the French DPA are commonplace in the lives of many consumers. Imagine turning on your new phone for the first time and scrolling through seemingly endless provisions detailing exactly how your daily phone use is tracked and processed by both the phone manufacturer and your cell provider. Imagine if you had to then scroll through the same thing for each major app on your phone. You would have much more control over your digital footprint, but would you spend hours reading each provision of the numerous privacy policies?

Google’s fine could mark the beginning of sweeping changes to the data privacy landscape. What once took a matter of seconds—e.g., checking one box consenting to Terms of Service—could now take hours. If Google’s fine sets a precedent, consumers could face another wave of re-consenting to data use policies, as other companies fall in line with the GDPR’s standards. While data privacy advocates may applaud the fine as the dawn of a new day, it is unclear how the average consumer will react when faced with an in-depth consent process.

A Data Privacy Snapshot: Big Changes, Uncertain Future

February 19, 2019
Business Law, Cyber Security, Data, Internet

Holm Belsheim, MJLST Staffer

When Minnesota Senator Amy Klobuchar announced her candidacy for the Presidency, she stressed the need for new and improved digital data regulation in the United States. It is perhaps telling that Klobuchar, no stranger to internet legislation, labelled data privacy and net neutrality as cornerstones of her campaign. While data bills have been frequently proposed in Washington, D.C., few members of Congress have been as consistently engaged in this area as Klobuchar. Beyond expressing her longtime commitment to the idea, the announcement may also be a savvy method to tap into recent sentiments. Over the past several years citizens have experienced increasingly intrusive breaches of their information. Target, Experian and other major breaches exposed the information of hundreds of millions of people, including a shocking 773 million records in a recent report. See if you were among them. (Disclaimer: neither I nor MJLST are affiliated with these sites, nor can we guarantee accuracy.)

Data privacy has been big news in recent years. Internationally, Brazil, India and China are have recently put forth new legislation, but the big story was the European Union’s General Data Privacy Regulation, or GDPR, which began enforcement last year. This massive regulatory scheme codifies the European presumption that an individual’s data is not available for business purposes without the individual’s explicit consent, and even then only in certain circumstances. While the scheme has been criticized as both vague and overly broad, one crystal clear element is the seriousness of its enforcement capabilities. Facebook and Google each received large fines soon after the GDPR’s official commencement, and other companies have partially withdrawn from the EU in the face of compliance requirements. No clear challenge has emerged, and it looks like the GDPR is here to stay.

Domestically, the United States has nothing like the GDPR. The existing patchwork of federal and state laws leave much to be desired. Members of Congress propose new laws regularly, most of which then die in committee or are shelved. California has perhaps taken the boldest step in recent years, with its expansive California Consumer Protection Act (CCPA) scheduled to begin enforcement in 2020. While different from the GDPR, the CCPA similarly proposes heightened standards for companies to comply with, more remedies and transparency for consumers, and specific enforcement regimes to ensure requirements are met.

The consumer-friendly CCPA has drawn enormous scrutiny and criticism. While evincing modest support, or perhaps just lip service, tech titans like Facebook and Google are none too pleased with the Act’s potential infringement upon their access to Americans’ data. Since 2018, affected companies have lobbied Washington, D.C. for expansive and modernized federal data privacy laws. One common, though less publicized, element in these proposals is an explicit federal preemption provision, which would nullify the CCPA and other state privacy policies. While nothing has yet emerged, this issue isn’t going anywhere soon.

The Music Modernization Act May Limit Big Name Recording Artists’ Leverage in Negotiations with Music Streaming Companies

October 28, 2018
Business Law, Competition, Copyrights, Economics, Economy, Intellectual Property, Property Law

By: Julia Lisi, MJLST Staffer

Encircled by several supportive recording artists, President Trump signed the Music Modernization Act (“MMA”) into law on October 11, 2018. Supporters laud the MMA as a long overdue update for U.S. copyright law. Federal law governs roughly 75% of recording artists’ compensation, according to some estimates. The federal regulatory scheme for music license fees dates back to 1909, before the advent of music streaming. Though the scheme has been tweaked since 1909, the MMA marks a major regulatory shift to accommodate the large market for music streaming services like Spotify and Apple Music.

