Tesla's Robotaxi Law: SB 2807, Preemption, and the True Innovator's Playbook

Transcript

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Brian Elliott: Are you really innovating if the rules have already been set, right? The true innovators are building things that for which there are no rules. Howdy, y'all. Welcome back to Y'all Street Law, the show where law, business, and technology all end up in the same pot like a good Texas chili.

Chuck Kraus: No beans, of course. Today, we're talking about Tesla's robo-taxi law and a new Texas law, SB 2807, that could change the recipe for how innovation and regulation mix. So, Brian, Tesla jumped into Austin before lawmakers even had rules on the books. What does that say about how tech and law collide?

Brian Elliott: Yeah, thanks, Chuck. I think this is a, it's really an ongoing issue that we see a lot. And the most recent, this intersection between regulation and fast-moving emerging technology. And it's always a game of, can the regulators keep up, right?

Chuck Kraus: And should they keep up? And we're going to talk about some of that. But I think the, you know, in terms of Tesla, right, in Austin, especially, you know, the the mode of operation is get out fast, you know, create the market and let the regulators catch up. And we've seen this over and over again.

Brian Elliott: And I think that, you know, this whole idea of moving fast, not waiting for permission, and then have the technology lead the way for the regulators is the page that Tesla is going with. And it seems to be working so far. It reminds me a lot, as I, as I read articles about it, of stories you saw when Uber was first dropping into cities. And, you know, I heard a quote at one point of the budget they had assigned to legal to sort of advocate and fight these injunctions that they were facing.

Chuck Kraus: The idea was, we just have to keep fighting them while we persuade the public that this is something they want. And once you win the crowd, then, you know, then the law will change. This seems to be preempting a bunch of that, because you already have a legislature acting, I think, in part, to preempt specific cities from stopping this happening where you have a patchwork. So how is that shaping up down in Austin?

Brian Elliott: We'll see you next time. Yeah, well, that's exactly it, right? And this is exactly what SB 2807 did this past legislative session for Tesla, is it provided preemption from the local communities making their own way. And you're right, we did see it with Uber, and we saw it also with all those scooters that littered all the sidewalks.

Chuck Kraus: They went out pre-regulation, but we see it over and over again. The fast-moving tech companies will move fast, they'll get something on the market, and it's up to the regulators to catch up. But we can talk about what happened here. I think the way that it worked here is, and Tesla is a smart company, they're doing things right, but they're also keeping their eye on where the regulators are going, and they're anticipating the regulation, right?

Brian Elliott: So they're not just operating wishful thinking, like regulation will never come, they're preparing for it. And so they anticipated the rollout of regulations and had already begun talks with the DOT prior to putting the autonomous vehicles on the road before there were any rules. And of course, now the rules are catching up to what Tesla is doing. So over the last legislative session, 2807 came out, and it basically did a couple of things, right?

Chuck Kraus: It provided preemption, so it's taking the rulemaking away from municipalities and localities who might be incentivized to make regulations in a vacuum if there aren't any. It provided clarity to how these autonomous vehicles are going to operate on the streets. And it provided enablement, right? So it set standards for what the cars needed to look like, the safety standards, the insurance requirements.

Brian Elliott: You know, they had to have a record of events, they had to do things like have an intervention plan for law enforcement, so that if law enforcement pulls over a vehicle, there has to be a way that law enforcement can intervene and talk with the vehicle owner. So all of these things were put into the legislation, which are, you know, appropriate and really good moves. But of course, these taxis have been operating on the roads in Austin for quite some time now, without these rules, and even before getting to Texas, you know, Waymo and Tesla were experimenting on the streets of San Francisco. And, you know, so this is an example of the tech companies are going to make moves, and they're going to go into this, you know, gray area of regulation, and eventually the regulators will catch up.

Chuck Kraus: Wow. It probably is accelerating the capital spend by these tech companies because the uncertainty surrounded by patchwork regulation in a bunch of different city halls has been removed. So you're right to compare the experience of the label and cruise in San Francisco, you know, pilot programs, cars with VIDAR, city council fights every week. Tesla doesn't seem to be having to deal with any of that.

Brian Elliott: Well, I don't know. Yeah, I'm not sure that it's not having to deal with it, but I think it's baked into their calculus, right? So we see the same thing with the patchwork of regulations right now in data privacy, for example, right? Where every state's got their own set of rules and new rules are being created every day.

Chuck Kraus: And, you know, I tell people we had an episode on data privacy recently, but I tell my clients that it's like if you're a global company trying to be compliant with every data privacy regime globally, it's an impossibility. Nobody can say that they're 100% compliant everywhere, right? So there's a balancing of risk and you have to take a path as a corporation to say, look, we're going to be operating in what is probably going to be a gray area for some time, but let's, you know, do it in good faith, have appropriate disclosures, you know, make sure we're communicating with regulators and be proactive and thinking about where that's going to come out. I think the example of Google and Meta and other big tech companies in Europe getting billion dollars, multi-billion dollar fines over GDPR because they're just not making the rules.

