This article originally appeared in the May 2024 issue of Security Business magazine. Don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter if you share it.
Let’s say you have an idea for a product or service, and your team is excited and eager to take it to market; however, a competitor is already offering the same thing. You and the team think you can do it better, but you must move quickly so the offering gains traction in the market.
As the product winds its way through various groups within the company, legal and compliance raises the question of whether a license will be needed to sell, install, and/or service the product. In turn, the company may need to abide by certain licensing requirements, such as background checks, fingerprinting, and training.
This is concerning to you and the team. If you want to offer the product to as broad a market as possible (across many states), it would require a review and analysis of the licensing obligations in each state. It is feared that this process will hinder your ability to compete, increase costs, and otherwise impede business opportunities.
I have written many times about the tension that can exist between sales and legal, and striking the right balance is not easy. In this example, a legal analysis is required, and compliance professionals must assess whether any security and alarm licensing requirements apply.
The company and its lawyers should conduct a comprehensive review and analysis under the latest versions of the security licensing statutes and regulations in the states where the company operates. And as the law evolves, any determination that a security license is not required may be subject to the whims and discretion of state and local regulators – who may disagree.
Here, I am being intentionally vague about the precise nature of the product. Let’s presume it is debatable whether the product, sold in isolation, constitutes a security product. That is a good debate; however, it may be resolved by a review of the language of the applicable state licensing statutes – which may expressly refer to this type of product within the definitions included in a statute, such as “alarm system” or “security system” (or similar terms). If so, then the licensing obligation is arguably invoked – subject to further analysis, including whether an exemption applies.
Depending on the state, other factors may come into play, such as whether the product will be professionally monitored or self-monitored; professionally installed or self-installed; sold door-to-door; whether a written/signed contract will be required for a set term or with a terms and conditions model; or, other security products will be sold alongside this product (thereby making it more likely that it will be deemed a security product).
Selling and installing an unlicensed product or operating an unlicensed business can have significant repercussions for a company. So, when introducing a new product, consult with legal and compliance professionals to determine whether licensing is required in the states where you intend to do business.
Timothy J. Pastore Esq., is a Partner in the New York office of Montgomery McCracken Walker & Rhoads LLP (www.mmwr.com), where he is Vice-Chair of the Litigation Department. Before entering private practice, he was an officer and Judge Advocate General (JAG) in the U.S. Air Force and Attorney with the DOJ. [email protected] • (212) 551-7707
