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Guest Contribution by Kenie Ho and Forrest Jones, Finnegan, Henderson, Farabow, Garrett & Dunner, LLP

Everyone at this point, even the most technology averse, has heard of the Internet of Things (IoT) or seen some of its products.  From “learning thermostats” like Nest to “wearable technologies” like the FitBit, the average consumer sees devices moving toward more integration in unexpected places.  And, like the proverbial iceberg, these consumer-facing technologies make up only the tip of a much larger wave of innovation, which is already reshaping how business, the economy, and society operates.  That rising wave is greatest in the Industrial IoT.  

The Tip

At its core, IoT is a simple concept.  It’s about inter-networking not just traditional computing devices, such as personal computers, laptops, or media centers, but also a host of other objects, such as thermostats, coffee makers, cars, lights, security systems, employee badges, watches, and toothbrushes—to name just a few that have been folded into the IoT world. 

The advantage of having each of these devices talking to each other is the same as it was for inter-networking computers: efficiency, communication, and automation.  Say you live in an IoT-connected house and wake up on a cold, snowy morning.  Your smartwatch detects when you wake up through your movement and heartbeat.  It sends a signal for the coffee maker to start and for the thermostat to warm up the house.  Once you’ve enjoyed your coffee, your smart car uses that as a cue to turn on its engine so that you can hop in an already-warmed car and ride to work. 

Before you leave though, the washing machine and dishwasher set themselves to do a load of laundry and dishes. The appliances and water heater talk to each other taking turns cleaning throughout the day, but with maximum efficiency because they know you won’t be home until dark.  With each of these devices connected together, they get the benefit of the information all the other devices collect, and so can do more with minimal additional expense.

The Industrial IoT

The Industrial IoT (IIoT) applies the same concept as the above consumer-facing example, only on a much larger scale and for more specific purposes.  Instead of a coffee maker in your home, the same concept is applied to a fleet of coffee makers in office buildings across a whole city.  Each one reports back to a central server on its inventory, allowing a beverage-supply company to efficiently plan its resupply route.  Or as another example, the component parts in a fleet of construction vehicles each regularly report on their respective wear and tear, allowing the manufacturer to automatically bill and send out replacement parts just before they are needed, saving construction firms time and money in downtime from worn-out equipment. 

IIoT systems tend to focus more on industry needs, with a specific efficiency in mind.  So we see a wide variety of specific, and often purpose-tailored IIoT systems in particular industries.  Compare this with the commercial IoT you see at home.  Home consumers seek integration across a large swath of household objects.  Without knowing precisely what functions they might like over the life of their IoT devices, consumers want to be able to enable whatever future feature they desire without needing to rebuy an entire system.

As IoT technology matures, disparate IIoT systems are merging towards each other similar to the consumer IoT world, leading to many potential conflicts.  For example, GE Predix and IBM Bluemix are already in a collision course as each expands into the analytics space of the IIoT, and the permeating presence of the lighting industry seems destined to spark a wave of litigations as each player vies to upgrade the existing lighting solutions to IIoT-compatible LED systems.

Standards-Essential Patents

In the past, industries have recognized the problems that multiple competing systems can cause.  This has been particularly acute in areas like telecommunications, where multiple devices made by different manufacturers must talk to one another.  Telecommunication companies have typically relied on a standard-setting organization (SSO) to set interoperability standards to ensure compatibility.  Standards will be just as important to IIoT because interoperability is its lifeblood.

Companies who help set a standard often have invested great time and money developing the technology on which the standard may rely, including securing intellectual property (IP) rights like patents to protect that investment.  To address this issue, SSOs typically require that SSO members license any patents essential to practice the standard on “fair, reasonable, and non-discriminatory” terms (referred to as “FRAND” terms).

Sophisticated companies in each industry sector are keeping an eye on IIoT standard-setting efforts.  While it may be frustrating to be limited to FRAND terms when licensing a patent to a competitor, having competitors adopt your technology and pay you a royalty will promote your profile in the industry.  Further, if you don’t participate in the standard-setting process, a competitor’s technology could end up as the adopted standard, and you’d be the one paying license royalties instead of collecting them.

Large-Scale Litigation May Be Inevitable

While some industries may try to rely on technological standards and FRAND licensing terms to ensure ease of entry into the market, it’s likely that other industries will rely on ecosystem “buy-in” to provide customer loyalty.  Ecosystem buy-in is a species of “prospective cost” logic.

If a company has already outfitted its shipping fleet with trucks that use GPS locaters from System Y, then it makes more sense to buy the fuel monitors or load-reporting systems of System Y as well.  Consequently, multiple “System Y" compatible devices will be used across the fleet, making it inefficient to switch to another system.  At that point, the company has bought into the System Y ecosystem of products and won’t want to pay “prospective costs” to switch.

These ecosystem efficiencies will, over time, create a handful of large, powerful default standards, which will perform analogous functions but will have separate competing families of products.  If this sounds familiar, then it should.  This same storm of factors was partially the reason for the explosion in litigation between tech giants, Apple and Samsung, in the on-going smart-phone wars.  In a way, that was the first wave of large-scale IoT patent wars.

An important distinction for firms entering this expanding field, though, is that the smart-phone wars were constrained to mostly just phones.  The technological players were well defined, and each knew who the others were likely to be.  The wars were as much about carving out territory in the market as about placing entry barriers to new, disruptive firms that might challenge existing players.

IIoT seems destined to be much harder to control.  By its nature, it is set up to encourage disruption, as tech companies move into industrial areas they have never touched before, and industrial companies start developing technologies that widely apply beyond their industry.  Amazon’s constantly morphing role in the American tech space, from online goods purveyor to Amazon Web Services provider, is just one example of the power of the IoT.  As these industries are disrupted, it becomes harder, if not impossible, to predict precisely where the next major legal challenge will come.  Therefore, companies have fallen back to the conventional patent practice of developing or acquiring defensive patent portfolios as an essential part of expanding into IIoT.

Conclusion

IIoT is already changing the way industry operates, and this new frontier has pushed its way into the world of intellectual property law.  For pioneers in any field, monitoring and participating in any standards-setting efforts in their industry area becomes critical.  Further, maintaining a comprehensive IP portfolio will be vital to protecting against the waves of litigation to come.  Even with these legal hurdles, though, the IIoT is an area of massive opportunity and growth.

 

Authors’ Bio

Kenie Ho leads the IoT legal group at Finnegan, Henderson, Farabow, Garrett & Dunner LLP. He is a thought leader on IP issues for IoT and frequently speaks and publishes on IoT legal topics.  He has litigated well over 60 patents, primarily focusing on electrical, software, and consumer electronics technology.  In addition to enforcing and defending against patent infringement lawsuits, he helps startups and large companies strategically develop their patent portfolios and IP rights.

Forrest Jones is an attorney at Finnegan, focusing his practice on patent litigation in federal district courts and prosecution ofpatent applications. He has technical experience in electrical and computer engineering, including computer software, signal processing, power generation, consumer electronics, and business methods.

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