Negotiating Telematics Agreements: Awareness of Legal Risks is Critical to Protecting Your Businesss Interests
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 businesss interests are protected in the event of a service or
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.
Lets 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, Smiths 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? Smiths 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
As far as telematics equipment is concerned, businesses involved in
telematics transactions need to establish parameters for the telematics
equipments 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.
Heres an example to think about: Jones, the CEO of Widget Co., is
racing to the airport to catch a flight. Hes 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
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
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
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