IP and the IoT: a thing, an ecosystem, or a data flow?

The Internet of Things (IoT) is no longer a concept looming
on the horizon.  It is here, although you
may not recognise it yet.  None of the
individual technologies involved is inherently disruptive, but collectively, a
step change is happening.  In the same
way that smartphones – connecting us to each other, and the information
resources of the internet, at all times and in all places – became dominant in
our lives, seemingly overnight, despite having been evolving incrementally for
years, one day soon we will wake up to notice many of the devices which
constitute our personal environment talking to each other, subtly guiding and
managing our world.  We will inevitably
change the ways we interact with each other and our surroundings, in response
to this new level of connectedness.

But inevitably with so much new technology, and so many new applications for existing technology, the IoT raises substantial issues of intellectual property. The battle for shares in the revenues generated by the IoT will hinge on which companies’ rights underpin whichever technologies succeed in the market.

Future-proofing IoT applications

As with first mobile phones and then smart phones, the big unknown is how consumers will actually use the new capabilities offered by the IoT. Connected devices such as smart fridges already exist, but consumers have not flocked to buy them. Connected devices, however clever in concept or manufacture, are not on their own must-haves. Rather, a device needs to deliver a service which the consumer finds irresistible. SMS messaging was an afterthought in the first mobile standards, added because it did not require much additional work rather than because it was expected to be the application consumers would come to rely upon. Applications such as ApplePay or Instagram were not in the forefront of early smartphone designers’ minds, but are coming to dominate the uses to which the phones are put.

The same will be true of IoT. Consequently all we know at present is that we do not know what its transformational functions will be. This presents a major challenge when it comes to protecting IP rights. Patents are not well suited to protect yet-unrecognised future applications; speculative drafting may be too broad to be enabled, while simultaneously rendering later implementations potentially obvious.

Protect your rights: Devices and standards

On the surface, the IoT is all about devices – from thermostats and smart energy grids to access control systems to cars – sensing and then communicating data. Accordingly, patent rights over these devices and their components are likely to be key to many different applications.

However, with communication the key, the issue of standards over the communications technology and protocols is likely to cause more controversy and dispute, even if not to the extent seen in the smartphone wars. Indeed, many of the same companies which participated in mobile phone development – Qualcomm, Broadcom, Samsung, Nokia and Ericsson for starters – are now patenting new developments aimed at the IoT. A number of different standards are in development, used for different applications, under several different standard-setting organisations. Some have continued to rely upon the imposition of a licensing obligation on the much-contested fair, reasonable and non-discriminatory (FRAND) terms while others are aiming for alternatives such as FRAND-Z (FRAND – but at a zero royalty rate).

The architecture of systems will also be novel, since the IoT is not about point-to-point communication along the lines of traditional telecommunications, but multimode, meaning parallel processing and information flows to optimise efficiency. Both how these communications flow, and what can be communicated will need to be defined, and associated technologies will be both standardised and patented. Such patents will cover multiple markets and, if the business model permits, be very valuable. This new architecture for the IoT has parallels with mobile telephony, where usage (and value) shifted from the original, network-based infrastructure to an operating-system and application-based ecosystem.

But communication presupposes a viable communicating device. Here, economics will be as important as technological functionality. Issues such as manufacturing costs and energy consumption will be key, since always-on devices will rapidly become uneconomic if they add a material drain to the energy costs of the users. In this way the IoT market differs from the smartphone market, where devices are predominantly luxury purchases. These aspects do not require technical standardisation as such. Instead, it will be a race to reduce cost and consumption rates to the absolute minimum, with no obligation on any innovator to share their technology with competitors. Patents will be the fence posts to maintain the market advantage gained, but will also affect business models. The smartphone industry is deeply divided over whether technology royalties for the systems which make devices work should be paid on the relatively low cost chips at their cores, or the expensive end device. In IoT, the former is more likely, but given the potential scale and breadth of application, patent royalties could still account for significant revenues.

Protect your rights: Software

Most of the novel uses for the IoT will revolve in some way around data mining and analysis. Such applications will be primarily software-based, and so on the edge of patentable subject matter in both Europe and the US. Software does attract copyright protection in most jurisdictions, but unlike patent rights copyright protects only against copying (of the code, or architecture) and not against independent development of code to produce the same functionality.

Copyright protection will also apply to graphics and interfaces, but still offers limited protection, since a competing app with a new ‘look’ can overcome any lack of goodwill (compared to an incumbent) through savvy marketing. Neither look and feel nor branding is a fundamental barrier to market entry.

The IoT and cyber security

The importance of security for the IoT cannot be overstated. Once our lives are filled with devices observing and communicating beyond their immediate physical location, without proper protection, data about our activities and physical environment will become accessible to anyone with the skills to access it, unless stored and communicated securely.

Traditionally, there may have been a temptation to focus on the features that are likely to sell the product to consumers, rather than ‘back end’ functions which most consumers simply do not consider. However, with cyber security rarely out of the headlines at the moment, security credentials are increasingly a core feature of IoT devices. Security features may well be patentable and, since standardisation is not necessary save for the communications functions, strong patents in this field may confer significant market advantage. A variety of new security-focussed players, such as Sigfox, are developing fast.

So how do we prepare?

The IoT presents huge opportunities, whether for end-devices, component parts or novel applications. Great effort is being put into technological and application innovation, but successfully capitalising on those opportunities also depends on the protection of the intellectual property behind that innovation.

An ideal patent portfolio for the IoT will include some patents relating to the standards relevant to a business’ sector of interest and some patents over implementations of non-standardised features and applications. Such a portfolio will put businesses in the best position for the extensive cross-licensing negotiations which, on the basis of the smartphone experience, look to be inevitable.
But with such fundamental unknowns as to where the revenues will be coming from, no amount of advance preparation will guarantee a place at top table. Companies are going to have to keep alert as the IoT develops, to identify what aspects pique consumers’ interests and seize on the first ‘killer apps’ and technological leaps the moment they begin to emerge.

The good news is that, as the IoT develops and matures, there will always be potential for innovative new entrants to spot and develop opportunities, just as WhatsApp, Instagram and Twitter have succeeded in doing in the internet of today.