Commercial Awareness Breakdown: 13–17 April 2020

Manufacturer Liability, Pensions and Facebook Libra

Posted at youthlaw.co.uk…

Commercial Awareness Breakdown deconstructs three of the week’s commercial stories in an understandable and jargon-free manner. Terms bolded and underlined may be more difficult to understand and are explained at the bottom.

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1) Manufacturer Liability

The UK Government has announced that manufacturers will be protected against legal claims arising from the supply of ventilators. Hospitals fighting the virus are in need of ventilators, and shielding the manufacturers from potential intellectual property or personal injury liability should encourage more suppliers to step up and meet demands.

A number of suppliers have responded to the government’s requests for ventilators, including vacuum cleaner manufacturer Dyson, who’s Co-Vent system will be designed and created from scratch. Ministers now estimate that they need 8,000 more ventilators on top of the 10,000 the NHS already has. For many manufacturers entering a sphere they don’t normally operate in, legal liability will be a major concern. These concerns will be heightened by the fact that the Medicines and Healthcare Products Regulatory Agency (MHRA) have not yet tested and approved the majority of designs for new ventilators.

As a result, Michael Gove, Minister for the Cabinet Office, wrote recently that the government will protect against intellectual property and product liability, the latter shielding manufacturers against potential personal injury and loss of earnings claims. However, there is no clear guide as to the extent of this protection, with no specific cap having been set.

There are concerns, however, that the government’s standards for ventilators are not meeting the needs of coronavirus patients. Alison Pittard, dean of the Faculty of Intensive Care Medicine, stated that the government’s guidelines, requesting ventilators that can keep patients stable for ‘a few hours’, were unrealistic and below what was specified by doctors — namely, ventilators that could keep a patient stable for the entirety of their stay in intensive care. Pittard claims that these short-duration ventilators are simply ‘of no use whatsoever’. The government has cancelled plans for orders from the BlueSky consortium, featuring a number of Formula One teams, because the proposed units were unsuitable for treating those suffering from coronavirus.

Furthermore, it was recently revealed that on April 1st, only 30 of the thousands of ventilators ordered had reached hospitals. Despite other options being available, such as ‘non-invasive’ continuous positive airway pressure machines, it seems the general supply of emergency ventilators has been poorly orchestrated.

In similar news, and hoping to gain smoother traction, the NHS is also looking to use smartphone technology to track coronavirus cases. This application, notes the BBC, would require users to answer on-screen questions before being judged to be ‘at significant risk of infection’. This would then send messages to those they had been in recent contact with, requesting and advising them to return to isolation. Experts at the University of Oxford say, however, that 80% of current smartphone users (56% of the population) would need to use the application to make it effective.

Despite the chance of people receiving false warnings regarding recent contact, the positives outweigh the negatives, note Professor Christophe Fraser of the University of Oxford’s Big Data Institute. The app is aiming to be released towards the end of lockdown, and hopes to prevent a second peak in infections resulting in repeated lockdowns.

Singapore tried this method in March, but was met with only a 12% download rate. South Korea’s app, controversially, will use surveillance camera footage and card transactions to track potential carriers’ movements. Germany is also hoping to release their own model, however this will be in direct competition with the nation’s commitment to data privacy. Backers of the application have emphasised the app’s data protection qualifications, being based on a Europe-wide framework provided by the PEPP-PT initiative (pan-European Privacy-Preserving Proximity Tracing), which comprises 130 companies and academic institutions. The app is currently undergoing testing by Germany’s national cyber security agency.

These updates highlight some of the ways in which modern approaches to technology can help the world fight the coronavirus. However, they also demonstrate that the almost instant availability of manufacturing and technological power is not always as problem-free as it first appears.

2) Pensions

Pension schemes around the world have suffered a severe blow from the spread of coronavirus, sending what was already a worrying situation into a truly dire one. The US’ Multiemployer Insurance Program was, as of August 2019, headed for insolvency by 2025, affecting around 10 million individuals. Similarly, it was revealed in 2017 that around a quarter of members of the UK’s Pensions and Lifetime Savings Association had only a 50% chance of receiving their full pensions benefits.

As of last year, 64% of European pension plans had negative cash flow, whilst in the UK this number was 73%. Of the 27% with positive cash flow, 72% expected to go negative over the next 10 years. However, reductions in asset values caused by the financial turmoil of coronavirus, combined with an ageing demographic, has resulted in even more plans falling into financial despair.

