United States: Protecting IP, Finding Investors, Navigating Legislation Drive Discussion At Foley's Emerging Automotive Technologies Program

Fully connected and self-driving cars are here. Improvements to alternative energy sources for vehicles continue to advance at a rapid pace. The automotive industry is potentially facing dramatic new legal and regulatory challenges. And the road ahead shows no signs of slowing down.

That was the underlying premise of Foley's "Emerging Automotive Technologies: Tomorrow's Trends Today" program, held May 22, 2018, at Foley's Boston office.

Nearly 100 industry leaders, entrepreneurs, investors and legal advisors attended the forum to glean insights from three panels of distinguished experts on such topics as how to protect IP assets in the connected-car space, financing and raising capital, and prospective legislative and regulatory changes affecting autonomous and connected cars.

Attendees also were treated to a keynote address by Internet pioneer and technology entrepreneur Dan Harple, who talked about using blockchain technology to make the global automotive supply chain more transparent, more secure, and more accountable.

Following are the highlights of those discussions.

Protecting Emerging Technologies Transforming Mobility

Ben Horst, co-founder and president of Eddy Motorworks, an Atlanta-based startup that makes custom electric cars, and Isaac Wittenstein, co-founder and CEO of TEQ Charging, another Atlanta-based startup that makes a power management system for charging electric cars, kicked off the program with a session on protecting emerging technology, particularly in the automotive space.

Foley partner John Lanza, who moderated the session, said it's hard to talk about IP in this space without talking about legislative impact and, to a large extent, about investment in infrastructure supporting connected cars.

Wittenstein said his company is working to make electric vehicle charging stations profitable for the properties that need to be purchasing them, such as apartment complexes, condominiums, airports and work places.

He said his company's core IP is in the algorithms it uses to distribute power between stations, depending on need and availability. Another IP issue he identified is the company's brand, so that people know how to use its services and it can educate them about its product.

So, while the company is working on hardware – charging stations – the IP it is seeking to protect is in the software space on top of that hardware, he said.

"We think of ourselves as a software company and that's really where the value is," he said.

Horst said that a lot of his company's IP is process-based. Horst likened his main business – classic car conversions – to the hot rod industry that came about after the first automobiles were sold. "Electric hot rods is kind of a way to think of what we do," he said. His company doesn't manufacture motors or assemble batteries. Instead, it puts refurbished parts from other cars together into an integrated vehicle.

"A lot of that is really just a trade secret kind of protection strategy," he said. "A lot of this is figuring out how to use the components."

While electric cars still comprise only a small percentage of the vehicles on the road, Wittenstein said that is likely to change when the cost of batteries, which are now about $200 per kilowatt hour, drop to about $100 per kilowatt hour in the next five years or so. On the infrastructure side, another big factor will be making sure people don't have to fear where they'll be able to recharge their vehicles.

Horst said there is also a mindset challenge that must be overcome. He cited the negative reaction he got when he took an electric race car his company had built to a racetrack in Georgia, though everyone who got into the car ended up loving it.

"There's a lot of people who still just don't want anything to do with [EVs]," he said.

Lanza said that begs the question: Are electric cars the future or a future?

Horst said he thinks they are the future, as long as they start looking more attractive, because nobody wants to buy an ugly car. Wittenstein also said wireless charge will be one of the key things that will enable that to happen.

"Even if the U.S. doesn't go that route as quickly, China is far outpacing the U.S. in almost all aspects of automotive, and electric is one of the biggest ones they're outpacing us in," he said.

Investment Strategies in Private Equity & Venture Capital

The second panel of the day moderated by Foley partner Dave Kantaros, featured Rob Infantino, the founder and CEO of Openbay, an online marketplace that allows consumers to find, compare, book and pay for automotive repairs and services, and Anish Patel, co-founder and general partner at transportation-focused venture firm Blue Victor Capital, who discussed financing and investment strategies in the auto space.

Infantino opened the session by describing how an unpleasant personal experience with an automotive service center inspired him to start Openbay. He said he had taken his car to get a simple wheel alignment and was handed a 12-page estimate of recommended repairs totaling $4,000.

Needless to say, Infantino, who knows something about cars, having spent two years working on a stock car pit crew during college, left without having his car serviced. Then he set his mind to changing the auto repair industry, which he said has been "stuck in time for decades."

Patel explained how he went from working for two strategic corporate venture capital firms to helping launch a traditional institutional fund. He said he had spent the majority of his career at GM, the last four years as an investment manager at GM Ventures, where he was responsible for 10 direct investments in transportation-related startups with in-vehicle applications.

He left GM in 2014 to help SAIC Capital, China's largest automaker, open its venture capital office in Menlo Park, California. Recently, he left SAIC Capital to help start his own fund, mostly because he thought they were missing a lot of opportunities on the corporate side.

"There are a lot of great deals we see in the transportation mobility space that we weren't allowed to participate in or invest in because our engineering teams didn't sign off or we had some sort of internal bureaucracy that was preventing us from making these great investments," he said.

Infantino said his experience raising capital has been mixed. He personally financed the company for the first two years, then took in angel money from local investors in Boston. He also took capital from Google Ventures and Andreessen Horowitz. Aside from those two firms, however, he said he's had a lot of success with individual angel investors and boutique firms, but "zero" success with your typical Tier 1 VCs in Boston.