Brian Elliott: This goes into the calculus, right? These fines become a speed bump on the road. They're a toll that they pay in order to, you know, push through and get new market share, right? And there's something to be said for that.

Chuck Kraus: But I think your point about capital requirements is right on the money. When you're operating as a true innovator where there are no guardrails and there are no set regulations, you're going to have to take some chances. And the result of that is going to be dealing with things like patchwork of legislation and regulatory ambiguities that you're going to need to figure out over time. And ultimately, you know, the constituency, I suppose, that you need to be concerned about is a public trust.

Brian Elliott: And part of the calculus of the question is, are we trusting the regulations to keep up or are we trusting the companies to prove safety? And in that situation, which is the better approach, the patchwork approach? for the Texas approach of preemption. Let's talk about Patchwork a little bit, Brian.

Chuck Kraus: How does this legislation in Texas compare to what's going on elsewhere in the country? Yeah, well, it really is a mixed bag, right? You've got some states and localities that have locked it down and created very strict rules about what can go on the road and what can't, and others that have just a full range of different options in between. I think the approach that Texas took was largely an enablement approach that says that we welcome the new innovations into Texas and on the streets of Austin, and we want to see that continue.

Brian Elliott: Not every state is going to be like that. I think that we've seen it in other areas, right, that is netting a net benefit to Texas to have technology move here, and not to stay on Mr. Musk's company so much, but SpaceX had the same trajectory, right? SpaceX needed to build their big space station to launch the rockets, and the prospect of doing that in California was just too complicated, right?

Chuck Kraus: It was going to take 20 years to get the environmental approvals in California in order to be able to put up a new space base. So they came here, they made friends with the local officials in Boca Chica, and off to the races, right? And they've done it. Now, they face a lot of criticism for moving too fast and maybe not paying enough attention to environmental controls, harming the turtles on the beach and other things, but the net result for Texas is it brought a huge company and massive amounts of economic development to our state, right?

Brian Elliott: So there's always going to be this policy debate about how much is too much, what's moving too fast, and should companies be able to get ahead of the regulation? But in my mind, it's a, if you're not, are you, I guess the question for me is, are you really innovating if the rules have already been set, right? The true innovators are building things that for which there are no rules, right? And that's where, that's where we see, you know, the technology going.

Chuck Kraus: Yeah, that's exactly right. I think you see some similar things going on right now, you know, for example, at the federal level with the crypto space and all the speeches and rulemaking and pronouncements coming out of the SEC. I think we'll cover that in another episode. Yeah, exactly right.

Brian Elliott: I think, I think it's a, it's a really good example. We've gone through this struggle over the last, you know, number of years in crypto with not having clear rules. And we can see where, you know, the rules can make a difference. If the rules don't, you know, prevent the innovation, if you create clear rules, it can allow the innovations to flourish and expand.

Chuck Kraus: And I think that's what, that's the. approach that Texas has been taking. They're not going to have to deal with a patchwork inside Texas, right? So they can know that they're going to be dealing with the same rules in Austin that they deal in San Antonio, Houston, Dallas, right?

Brian Elliott: It's going to all be the same. The second thing is it's a – they did this definition about, you know, who is the driver, right? So they created clarity in the rule, right? So the autonomous system is the driver.

Chuck Kraus: And that sounds like a sort of an easy definition to make, but it's important. And it's – when you mention things like crypto and things like that, part of the problem with cryptocurrencies is a lack of definition of what is a security. And that's been the gray area for years, right? Well, here, the Texas legislature dove into that point and said, we've got it, right?

Brian Elliott: The automated system that's running in the car is the driver. And if the system is engaged, it's the operator of the vehicle, the owner of the vehicle is responsible for the traffic laws, right? So they assign that responsibility as a matter of law, and that's a very good point for clarity, right? The third one is enablement, right?

Chuck Kraus: So it's the – let's set the parameters for how these cars will operate on the road. They have to meet all the same federal standards as normal cars. They have to carry insurance like everybody in Texas does. They have to have also, though, a system reporting the events that are in the car and be able to pull out if those systems fail.

Brian Elliott: Yeah, I was going to ask you a question just on the clarity points. One of the key concerns is what they refer to as disconnects. So, hypothetically. So, hypothetically.

