Tuesday, September 12, 2006

Products Liability Implications of Auto I.D. Deployments within the Aerospace Sector

Monthly Article No. 1
SEPTEMBER 12, 2006

Leading aerospace manufacturers and their suppliers are ramping up their deployment of RFID (radio frequency identification)[1] and UID (unique identification)[2] technologies within their supply chains, resulting in a shift toward ever greater automation. In recent years, Boeing and Airbus began deploying these advanced auto identification technologies within their supply chains. This duo impacts nearly 70% of all commercial aerospace suppliers.[3] Additionally, the Department of Defense (the “DoD”) recently began rolling out two far-reaching regulations[4] requiring the use of UID and RFID by its suppliers, with aerospace defense contractors being among the earliest suppliers impacted by these mandates.[5] Taken together, these commercial initiatives and government mandates will likely make advanced auto identification technologies widely dispersed, if not ubiquitous, within the aerospace supply chain in the coming years. Aerospace stakeholders expect to gain greater insight into their supply chains as their deployment of auto identification technologies enables them to improve their processes and practices for manufacturing aircraft and maintaining their inventories of spare parts. The mass deployment of these technologies will also result in significant, albeit ancillary, implications for the global aerospace products liability landscape and the allocation of risk among aerospace stakeholders.

While improving logistics is the primary factor driving aerospace leaders to deploy advanced auto identification technologies within their own supply chains, other ancillary benefits may unlock additional value for aerospace stakeholders. Ubiquitous deployment of RFID and UID in the aerospace sector could provide all stakeholders with additional insights into the cause of aviation disasters and hasten efforts by all stakeholders to take corrective action. Indeed, armed with improved identification capabilities, a crash investigator may one day be relying upon the auto identification markers on an aircraft part in much the same way that a criminal investigator may turn to DNA markers to rule in-or-out a suspect in a criminal case.

Aerospace stakeholders, including manufacturers, suppliers, government agencies and their representatives (e.g., NTSB investigators) and litigants, will likely gain greater and faster insight into the cause of aviation disasters as a result of the deployment of these advanced auto identification technologies. The aerospace products liability landscape may eventually be altered in several material respects:

1) Post-crash investigations and litigation will be speedier as advanced auto identification technologies enable faster, more granular piecing together of the aviation disaster scene.
2) As aircraft failure points become easier to detect, the number of litigants will be reduced as non-involved parts manufacturers are definitively ruled out as contributory causes to aviation accidents.
3) Aviation safety will improve as a result of swifter government investigations.
4) Faster, improved product recall processes can be expected. The use of advanced auto identification technologies will enable manufacturers and operators to more quickly identify the location of defective parts in their supply chains, facilitating quicker corrective action.

How much actual benefit can be gained from the deployment of these two auto identification technologies will depend, in part, upon which technology is ultimately deployed by the stakeholders. Will any of the above cited factors motivate aerospace stakeholders to move in the direction of one technology, given that deployment decisions are largely being shaped by the stakeholders’ desire to improve their supply chains? Stakeholders may find these ancillary benefits attractive, but will stakeholders pay for the additional technological tweaks that may be required to realize these ancillary benefits? As a general policy matter, aerospace stakeholders, like any other parties deploying a new technology, should aim to deploy technologies at the lowest possible cost with the least amount of disruption to those in the supply chain. Will additional costs (e.g., specialized, durable coating of RFID tags, the use of both RFID and UID, etc.) be prohibitive so as to cause stakeholders to postpone seeking these potentially ancillary benefits? And notwithstanding the desire of stakeholders to deploy at the lowest possible cost, will government regulators dictate policy for them? After all, in its role as an early adopter, the DoD has already substantially influenced deployment policies (especially through its two far-reaching DFARS), and as such, the aerospace industry can certainly expect that federal agencies will continue to shape deployment policies.[6]

