Technol-AG - August 2022

The Department for Business, Energy & Industrial Strategy (BEIS) has launched the Regulators’ Pioneer Fund, a £12 million fund designed to encourage local authorities and regulators to establish initiatives that enable businesses to create innovative services and products. There is a limit of £1 million each on bids. There is a focus on encouraging approaches to regulation that target important issues. For example, helping aid the move towards net zero. BEIS are accepting applications until 29 September 2022.

The Government has made clear that this is an opportunity for local authorities and regulators to become more entrepreneurial and help aid innovation. In the past, funding has led to the development of gene therapy standards for treating disease and the creation of a tool to aid small business owners understand requirements about fire safety. If regulators are able to become more flexible, this could encourage a more collaborative relationship with businesses on innovation.

The European Parliament has adopted the Digital Services Act (DSA) and Digital Markets Act (DMA) which aim to enshrine clear standards on how the tech industry operates and provides services in the EU. The DSA establishes obligations for digital service providers to tackle the spread of illegal content, online disinformation and other societal risk; whilst the DMA establishes obligations for large online platforms acting as “gatekeepers” on the digital market to ensure a fairer business environment and better services for consumers.

The DMA defines gatekeepers as companies providing core platform services in at least three member states, which meet turnover or market capitalisation thresholds of EUR 7.5bn or EUR 75bn respectively as well as serving large numbers of active end users and business users. The Commission will also be able to regulate 'emerging' gatekeepers, under the DMA, i.e. those companies which are clearly expected to become gatekeepers. As part of the new obligations on gatekeepers, the DMA will obligate gatekeepers to ensure their own products and services are not given more favourable treatment on their platforms than similar third-party offerings, as well as ensuring that business users are not prevented from contracting directly with end users. Rights of business users and end users to access the data generated from their use of the gatekeeper's platform will also be enshrined. Penalties for non-compliance may amount to 10% of global turnover.

The DSA will govern all online platforms and intermediaries offering services within the single market, but micro and small companies will face obligations proportionate to their size. The DSA's purpose is to ensure that illegal content from platforms is taken down much more effectively, and that fundamental rights, e.g. to free speech, are not harmed on online platforms. The DSA will, amongst other things, obligate platforms to empower users to: flag illegal content, goods and services; ensure business users are traceable and there are effective safeguards against unlawful content moderation decisions. A ban on certain types of targeted advertising (e.g. based on special categories of personal data, e.g. sexual orientation) is also included. For very large online platforms, the Commission will be able to levy fines of up to 6% of global turnover.

These landmark texts must be formally adopted by the Council of the European Union, before being published in the Official Journal. It is expected that the DSA will be directly applicable across the EU from 1 January 2024, whilst it's expected that the DMA will apply from spring 2023. Whilst the DSA and the DMA are expected to (in a manner akin to the GDPR) lead to the establishment of global regulatory standards for large online platforms and digital intermediaries, the new regimes will face challenges in the form of big tech group litigation and the large task of efficient enforcement in a manner consistent with pre-existing national member state anti-trust regimes.

In a speech at the Aspen Security Forum, Google's former Chief Executive Eric Schmidt warned of the potential dangers of Artificial Intelligence (AI) and the impact that it could have on society. Mr Schmidt, who is the current Chairman of the National Security Commission on Artificial Intelligence (NSCAI), admitted that he was previously "naïve" about the impact of AI and called on governments and other institutions to put more pressure on tech to ensure that the developments were consistent with society's values. Mr Schmidt went on to compare the US and China's developments of AI with the nuclear arms race of the mid-20th century and expressed the need for the distrust between the two to be addressed. The full debate featuring Mr Schmidt is available here.

Mr Schmidt’s comments come in the context of increasing public awareness about the potential dangers of unchecked, and potentially unethical, AI development. International competition to stay at the cutting edge of developments in AI, creates the risk that new technological advancements will outpace legislators’ ability to effectively regulate the sector. Given the potential use of such rapidly changing AI technology, failure to effectively regulate the sector could lead to an increased risk of diplomatic and geopolitical tensions. Public figures have also been outspoken about the potential risks of AI, asking whether tech companies involved in its development should be subject to greater oversight.

Individuals and corporations involved in AI development should familiarise themselves with the ethical issues raised, as well as the likelihood that new developments will constantly, and sometimes very rapidly, raise unforeseen ethical questions. They should also be aware that the likelihood of increased government scrutiny and regulation of new AI developments over the coming years is high.

According to technology news reports, 'GreenToken' is a new blockchain tool developed by SAP which provides transparency on supply chains for raw materials. This visibility is particularly important for "cash crops" linked to deforestation such as coffee, sugar and palm oil plantations.

The raw materials supply chain is opaque in so far as organic matter that comes from certified sustainable sources (i.e. those which do not lead to environmental harm such as deforestation) as well as those from unsustainable sources are mixed at a processing plant to be crushed or refined in bulk at scale. GreenToken creates an identification system for the raw materials and works by giving each small quantity of the raw materials (e.g. a kilogram) its own digital twin (token) on a blockchain. The token sets out the farmer's ID, the date the raw materials arrived and details of any sustainability credentials for example the 'Roundtable On Sustainable Palm Oil' certificate. This enables transparency through enabling raw materials from different origins to be measured by counting tokens i.e. there will be the same number of tokens for the same mass within each of the supply chains. In this way companies will be able to tell precisely what percentage of raw materials they have purchased from a sustainable source and track it to the end customer product.

Sustainability data is important to companies for a number of reasons including the need to report to shareholders about compliance with Environment, Social and Government (ESG) legislation as well as informing customers about the origins of the raw materials This data will enable companies to demonstrate their successful delivery of environmental sustainability measures and audit sustainability claims.

This technology may also incentivise companies to consider more carefully what goes into their products and what happens to materials at the end of their lifespan. Companies may switch to increased sustainable material usage consistent with the circular economy (i.e. materials that are repaired, reused, remanufactured and recycled especially for plastic packaging or products).