Prior to the MMA, streaming services virtually had two options for acquiring music catalogs: (1) either acquire licenses for each individual song or, (2) provide music without licenses and prepare for infringement suits. Apple Music adopted the first strategy and as a result initially suffered from a much leaner music catalog. Spotify went with the second strategy, setting aside funds to weather litigation.

The MMA offers a preexisting mechanism, the mechanical license, on a broader scale. Once the MMA takes full effect, streaming services can receive blanket licenses to entire catalogs of music, all in one transaction. The MMA establishes the Mechanical Licensing Collective (the “Collective”), a board of industry participants, which will set license prices. The MMA is, in part, meant to ensure that more participants in the music industry will be paid for their work. For example, music producers and engineers can expect to receive more compensation under the MMA.

While the MMA may broaden the pool of industry participants who get compensation from streaming, the MMA could weaken big name artists’ bargaining positions with streaming services. Recording artists like Taylor Swift and Adele have struggled to keep their albums off streaming services like Spotify. Swift resisted music streaming based on her conviction that streaming services did not fairly compensate artists, writers, and producers. While Swift may have come to an agreement with Spotify and allowed her albums to be streamed, there are still holdouts. More than two years after its release, Beyoncé’s Lemonade still is not on Spotify.

With the Collective controlling royalty rates, big name artists might not have the holdout power that they wield now. If Swift’s music had been lumped into a collective mechanical license, she may not have had the authority to withdraw or withhold her albums from streaming services. The MMA’s mechanical licenses are compulsory, indicating the lower level of control copyright owners may have. Despite this potential loss of leverage, the MMA is widely supported by artists and industry executives alike. Only time will tell whether the Collective’s set prices will make compensation within the music industry fairer, as proponents suggest.

Judicial Interpretation of Emojis and Emoticons

March 2, 2018
Business Law, New Technology, Social Media

Kirk Johnson, MJLST Staffer

 

In 2016, the original 176 emojis created by Shigetaka Kurita were enshrined in New York’s Museum of Modern Art as just that: art. Today, a smartphone contains approximately 2,000 icons that many use as a communication tool. New communicative tools present new problems for users and the courts alike; when the recipient of a message including an icon interprets the icon differently than the sender, how should a court view that icon? How does it affect the actus reus or mens rea of a crime? While a court has a myriad of tools that they use to decipher the meaning of new communicative tools, the lack of a universal understanding of these icons has created interesting social and legal consequences.

The first of many problems with the use of an emoji is that there is general disagreement on what the actual icon means. Take this emoji for example: 🙏. In a recent interview by the Wall Street Journal, people aged 10-87 were asked what this symbol meant. Responses varied from hands clapping to praying. The actual title of the emoji is “Person with Folded Hands.”

Secondly, the icons can change over time. Consider the update of the Apple iOS from 9 to 10; many complained that this emoji, 💁, lost its “sass.” It is unclear whether the emoji was intended to have “sass” to begin with, especially since the title of the icon is “Information Desk Person.”

Finally, actual icons vary from device to device. In some instances, when an Apple iPhone user sends a message to an Android phone user, the icon that appears on the recipient’s screen is completely different than what the sender intended. When Apple moved from iOS 9 to iOS 10, they significantly altered their pistol emoji. While an Android user would see something akin to this 🔫, an iPhone user sees a water pistol. Sometimes, an equivalent icon is not present on the recipient’s device and the only thing that appears on their screen is a black box.

Text messages and emails are extremely common pieces of evidence in a wide variety of cases, from sexual harassment litigation to contract disputes. Recently, the Ohio Court of Appeals was called upon to determine whether the text message “come over” with a “winky-face emoji” was adequate evidence to prove infidelity. State v. Shepherd, 81 N.E.3d 1011, 1020 (Ohio Ct. App. 2017). A Michigan sexual harassment attorney’s client was convinced that an emoji that looked like a horse followed by an icon resembling a muffin meant “stud muffin,” which the client interpreted as an unwelcome advance from a coworker. Luckily, messages consisting entirely of icons rarely determine the outcome of a case on their own; in the sexual harassment arena, a single advance from an emoji message would not be sufficient to make a case.