In the future, an aviation accident investigator’s efficiency may depend on a technology-driven question -- how many of the aircraft parts are tagged with RFID in lieu of (or in addition to) UID markings? A RFID reader does not require direct line of sight with a tagged object. Equipped with a RFID reader, a crash investigator could arguably find all parts very quickly and assemble a granular grid of an accident scene. Alternatively, UID readers require direct line of sight, meaning that it will likely take longer for an investigator to piece together a crash scene with UID parts. Should customers or the government dictate a preference toward one of these technologies based upon such expected benefits?[7]

Tag survivability is an important consideration. A sustained “fireball” may generate enough heat to impair, damage and/or destroy RFID tags. (Indeed, it’s doubtful that lower-end tags could survive a “fireball.”) At this point in time, an UID engraved metal part is more durable. RFID tags may become more rugged over time. The RFID industry is already responding to customer demand for a variety of commercial applications with temperature sensitive tags, including specialized tags to monitor temperatures during the transportation of food and pharmaceutical products. Such tags enable cargo carriers to monitor temperature extremes for sensitive shipments and take steps to improve logistics practices.[8] These specialized tags can withstand (and monitor) extremely cold temperatures experienced in refrigerated compartments as well as the heat of the Iraqi desert. While currently available, commercial tag solutions are capable of withstanding temperatures in the 400-450º range, the use of protective encasings and specialized coatings could be required to ensure a tag’s survival in the instance of an onboard fire. Taking into account the significant improvements in auto identification technologies over the past decade, one might argue that under Moore’s law, it would not be unreasonable to conclude that a commercially feasible, extremely durable tag is not far off. Indeed, in designing and deploying auto identification solutions for the aerospace sector, the auto identification industry is seeking to deploy durable solutions (at least with respect to the UID markings) that meet the long life cycle demands of commercial aircraft. With greater experience, the aviation industry may determine that stakeholders could reap sufficient benefits from RFID technology to justify partial deployment of specially coated and/or encased tags on a limited pool of “critical” parts, and in view of the cost of many aircraft parts, certain aerospace stakeholders may deem it worthwhile to expand their deployment of such specially coated or encased tags to a greater percentage of their parts pool. In those cases, the stakeholders would likely deploy both UID and RFID on applicable parts.

For the time being, leading aircraft manufacturers, military operators and commercial carriers are driving deployment decisions based largely upon the perceived (and more immediate) economic benefits derived from deployment of auto identification technologies within their supply chains. Both commercial aviation operators and governmental agencies manage sizeable spare part fleets – measured in the millions (of spare parts). A commercial operator (e.g., Delta Airlines) is faced with managing millions of spare parts frequently worth more than a billion dollars. In the case of the Department of Defense, the complexity and depth of the aerospace supply chain is googlistic.[9] By leveraging auto identification technologies, governmental and commercial operators seek to more efficiently stock their spare parts, enabling them to locate just the right part at just the right time.

The Department of Defense is dictating its precise needs in regulatory mandates (e.g., DFAR 252.211-7003 and DFAR 252.211-7006), while commercial operators, like Delta Airlines and Federal Express, are expressing their preferences in favor of auto identification technology based upon their commercial experiments with advanced pilot / early proof-of-concept programs. Test results suggest that mass deployment of automated identification technologies will significantly reduce maintenance costs for carriers over the long-term.[10] As a result of these automation gains, the verdict on the deployment of auto identification technologies is “in.” Government and industry-led initiatives will result in the ubiquitous deployment of auto identification technologies throughout the aerospace supply chain in the coming decade.

Attorneys should expect that these technology deployment decisions will ripple through the aerospace products liability landscape. The legal community can play a significant role in enhancing the return realized from the deployment of UID and RFID in the aerospace supply chain. As described above, these advanced technologies potentially equip us with better tools to investigate and understand aviation disasters, enabling us to assign risk to responsible parties more efficiently and improve the safety of our aviation fleets. By raising our antennae now, we can all stay on top of this rapidly evolving landscape.
About the Author: The Article Contributor, Kevin Davis, is a seasoned corporate attorney who has been actively involved in building a number of IT businesses, including Adaptive RFID, a nationally recognized provider of turnkey RFID and UID compliance solutions and a top-tier partner of leading RFID technology vendors.

