ZiF Research Group

Economic and Legal Challenges in the Advent of Smart Products

October 2021 – July 2022

Convenors: Herbert Dawid (Bielefeld, GER), Sabine Gless (Basel, SUI), Gerd Muehlheusser (Hamburg, GER)



The advent of digitization has already changed our everyday lives in many fundamental ways, and it is widely expected that this development will continue in the future at an even accelerated speed. These developments also constitute major policy challenges, for example with respect to infrastructure investments, standardization, regulation, and legislation.

The main agenda of the research group is to gain a better understanding of the impact of legal responses to challenges in the digital age and the advent of so-called "smart products" by explicitly taking into account the reaction of economic actors, which are subject to the legal environment. This would allow (i) to gain important insights on crucial mechanisms driving the effects of potential legal changes in response to accelerated digitization, and (ii) to highlight resulting trade-offs between different goals (e.g., product safety, privacy protection, technological development, consumer protection, well-informed court decisions). The main examples of smart products considered by the research group will be highly automated vehicles (AVs), digitized appliances and ambient intelligent environments (where domestic appliances are capable of responding to human behavior). However, we will also interpret the associated legal and economic challenges more broadly. Since the development and diffusion of smart products are inherently long-lasting processes, taking a dynamic perspective seems of particular importance.

The group will pursue a broad methodological approach (including formal theoretical modeling, legal analysis, simulations, experimental and empirical studies) to address a number of specific research questions organized in three work modules:

Work Module I: The Impact of Legal Rules on the Development of Smart Products

This module is concerned with the legal regulation of smart products and in particular with the liability for accidents caused for example by autonomous vehicles or household robots. The autonomous decision making by these products raises interesting and novel aspects for many fields of law. For instance, as the users of such devices exercise less control, many argue that there should be less scope for legal responsibility of users, and more scope for manufacturers and software developers. The legal environment influences the incentives of producers to develop smart products and to invest in their safety features. Combining a legal and economic perspective the research group shall investigate how different legal rules affect behavior of actors along the value chain, the timing of market introduction and market penetration of smart products, and the evolvement of product safety over time.

Work Module II: Smart Products and Privacy Protection

Smart products bring an increase in human-robot interaction, which puts privacy at risk as these products observe, record, and evaluate the behavior of human users to predict future behavior. Often the overall goal is to enhance safety with the smart product reacting automatically and autonomously, and simultaneously registering its observations and assessments. Constant monitoring, however, affecting the privacy of users will raise concerns. In the past, such concerns were often related to classic privacy issues connected to the fear that citizens' preferences, dissents or behavior will become transparent. In recent years, new matters have emerged, among them the question whether law enforcement and criminal investigation may make use of big data or even enforce their entrance through a digital "back door" left open for over the air-updates. In this work module, the research group addresses the following questions: First, how does the legal environment affect consumers' trust concerning privacy protection when using smart products, and how does this affect the acceptance and diffusion of smart products? Second, to which extent can data generated by smart products be used as evidence in criminal fact-finding and how would an access of criminal law investigation and an advent of "smart product witnesses" impact the behavior of producers and users of smart products (e.g., design choices and degree of adoption)?

Work Module III: The Feedback Between Technological Innovations and the Legal System

An important issue in the first two work modules is to investigate how changes in the legal environment affect the innovative activities of firms. For major technological innovations, which smart products without doubt constitute, also the reverse question is highly interesting: How does the legal system adapt to technological change? In this work module, the research group will explore the mechanisms driving the feedback between technological change and adaptations of the legal system over time, with a particular focus on a proactive legal approach on innovation. The form and drivers of such adaptation processes so far are not well understood. In this work module, the research group will study the relevant regulatory "ecosystem" and the role of new approaches for regulating innovations, like regulatory sandboxes, in the context of smart products.

Please direct any inquiries to the coordinator Nadine Sutmöller.

+49 521 106-12836