Mitigating Transactional Risk in the Internet of Things

Abstract

The Internet of Things (IoT) presents new product liability and regulatory risks that are arising from the potential for digital failures to cause serious physical-world impacts, including property damage and personal injury. These risks call into play traditional product liability models applicable both to mass torts and individualized harms, as well as more novel theories directed at intangible or incipient consumer injuries. Already, courts have seen IoT product liability lawsuits involving building products, medical devices, and automobiles, and the same risks exist for any other products in which the digital world and physical world intersect. In evaluating potential acquisitions or major investments in companies that offer IoT products, investors should carefully consider the company’s products, operations, and business arrangements to ascertain that these risks are appropriately addressed. Considerations should include insurance, standard operating procedures and policies, legal and regulatory compliance, and contractual arrangements. Deal terms should also be crafted to ensure that investors are adequately protected.