Crowell & Moring

Last week, the Senate Committee on Commerce, Science, and Transportation convened to hold a hearing on “The Connected World: Examining the Internet of Things.” Signaling that Congress may be interested in delving into this area, Senators pressed witnesses about the best ways to strike a balance between fostering innovation and protecting consumer interests. Senators and witnesses also wrestled with whether lawmakers should take an industry-by-industry or global approach to regulating this area –or if lawmakers should enter this space at all.

Senators questioned and heard statements from:

• Michael Abbott – General Partner at Kleiner Perkins Caufield & Byers

• Justin Brookman – Director of the Consumer Privacy Project at the Center for Democracy and Technology

• Douglas Davis – Vice President and General Manager of the Internet of Things Group at Intel

• Lance Donney – Chief Executive Officer of OnFarm

• Adam Theierer – Senior Research Fellow at the Mercatus Center at George Mason University

While the Senators and the witnesses were excited by the possibilities that this emerging industry offers – it is estimated that it will be worth $6.2 trillion per year in 2025—they struggled to define the role of lawmakers in this “third wave” of the internet.

 Encouraging Innovation while Protecting Consumers

 One of the key themes at the hearing focused on an age old question – how does government protect consumers without stifling industry?

Most witnesses and Senators agreed that lawmakers should regulate the Internet of Things (IoT) with a “light touch.” However, some witnesses and Senators emphasized areas where lawmakers needed to play a stronger role. Specifically, Ranking Member Senator Nelson [D. FL] posed whether consumers should be able to “opt into” or “opt out of” data sharing when they purchase a device. Michael Abbott and Adam Theierer, proponents of less regulation, advocated for opting out, while the other witnesses preferred an “opt-in” approach. Furthermore, some witnesses and Senators underscored the need for Congress to pass notice requirements for data breaches and expressly give the FTC the authority to regulate in this area under Section Five of the FTC Act, which prohibits “unfair and deceptive trade practices.” All of the witnesses emphasized the need to encourage consumer education and industry transparency as more consumer devices connect to the internet.

An Industry-by-Industry Approach

Another key theme at the hearing was the need for lawmakers and regulators to take an industry-by-industry approach to regulating the IoT. Douglas Davis and Lance Donney particularly emphasized IoT applications beyond retail. Mr. Donney, a farmer and the CEO of OnFarm, noted that with sensors in the soil connected to sprinklers, for example, farmers are able to more efficiently water their crops.

Mr. Davis also underscored the manufacturing and commercial uses of IoT products. Smart trucks that coached drivers to use routes with less traffic, Mr. Davis highlighted, helped save Saia LTL Freight 7% on fuel annually. He advocated for stronger partnerships between government and industry in this area, noting that the government itself can become more efficient through connected devices. Given the numerous industries affected by the IoT and the spectrum of data that IoT devices can collect, many Senators and witnesses backed an industry-by-industry approach to IoT regulation.

Other Challenges

Hearing attendees also ruminated on many still-to-be answered questions:

• How will IoT devices operate with each other and legacy devices?

• Will interconnected IoT devices be more vulnerable to attack and how should lawmakers and industry protect against this risk?

• When and how will national and global IoT standards develop?

• How much will the limited availability of reliable broadband in rural areas hinder the agricultural and industrial uses of IoT products?

• Does the U.S. have the spectrum capacity to handle all the data that these new devices will generate?

Potential New Legislation

• Senator Markey [D.MA] announced plans to introduce a bill based on his recently released report on “Tracking and Hacking” vehicles.

• Senator Booker [D.NJ] emphasized his reintroduction of the WiFi Innovation Act, legislation that he is sponsoring with Senator Rubio to expand unlicensed spectrum use.

• Senator Klobuchar [D.MN] promoted the Driver Privacy Act, a bill she sponsored that ensures that data retained by an event data recorder in an automobile is the property of the automobile’s owner.

Conclusions

Companies seeking to introduce IoT products to the market should keep an ear to the ground, as the Senate has now signaled that it is exploring lawmaking in this area. Senator Markey’s [D.MN] bill may be the first of many federal laws that will regulate this space. Companies should be especially mindful of how they communicate their data gathering practices to consumers and the level of security that they provide to the data that they gather. These two areas are ripe for legislation and regulation.