The Internet of Things (IoT) represents a transformative shift in how consumers interact with technology, integrating physical devices with sophisticated services to create interconnected ecosystems. As the adoption of IoT devices skyrockets, with projections estimating 75 billion connected devices by 2025, the legal landscape surrounding these hybrid transactions — comprising goods, software, and services — remains unsettled. Traditional legal frameworks, such as the Uniform Commercial Code (UCC), struggle to address the complexities of IoT transactions. Consumer advocacy groups are increasingly calling for regulatory intervention to protect consumers from emerging issues, considering a legislative landscape that is not keeping pace with rapidly evolving technology.

In September, a coalition of consumer advocacy groups, including Consumer Reports and U.S. Public Interest Research Group (PIRG), among others, sent a letter to the director of the Bureau of Consumer Protection and the associate director of the Division of Advertising Practices at the Federal Trade Commission (FTC). The letter requested that the agency “create clear guidance to address the issue of software tethering which leads to several consumer harms.”

Software tethering is a recently coined term for when “manufacturers use software to control and limit how devices function after a consumer has purchased it.” This arrangement can limit a consumer’s use of a product, including by “lock[ing] features behind a subscription after the purchase of a device, and … selling connected devices only to render them nonfunctional later using software.”

Increasingly, consumers are complaining that their connected products are losing software support or advertised features that may have prompted their original purchase. Software tethers can also prevent consumers from reselling their purchases. Some software features may not transfer, or manufacturers may shut down certain features to which a subsequent purchaser has not subscribed, thereby arguably impeding the second-hand market.

The letter cites several examples from the three preceding months to illustrate the issue. In July, customers who had spent $1,695 on an Internet-connected bassinet discovered that some of the features that were originally advertised with the product would no longer be available without a new $19.99 monthly subscription. Similarly, a major music streaming platform announced that support for its $89.99 music streaming device intended for car usage would end in December 2024, less than two years after its launch. Another example provided is a device designed to control and monitor temperature for grills. Once the company that produced the device was acquired, consumers were left with a nonfunctional product after an abrupt shut off on July 4, the biggest grilling holiday of the year. All kinds of products are affected by software tethering: some other recently bricked products include a sous vide cooker, a juicer, a smart plug, a toothbrush, smart computers for kids, breath monitoring devices, cameras, wearables, health and wellness devices, and more.

The letter also complains of an alleged lack of transparency and support from many companies regarding the lifespan of software support for their products, which can leave consumers unaware of when their devices might become obsolete. While the FTC has taken action in this area, the groups claim that “a lack of clarity and enforcement has led to an ecosystem where consumers cannot reliably count on the connected products they buy to last.”

Whether through formal rulemaking or through informal guidance, such as Endorsement Guides and Dot Com Disclosures, the coalition urges the FTC to take several actions to “set norms around the following five items:”

1. Disclose Minimum Support Time – Companies should disclose how long they will provide security updates and support for their products.
2. Ensure Core Functionality Offline – Products should work without internet connectivity or software updates.
3. Promote Reuse Tools – Companies should offer tools and software to repurpose products if support ends.
4. Protect Third-Party Modifications – Third-party tools that modify or repurpose old devices to reduce waste should be permitted after the manufacturer support expires.
5. Educate on Longevity Design – Design principles should be adopted that enhance product longevity, like repairability and replaceable components.

As embedded software becomes ever-present in devices, manufacturers must be aware of the efforts of both consumer groups and regulators to shape the IoT environment. If the FTC follows up on these demands by consumer groups, manufacturers may need to rapidly adapt to a new regulatory framework. For example, if the FTC requires post-support open-ware, how will the company protect trade secret information from third-party developers? Or how must a product be designed to permit repair and replacement of components to increase the expected longevity of specific products? The regulatory landscape has the potential to shift in a way that will diminish manufacturers’ ability to effect absolute control over product functionality from assembly line to landfill, as has been the modus operandi for decades.

Companies offering IoT devices, and more specifically those companies engaging in business practices that consumers might consider to be “software tethering,” need to stay abreast of rapidly changing regulatory developments. As with many regulated industries, a changing regulatory landscape may necessitate a re-examination of the company’s compliance program and, in this case, how those changes may impact product strategy, including development, maintenance and support throughout the product lifecycle. Troutman Pepper will continue to monitor developments regarding IoT technology to further its service to clients and provide advisories as necessary.