The UK’s Association of British Insurers (ABI) has warned britons against dipping into their pensions savings to offset current financial worries, as well as raising awareness of potentials for poor quality advice and scammers. According to the Office for National Statistics (ONS), around a quarter of UK adults are suffering financially at the hands of pandemic, with a third using savings to help cover living costs. It has only been possible for those between 55 and retirement to retrieve their pensions since 2015, when George Osborne, Chancellor of the Exchequer, introduced the pension freedoms. Before, only set incomes were available.

The short term issue is whether the majority of pension plans can survive without increased contributions and reduced benefits. However, this is not the only question to ask. According to the Financial Times, risk models simply weren’t expecting as many extreme events to occur as have done, and with tax revenues likely to dip dramatically, it seems that pension providers will struggle to gain government backing. As such, the bigger, long-term question is whether our society can rely on markets to deliver retirement outcomes, or instead whether a new approach to retirement is required.

3) Facebook Libra

Facebook’s Libra project, proposed in June of 2019, is being scaled back amid regulatory concerns. The initial plans involved creating a currency-backed cryptocurrency in the hopes it would grow into a new global finance system. Now, however, the project’s scope has been reduced, with Facebook focusing on creating a slightly more traditional payment network.

This is not the first blow to Mark Zuckerberg’s (CEO of Facebook) vision for digital payment. Alongside having to testify before congress, back in November, seven high-profile backers left the project, including eBay, Mastercard, PayPal and Visa. As a result of this, Zuckerberg, along with leader of the Libra Association David Marcus, has had to go back to the drawing board in an attempt to make the project more appealing for US lawmakers.

There are doubts, however, as to whether these new changes will be enough to convince regulators, with Sylvia Garcia, representative and member of the House Financial Services Committee, stating that:

‘Facebook and the Libra Association had an opportunity to address the concerns I and my other colleagues raised with their initial whitepaper … Unfortunately they chose not to listen to the bipartisan concerns raised about Libra. I will continue to work to make sure that the SEC regulates any such asset as the security that it is under current securities laws.’

Facebook’s new approach, outlined in its White Paper, will be based on a traditional network of coins tied to local currency, instead of a coin attached to multiple national currencies. Despite the change, the fundamental technology of Libra is still based on the ‘stable coin’ principle, namely coins with value based on either assets (commodity-collateralised cryptocurrencies) or, as in Facebook’s case, real-world currencies (fiat-collateralised cryptocurrencies). These are much more stable, making major fluctuations in value much less likely.

It seems, however, that the issue for regulators is not stability, but control. Alongside fears of Facebook adopting the form of a central bank, there are also concerns that the currency could compete with the US dollar, and also become a vehicle for money laundering.

David Marcus stated on Twitter that the project would have huge benefits in a time of financial crisis. Similarly, Matthew Davie, who sits on the board for the Libra Association, stated that ‘those who are not digitally connected’ are the individuals ‘getting left out’ during the current global situation. However, digital currencies are also showing weakness against the spread of coronavirus, with Bitcoin, recognised as the first cryptocurrency in circulation, falling by 50% to $3,800 in almost 48 hours back in March. Therefore, some may be asking whether a digital currency really is as promising as Marcus and Davie make out.
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Difficult Terms:

Board — The board of directors of a company decides upon many matters, such as matters of governance and the company’s direction.

CEO — Chief Executive Officer, the most senior officer in charge of an organisation.

Congress — A body of the federal government of the United States who make laws.

Cryptocurrency — Digital assets that use cryptography and public ledgers to regulate and secure creation of new units/transactions.

Intellectual Property — Legal rights over intangible property based on human intellect (such as patents, copyright and other product rights).

Liability — Liability arises when an individual/organisation is legally responsible/accountable for something.

Minister — A Member of Parliament sitting in Government cabinet and taking charge of a certain governmental department.

Minister for the Cabinet Office — The minister holding this position is responsible for all cabinet policies.

Money Laundering — The process by which criminals disguise the original source of funds by making it appear legitimate.

Negative Cash Flow — Negative cash flow arises when the funds leaving an organisation are higher than the funds coming in.

Pension — A fund into which payment is made during a person’s working life — money is later taken out in periodic payments in order to support retirement.

Personal Injury — A claim in personal injury may arise upon injury to personal body, mind or emotion — this is comparable with property damage.

Positive Cash Flow — Negative cash flow arises when the funds coming into an organisation are higher than the funds leaving.

Regulators — The individuals/organisations who create regulations.

Testify — To appear before a Court/tribunal/body and give evidence as a witness.

White Paper — A government/organisation report providing information on a certain proposal.