United States: How Smart, Connected Products Are Transforming Business

Connected products are now ubiquitous, and their use is projected to dramatically increase in the foreseeable future. An estimated 8.4 billion connected "things" were used in 2017, the vast majority of which were consumer products and applications.1 The prevalence of these connected products is projected to double between now and 2020.

While bringing significant benefits to consumers and businesses through enhanced functionality, convenience and customization, connected products also raise important considerations for technology transactions. In particular, connected products require the integration of complex technologies, creating challenges for achieving the interoperability required for functionality. In addition, this connectivity can unintentionally open multiple cybersecurity attack points with respect to which security measures and safeguards must be implemented and maintained. The fastpaced growth in this area will result in exponential growth in data collection, raising issues with respect to data usage rights and consent. Connected products are already used prominently in regulated industries, where the implications of regulatory compliance and consumer safety are key contracting considerations. Customers must be confident that their products work as intended and understand the technology and licensing restrictions and requirements of the technologies enabling the product functionality.

Accordingly products must be secure from unauthorized access or manipulation, must collect and use data consistent with applicable privacy and security laws, and must comply with other applicable regulations and industry standards governing functionality. Contracts between suppliers and customers for technology to build connected products must define responsibilities and allocate risk in support of these fundamental objectives.

Legal and Regulatory Landscape

In the United States, the legal and regulatory landscape is still developing, as legislators begin to propose and consider laws addressing the new issues raised by connected products, and existing regulatory bodies, including the Federal Trade Commission, seek to adapt policy and guidance to new circumstances.


Connected products are highly networked, and access to one device opens up access to other devices connected to that network. For hackers looking to access either the broader network of a business or multiple devices of an individual, connected products are an attractive point of entry. In addition to the risks associated with general data breaches, connected products can present particular cybersecurity risks for consumers and companies alike. Specifically, with products like smart medical devices and connected cars, a security breach of the network on which those products rely could result in real-time death and bodily injury to end users.

Consumers have brought claims against businesses for transmission of product performance and use data, as well as consumer data, via unsecured transmissions.2 While decisions have varied as to the standing of plaintiffs where no actual harm occurs, the DC Circuit held that, in a case brought for data breach involving credit card and social security numbers, a substantial risk of harm existed simply by virtue of the data breach and the nature of the data stolen, even if there were no allegations that harm (in this case, identity theft) had occurred.3 This same principal, that a substantial risk of harm is enough, has been supported in the context of regulated devices. For example, NHTSA required the recall of vehicles to address security vulnerabilities even without a showing that anyone had tried to exploit the vulnerability.

Lawmakers are contemplating these issues and are beginning to set the groundwork for legislation. In September of 2017, for example, the US House of Representatives unanimously passed the SELF DRIVE Act (H.R. 3388 (115th)), a bill giving federal regulators the power to regulate self-driving vehicles. The bill includes a requirement for vehicle manufactures to develop a "written cybersecurity policy with respect to the practices...for detecting and responding to cyber attacks or unauthorized intrusions."4


Data collection (both direct and incidental) through connected devices means providers of such technology must comply with increasingly stringent privacy requirements. In 2014, the FTC and Vizio reached a settlement related to Vizio's collection of consumer television viewing habits without viewer consent, which data could be aggregated with other data to derive personal information of the viewer. Vizio was required to delete the data it collected and put a privacy program in place to evaluate Vizio's practices and its partners.5 In addition, Vizio must now disclose its data collection methods and receive consumers' express consent to collect this information.6 The FTC applied established consumer protection principles grounded in transparency and consent and released best practice guidance that companies should follow when collecting data via connected products: (1) explain your data collection practices up front; (2) get consumers' consent before you collect and share highly specific information about their entertainment preferences; and (3) make it easy for consumers to exercise options.

Numerous additional privacy issues are raised by connected products. For example, many connected consumer devices are portable, requiring consideration of privacy laws in multiple jurisdictions relating to geolocation and other data protection issues.

Contractual Implications

To build successful supplier relationships for the design, creation, sale and maintenance of connected products and solutions, customers and suppliers will need to consider the risks associated with the connected products and allocate those risks in their supply agreements. Connected products may be used for business purposes or sold as consumer products, and the risks should be considered in relation to the context in which the products will be used.

That allocation of risk may be very different from more traditional technology acquisitions. One key difference is in the area of product liability, a concept that has not been a critical focus in traditional technology transactions. For example, contracts for the supply of software and services have limits on liability for warranty or other breaches and exclusions of damages that are typical to the technology industry but which sharply contrast with the warranty provisions and assumption of liability often expected by manufacturers from component suppliers in the sales of goods and services under purchase orders governed by the Uniform Commercial Code.


