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The Internet of Things (IoT), whereby miniature computers are embedded into objects and devices and connected via the internet using wireless technology, offers many advantages, such as smart thermostats which have the ability to remotely monitor and adjust your heating at home, and medical devices / apps which are used by patients to enable remote monitoring (e.g. a dangerous change in a patient’s insulin levels).

Speaking recently at CES 2015, Las Vegas’ annual hi-tech trade show, the chair of the US Federal Trade Commission, Edith Ramirez, warned of a future where smart interconnected devices enable technology firms to build a “deeply personal” and increasingly detailed and granular picture of consumers that will subject consumers to highly targeted advertising of products and services, as well as leaving them vulnerable to data attack.  Ms. Ramirez said that smart devices could potentially collect data such as an individual’s health, religious and other lifestyle preferences, and asked “will this information be used to paint a picture of you that you won’t see but that others will?”  Data should only be gathered for a specific purpose, said Ms. Ramirez…“I question the notion that we must put sensitive consumer data at risk on the off-chance a company might someday discover a valuable use for the information”.

Regulators around the world are increasingly concerned to ensure that security and privacy issues are taken seriously by device manufacturers.  For example, the Article 29 Working Party (the independent European advisory body on data protection and privacy) issued an Opinion in September last year which reviewed the IoT and the specific data protection and privacy challenges raised by it, assessed the state of the applicable law (in Europe) and made a number of recommendations applicable to relevant IoT stakeholders. These include a call for IoT device, O/S and application manufacturers, and developers to apply the principles of Privacy by Design and Privacy by Default and to undertake Privacy Impact Assessments (PIAs) before any new application is launched in the IoT.

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This is the second of two postings that outline key pricing protections you should consider negotiating with licensors of ERP software to provide flexibility and predictability in managing the ongoing license and maintenance costs associated with the software.  In the earlier posting, we discussed future option discounts, exchange rights, and maintenance locks and caps.  In this posting, we focus on shelving and termination rights, acquisitions and divestitures, and successor products.

Shelving / Termination Rights

Shelving and termination rights provide the ability to reduce annual maintenance spend on unused licenses by either “putting them on the shelf” until needed or terminating unneeded licenses altogether.  There are three basic approaches to shelving and termination rights.  In descending order of desirability, they are:

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The licensing and implementation of ERP software is a major long-term investment for any company.  In addition to negotiating favorable upfront pricing for the software, it is important to build in pricing mechanisms that provide flexibility and predictability in managing the ongoing license and maintenance costs associated with the software.  This is the first of two postings that outline key pricing protections that you should consider negotiating with licensors of ERP software.

Future Option Discount

A future option discount provides a right to purchase additional software licenses at a specified price or at a specified discount off the licensor’s then current list price.  This right has a number of benefits:

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As a thin guy, I used to subscribe to the philosophy of wearing large clothes to look bigger than I was.  What I actually looked like was a scrawny guy in ill-fitting clothes that were not overly comfortable.

Sourcing of IT and associated services may be falling into a similar trap.  Rather than using agreements that are the right shape or size, purchasing organizations are developing and rolling out standard templates that are supposedly broad enough to cover everything–unfortunately, they often do not cover any particularly purchase properly.  Specifically, we are seeing a proliferation of master service agreements (MSAs) that, largely speaking, come from an IT development context.  These are then begin applied to software licensing, professional services; and cloud services agreements–all of which are different transactions with different needs.

To illustrate, let’s review the application of an MSA to a Software as a Service (SAAS) offering.  As a threshold, the MSA contemplates project style initiatives, whereas the SAAS offering is by its nature on ongoing, recurring offering over a specified term.  Under an MSA, the buyer typically attempts to assert ownership of all developments; this is antithetical to the SAAS model where the supplier contributes IP to continually improve its offering.  Under the MSA, the buyer heavily negotiates the service levels; in SAAS, the service levels are the same for all like buyers–without such consistency, there is no shared offering and no cost benefit of the SAAS model.  We could go on, but the point is clear–a customer MSA is not likely to be a good fit for a SAAS offering.

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Innovation is prized in the growing space of the Internet of Things.  But an innovative product design is not enough, and potential pitfalls abound.  As demonstrated in a report published by the Federal Trade Commission, privacy and security need to be at the forefront of developers’ minds.  Here are five lessons on what not to do when developing a connected product.

The Internet of Things (“IoT”) is an expanding ecosystem of everyday objects that are embedded with technology, allowing them to connect, communicate, and transfer information about users and their surroundings to each other.  IoT products boast beneficial effects such as increasing economic productivity and efficiency, encouraging robust innovation, and tailoring user experiences.  However, by virtue of being connected to the Internet, IoT products also carry privacy and security risks.  On January 27, 2015, the Federal Trade Commission (“FTC”) published a report focusing on privacy and security concerns for IoT devices sold to consumers.

Given the growing interest in how embedded computing advancements affect security and privacy issues, this Alert identifies what developers, investors, and entrepreneurs should avoid when entering the IoT market.

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The trend in Big Data analytics among companies shows no sign in abating, with companies covetously collecting vast amounts of data with the hopes of harvesting market differentiators.  A study by open-source research firm Wikibon, for instance, forecasts an annual Big Data software growth rate of 45% through 2017.  But what tools are companies using to implement Big Data solutions? For purposes of this article, let’s set aside for a moment the intended outcome of whatever Big Data project your company has planned in the coming year (whether it be predicting the outcome of Supreme Court cases or helping a baffled spouse pick out the right lingerie set), and instead let’s focus on the tools available in the industry (and some of the associated pitfalls) in getting your company from concept to solution.

First, consider how you are going store and analyze the data.  For companies with significant internal resources and focus on Big Data, it may make sense to hire an in-house analytics team and invest in the requisite infrastructure and tools.  However, there are many options in the marketplace that require less investment in order to gain actionable insights:

§ Database Marketing Outsourcing: An end to end service often used by retailers in which a supplier licenses data and provides data mining analytics, marketing campaign sales management and analysis, and other ancillary functions.

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Any company that uses information technology is a potential target for data theft, advanced malware and other cyber threats.  Cyber threats have emerged as a growing systemic risk particularly to the financial sector in which Financial Market Infrastructures (“FMIs”) are increasingly under attack from a wide range of players, at greater frequency and growing levels of sophistication.   Regulators, standards bodies and other authorities around the world are giving a high priority to cybersecurity for these reasons.  This post summarizes what regulators are doing in the Europe to address these threats and describes some of the actions companies everywhere can take to minimize their exposure.

What are EU regulators proposing to improve FMI cybersecurity?

The European Commission has initiated a push to “protect open internet and online freedom and opportunity” by 2020. This initiative includes combatting cyber-attacks against information systems, establishing an EU cybercrime centre and coordinating Emergency Response teams, cyber-attack simulations and national alerts among all EU Member States. These efforts are also intended to align with the international fight against cybercrime. The next five years will see an increase in costs as FMIs and regulators pay to rapidly update single FMIs and solidify an EU-wide cybersecurity structure.

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A recent survey of over 1,200 of the top mobile apps in 19 countries by the Global Privacy Enforcement Network (“GPEN”) has found that 85% of the apps reviewed were non-compliant, failing to provide even the most basic privacy information to users.

In addition, 43% failed in their obligation to tailor privacy notices to smaller screens and almost 30% unlawfully requested excessive personal data from users.

Concerns for users are compounded given the lightning speed at which new apps are hitting the market.  Last year, for example, in excess of 1 million apps were reported to be available via Apple’s iOS App Store.

Should developers care about these findings?

In short, yes, especially given that the UK privacy regulator, the Information Commissioner’s Office (“ICO”), has recently conducted research that demonstrates that around half of app users have decided against downloading an app due to privacy concerns at some point in time.

Risk for developers does not stop there either.

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It isn’t often that a supplier “fires” its customer, but it’s not unknown. I have worked with two clients recently whose suppliers have given notice of termination without cause.

How can you avoid or, if it does happen, manage through a supplier-initiated termination?

Obviously, the best position from a customer’s perspective is not to give your supplier a contractual right to terminate, except if there is an uncured material breach. However, in many negotiations in which I have been involved over recent years, suppliers are demanding a right to terminate for convenience, or a right to give notice of non-renewal at the end of an initial term, or a subsequent renewal term (which pretty much amounts to a termination for convenience).

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Quantitative measures of supplier performance in the form of service levels are critical in any outsourcing relationship.   However, they provide an incomplete picture of how well the supplier is performing and meeting the client’s business and IT objectives.  A common complaint is that the service levels are green each month, but the client is dissatisfied with the supplier’s performance – typically due to the supplier failing in areas that are difficult to measure quantitatively.

To fill this gap, we recommend to our clients that a quarterly “key stakeholder satisfaction survey” be included in the outsourcing contract as a service level.  This service level is a subjective determination by the client of its level of satisfaction with the supplier’s performance.  A meaningful service level credit applies if the supplier fails to achieve an acceptable rating.

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