Blockchain for Equipment in a Machine Model as a Service | Foley & Lardner LLP
Subscription services, embraced by the software industry as an alternative to traditional product sales models, provide a stable revenue stream for vendors. Software as a Service, along with the associated Platform-as-a-Service, Network-as-a-Service, and Infrastructure-as-a-Service models, provide benefits to customers by shifting maintenance responsibilities to the vendor and trade off large capital expenditures for lower underwriting costs.
What is a Machine Template as a Service?
Following in the footsteps of the software industry, equipment manufacturers are beginning to adopt Machine-as-a-Service (“MaaS”) models, providing manufacturing equipment such as computerized numerical control (“CNC”) machines ) or automated manufacturing systems on a subscription basis.
Unlike a traditional leasing model with a fixed monthly or weekly payment, customers can make MaaS subscription payments based on usage or results, such as monthly payments based on the number of units produced.1 For example, in addition to sales of conventional air compressors, Kaeser Compressors, Inc. now offers a MaaS compressed air service with a subscription for a fixed amount of compressed air.2 The OEM takes on additional risk with the possibility that customer needs and corresponding revenues will decline, but can find a much larger market of willing customers, especially for newer or more advanced machines that would be pure purchases and simple very expensive.
Blockchain for asset tracking
Asset tracking is crucial to successfully running a MaaS-based business. Suppliers may collect operational data on manufacturing machinery, including hours of operation, units produced, and operating efficiency statistics or defects, and use the data both for price calculations and for maintenance purposes (such as identifying when preventive maintenance should take place). blockchain can collect this data directly on the machine through built-in sensors to provide parties with a immutable operational file. By using blockchain technology, the provider and the user can be sure that the operational figures are accurate and secure.3
In some cases, companies can use smart contracts based on data recorded in the blockchain to automatically execute arranged payments when manufacturing thresholds are reached. For example, SteamChain’s Secure Transaction Engine for Automated Machinery (“STEAM”) uses blockchain technology to generate tamper-proof performance records accessible by both end users and vendors, and to execute payment transactions in real time. .4 Pearson Packaging Systems uses STEAM to deliver packaging machinery under a MaaS model, with customers providing payments per case erected, sealed or palletized via smart contracts.5 By using blockchain to record case counts and execute payment, parties benefit from reduced human error and increased transparency.
Automated maintenance requests via smart contracts
Companies can use smart contracts to automatically schedule maintenance for deployed MaaS machines. Since updated data and statistics for each machine are recorded in the blockchain ledger, companies can automatically monitor the performance of each machine. If efficiency degrades or other faults occur, a smart contract can dynamically generate a service request. For paid service agreements, smart contracts can also process payments automatically.6
A blockchain ledger provides a permanent, immutable record of machine maintenance history, which potential buyers may find valuable when the seller sells used capital goods. Since each maintenance record is written to the general ledger with a timestamp and this timestamp is encoded in each to block, a bad actor would struggle to fake check-ins in the event of missed maintenance windows.seven
Dynamic configuration management
An end user may not want all of the available functionality provided by a particular machine. In conventional purchasing models, customers may have to buy a more advanced or more capable machine, at a proportionally higher cost, in order to meet certain requirements, effectively buying “more machine” than they want. . Conversely, if they cannot afford the capital expenditure, some customers will buy less advanced equipment or equipment that lacks desirable features. This can lead to an overall drop in productivity and quality.8
In a MaaS model, a provider can deploy their most advanced machines to customers with one or more features disabled. Because the machines are connected to the blockchain knots to record performance data, smart contracts can also be used to send configuration changes back to machines. For example, a customer can dynamically choose to enable a particular feature, and a smart contract will automatically process a payment or a subscription fee increase and trigger the configuration change for the corresponding machine.9
Legal Issues with MaaS Models on Blockchain
When considering adopting a blockchain-supported MaaS model, companies will need to assess the legal issues that come with it, such as:
Automating. Since many decisions are made in advance for the structure of a MaaS model, and these decisions are executed by smart contracts, parties will need to consider how to approach changes to agreed contractual terms. For example, if a machine requests maintenance but the customer prefers to postpone the maintenance, this cannot be done without the cooperation of the supplier, because the maintenance is automatically ordered. This is an important consideration because customers will likely want to have the final say in the service request as the payer, but the provider will likely have service requirements that they would prefer to have triggered automatically. Parties will need to be careful about whether a smart contract hosted on the blockchain has been programmed to be flexible or inflexible for tasks such as ordering maintenance.
Export control. Although dynamic configuration management may disable certain features on a blockchain-supported machine, parties will still need to comply with export control regulations and ensure that the controlled technology is not exported to any country. foreign in violation of export control laws. Under current export control regimes, licensing authorities will assess all capacities of exported machinery. Authorities are unlikely to issue licenses to export machines containing controlled technology that is not enabled, simply because a recipient might take steps to enable that technology. Unless equipment manufacturers program the blockchain solution to completely disable controlled functionality, licensing authorities are unlikely to relax export control regimes based solely on adopting a MaaS model.
“Right to repair”. The “right to repair” movement in the United States is growing and gaining influence in the policy-making process. In July 2021, President Biden issued an executive order directing the Federal Trade Commission (“FTC”) to issue rules to address “unfair anti-competitive restrictions on third-party repair or self-repair of items, such as restrictions imposed by powerful manufacturers that prevent farmers from repairing their own equipment.ten While subscription-based MaaS models supported by blockchain technology undoubtedly offer benefits to customers, they allow manufacturers to retain control of equipment long after a customer has purchased a subscription. Manufacturers and customers seeking to avail themselves of MaaS agreements should make it clear to the FTC, and to policymakers generally, that such agreements fall outside the scope of the anticompetitive conduct that the July 2021 Executive Order seeks to address. prevent.
Uniform Commercial Code. Although a MaaS model is generally characterized as a subscription service, it would likely be subject to Article 2A of the Uniform Commercial Code (“UCC”), which defines a lease as “a transfer of the right of possession and use of property for a term for consideration…”11 In the event of default by the Customer (Lessee), the Capital Goods Manufacturer (Lessor) shall have all remedies provided in Section 2A, including the right to recover the Machine.12 The manufacturer may want to take a backup security interest in the machine under UCC Section 9 and file a financing statement to ensure that their interest in the machine is a public record. The manufacturer should consider requalifying the lease as sale with retention of security, particularly if the customer has the right to purchase the machine at the end of the term at a reduced price by some or all of the payments already made.
1 Daniel Kupper et al., Blockchain in the factory of the future, BCG (July 15, 2019).
3 Blockchain and the Making of Machine-as-a-Service, iTMunch (April 17, 2019).
5 Machine as a Service (MaaS), Pearson Packaging Systems (accessed September 12, 2021).
6 Supra footnote 1.
8 Supra footnote 3.
9 Supra footnote 1.
ten Michael J. Walsh et al., Right to Repair and the Biden EO Contest – What Makers Need to Know, Foley & Lardner LLP (July 14, 2021).
11 UCC §2A-103(j)
12 UCC §2A-523