On March 14, the European Parliament passed the Data Act to promote innovation by removing obstacles preventing industrial data access. The legislation includes a clause that requires smart contracts to be modifiable. It also outlines rules for equitably sharing data produced by connected products and services, such as those in the Internet of Things or industrial machines. According to the European Parliament, about 20% of industrial data is ever used; this Act seeks to change that by allowing for more efficient and cost-effective machine training and repairs.
The Act protects trade secrets and safeguards against unlawful data transfers, requiring smart contracts of parties offering sharable data to include provisions for “safe termination and interruption.” According to the Act, the smart contract must contain internal functions that can reset or instruct it to cease operations under certain conditions. Moreover, a thorough assessment must be conducted when deciding whether non-consensual termination or interruption should be allowed.
The legislation granted smart contracts equal protection as other forms of contract. However, experts expressed concern with certain aspects of the Act. Michael Lewellen, Head of Solutions Architecture at OpenZeppelin, said, “Including a kill switch undermines immutability guarantees and introduces a potential point of failure since someone needs to govern its use. In addition, many smart contracts, such as Uniswap, do not have this capability.”
Professor Thibault Schrepel of the Vrije Universiteit Amsterdam expressed his concerns in a tweet about the Act, which he believes “endangers smart contracts to the extent that no one can predict.” Furthermore, he highlighted potential sources of legal uncertainty in the Act, particularly concerning who has the authority to stop or interrupt a smart contract.
The legislation was approved in a decisive vote of 500 to 23, with 110 abstentions. Parliament Members will now enter into negotiations with the European Council and individual member states of the European Union to agree on the final form of the law.
