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Key Contract Considerations for Connected Devices Key Contract Considerations for Connected Devices

Key Contract Considerations for Connected Devices

This article is part of the Indiana IoT Lab Fisher's The State of IoT 2019 Inaugural Edition publication. The State of IoT highlights different ways the IoT affects the economy, technology and future vision of IndianaClick to sign up and receive the full publication.

As with potential patent infringements risks that should be considered, companies should also scrutinize their various agreements to ensure they cover connected products. Revising, and even for the first time entering into, contracts to ensure risks are understood and properly allocated among parties, consents to use and exploit data are obtained and suppliers of parts, goods and services are held to contractual standards to achieve the connectivity and security required today are paramount. 

Development Activity and Ownership of the Underlying Intellectual Property:

Many companies are, for the first time, developing connectivity for their products or including connected devices in their service offerings – each of which may involve third-party developers or employee developers. Regardless, it is important for companies to ensure they have contracts in place with developers and employees alike, so any new intellectual property developed for the company is owned exclusively by the company. Existing contracts may cover the basics, but should be reviewed to ensure they adequately cover all aspects of development, from hardware, to software, to the conceptual workflows that are created. These development aspects may raise issues of copyright, patent, trade secret and other intellectual property rights, and these contracts can ensure the company’s ability to license or transfer these rights through its sales and distribution network and in the context of a merger or acquisition of the company.

Supplier / Vendor Agreements:

Companies should also ensure their agreements with suppliers (of all types) cover key aspects of their connected devices. The types of supplier relationships that are important to consider may include: suppliers of hardware, subassemblies and communications systems, as well as vendors for services such as mobile communications and hosting or cloud storage. Some of the key provisions of these agreements include functionality warranties, product recall considerations, uptime and processing performance and data security assurances. It is important to have an understanding of the key areas of risk when crafting or revising supplier or vendor agreements. For example, with respect to mission critical products or services, companies should be sure their suppliers are on the hook for key aspects they can control such as quality, reliability, uptime and security. Suppliers’ form contracts are often missing adequate provisions, so it is crucial to work with experienced counsel to assist in drafting, revising and negotiating them.

Customer Agreements – Terms of Use:

The agreements suppliers have with their customers and end users tend to be highly customized to meet specific state laws and regulatory requirements, use scenarios and each company’s unique balance between reducing risk and standing behind the company’s products and services. Key provisions of customer agreements often weave together to provide just the right risk allocation between the company and its customers. Those provisions often include:

  • Product functionality warranties
  • Limitations of liability, disclaimers of warranties (including for data loss, error-free and full uptime operation)
  • Indemnity to cover potential third-party claims from customer activities and negligence
  • Consents for data access, use and even use of aggregate, statistical or anonymized data for purposes beyond that customer’s use of the product (such as benchmarking or dashboards for other customers)

While the risks identified in this article are common to many types of products, the introduction of the IoT and connected devices adds additional issues which must be addressed. Companies should work with counsel knowledgeable in this industry to discuss which of these risks (and others) need to be addressed.

For more information, contact Dustin DuBois or a member of our Internet of Things Industry Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.

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