Procuring digital twin solutions: The legal considerations
As we continue into 2023 with economic uncertainty, utilising lessons learned from the COVID-19 pandemic and the ongoing ramifications of the local and global measures put in place to manage the spread of that virus, organisations continue to seek efficiencies, retain or obtain a competitive edge and measures to improve productivity.
One of the ways in which they are doing this is by implementing digital solutions.
Recently, we are starting to see the increasing implementation of digital twin technology and it is expected that such technology will become more prevalent in 2023.
Digital twin technology
Digital twin technology is used to create a virtual simulation of real world processes, operations or products that can be used to understand the impact of various extraneous variables or other external circumstances on the relevant subject matter within a safe digital environment.
Designers and engineers are using digital twins to recreate physical objects inside virtual worlds, so they can test under every conceivable condition without the high cost of real life experiments.
Digital twin technology has the potential for ubiquitous application including in buildings, construction, farms, energy networks, railways, stadiums and “smart” cities.
Key legal considerations in procuring digital twin technology solutions
The key legal considerations in procuring digital twin technology solutions will not be vastly dissimilar from those applicable to the procurement of other digital technology solutions (including as regards pre-contract considerations). However, particular attention should be given to:
- Intellectual Property Rights
Data used in digital twin technology is typically vast, may be sensitive and may also include personal data. Any personal data should only be processed in accordance with the applicable privacy laws, detailed consideration of which is beyond the scope of this article.
Even if data does not include personal data, it may still be confidential, sensitive or valuable.
From a legal perspective, it may be helpful to consider the data as a) the input data (being the source data that is inputted into the digital twin technology and b) the output data (being the results of the source data that has been manipulated and tested and which are capable of review and analysis by the user).
Typically the procuring entity will want to ensure it retains control and (where applicable) ownership of the input data. This should be reflected in the contract.
Ownership of the intellectual property rights in the output data should be clearly set out in the contract. If it is agreed that the supplier entity is to own the intellectual property rights in the output data, the procuring entity may also wish to consider the requirements for and feasibility of entering into a gain share mechanism.
The parties will also need to ensure that the contract sets out how data will be transferred to the owner or controller upon termination or expiry of the contract and whether there are any additional charges to be levied by the supplier entity for carrying out such transfer activities.
Due to the confidential, sensitive or valuable nature of the data being processed, the procuring entity should ensure that the contract contains appropriate contractual obligations on the supplier entity to ensure that appropriate cyber security measures are put in place in respect of the digital twin technology including adequate security incident response and handling processes and procedures.
If the digital twin technology is to connect to any of the procuring entity’s licensed or proprietary systems, then provisions should be included to ensure that this is done in a controlled, secure and restricted manner.
The responsibility for and extent of liability for loss or corruption of any data or adverse impact on any of the procuring entity’s connected systems should also be clearly articulated avoiding any ambiguity or uncertainty.
Digital twin technology must protect patient confidentiality in healthcare
As the data being processed is likely to be confidential or sensitive, such as healthcare information, the use case for the procurement of the digital twin technology may also be confidential or sensitive.
The procuring entity should therefore ensure that the data and all information exchanged in respect of the use case remains confidential. Accordingly, appropriate confidentiality provisions should be included in the contract.
Finally, as with the procurement of any goods and services, the charging model will need to be agreed and clearly expressed in the contract. This may be a SaaS charging model or other fixed price or time and materials model, or perhaps a hybrid.
Typically the charges will include licence fees and consultancy fees and perhaps some initial set up fees.
Digital twin technology has the potential for application in many scenarios but its limitations in respect of large public sector projects should be understood as many of these projects are complex. For the right project, digital twin technology could be an innovative and efficient alterative for understanding how and where to make efficiencies, drive improvements and prepare for future demands and stresses.
However, no procurement is without risk. Therefore having in place a contract which accurately reflects the parties’ intentions and mitigates risk exposure should always be a consideration as part of the project as a whole, from the earliest opportunity.
The contract is an integral part of the procurement journey and the negotiation process may help to identify legal, technical, financial or operational risk exposure.
Kay Chand is Partner at Browne Jacobson