Will the Data Act prove to be fruitful for the European data economy?

The EU Commission has presented an ambitious proposal for a European data legislation with its proposed Data Act. The Data Act, despite having the right goals, could unintentionally cause businesses to invest less in data acquisition, leaving them without the foundation needed for creative services and business models.

"Data is the new oil!" Hardly a digital conference goes by without at least one person on stage using this quote. But there is a significant distinction: unlike oil, data is an infinite resource. It can serve multiple purposes at the same time and consistently benefit different players in business, government and society.

However, many usage data from digitally networked products such as smart fitness gadgets, commercial equipment, or cars, are still unused or only in the possession of a small number of corporations. Users often have no access to this data, even though they are directly involved in generating it. With our integration solutions, we at Software AG can technically enable companies to break down data silos and create new links between data.

Yet it is also necessary to have the legal structure that permits this. This is precisely where the Data Act comes in. Its goal is to better harness the enormous potential of the growing volume of data. Users should be given the right to access data from networked devices that they have been directly involved in generating, or to demand that it be passed on to third parties. In this way, they would not only be dependent on the service offerings of the original device manufacturer but could also obtain product-related services such as predictive maintenance from other companies. At the same time, barriers to switching cloud providers need to be removed in order to avoid lock-in effects and accelerate the European economy's shift to cloud-based services. In other words, there should be a fair distribution between the players involved in value creation - so that not just a few large tech companies benefit from the wealth of data. The EU Commission envisages an additional gross value added of 270 billion euros in 2028 as a result of the new regulations.

Need for greater differentiation

A crucial first step toward a more open data economy is the draft Data Act. The EU Commission is working toward the right objectives. The complicated set of criteria, however, needs to be made more practical and account for variations in the diverse cloud and data landscape in order to become the hoped-for success story. The requirements are simply not relevant for some use situations, even while the draft law provides a reasonable legal basis for certain groups of organizations.

This can be seen, for instance, in the Data Act regulations, which are meant to guarantee more equitable circumstances in the cloud market. For data processing services, the draft stipulates a 30-day maximum notice time. All data applications, programs, and other digital assets must be transferable between service providers within this time frame. As a result, some demands arise that cannot be met by all but a few industry-specific services. What may be technically possible for Infrastructure-as-a-Service from the cloud cannot be implemented at all for cloud services offered by companies like Software AG. For example, our customers sometimes network millions of machines and plants via our IoT platform. Switching to another platform within a month is not feasible. Therefore, it is crucial that the notice periods can be extended, if necessary, as also suggested by the IMCO Committee of the European Parliament.

Call for a better guideline to maintain company confidentiality

There is an urgent need to modify how confidential business information is handled. The data in question often includes valuable information about the operation of industrial equipment and processes. The fact that the Data Act requires businesses to make data available even if it contains anything confidential could work against the development of a strong European data economy. Companies may decide not to acquire specific data in the first place out of fear of having to reveal company secrets and thus forgo the development of innovative applications and business models.

New legal uncertainties are making the situation even more difficult. According to a Bitkom study, 78 percent of the companies surveyed already see legal uncertainty as the greatest challenge in implementing the General Data Protection Regulation. This problem is likely to be further exacerbated by the Data Act. This is particularly true when data sets contain both personal and non-personal data that are closely linked. For companies, the question arises as to how much effort they will have to expend in order to separate or anonymize the data. In the worst case, companies may find themselves in a dilemma. If they pass on the data, they run the risk of violating the General Data Protection Regulation. If they do not share the data, this could in turn contradict the Data Act.

Data collection requires investment

Only about 8.4% of all enterprises in Germany systematically used data in 2020, according to the EU's Data Market Monitoring Tool. Just six percent or so was the EU average. The Data Act should make sure that data silos are not only filled, but also opened, in order to greatly increase this share. In fact, some businesses may wonder why they should invest in collecting and processing data in the first place after reviewing the current regulations. For instance, it is not sufficient to arbitrarily place a few sensors on a machine in order to get high-quality machine and device data. Yet when competitors can get the same outcomes nearly at the cost price, why should businesses spend their time and resources on this development work while also embracing further legal ambiguity?

The EU faces the major challenge in striking the right balance. The objective of creating better access to data shouldn't be strayed from. At the same time, investments made in data acquisition must remain worthwhile. After all, aside from their economic significance, data and oil have one thing in common: neither one is offered for free. The development and processing of data must be done at huge expenses before it can bring any value, much as the exploration of oil requires a sizable investment. This should be taken into consideration by the Data Act. If it is successful, the EU will be able to set standards for the regulatory framework and create a new era of data economy that will impact not only Europe but the entire world.

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