"I can't tell you how many meetings I've been to where I've gotten no's across the board over the last few years," he said.

He said the reason was a combination of the audience not understanding automotive and the stage of his company. He also said Boston's venture capital community is very conservative and very risk averse, and that a lot of his peers have gotten the same response he has. And he added that the entrepreneurial community would not exist if it wasn't for the angel network in Boston.

Infantino said he advises his peers to stop taking meetings with Boston VCs and instead try to tap into the city's angel network. If that doesn't work, he said they should turn to Manhattan. And if that doesn't work, they should go west and stay west, where they most likely will get funded.

Patel said the investment criteria he is looking for includes the team, the technology and the stage. But in the later stage, it's mostly about the team and the CEO and how well they can execute on the plan, establish a customer base, and meet the metrics they outlined before.

When it comes to a right of first purchase provision, Patel said, it's up to the board and the management team of the company to negotiate that out.

Infantino said he tries to stay away from non-U.S. investors because they tend to take up a lot of his time, ask for everything under the sun, and end up not investing.

Patel said he thinks there are still plenty of opportunities for capital, especially in cyber, fleet management and chipsets for embedded systems. "I think there's still great startups at really good valuations that are still going to be needed in automotive, as well as in the autonomous space, that are fairly priced and crucial not only to autonomous but to the automotive industry as a whole."

He also thinks there's still a huge need in the cybersecurity area, that we are going to see a lot more companies than the ones that are already there, that the chipset and memory piece is going to be crucial for automotive.

Legislative and Regulatory Changes Affecting Autonomous and Connected Vehicles

The final session, which covered legislative and regulatory developments related to autonomous and connected vehicles, featured Anita Kim, a technology policy analyst at the U.S. DOT Volpe Center in Cambridge, and Charlie Ticotsky, policy director at Transportation for Massachusetts (T4MA), a coalition of organizations working on transportation policy in the state.

The session began with an overview of various legislative and regulatory developments affecting autonomous and connected vehicles, including two major autonomous vehicle bills that have been introduced in Congress: the SELF DRIVE Act, which passed the House and the AV START Act, which is pending in the Senate.

The SELF DRIVE Act would take the regulation of autonomous vehicles out of the hands of the 50 states, which is one of the driving concerns of the industry, and place on NHTSA the authority to regulate the design, construction and performance of automated driving systems. It would, among other things, also require NHTSA to promulgate a rule requiring manufacturers to submit a safety assessment certification for automated vehicles and driving systems. And it would require manufacturers to develop detailed cybersecurity and data privacy plans for automated vehicles.

The AV START Act, while different, contains many of the same elements.

Foley partner Chris Grigorian, who moderated the session, noted that there have been hearings and a lot of public discussion around these legislative proposals. He also noted that NHTSA has been conducting research in anticipation of updating its voluntary autonomous vehicle guidelines and initiating future rulemakings in this area.

Grigorian said there has been some hesitation to pursuing the legislation further among some Democrats in the Senate, which has only been exacerbated by the recent fatal accidents involving autonomous vehicles. Those concerns were evident in the recent nomination hearing for a new NHTSA administrator, who was peppered with questions about what the agency is doing to ensure the safety of autonomous vehicles.

NHTSA has also been very active developing voluntary guidelines for the manufacturers or autonomous vehicles, last year issuing its second version of the guidelines, which Grigorian described as "sort of a 12-step program" for autonomous vehicles. NHTSA is now in the process of updating those guidelines.

At the state level, California, which has been on the leading edge of regulating autonomous vehicles, has recently adopted a new regulation that allows testing and use of fully driverless vehicles on public roads, subject to a number of requirements involving safety, communications, training and certification.

Ticotsky talked about a report his agency put out 1 ½ years ago, called "Fast Forward," which makes a number of policy recommendations around autonomous vehicles, including encouraging innovation, sharing data, planning for future infrastructure needs, and improving and expanding public transportation walking and biking network.

He also discussed a short, animated video by Zipcar co-founder and former CEO Robin Chase that lays out the "heaven and hell" scenarios that autonomous vehicles could usher in. He shares her optimism that AVs will prove to be a net positive, but only if they are shared and are electric.

Keynote

Dan Harple, the founder and CEO of Context Labs, a leader in delivering at-scale enterprise blockchain-enabled systems and in advising global market segments and countries on the development of highly efficient ecosystems and interoperable standards, closed the program with a keynote speech he titled, "The Digital Transformation of Mobility Convergence of the Digital Thread."

Harple talked first about the idea that the world is an interconnected ecosystem, then discussed some of the challenges, opportunities and risks that presents, and ended with an overview of a new global initiative he and Context Labs co-founded called the Mobility Open Blockchain Initiative (MOBI).

MOBI is a consortium of automakers, startups, technology companies and others that account for over 70 percent of global vehicle production, including Ford, General Motors, and BMW. Using blockchain technology, which allows information to be stored on a decentralized database that no one owns but everyone can access, MOBI seeks to foster an ecosystem where businesses and consumers have security and sovereignty over their driving data, manage ride-share and car-share transactions, and store vehicle identity and usage information.

Overall, the three sessions and keynote revealed great optimism and opportunities within an evolving industry that revolves around cars for transportation and that new technology will continue to be at the forefront of change in the automotive industry."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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