However, the implications are much more dangerous in the world of contracts. According to the Restatement (Second) of Contracts § 20 (1981),

(1) There is no manifestation of mutual assent to an exchange if the parties attach materially different meanings to their manifestations and

(a) neither party knows or has reason to know the meaning attached by the other; or

(b) each party knows or each party has reason to know the meaning attached by the other.

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

(a) that party does not know of any different meaning attached by the other, and the other knows the meaning attached by the first party; or

(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

 

Adhering to this standard with emojis would produce varied and unexpected results. For example, if Adam sent Bob a message “I’ll give you $5 to mow my lawn 😉,” would Bob be free to accept the offer? Would the answer be different if Adam used the 😘 emoji instead of the 😉 emoji? What if Bob received a black box instead of any emoji at all? Conversely, if Adam sent Bob the message without an emoji and Bob replied to Adam “Sure 😉,” should Adam be able to rely upon Bob’s message as acceptance? In 2014, the Michigan Court of Appeals ruled that the emoticon “:P” denoted sarcasm and that the text prior to the message should be interpreted with sarcasm. Does this extend to the emoji 😜😝, and 😛, titled “Face with Stuck-Out Tongue And Winking Eye,” “Face With Stuck-Out Tongue And Tightly-Closed Eyes,” and “Face With Stuck-Out Tongue” respectively?

In a recent case in Israel, a judge ruled that the message “✌👯💃🍾🐿☄” constituted acceptance of a rental contract. While the United States does have differing standards for the laws of contracts, it seems that a judge could find that to be acceptance under the Restatement of Contracts (Second) § 20(2). Eric Goldman at the Santa Clara University School of Law hypothesizes that an emoji dictionary might help alleviate this issue. While a new Black’s Emoji Law Dictionary may seem unnecessary to many, without some sort of action it will be the courts deciding what the meaning of an emoji truly is. In a day where courts rule that a jury is entitled to actually see the emoji rather than have a description read to them, we can’t ignore the reality that action is necessary.

Acquisitions of Our Lives

November 22, 2017
Antitrust, Business Law

Zachary Currie, MJLST Staffer

 

Growing up, my mother was an avid consumer of soap operas, which aired during the daily drought of day-time television. I never watched any soap opera closely, but I occasionally stopped in the living room while one was on and caught a glimpse of the whirling melodrama—after all, the characters were beautiful, handsome, and belonged to a realm of luxury far removed from my paltry existence. The story was always the same; it was always about banal, dynastic feuding, resulting in predictable and outrageous tragedies. But never once did I think that the content of a soap opera was accurate, not in the sense of being based on a true story, but in the sense of being as realistic as a story written by Ernest Hemingway about fishing for marlin in the Gulf Stream. My perception of the quality of soap opera writing changed when I was introduced to the melodramatic world of telecommunication corporations, their acquisitions, and anti-trust law, through its latest garish episode: AT&T’s bid for Time Warner.

 

The latest episode of this soap opera involves players as glamorous, foolish, rich, and powerful as any soap opera cast. A takeover of Time Warner by AT&T would create America’s sixth largest firm by pre-tax profits; the Department of Justice has expressed its disapproval of the star-crossed lovers’ plans to elope. Some important socialites in ermine fur have hinted, with winks, that DoJ is motivated by the Donald’s hatred for CNN, a channel owned by Time Warner. Others belonging to the grapevine scoff at the match, deriding it as unsophisticated and gauche; after all, the marriage will cost over a $100 billion, return on capital is egregiously low, and attempting to increase returns by forcing Time Warner content on AT&T consumers would irritate the ever-watchful and puritanical anti-trust regulators.

