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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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Internet-of-Things Patents: Tough to Enforce?

Guest post by Kenie Ho and Charles Huang

You might be riding to work in a driverless car without ever having to look up from your text messages. Or you might rely on weather forecasts derived from micro-weather patterns using the barometric sensor of every iPad inside a local area. These kinds of IoT miracles will use dozens or even thousands of IoT devices. That creates challenges for a company trying to protect its IoT innovations, or for a company trying to avoid infringing someone else’s protected technology.

Businesses typically protect their R&D through patents. A patent allows an inventor to exclude others from making, using, selling, or importing a patented invention.

Companies, like IBM, Intel, and Qualcomm, recognize patents as potent business tools because they can use them to keep competitors out of a market or obtain lucrative licensing royalties by allowing the competitors to practice the inventions. In 2015 alone, these companies each applied for and obtained several thousand new U.S. patents, many on IoT-related inventions. Experts estimate that more than 20,000 patents and patent applications covering IoT technologies exist world-wide.

But are IoT patents truly valuable?

I Want to Sue You, But I Can’t

At its core, IoT is basically a massively distributed network. IoT devices across the world work together to implement creative IoT solutions. Because of that, it can be challenging to obtain patents that are useful against competitors in the IoT space.

To prove infringement in the United States, a patent owner must show a single entity infringes the invention claimed in the patent. In an IoT ecosystem where many devices and actors must interact to implement a use case, it can be difficult to meet that requirement. Often times, no single entity implements or uses the entire claimed invention.

For example, in the autonomous-driving scenario, smart cars might have IoT-enabled sensors reporting on the vehicle’s position, nearby obstacles, speed, and vehicle status. IoT sensors embedded on a smart highway, in a smart city’s traffic-control system, and around a smart parking lot might provide additional information for routing and safety. These devices might communicate with each other to pick up commuters, drive them to work, drop them off, and then park their cars—all without them lifting a finger.

The problem is that different entities own or manufacture each component in this scenario. And if a patent owner has a patent covering this situation, who can it sue for infringement? The smart-car manufacturer? The county maintaining the smart highway? The city with its IoT-enabled traffic system? The owners of the smart parking lot? Depending on how the patent was prepared, the patent owner might be able to sue some, none, or all of them.

Divided Infringement

If you have never read a patent, consider yourself lucky. It is an arcane combination of technical writing and legalese that will put all but the most stalwart patent attorney to sleep. And the most arcane section of the patent—called the “claims”—happens to be the most important because it describes what the inventor is actually claiming as the invention.

Under U.S. law, an entity infringes a patent only if it practices or uses the invention described in the claims. Without getting into all of the legal details and numerous exceptions, if an entity practices or uses only a portion of the invention described in the claims, it is typically not liable for infringement.

In the autonomous-driving case, if a patent claims the combination of using a smart car, a smart highway, a smart traffic-control system, and a smart parking lot, then an entity that practices or uses all of them in combination is liable for infringement. But if there are multiple entities acting in concert, and each practices or uses only a part of the claimed combination, then a “divided infringement” situation exists and the patent owner might not be able to sue any of them for infringement.

For these and other reasons, patent attorneys consider it a best practice to procure patents with claims targeting the actions of individual entities. A well-designed portfolio of patents might include (1) a patent directed to the smart car made by the manufacturer, (2) a patent on the smart highway maintained by the county, (3) a patent on the smart traffic-control system owned by the city, and (4) a patent on the smart parking lot run by the parking company. The patent owner would then have a portfolio of patents to choose from when deciding whom to sue (e.g., the car manufacturer, county government, city, or parking company, respectively)—preferably the entity with the deepest pockets.

But what happens if the novelty in the invention comes from the combination of all the “smart” elements, and the patent office will issue only a patent claiming the combination? Enforcing this kind of patent in a divided-infringement situation is much harder, but still possible.

In 2015, the U.S. Court of Appeals for the Federal Circuit—the highest court overseeing U.S. patent cases besides the U.S. Supreme Court—explained that an entity can still be held liable for patent infringement if it controls or directs multiple entities to jointly use a patented invention. That is, an entity would be liable for divided infringement if the acts of the other entities can be attributed to the first entity.

For example, if a smart-car manufacturer has a contractual relationship obligating other entities to embed and use IoT sensors on the highway, in the traffic-control system, and around the parking lot to implement the autonomous-driving use case, then the smart-car manufacturer could be found liable for infringing a patent claiming the combination. But unless the patent owner can show this type of control or joint enterprise, it will likely not be able to prove infringement for that combination patent.

Territorial Scope

Besides divided infringement, another obstacle facing IoT patents is territorial scope. A U.S. patent grants rights in the United States. Thus, a U.S. patent presumptively does not confer any protection to infringing acts outside of the United States. This poses a problem for IoT patents because many IoT use cases employ devices located outside of the United States.

For instance, in the autonomous-driving scenario, sensor data from a smart car might be routed to a server located in Canada—because it might be cheaper there—for routing and map updates before being sent back to the car. A U.S. patent claiming a “process” for autonomous driving that includes routing and updating maps would generally not be enforceable here because those routing and updating steps take place outside of the United States. But due to patent policy set by the government and U.S. courts, a U.S. patent claiming an autonomous driving “system” might be enforceable if the Canadian server was being controlled in the United States. The differences between the policy reasons for the two are beyond the scope of this article. The point is that territorial scope of a patent matters, particularly for IoT applications.

Good Patents, Big Consequences

A good patent that avoids the above problems and covers a competitor’s IoT products provides a big competitive advantage, especially if the competitor cannot design around the patent. Further, if the competitor had full knowledge of its infringing activities and had no reason to doubt the patent’s validity, but nonetheless continued with its infringing activity, it may be liable for willfully infringing the patent, an act that can triple the amount of actual damages.

The U.S. Supreme Court recently changed the law to make willful infringement easier to prove. Before the change, a patent owner needed to show, by clear and convincing evidence, that the accused infringer was reckless in infringing the patent and knew or should have known its infringing actions were reckless. Now, the patent owner needs to show by a preponderance of evidence—a lower standard—only that the infringement was “egregious” and not just simply a “garden-variety” infringement case.

In the past, if a company became concerned about a patent, it would seek a patent attorney’s opinion on the matter to avoid liability based on willful infringement. That practice went out of favor in the mid-2000s after the courts raised the standard for proving willful infringement. Now, with the lowering of the standard, that practice has enjoyed a revival if only to show that the company took due care in investigating the matter to reduce the likelihood of willful infringement and treble damages.

Strategic Patenting

Despite the divided-infringement and territorial-scope issues, thousands of patents on IoT-related technologies are being issued each year. The key is to make sure to get patents that are well thought out to avoid divided-infringement and territorial-scope issues in the first place.

On average, it takes over 2 years to obtain a patent and most patents have a term of 20 years. It might be 10 or 15 years before the patent owner asserts the patent. How the market uses the invention can change significantly during that time. Thus, a patent applicant must carefully predict and anticipate likely infringement scenarios when protecting its IoT technology.

Authors’ Bio

Kenie Ho has litigated over 50 patents in U.S. courts on electrical and consumer-electronics technology. He is a thought leader on intellectual-property issues for IoT and leads the IoT Legal Group at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP.

Charles Huang prepares patent applications for IoT patents. His practice includes litigation, client-counseling, patent portfolio management, and patent analysis.

 

Patent Photo Credit to Nick Normal via Flickr.

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