Negotiating Telematics Agreements: Awareness of Legal Risks is Critical to Protecting Your Business’s Interests

By Marianne Roach Casserly

In-vehicle telematics services are an increasingly popular offering of vehicle manufacturers today with the potential to generate substantial revenue gains. Of course, with big gains come corresponding big risks. Automakers, product and equipment manufacturers, and software developers need to be aware of legal risks arising from participation in the telematics industry.

Many telematics products are designed specifically to provide safety and security services. This presents complex legal issues for businesses involved in offering telematics services, due to the potential for life-or-death issues to arise. These issues are often best addressed proactively through contract negotiation to ensure that the business’s interests are protected in the event of a service or equipment failure.

Liability and Allocation of Risk
One of the most important considerations that needs to be addressed is how liability will be allocated among the various parties if the telematics service or equipment fails. An example here will show how the issues would play out.

Let’s say that ABC Corp. is a manufacturer of telematics devices installed on tractor-trailers, and these devices are designed specifically to provide safety and security services. XYZ, Inc. is a tractor-trailer vehicle manufacturer and it installs ABC Corp.’s telematics devices in its tractor-trailers. Widget Co. purchases its tractor-trailers from XYZ, Inc. with ABC Corp.’s telematics devices installed on all of its tractor-trailers. Joe Smith is a tractor-trailer driver for Widget Co.

Smith is involved in an accident while driving on a highway in the middle of the night. His tractor-trailer overturns and he is knocked unconscious and cannot call for help. The telematics device manufactured by ABC Corp. fails and emergency services are not automatically notified. As a result, Smith’s injuries are far worse than they would have been if he had received immediate medical care.

Who is liable for the failure of the telematics device to perform? Is it the device manufacturer, ABC Corp.? XYZ, Inc., which installed the telematics device in the tractor-trailer? The software developer who programmed the device? Smith’s employer, Widget Co., which purchased the devices? The underlying telecommunications service provider, over which the telematics service operates?

The answer to the question of who is liable will depend on many factors, one of which is whether the parties negotiated agreements ahead of time to allocate risk and liabilities in the event of a service or equipment failure. It is critical for companies involved in safety and security telematics services to proactively address these issues before a situation arises like the one described above.

Reliability of Service
Another consideration that businesses involved in telematics services should address is the reliability of the telematics equipment and the wireless service over which the telematics service operates. This is especially important for businesses operating in the safety and security field.

As far as telematics equipment is concerned, businesses involved in telematics transactions need to establish parameters for the telematics equipment’s anticipated operation and consequences for failure to perform at that level.

As far as the underlying wireless service is concerned, businesses operating in the telematics space need to assess the strengths and weaknesses of different telecommunications carriers to determine which carrier can provide the best coverage. Businesses serving end user customers also need to build protections into their end user agreements to address the inherent limitations of wireless telecommunications service (such as lack of coverage in the event of severe network congestion and the like).

Accuracy of Information
Another issue that needs to be addressed is the accuracy of information provided through a telematics service offering.

Here’s an example to think about: Jones, the CEO of Widget Co., is racing to the airport to catch a flight. He’s on his way to make a sales pitch to a very large potential client. He uses the telematics service in his vehicle to provide directions to the airport. The directions provided turn out to be inaccurate and Jones misses his flight.

The potential client signs a deal with Widget Co.’s competitor. Jones is convinced that if he had made the flight, he would have landed the deal, resulting in a multi-million dollar contract for Widget Co. He decides to sue the telematics service provider for providing inaccurate directions.

Telematics service providers must address issues such as accuracy of information in written agreements that all end users must sign before they can use the telematics service. Otherwise, telematics providers will find themselves in the position of defending claims such as the ones in the hypothetical situations above.

In short, all players in the telematics industry - whether they are vehicle manufacturers, product or equipment manufacturers, software developers, or others - need to be aware of the legal risks arising from participation in the telematics industry. These risks can often be addressed proactively through effective contract negotiation.

This article does not attempt to address every legal risk that can arise as a result of involvement in the telematics field, but simply highlights a few issues of concern to those in the industry.

Published Thursday, August 31st, 2006

Written by Marianne Roach Casserly

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