So, the plot thickens: is the corporate tryst motivated by an intent to commit some dirty illegality? Well, the DoJ was suspicious and nosy enough to file a suit seeking to block the acquisition. The suit claims that after the acquisition, AT&T would be situated to force rivals to pay hundreds of millions of dollars more per year for Time Warner content, and the new formidable couple would dampen technological innovation. But is the DoJ being disingenuous? Perhaps it is motivated more by priggishness, or, maybe, political vengeance, than a concern to foster competition. Remember, this acquisition is vertical integration rather than horizontal integration; there can be good, healthy reasons for vertical integration. One way in which vertical integration can be efficient is through gaining economies of scale, when average total cost decreases with increasing output; surplus from gaining economies of scale may outweigh social costs caused by imperfect competition. Another advantage of vertical integration is the correction of market governance failures: integration allows firms to internalize the costs that arise from strategic and opportunistic behavior. Has the DoJ seriously considered all the consequences of acquisition? One anonymous attorney general claimed that the DoJ has not been forthcoming with any economic analysis helpful to decide whether to sue. Stay tuned to see the end of this Great American Corporate Love Story. Other juicy details include AT&T’s use of one of Trump’s former lawyers and Trump’s tweets about CNN (including an edited wrestling video showing Trump punching a man whose head is replaced by the CNN logo) for litigation.

Policy Proposals for High Frequency Trading

April 21, 2016
Business Law, Competition, Economics, Securities Law

Steven Graziano, MJLST Staffer

In his article, The Law and Ethics of High Frequency Trading, which was published in the Minnesota Journal of Law, Science, and Technology Issue 17, Volume 1, Steven McNamara examines the ethics of high frequency trading. High frequency trading is the use of high-speed algorithms to take advantage of minor inefficiencies in trading technologies, and in doing so gain large market returns. McNamara looks into ethical, economic, and legal aspects of high frequency trading. In the course of his discussion McNamara determines that: high frequency trading is a term that actually describes an assortment of different practices; the amount of dollars involved in high frequency trading is declining, but is still a concern for certain types of investors and regulators; a proper analysis of high frequency trading requires use of expectation-based, deontological moral theory; and that modern technology may call into question the use of the Regulation National Market System regime. McNamara concludes that even though high frequency trading may lower costs to most investors, many practices associated with high frequency trading support the position that high frequency trading is not fair.

Securities and Exchange Commission Chair Mary Jo White has recently commented on the legality, and potential ways to approach, high frequency trading. White, while testifying before the Senate Appropriations Subcommittee on Financial Services and General Government, informed the Congressional Committee that “You don’t paint with the broad brush all high-frequency traders — they have very different strategies.” This sentiment mirrors McNamara’s assertion that the term high-frequency trading actually involves various practices. However, White is seemingly defending some practices, while McNamara has a more negative view.

Differing still from these two views are the results of a study done by United Kingdom’s Financial Conduct Authority. That study concluded with the conclusion that high-frequency trade technologies are not rapidly predicting marketable orders and then trading those orders. However, the study examined practices in Europe, which has less market participants and a slower moving market than the United States.

In conclusion, Steven McNamara offers a very insightful, encompassing look at high frequency trading. His analysis resonates through both White’s testimony, and in the results of the study from the Financial Conduct Authority. Although all three perspectives seemingly stand for somewhat different propositions, what is clear from all three sources is that the practice of high-frequency trading is extremely complex and requires in-depth analysis before making any conclusive policy decisions.

