This week buyers of a $699 connected AI pin will see their investment turn into so much e-waste, a little over a year after it was first available for sale in the U.S. The Humane AI pin will join the myriad connected devices that were launched by tech firms and then subsequently rendered useless when the company that made them decided to stop supporting them.
The biggest differences in this case are the high cost of the pin, an astoundingly short 15-month lifetime for the product, and a vocabulary shift from selling smart products to selling AI products. But even with a different name, manufacturers are playing the same game. They’re using software tethering — a phenomenon we’ve written a lot about — to restrict the traditional rights that consumers have when they buy a product.
Sure, the people who spent $700 on an AI pin created by a startup may not be sympathetic victims, but they are still victims of a tech industry mindset that thinks it’s okay to build and sell a connected device without any plans for keeping it functioning for any length of time. In Humane AI’s case, consumers who purchased the pin within the last 90 days are eligible for a full refund, but all others are out of luck — and out $699 or $499. Be aware that you need to apply for the refund before the end of today (2/27/25).
A Deal’s Structure Can Decide Consumers’ Fate
But Humane’s founders and some investors will get a little something back for their troubles. HP has said it will pay $116 million for the Humane AI operating system and patents, as well as bringing on employees who worked in those areas. HP is not taking on the physical AI pin business, effectively sidestepping the potential obligation to consumers who spent money on the pin and will see almost all of its features deprecated on Feb. 28 — 10 days after the sale was announced.
This is particularly insulting because relatively few devices were actually sold, which means that offering consumers some kind of refund would not require a huge investment by HP. Back in August, The Verge cited a company source who said about 7,000 Humane AI pins were in the hands of customers. At that point Humane dropped the price of the pin to $499, but it’s unlikely that a large number of consumers wanted to spend that much on something popular tech reviewer Marques Brownlee called, “The worst product I’ve ever reviewed.”
Even if there were 8,000 of these pins in the world, reimbursing their owners would represent a $5.6 million cost. Instead, by structuring its sale as an asset sale as opposed to a merger, the Humane leadership and venture backers may be able to avoid doing right by their most ardent supporters.
When Does an Acquiring Company Bear Responsibility for the Sins of the Old One?
As Consumer Reports (CR) spends more time studying the erosion of ownership rights as software and connectivity become core to more products — whether they are labeled smart products or AI products — we’ve been looking more deeply at the laws that allow a company to build a connected product without any good faith plans to maintain it over time.
Over the last twenty years, the Federal Trade Commission (FTC) has made clear that companies that sell connected products and services have legal obligations to support those products for some reasonable amount of time to ensure those products work as advertised to consumers. In some cases, these obligations stem from the FTC Act’s prohibition on “deceptive” practices, since consumers were misled about what they were actually buying. In other cases, the FTC has alleged that depriving consumers of the benefit of connected products and service could be an “unfair” business practice, as consumers experience significant injury that they cannot avoid and that isn’t offset by countervailing benefits to consumers or competition.
As an example of the agency pushing companies to adequately support their legal obligations over a reasonable amount of time, the FTC has brought several cases against companies who failed to use reasonable security to keep IoT devices safe over time from outside attackers. It has also sent closing letters to companies for cutting off access to connected content such as music and old baseball games that consumers had “purchased” — in those cases the FTC did not take legal action in part because the companies refunded consumers. The closest analogue to the Humane shutdown occurred in 2016, when the FTC sent a closing letter to Nest Labs for cutting off server support for a $300 connected hub that had been sold to consumers as recently as eighteen months before. Again the FTC did not bring formal action in part because the company fully refunded consumers. More recently, in November of last year, the FTC released a report entitled “Smart Device Makers’ Failure to Provide Updates May Leave You Smarting” that continued to stress that companies may have obligations to support connected products over time.
Even with this history and guidance, the law is not clear on exactly how long connected devices must be supported to be consistent with consumer protection law. Suffice to say, however, that purchasers of Humane’s $699 connected pin probably didn’t expect it to stop working after a few months.
But cases like the Humane acquisition present a second question about successor liability — when is an acquiring company responsible for the obligations of the target company? When a company merges with or acquires another company, they generally assume the legal obligations of the old company. However, if the acquisition is structured as an asset sale, the buyer may be able to evade the old company’s legal responsibilities — though there are important exceptions, such as when the acquiring company continues an existing product line or the arrangement is effectively a merger.
Whether the HP acquisition of Humane falls within one of those exceptions depends on the details of the deal. However, there are some elements based on what is publicly known that argue in favor of HP’s responsibility for Humane’s products: (1) HP is acquiring the operating system that ran Humane’s AI pin, (2) Humane did not appear to have any other substantial lines of business besides the AI pin and there appears to be practically nothing left of Humane after the asset acquisition, (3) HP was clearly aware of the legal responsibilities pertaining to Humane’s products prior to acquisition, and (4) Humane’s leadership is joining HP. Indeed, some media outlets are reporting on the purchase as effectively an acquisition of the entire company, even if it is technically structured differently.
In any event, by acquiring only the assets of Humane AI as opposed to doing a corporate acquisition, HP has a stronger legal argument that it should be able to avoid legal responsibility for Humane’s unsuccessful AI pin business. From a business perspective, this makes sense. The AI pin business is a decided failure (at one point more AI pins were being returned than being sold).
Operating a connected product requires ongoing payments for a cloud back end and development costs of app upgrades and cybersecurity — refusing to pay for those, requires an immediate shut down that results in a loss of functionality. By purchasing only the software and patents, HP may be able to shirk those costs. The refusal to buy the entire business theoretically reduces the legal obligation to make those customers who now have a hunk of useless plastic whole by offering a continuation of the product or a refund.
The FTC Has a Role to Play
HP could and should still provide that refund. CR also believes that the concept of successor liability should more clearly cover a situation where a purchaser acquires the assets related to another company’s connected devices. In many cases, a purchaser cannot sidestep successor liability in the case of certain employee obligations, environmental clean up, and product liability.
Continued software support for connected devices represents a new form of obligation for sellers of these products, and a seller should not be able to avoid that obligation simply by structuring a transaction as an asset sale.
And in the case of the Humane AI pin, there is also a one-year warranty. This provides an opportunity for the FTC to provide clarity to businesses and consumers about liability for warranties and other material representations made by companies whose assets were acquired by another. In November the FTC said that “manufacturers marketing a device as having certain features and then subsequently failing to provide software updates needed to maintain those features raises concerns about consumer harm resulting from deceptive practices.”
The agency further clarified that, “a representation, omission or practice is deceptive and violates the FTC Act if it is material and likely to mislead a consumer acting reasonably under the circumstances.” So a consumer that purchased a Humane AI pin within the last year certainly would expect a warranty to cover the features that will be lost when the servers shut down.
CR believes that HP should provide all buyers of the Humane AI pin a cash refund, and that it shouldn’t be able to sidestep this obligation by choosing a different transaction structure. We’re 15 years into an era of connected products, and they are not going away. As more products get connected to the internet and rely on that connectivity for essential features, it’s imperative that our laws evolve.
And that evolution must meet the needs of consumers, not just manufacturers.