Connected devices can be almost anything, in the case of consumer products, from smart refrigerators and televisions, wearable clothing, medical monitoring and dosing devices and personal assistants, to, in the case of business use, devices that gather data about heavy machinery operation, or track manufacturing parts or shipments. Whether used in a consumer or a business context, connected products rely on integrated or external technology, data collection and analysis. The technology, data collection, data processing and analysis are likely to be provided by multiple suppliers, creating numerous integration points, and potential points of failure. Building a connected products offering means managing an ecosystem of relationships and integrating different technologies. Accordingly, incorporating detailed design standards and requiring adherence to protocols and best practices in supply contracts are key to developing products that work as intended and are compliant with industry standards governing functionality. Achieving and maintaining inter-operability among the components in the product ecosystem is critical to sustaining performance throughout the life of the product. In addition to determining product specifications for individual components, the parties will need to allocate responsibility for establishing and testing interfaces to integrate the necessary components and to test the functionality and security of the overall system.

The rapid pace of technology change necessitates the inclusion of contractual terms delineating responsibilities with respect to technical evolution and remotely delivering upgrades. The parties should consider a change management process to address both technology evolution and other necessary changes in one or more individual components or the potential need to substitute a supplier. An effective change management process will need to address the extent to which a supplier will be required to cooperate with the business customer, as well as other suppliers. In some cases, suppliers will need to share confidential and proprietary information with, or provide access to software code to facilitate the update by another supplier or the business customer, particularly in the case of a product comprised of many integrated components.


Businesses developing connected products and solutions need to build into their standards new approaches and requirements to address growing cybersecurity risks, pass through to suppliers the obligation to comply with these evolving standards and maintain flexibility to update standards during the contract term. External guidance and best practices related to cybersecurity are growing vastly. Technology contracts will need to consider the parties respective responsibilities for staying abreast of the same and build requirements for compliance with appropriate external standards into their contracts. Additionally, the parties will need to work through the tension between cybersecurity principles, premised on providing each supplier access to technology components only to the extent necessary to supply the particular component or service, and the benefits of open architecture with broader access to share responsibility for testing and integration and enhance product innovation in support of product functionality as described above.

Further, although customers may have experience negotiating for cybersecurity protections in enterprise systems, they will need to rethink their approach as they seek to build cybersecurity protections into their products intended for consumer use. There are fundamental differences between enterprise cybersecurity practices, which are largely aimed at protecting against business risks arising from unauthorized access to confidential and personal data, versus product cybersecurity practices, which will require protecting individuals from actual physical injury or death , and rely on product liability concepts, in addition to data security concepts.

In the case of consumer products, the parties need to consider product liability concepts, including thinking beyond the prescribed use of the product to reasonably anticipated use or even misuse. This includes anticipating connections to devices and data sources from outside of the eco-system which is the subject of the contract, with the result that the parties must consider how to allocate risk and responsibilities for mitigation procedures (e.g., authentication procedures, fall back modes) from external factors.


As connected products collect large amounts of data, the parties need to understand the different types of data that will be collected, for example, safety critical data (e.g., crash event data), non-safety critical data (e.g., consumer preferences) or both (geolocation data) and the purposes for which the data is collected (product performance, product improvement, including through machine learning, and customer preferences and marketing). There may be instances where government compels a business to collect specific data, such as event data records. Other data may be helpful in maintaining and improving the product. The interests of the parties in the data may vary and the rights and uses of the data will need to be negotiated.

In the case of consumer products a threshold concern will be the need to gain consumer consent for the collection and use of the data, including ensuring consent is obtained as ownership of the connected products that are readily transferable changes. The contractual terms around use of data will be driven by the consent obtained. The contract will need to specify which party is responsible for obtaining consumer consents, and which party is responsible for maintaining compliance with changing privacy laws that impact the personal data collected (both directly and indirectly) through connected products.


With connected products, particularly those providing services or functionality that if incorrectly performed or misused may raise consumer safety issues, the parties will need to consider the appropriate allocation of risk in light of heightened product liability concerns and other contractual terms. Regulated companies of consumer products are accustomed to passing through to traditional component suppliers obligations necessary for regulatory compliance and allocating the risk associated with consumer safety. Technology companies may be unfamiliar with both the contractual requirements necessary for the customer's regulatory compliance and assuming risks associated with personal injury. The parties will need to work to bridge those gaps.

Contracting for connected product technologies is becoming more challenging with the growth of safety and cybersecurity risks, the vast increase in data collection, the tremendous complexities of interconnected systems and evolving laws and regulations. Customers can successfully contract for connected product technologies through an understanding of these challenges and through the use of flexible contracting requirements that allow for constant adaptation of the technology, business requirements and compliance considerations in this area.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2019. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions