New supply-chain insights, new supply-chain lawsuits

I am cautioning my clients to be very thoughtful about the information collected and the security risks of IoT systems.

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In addition to myriad other benefits, the Internet of Things enables more extensive transaction records and greater traceability of data, adding to the ways attorneys and clients can mine information in support of supply-chain cases. This repository of evidence can be audited, of course, and is subject to discovery and disclosure obligations. It may be used against enterprises in legal battles.

In this sense, the Internet of Things presents both an opportunity and a dilemma for supply-chain-information management.

Here we explore this changing legal landscape with Rosemary Coates, president of

Coates Rosemary

Rosemary Coates

BlueSilk Consulting, and Sarah Rathke, partner with Squire Patton Boggs.

These two are co-authors of "Legal Blacksmith: How to Avoid and Defend Supply Chain Disputes.”

Take a look…

Smart Industry: How is the digital transformation affecting supply-chain disputes?

Rosemary: At this point, I am cautioning my clients to be very thoughtful about the information collected and the security risks of IoT systems. Cyber-

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Sarah Rathke

attacks have the ability to reach deep, far, and wide into connected devices to launch an attack or gather information. This kind of attack could be devastating to a connected factory that may rely on machine-to-machine sequencing and balancing. Many companies also give limited access to suppliers or global factories. This exposes a company to further risk because information is traveling outside the four walls of the company and perhaps to other countries, exposing even greater risk. 

In a dispute, information may be everywhere and subject to interpretation. Any information gathered by machines can be required to be produced in a court case. Manufacturers need to be very aware of what data is being recorded and what records are kept. Data may be used either for you or against you in a legal case. As an expert witness, I have seen cases won and lost based on information that was recorded without thoughtful regard for the potential consequences.

Sarah: Rosemary is right. Any information collected becomes fair game in litigation, with open discovery. Companies can circumscribe the information that can be gathered to some degree by choosing arbitration rather than litigation as the dispute-resolution mechanism in their contracts, but arbitration in the US is still very discovery-friendly (in Europe and elsewhere, it is less so). However, the silver lining is that the existence of this additional information may in some cases expedite settlement and resolution. Whereas in the past, Blacksmith Coverquestions like what caused the product failure may not have been answerable, the additional information provided by the Internet of Things reduces disputes, which is a good thing.

Smart Industry: Are any technological developments having a particularly strong impact in this arena?  

Rosemary: As we move toward a more advanced and automated manufacturing environment, the benefits of technology include making smarter decisions and extracting cost out of manufacturing. In my other life as the executive director of the Reshoring Institute at the University of San Diego, I am working with manufacturers across America that are considering bringing manufacturing back to the US. In order to accomplish this, it is imperative that costs be extracted from manufacturing via 3D printing, robotics, 5-axis milling and IoT. Through automation, enough cost-reduction can usually be achieved to make manufacturing in the US more competitive. These reshoring projects often hinge on automation and innovation including new ways of making manufacturing operations efficient.

Connecting machines to the internet opens up lots of new possibilities, too. I have a client that builds a product and connects the product’s maintenance settings to deliver notifications to its home base. So when the machine is in need of maintenance anywhere in the world, it sends a signal via the internet to the company in Silicon Valley, and a maintenance person is dispatched to make the needed repairs on site. The equipment warns when its electronics are failing or scheduled maintenance is due. This helps to assure critical “up time” and fulfill contractual terms for maintenance and repairs.

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