With the meteoric proliferation of “Internet of Things” (IOT) devices, there are an increasing number of innovators and inventors bringing “smart” products to market that capitalize on connectivity in ways never before imagined. While a great deal of resources are typically applied to research and development, marketing, production, distribution and customer awareness, the essence of most IOT devices is wireless communications so attention must be given to the Federal Communications Commission (FCC) regulations on radio emissions. Each year the FCC levies tens of millions of dollars in penalties for violations of its rules—rules that encompass activities and devices in ways that may not be immediately obvious. We have set forth some basic guidelines to help start-ups, investors, and even established manufacturers make sense of the FCC’s requirements.
Without further ado, ten things the FCC cares about:
Things that intentionally emit radiofrequency (“RF”) energy. This may seem obvious, but the FCC regulates devices that use RF intentionally, such as cellphones, walkie-talkies, and Wi-Fi, Bluetooth and Zigbee transmitters. Such devices must comply with the FCC’s equipment authorization procedures that ensure that the device conforms with specified technical standards that help limit the potential for interference to other spectrum users. Compliance with the FCC’s equipment authorization rules is most often demonstrated by a permanent label affixed to the device showing the FCC’s mark and the products FCC identifying number.
Things that unintentionally emit RF. It’s fairly obvious that the FCC would have jurisdiction over the manufacture and marketing of wireless communications devices. Less obvious is its authority to control the importation and marketing of devices that emit RF energy unintentionally. Nearly all devices with digital componentry are implicated – computing devices, smart appliances, video monitors, power supplies, and similar products. These devices must be tested by an accredited test lab facility to ensure compliance with applicable technical standards before they can be imported and marketed in the United States.
Things that incidentally emit RF. There’s even a third category of devices that fall within the FCC’s purview. Incidental radiators include devices that are not designed to intentionally use, generate or emit RF energy over 9 kHz. Devices such as AC motors and fluorescent lighting are exempt from FCC test requirements but manufacturers must still use good engineering practices to limit, to the extent possible, the interference effects from such devices.
Importation of RF devices. While it is tempting to assume that someone else in the supply chain has ensured conformity with the FCC’s rules, companies need to be proactive regarding FCC compliance when importing radio products. With only very limited exceptions, the FCC rules require that devices brought into the U.S. have appropriate FCC equipment approvals. Failure to do so may result in critical components being seized at the border. Even if the products are not stuck in a customs warehouse–with the amount of offshore manufacturing that is done today, there may be instances where products without appropriate approvals are delivered in the U.S. and escape customs notice–the subsequent sale of those devices in the U.S. will violate FCC regulations and may subject the seller to fines.
Modification of OEM RF devices (triggering new approvals). Even where a company has obtained an equipment authorization from the FCC, appropriate attention has to be paid to the evolution of the product over time, since certain changes can require the manufacturer or seller to obtain a new authorization. As a rule of thumb, changes that alter the physics of the RF emissions should be carefully reviewed under the FCC’s rules, as they often trigger the need to seek new approvals. Complicating matters even further is the practice of integrating components that have received their equipment authorization as stand-alone modules. The final assembled product may have its own testing and labeling requirements even though it is comprised of approved parts.
Marketing of RF devices. Today, speed to market often means that companies would like to pre-market products—whether to support a crowd-funding initiative or as a means to capture market share. In general, however, the FCC greatly restricts the marketing of RF devices before they complete the approval process. The FCC has been known to walk the floors at trade shows to inspect whether new products are being displayed to potential customers impermissibly prior to receiving proper approvals.
Experimenting with RF devices. Development of new products invariably requires experimentation, and when that experimentation involves radiation of radio energy, an FCC license is typically required. While the FCC generally freely grants experimental licenses for private testing, the experimental rules impose added limitations on what can be done with experimental products when it comes to market tests and trials, which require special authorizations.
Spectrum compatibility. Most innovators today would like to capitalize on a global product market, but RF regulations differ from country to country. That being said, there are radio bands that are more or less standardized from region to region, and considering global regulatory issues at the initial stages of product development may save headaches down the road. With its global telecommunications capabilities, DLA Piper’s telecom practice is able to assist with international compatibility and market entry surveys.
Transfer of RF manufacturing assets. Whether you are an investor looking to fund a IOT venture, a business acquiring a start-up, or an innovator looking for equity backers, FCC regulated companies require special considerations. To the extent a company has licenses, FCC consent or notice may be required—in some cases prior to closing—for transactions that involve transfers of control or assignment of assets. In addition, FCC regulated companies implicate specialized due diligence in transactional scenarios.
Devices that create networks. As a final matter, even if the RF components of a device are not FCC regulated—or are FCC regulated but the company taken appropriate actions—the FCC might be implicated in other ways. Specifically, in addition to regulating radio, the FCC also regulates telecommunications—communications networks and network providers. This becomes important because if IOT or connected products are sold bundled with communications capabilities acquired from third parties, the seller may be subjecting itself to regulation as a carrier—that may result in the need to obtain special authorizations, to pay into carrier-funded social programs like the Universal Service Fund, or other regulations. DLA Piper’s telecommunications team routinely advises companies on structuring communications activities in ways that avoid carrier regulation by the FCC.