Long-Term Success of Autonomous Vehicles Depends on its First-Generation Market Share

January 25, 2016
Autonomous Vehicles, Business Law, Competition

Vinita Banthia, MJLST Articles Editor

In its latest technology anticipations, society eagerly awaits a functional autonomous car. However, despite the current hype, whether or not these cars will be ultimately successful remains a question. While autonomous cars promise to deliver improved safety standards, lower environmental impacts, and greater efficiency, their market success will depend on how practical the first generation of autonomous vehicles are, and how fast they are adopted by a significantly large portion of the population. Because their usability and practicality depends inherently on how many people are using them, it will be important for companies to time their first release for when they are sufficiently developed and can infiltrate the market quickly. Dorothy J. Glancy provides a detailed account of the legal questions surrounding autonomous cars in Autonomous and Automated and Connected Cars Oh My! First Generation Autonomous Cars in the Legal Ecosystem. This blog post responds to Glancy’s article and suggests additional safety and regulation concerns that Glancy’s article does not explicitly discuss. Finally, this post proposes certain characteristics which must be true of the first generation of autonomous vehicles if autonomous vehicles are to catch-on.

Glancy thoroughly covers the expected benefits of autonomous cars. Autonomous cars will allow persons who are not otherwise able to drive, such as visually impaired people, and the elderly, to get around conveniently. All riders will be able to save time by doing other activities such as reading or browsing the internet during their commute. And in the long run, autonomous vehicles will allow roads and parking lots to be smaller and more compact because of the cars’ more precise maneuvering abilities. Once enough autonomous vehicles are on the road, they will be able to travel faster than traditional cars and better detect and react to dangers in their surroundings. This will decidedly lead to fewer crashes.

On the contrary, several other features may discourage the use of autonomous vehicles. First, because of the mapping systems, the cars will likely be restricted to one geographic region. Second, they might be programmed to save the most number of people during a car crash, even if that means killing the occupant. Therefore, many prospective buyers may not buy a car that is programmed to kill him or her in the event of an inevitable crash. In addition, initial autonomous cars may not be as fast as imagined, depending on whether they can detect faster moving lanes, frequently change lanes, and adapt to changing speed limits. Until there are significant numbers of autonomous cars on roads, they may not be able to drive on longer, crowded roads such as highways, because vehicles will need to interact with each other in order to avoid crashes. Some argue that other car-service provides will suffer as taxis, Ubers, busses, and trails become less relevant. However, this change will be gradual because people will long continue to rely on these services as cheap alternatives to car-ownership.

When these cars are available, in order to promote autonomous cars to enter the market rapidly, manufacturers should make the cars most attractive to potential buyers, instead of making them good for society as a whole. For example, instead of programming the car to injure its own occupants, it should be programmed to protect its occupants. This will encourage sales of autonomous cars, reducing the number of car crashes in the long run.

Glancy also states that the first generation of autonomous vehicles will be governed by the same state laws that apply for conventional vehicles, and will not have additional rules of their own. However, this is unlikely to be true, and specific state and possibly even federal laws will most likely affect autonomous vehicles before they may be driven on public roads and sold to private individuals. Because autonomous cars will co-exist with traditional vehicles, many of these laws will address the interaction between autonomous and conventional cars, such as overtaking, changing lanes, and respecting lane restrictions.

In the end, the success of autonomous cars depends widely on how practical the first fleet is, how many people buy into the idea and how fast, as well as the car’s cost. If they are successful, there will be legal and non-legal benefits and consequences, which will only be fully realized after a few decades of operation of the cars.

Recent Developments in Automated Vehicles Suggest Broad Effects on Urban Life

January 20, 2016
Autonomous Vehicles, Business Law, Competition, Intellectual Property

J. Adam Sorenson, MJLST Staffer

In “Climbing Mount Next: The Effects of Autonomous Vehicles on Society” from Volume 16, Issue 2 of the Minnesota Journal of Law, Science & Technology, David Levinson discusses the then current state of automated vehicles and what effects they will have on society in the near and distant future. Levinson evaluates the effect of driverless cars in numerous ways, including the capacity and vehicles-as-a-service (VaaS). Both of these changes are illuminated slightly by a recent announcement by Tesla Motors, a large player in the autonomous vehicle arena.