Chuck Kraus: situations where the car disconnects from the system not able to communicate you know i understand under this legislation if there's a traffic violation the ticket goes to the owner or the authorized holder is that the same in a in a disconnect situation if something happens with that that's also the responsibility or is it also callability of the manufacturer for a lot of yeah it so so so it here's how it connects right the the system has to have a a fail safe to make the car pull over if the system malfunctions in any way right so after that point you shouldn't have any further traffic events if the car is safely pulled over we would expect right uh if that system doesn't work then that does go uh back to the manufacturer it is a that's a a rule that that extends that liability yeah yeah similar to uh i guess a you know a warranty problem with any other vehicle if it doesn't operate according to specification yeah correct yeah look it's this isn't um you know a just a uh you know a free for all for all the rules on the roads of texas what it really is is saying look we've got rules that exist that you know can be applied to autonomous vehicles let's see how we need to tweak them around the edges in order to make the roads safe but not prevent the innovation from taking place and i think texas done a really good balancing job of doing just that yeah i think that's right mentioned sort of the you know the ride sharing situation was was sort of a similar playbook where you find you found some some preemption i think texas was a leader on that back in the day was there another example with respect to 5g rollout i can't remember yeah so so the 5g example is is a great one right this is this is exactly where patchwork comes in right where it was you know communications are are controlled by municipalities and they can they can decide you know what you know how how these new new communication technologies get rolled out and it was becoming a big roadblock in in deploying 5g nationwide and it was almost an impossibility right but texas uh passed the senate bill 1004 in two 1997 and um i'm sorry 2007 and and cleared the way for for 5g rollout statewide right so they did the same thing there that they did here with the autonomous vehicle rule they took the power out of the municipality said we're going to have one rule for the state of tech work yeah it's very it's very helpful it feels like brian this is this is more than cars let's talk about some of those big lessons here for emerging tech more broadly? Yeah, I mean, I think the, to me, it's this, right, is the big lesson for tech is, is the regulators are going to need to be your partners eventually, right? So develop your technology with a view to where you anticipate the regulation is going to go anywhere, the right way to do it, right? Have, operate in good faith, have a mitigation plan, you know, make sure that, that you're, you're not doing something that is obviously, you know, against the norms in the environment that you're deploying in.

Brian Elliott: But also, you know, don't wait for a, you know, the red carpet to be rolled out and all the rules to be spelled out, take a leadership role in developing those rules. And I think what we've seen with, you know, Uber and with autonomous vehicles and with ride share or with, you know, the scooters and everything else is if you, you can make the market, then the consumers will direct the legislators on how to make the right regulations match the technology in the way that is currently being used. Yeah, I think it's, it's fantastic leadership. I was doing some reading the other day, again, coming back to this project, crypto, there was a speech that SEC chair Adkins gave a few weeks ago.

Chuck Kraus: And one of the things he said that struck me when I read it, and it's coming back now is he said, when our regulatory posture is calibrated to meet innovation, with thoughtfulness rather than fear, then leadership position, a leadership position is grown stronger. I think I hear that with respect to crypto, and I hear that with respect to autonomous driving here, that it recognized, number one, that the regulatory posture needs to change, but that rather than doing it out of fear, we're doing it in a way to meet innovation with thoughtfulness, that that enables the investment development, and sort of sets the stage for the changes that will come. Yeah, I mean, look, the, it's a, it's an exciting time, you know, with AI changing a lot of things and making new technologies possible. We've got, you know, all kinds of biomedical advances that are pushing boundaries.

Brian Elliott: We've got, you know, technologies that, you know, are being invented today that nobody even thought of a year ago, right? So it's fast moving. But the, I think the key is to be thoughtful, and to, and to do a good job of, you know, mitigating possible risk by, by operating in a way that is responsible for the technology that you're putting out. And I think we do see that echoed from a lot of the tech, tech leaders today, and I think it's a, the right approach.

Chuck Kraus: So Brian, what's the advice that you give to clients on this, whether it's specific to 2807 or just changes in Lodge and really relating to tech? How should clients think about this? Yeah, for sure. Look, our clients are innovators, right?

Brian Elliott: And they're dealing with these ambiguities all the time. And I think the answer is, you know, where there are no clear regulations and you know that you're operating in a gray zone, one is you understand, you know, the limits of what you can and can't do, black and white law, right? And then beyond that, you operate with good faith in a method that is going to promote your ability to negotiate with rule makers. And you can do that directly or you can do it indirectly by being good corporate citizens.

Chuck Kraus: But there's lots of ways to get it done. And I think the, you know, keeping an eye on regulation that's outside your personal jurisdiction, so regulation globally, right, gives you an insight as to what might come to Texas or what might be affecting your business in the future. And that's a really good way to keep your arms around how you should think about developing new technology. Yeah, I think that's exactly right.

Brian Elliott: Brian, I think maybe we should record a future episode from a robo-taxi, maybe roaming around the streets of Austin or somewhere else. Thanks for the update, Brian. Yeah, well, I look forward to that taxi episode and we'll see if this permissive structure in Texas nets benefit for everybody. Fascinating.

Chuck Kraus: Thanks, everyone, for tuning in. That's episode 14. I'm Chuck. He's Brian.

Brian Elliott: And this is Y'all Street Law. Thanks very much. For more insights and updates, visit www.scalefirm.com or follow us on LinkedIn. We'll see you later.

Chuck Kraus: We'll see you later. We'll see you later.