Hunton Retail Law Resource

As retailers continue to look for new and innovative ways to maintain communication and “touch points” with their customers, many are looking to technology-infused or “smart” packaging and advertising materials. There are many ways to drive customer interaction and web traffic through smart packaging and advertising materials, including through the use of hyperlinks, quick response (“QR”) codes and near field communication (“NFC”) chips. 

In the early stages of e-commerce, companies placed URLs or hyperlinks on products and advertising materials in order to engage and direct customers to websites. Hyperlinks were easy to add to packaging and other materials, as they were simply printed along with the logos and other notices typically affixed to the packaging. However, if placed on tangible products or advertising materials, customers were required to re-type the hyperlink into the browser on their device, thereby losing the efficiencies generally associated with “one-click” transactions.

As a result, companies turned to QR codes. QR codes function as a bar code, allowing customers to scan a product or material using the camera feature or other application on a mobile device, which then directs the customer to a landing page. However, QR codes also required multiple steps in order to “wake” the device, open the camera application and scan the QR code. Again, this moved customers away from the ease and efficiency associated with “one-click” technology. The latest technology used in smart packaging and advertising materials may be the simplest yet: NFC chips.

NFC chips can be embedded within a product or attached to a product via a sticker or similar adhesive. The NFC chip allows customers to merely tap their smartphone to a product or advertising material in order to be taken directly to a company’s landing page. In addition, NFC chips can be used by companies to collect a wealth of customer information and their use of the company’s products. In short, NFC chips can open new lines of communication with customers and provide customers with relevant content, without some of the practical drawbacks of hyperlinks and QR codes described above. The only action required is a quick tap of the device to the NFC chip. However, as with any new technology, the use of NFC chips is not without risk and presents unique legal challenges.

The agreement governing the purchase and use of NFC chips is not a simple purchase agreement, software license or service agreement. It is usually a hybrid of the three. The underlying agreement governing the purchase and use of NFC chips should include provisions pertaining to (1) the purchase of goods, (2) the licensing of software, and (3) any potential services (i.e., product package consulting, support and maintenance). Standard hardware terms and purchase order terms should be included to address the purchase of the NFC chip itself. Additionally, although the smart packaging will be purchased as a good, the embedded software will typically be licensed. Therefore, appropriate license terms should be included. The usage rights of the license should be broad enough to allow distribution and use by customers. Proper warranties and indemnities with respect to both the hardware and the software should be included, as well as appropriate allowances for acceptance testing. There are also potential issues around support and maintenance, given that the product may be in the customer’s hands before any defects or bugs are discovered.

Several questions retailers should consider include:

• Does the support structure allow for direct customer communication?
• How will recalls be handled in such event (or at all)?
• How will companies handle potential public relations issues with customers once the agreement governing the chip expires or is terminated, and the chip no longer works?

In the rush to adopt new technologies, companies should be wary of overlooking these and other important legal issues.