This week Tesla announced Summon which allows a user to summon their tesla using their phone. As of now, this technology can only be used to summon your car to the end of your drive way and to put it away for the night. Tesla sees a future where this technology can be used to summon your vehicle from anywhere in the city or even in the country. This future technology, or something very similar to it, would play a pivotal role in providing urban areas with VaaS. VaaS would essentially be a taxi service without drivers, allowing for “cloud commuting” which would require fewer vehicles overall for a given area. Ford has also announced what it calls FordPass, which is designed to be used with human-driven cars, but allows for leasing a car among a group of individuals and sharing the vehicle. This technology could easily be transferred to the world of autonomous vehicles and could be expanded to include entire cities and multiple cars.

Beyond VaaS, these new developments bring us closer to the benefits to capacity Levinson mentions in his article. Levinson mentions the benefits to traffic congestion and bottlenecks which could be alleviated by accurate and safe autonomous vehicles. Driverless vehicles would allow for narrower lanes, higher speed limits, and less space between cars on the highway, but Levinson concedes that these cars still need to “go somewhere, so auto-mobility still requires some capacity on city streets as well as freeways, but ubiquitous adoption of autonomous vehicles would save space on parking, and lane width everywhere.” Tesla is seeking to alleviate some of these issues by allowing a vehicle to be summoned from a further distance, alleviating some parking congestion.

Audi, however, is seeking to tackle the problem in a slightly different fashion. Audi is partnering with Boston suburb Somerville to develop a network including self-parking cars. “UCLA urban planning professor Donald Shoup found 30 percent of the traffic in a downtown area is simply people looking for parking” and eliminating this traffic would allow for much higher capacity in these areas. Similarly, these cars will not have people getting in and out of them, allowing for much more compact parking areas and much higher capacity for parking. Audi and Tesla are just some of the companies working to be at the forefront of automated vehicle technology, but there is no denying that whoever the developments are coming from, the effects and changes David Levinson identified are coming, and they’re here to stay.

General Motor’s $500 Million Investment in Lyft: a Reminder to State Legislatures to Quickly Act to Resolve Legal Issues Surrounding Self-Driving Cars

January 20, 2016
Autonomous Vehicles, Business Law, Competition

Emily Harrison, MJLST Editor-in-Chief

On January 4, 2016, General Motors’ (G.M.) invested $500 million in Lyft, a privately held ridesharing service. G.M. also pledged to collaborate with Lyft in order to create a readily accessible network of self-driving cars. According to the New York Times, G.M.’s investment represents the “single largest direct investment by an auto manufacturer into a ride-hailing company in the United States . . . .” So why exactly did General Motors, one of the world’s largest automakers, contribute such a significant amount of capital to a business that could eventually cause a decrease in the number of cars on the road?

The short answer is that G.M. views its investment in Lyft as a way to situate itself in a competitive position in the changing transportation industry. As John Zimmer, president of Lyft, said in an interview, the future of cars will not be based on individual ownership: “We strongly believe that autonomous vehicle go-to-market strategy is through a network, not through individual car ownership.” In addition, this partnership will allow G.M. to augment its current profits. The president of G.M., Daniel Ammann, explained that G.M.’s ‘core profit’ predominately comes from cars that are sold outside of the types of urban environments in which Lyft conducts its main operations. Therefore, G.M. can capitalize on its investments by aligning itself at the forefront of this burgeoning automated vehicle industry.

A transition to a network of self-driving cars raises a variety of legal implications, particularly with respect to assigning liability. As Minnesota Journal of Law, Science & Technology Volume 16, Issue 2 author Sarah Aue Palodichuk notes in her article, “Driving into the Digital Age: How SDVs Will Change the Law and its Enforcement,”: “[a]utomated vehicles will eliminate traffic offenses, create traffic offenses, and change the implications of everything from who is driving to how violations are defined.” Underlying all of these changes is the question: who or what is responsible for the operation of self-driving cars? In some states, for example, there must be a human operator who is capable of manual control of the vehicle. As additional states begin to adopt legislation with respect to self-driving cars, it is foreseeable that there will be great debate as to who or what is responsible for purposes of liability. Yet, in the meantime, G.M.’s significant investment in Lyft signals to consumers and state legislators that these issues will need to be resolved quickly, as the automotive industry is moving full-speed ahead.

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