Contract Law in the Age of IoT

Contract Law in the Age of IoT

An article by Marc, Editor at IoT Business News.

Contracts seem simple: Two (or more) parties negotiate, write down each party’s obligations, and sign, ensuring everyone will participate appropriately in the deal. Yet, contract law is a dense and convoluted field, and with every passing year, it only becomes more-so. Technology is revolutionizing nearly every aspect of contracts, from how they are generated to how they are terminated. In some cases, contract tech is beneficial – but in other cases, as with the Internet of Things (IoT), tech is making contracts more and more difficult to analyze.

Many experts believe that contract law isn’t prepared for the IoT revolution, which is dangerous considering the abundance of IoT devices already in operation. Businesses and consumers alike should be aware of concerns regarding contracts and the IoT, so everyone can stay protected in the years to come.

What Is a Contract?

In the simplest terms, a contract is a legally binding agreement. More specifically, an enforceable contract must include a few key elements that define the parties, the agreement, and other important details. At the very least, a contract must include:

  • Subject. The subject consists of the definite terms of the agreement that form the offer.
  • Consideration. For a contract to be valid, there must be a reason for it to exist. The consideration should spell out both parties’ reasons for creating the document.
  • Competency. There are laws that prohibit incompetent people from entering into contracts.

Because the information contained in a contract is vital for making it enforceable – and because an unenforceable contract is essentially useless – proper language and organization in the contract is vital. In the past, lawyers were the only professionals trained in legal definitions and brief structure, so they could demand exorbitant fees for the generation of even the most minor contracts. In the Digital Age, document assembly software assists businesses in contract generation, streamlining the process and reducing costs.

While the traditional contract might look like a paper document covered in legalese and requiring both parties’ signatures, modern contracts take several forms. For example, most everyone in the Digital Age has scrolled through a website’s Terms and Conditions to click a box that says, “I accept.” Technically, this is a contract, and it has been in use for more than two decades. However, the IoT is introducing newer and stranger versions of contracts that many lawyers and tech experts are finding dubious.

Amazon dash buttons

How Has the IoT Changed Contracts?

The IoT is changing everything, so it should hardly be surprising that contracting practice is being disrupted. For example, some IoT developers are pushing for smart contract processes based on blockchain technology. Existing contract management tools provide outstanding analysis on contract lifecycles, monitoring the efficacy of contracts and assisting business leaders in determining whether to terminate or renew mature contracts. Meanwhile, smart contracts, automatically facilitate, verify, and enforce contracts by linking with parties’ payment providers. Though smart contracts are currently available, few businesses utilize them due to persistent security concerns with the IoT and blockchain.

However, even more interesting to anyone involved in contract law is the development of new types of contracts. For example, in 2016 Amazon announced the release of Amazon Dash buttons, which allow users to order refills for certain household products, like dishwasher detergent, cat food, or razer blades. The buttons connect to the internet, making them IoT devices. When a user presses a button, they automatically agree to pay for the item. In this case and others where IoT devices can order items or services for users, there are several concerns for contract law, including:

  • Can IoT devices function as agents? Meaning, are they legally allowed to create contracts on a user’s behalf?
  • How can a court determine user assent when contracts are entered through IoT devices?
  • Can IoT devices adequately protect users and their information?

Unfortunately, contract law experts simply don’t have satisfying answers to any of these questions. Worse, the existing information asymmetry in favor of companies will likely be worsened by IoT devices, increasing the likelihood of contractual abuse.

As the Digital Age passes into the Age of IoT, it seems unfair to claim that users can protect themselves by reading contracts and choosing not to assent. Instead, IoT developers – and, perhaps more importantly, courts overseeing cases concerning contract law – should be careful to create and uphold only contracts that equally benefit users and companies.

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