4 Things You Need to Know About the Impending Internet-of-Things Patent Wars

Authored by Kenie Ho and Carlos Rosario

Are you an internet of things (IoT) company or business unit? Have you looked outside your company’s front door lately? Chances are you’ll see a patent thicket growing around you.

1. Cause for Worry

Companies often use intellectual property rights to prevent a competitor from stealing their technology. This can take the form of a dense web of overlapping patent rights—commonly referred to as a "patent thicket"—which a new company or business venture needs to navigate through in order to commercialize its products or services.

The patent thicket for IoT has grown immensely over the last 10 years. At every level of the IoT ecosystem, folks are patenting IoT inventions, from sensors to network protocols to security.

According to a 2014 report by the United Kingdom’s Intellectual Property Office, almost 22,000 patents and patent applications were published between 2004 and 2013 on IoT technology worldwide. During that time, IoT patents and applications increased annually on average more than 40 percent compared to an average 6 percent annual increase across all other technologies.

With the smartphone patent wars fresh on everyone’s minds, IoT companies are understandably concerned. They’re asking themselves how can they possibly avoid accidentally infringing a patent—or at least manage the risk.

Source: UK Intellectual Property Office

2. Lessons from the Smartphone Patent Wars

In the smartphone sector, most large companies used to stockpile patent arsenals to ward off patent suits. The idea was that your competitors would not sue you on their patents if they knew you would sue them in return. That type of risk mitigation often worked.

But in 2009, just as the smartphone market started exploding, a few smartphone companies began using their patent stockpiles to sue each other. That escalated to countless suits across the entire smartphone industry.

Before we knew it, the smartphone disputes reached a point where every time a news article tried to explain who was suing whom, the article was almost immediately out of date. Some may even remember the various incarnations of infographics, such as the graphic created by Techdirt editor Mike Masnick, trying to illustrate the smartphone patent wars.

For those in the smartphone industry, this had very real consequences. As Masnick explained, "Anyone who wants to get into the smartphone business knows that they’re facing lawsuits from a large number of the companies."

Like the smartphone sector, the IoT industry is very large and fragmented, and IoT products incorporate a wide variety of technologies and standards to work. Hundreds of companies are working in the IoT space. And each subcomponent in an IoT product could have thousands of patents from different companies covering a myriad of features. This large web of patents means that conventional methods for mitigating IP risks, such as designing around each patented technology, or monitoring competitors’ patent portfolios and entering into separate licenses with each one, may be impractical.

3. Patent License Packages—a Panacea?

Modern patent license packages (PLPs) may be the answer. A PLP combines IP rights for joint licensing. It typically packages complementary patents from multiple companies, even competing companies, for licensing to anyone interested. Since multiple patent owners are licensing multiple patents all at once, it can be an efficient way to spread technology and facilitate the interaction of multiple licensors with many licensees.

Features of modern PLPs often include making all patents available to the licensors participating in PLPs, offering licenses using standard terms (such as fair, reasonable and non-discriminatory [FRAND] terms), allocating royalty payments based on a preset formula and including an independent party to evaluate the importance of each patent in the package.

Subsequent generations of IoT products will probably need to be backward-compatible so super packages of PLPs—i.e., packages of patent license packages—will probably gain favor. Super PLPs would allow companies to license each generation of an IoT technology as it develops without wasting time and money negotiating dozens or even hundreds of deals for every generation.

4. Act Now

As the number of patents in the IoT space increases, PLPs will become harder to create. With patent enforcement inevitable in the IoT space, companies should encourage and participate in well-structured patent licensing organizations.

By acting early, companies have a greater ability to steer IoT standards and foster technology that they can use at reasonable costs. For instance, if a company joins a PLP while it is being formed, it may have more say on whether grantbacks are imposed (i.e., whether innovations related to a PLP’s patents must become part of the PLP) and whether independent licensing is allowed (i.e., whether individual patent owners can grant licenses on their patents for uses unrelated to the PLP). In addition, in some cases companies that act early may have access to a PLP’s intellectual property at lower rates than later entrants.

In sum, one thing is for sure: If companies put their heads in the sand and don’t prepare to navigate the IoT patent thicket growing around them, they run the risk of having a poor negotiating position when the time comes, and are more likely to end up at the wrong end of a patent lawsuit.