RFID Law Journal is an online publication that provides auto identification resources for policy makers, attorneys, and industry participants. You can learn more about significant auto identification issues and policies, including RFID and UID, at http://www.rfidlawjournal.com/. You can provide us feedback about this article at editor@rfidlawjournal.com.

© 2006 – RFID Law Journal, LLC. All rights reserved. The information provided herein is for your informational purposes only and is not to be construed as legal or other advice (including, without limitation, investment advice) or as a substitute for legal or other appropriate counsel. Online readers should not act upon this information without seeking professional counsel from a trusted advisor. Usage of the information contained herein is subject to the terms and conditions set forth at www.rfidlawjournal.com.
[1] RFID is an automated identification and data collection technology that uses radio frequency waves to transfer data between a reader (interrogator) and tagged items (transponders) (i.e., a label affixed to a part).
[2] UID entails the placement of a two-dimensional data matrix barcode on items. The DoD envisions that UID will facilitate faster, more efficient acquisition, repair and deployment of items.
[3] Manufacturer deployment decisions arose following successful pilot programs. In November, 2003, Federal Express began testing passive RFID systems with Boeing and determined that there were no detrimental environmental effects or suspected electromagnetic interference from installed smart labels. In May, 2005, the FAA officially approved the use of passive RFID tags on the ground to facilitate more efficient aircraft maintenance and inventory controls. During the summer of 2006, Federal Express tested active RFID tags on one of its MD-10 freighters.
[4] See DFAR 252.211-7003 (UID) and DFAR 252.211-7006 (RFID). As of a result their substantial intrinsic value, aerospace parts are directly impacted by DFAR 252.211-7003 (UID), and as such, aerospace suppliers have been leading deployment efforts. DFAR 252.211-7006 (RFID) became a final rule in November, 2005, and it has been applied to numerous aerospace parts solicitations. In May, 2006, the DoD modified the RFID DFAR to substantially expand its scope.
[5] In 2005, Lockheed Martin became one of the first defense contractors (aerospace or otherwise) to opt into the DoD’s RFID tagging requirements - months ahead of applicable government mandates. In May, 2006, Lockheed further validated this initiative through its acquisition of SAVI Technology in the RFID industry’s largest acquisition to date.
[6] Commercial initiatives ultimately depend upon FAA policy. See footnote 3 above.
[7] The current state of RFID and UID Data Matrix 200 technologies are such that there are instances where material composition, environmental temperature, component size and other factors dictate the selection of automatic identification technology. Over time, improvements in both technologies are likely to make the method of choice primarily an economic decision.
[8] The deployment of temperature sensitive tags could significantly impact the allocation of risk among parties involved in such commercial shipments. For example, a seafood distributor would presumably pay more for this enhanced quality assurance, while the distributor’s cargo carrier could use such information as evidence of its satisfaction of contractual obligations during the course of shipment. The stored data could certainly provide a meaningful, if not dispositive, evidentiary trail.
[9] Indeed, the Under Secretary for Acquisition, Technology and Logistics adopted its UID policy to respond to a 1998 report of the GAO criticizing ATL’s management of its equipment inventory. The GAO had determined that the DoD’s inventory exceeded its war reserve and current operational requirements but lacked key spare parts due to inadequate accountability on material shipments and ineffective monitoring of spare parts.
[10] The airline industry is hopeful that auto identification technologies will provide billions of annual savings for the industry. According to IATA, auto identification technologies, such as RFID, are enablers for their StB (“Simplifying the Business”) initiatives. As a result, the airline industry is engaged in proof-of-concept deployments of RFID-enabled baggage systems in order to garner up to $800 million in annual industry savings.


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