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Five Things You Need to Know about Buying or Selling an RFID System By Michael J. Radin, Es

Monday, June 13, 2005 - By: Michael J. Radin

By Michael J. Radin


RFID systems offer tremendous opportunities for businesses that have a clearly defined mission for the system. It is vital to have clear and realistic targets for the system, as well as a detailed understanding of its larger operating environment as it may evolve over time.

1. RFID Systems are Like any Other Hardware/Software Systems. Like all other systems, an RFID system needs to operate as a self-contained system and within its larger environment (i.e., other systems). Traditional business and legal tools developed in the areas of system deployment and integration markets apply to any RFID system development, procurement and deployment.

a. What do you want the system to work with?

i. Internal systems - host systems

1. Inventory
2. Supply chain management/visibility
3. Finance
4. Manufacturing - just in time

ii. External systems

1. Other operating divisions
2. Customers or suppliers?

a. If so, what are their criteria? What are the assumptions for their own systems?

3. Shippers

iii. Upgrades - Beware being tied to systems that are or can become dated.

b. How are you going to build the system?

i. What is the scope of the required development?
ii. What is the team and who manages each component?

1. Will there be any consultants or contractors who need special agreements covering their work - particularly ownership of their developments?

iii. Will the manufacturer/supplier/servicer be around to maintain it?
iv. What is the implementation period?

c. How do you measure success? This question should be written out in detail before selecting any system.

d. What is the system going to cost?

i. How are you going to pay for it?
ii. What is the targeted ROI?

e. What is the timetable?

f. Will outside companies be part of the testing phase? Are there any joint development opportunities?

2. RFID Systems are Unlike Other Hardware/Software Systems. RFID systems are very different fromother hardware/software deployments and integrations. RFID systems as a general matter do not impose a given set of functionalities that offer a menu to select from. Right now, there are more dissimilarities than similarities between systems.

a. What do you want the system to do?

i. The system may impact large sections of an entire business. Commitment to the deployment should be company-wide on the customer side.

b. What will the operating environment be? This is not just data centers but the entire production chair.

1. products involved
2. packaging - prepare for change
3. warehouse layout
4. white noise/interference bandwidth
5. multiple locations

ii. speed
iii. accuracy
iv. reliability
v. range
vi. security
vii. cost

c. How will the disparate parts of the system be linked?

i. Handwith
ii. Redundancy

d. Consider and detail the hardware and software components separately

i. Hardware

1. tags - memory, power, environment, structure, mounting,
2. antennae - read range, atmosphere
3. readers - placement, intensity, read rates
4. servers - where? why? what?
5. networks

ii. Software - How much programming will it take to work? Who will do the programming and with what personnel?

1. For each hardware component
2. For servers to classify and handle the data
3. To integrate with other systems - internal and external

iii. Do not assume that either the hardware or software components will work as seamless or reliably as desired: Lessons learned - All products and packaging are not created equal

1. examples:

a. tag and antenna manufacturing still results in high reject rates
b. water and metal = bad
c. tag/antenna array attachments to packaging can result in rejects, no reads, false reads

e. What, if any, physical changes need to be made to the cartons or dimensions?

f. What if any business changes may need to be made?

g. Interchangeability and interoperability of other suppliers' products.

3. Discuss, Plan, and Schedule. It is vital to have thorough discussions about the system, and to plan it in great detail. Architecture, specifications and timing should be described in detail and in a format both seller and buyer have agreed on. These will be used to establish milestones and manage the cash flow as the system is deployed.

a. Customers need to be educated. There needs to be a sustained commitment to teaching management about the program. The customer needs to have an idea as to what its target is so that it can meet the ROI from the program. RFID deployments can get blamed when customers discover that it is a business process that needs to be changed.

i. This work is directed towards preparing a term sheet. A term sheet focuses everyone on the outlines of the deployment.

b. Design review phase and quality assurance should be made explicit.

i. Plan for growth and change

c. Project management and work flow should be addressed:

i. Periodic reports

d. Multiple testing leads on site as part of delivery and acceptance process

e. This is where the sales function starts to mesh with the business and legal functions

i. This is a good time to start to get written sign-offs from appropriate personnel - it brings a discipline to the process before the actual contract drafting.

4. Good Documentation is Your Friend. Preparing a license/sales/integration agreement should reflect the culmination of numerous discussions and drafting efforts directed toward specific system specs. There should be agreement on the known items, and a mutual recognition of the indefinites. The parties should have acknowledged and accepted risk as is appropriate for the transaction.

a. General types of agreements:

i. Purchase agreement for hardware
ii. License agreement for software
iii. Service agreement for integration maintenance

b. Typical sections of license agreement

i. Parties
ii. Description of product
iii. Scope of use/purposes

1. number of users

a. employees
b. contractors

2. locations
3. exclusively
4. revocable/irrevocable
5. duration-perpetual or fixed?

iv. Payment

1. milestones
2. royalties?
3. refunds
4. off-sets
5. discounts

v. Source code escrows
vi. Dependant items (e.g., third party licenses)
vii. Testing and acceptance/deemed acceptance

1. milestones
2. payments

viii. Representations

1. system performance
2. operability/interoperability
3. noninfringement

a. what is covered (e.g., patent, know-how, copyright)
b. term
c. geographic scope
d. conditions

4. compliance with laws (e.g., FCC)

ix. Confidentiality -

1. what is confidential?

a. filed but or unissued patents
b. know-how?

2. identify what has to be done in house and what can be worked on by contractors
3. enforcement costs

x. Warranties: Be very specific

1. scope
2. duration
3. void ability
4. modification of product
5. benefits

a. replacement product?

xi. Breaches and defaults (two distinct points in time)

1. notice
2. cure right

xii. Indemnities - insurance

1. performance - breaches versus default
2. non-infringement

xiii. Termination

1. ability to use/modify system post-termination

a. hidden exit fees
b. personnel limitations

2. payment of outstanding invoices

xiv. Remedies

1. repair/replacement
2. damages

a. caps (e.g., fees received under the license)

3. specific performance
4. consequential damages, indirect, liquidated, exemplary or incidental - As a supplier, need to beware of these
5. software escrow?
6. holdbacks
7. lock-outs

xv. Other issues

1. platforms
2. modification
3. ownership of program rights

a. cross-licenses

4. personnel
5. exclusivity, non-competes
6. confidentiality
7. security issues
8. trademarks

xvi. Miscellaneous

1. integration
2. transferability/assign ability
3. dispute resolution mechanisms
4. governing law
5. jurisdiction
6. forum
7. attorneys fees

c. Typical sections of Sales Contract - very similar to license agreements

i. Uniform Commercial Code will supply implied and other related warranties

d. Service agreement

i. Service levels

1. responsiveness
2. cost comparison to in-house personnel

ii. Change orders -

1. process
2. documents

e. Joint development programs

f. Any agreement can be drafted to be pro-seller or pro-buyer

5. Data, Data Everywhere. "What are you going to do with all the data?" Dr. David Brock MIT Enterprise Forum - RFID 516 - 5/9/05

a. think of it

i. tag data storage
ii. data transmission requirements
iii. back-end data storage
iv. data retrieval