Feature

Internet of Things: Another Industry Patent War?

Kenie Ho

©2015. Published in Landslide, Vol. 8, No. 2, November/December 2015, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.

“The smartphone patent wars are dead? Long live the IoT patent wars!” Depending on which commentator you believe, you could argue that the smartphone patent wars of the past five years are winding down. You could point to the fact that the Apple v. Samsung litigation in the United States is deep into the appeal process, driving toward final resolution. You could explain that the Rockstar Consortium—a joint venture owned by Apple, Microsoft, and others—has settled its patent dispute with their rival Google. You could even mention that, not too long ago, Apple settled with HTC, another worldwide smartphone manufacturer. These are all valid points that could justifiably lead you to conclude that the smartphone patent wars are on their last legs. But you would be wrong.

Smartphones were the first personal devices that widely connected people to the Internet. They gave everyone unprecedented access to applications, information, and each other around the world.

The Internet of Things (IoT) provides the same connectivity as smartphones but on steroids. Technologists tout it as the future network of “things,” or physical objects, each embedded with electronics, sensors, and network capability enabling them to report data about themselves to anyone. IoT promises to connect everyone even more intimately than smartphones. It will place the data feeds of everything—from your house plant’s moisture readings to your automobile’s tire pressure—onto the Internet for consumption.

In the march toward a completely connected world, smartphones are simply the vanguard of personal IoT devices. And the smartphone patent wars are merely the vanguard of a potentially much broader IoT patent war along that march. To understand why, you need look only at the underlying forces that drove and sustained the smartphone patent wars: (1) huge economic impact, (2) multiple converging technologies, (3) fragmented industry, (4) competing standards, and (5) large patent stockpiles.

Huge Economic Impact

Smartphones have a huge market, which makes it worthwhile for companies to litigate and use their patent portfolios to fight for market share. Some experts estimate the smartphone market to be $50 billion to $450 billion per year in 2009–2018.1 By comparison, the IoT market is predicted to grow from nearly $2 trillion to $7 trillion in 2013–2020, dwarfing the smartphone market by an order of magnitude.2

Further, unlike smartphones, IoT affects much broader areas and touches much larger markets. For example, IoT-enabled smart homes will allow all household appliances, lights, heating, and home-security devices to be automatically monitored and controlled to optimize the home environment without any homeowner input. IoT smart cars will have remote diagnostics to help automakers reduce warranty costs, to work with electronic parking spot-locator services, and to communicate with other smart cars to maintain traffic flow—all creating a better driving experience. IoT supply chains will automate shipping and delivery by exactly predicting the time of arrival for shipped goods and track important details like temperature control, which affect the quality of products in-transit. Additional IoT applications will exist in just about every sector from agriculture to retail to manufacturing.

Multiple Converging Technologies

High-tech products like smartphones combine many innovative technologies into subcomponents ranging from the phone’s touch screen to its wireless communication protocol and hardware. Each subcomponent could have thousands of active patents covering a myriad of features. This makes it extremely difficult to perform patent-clearance searches and freedom-to-operate analyses for every aspect of the product. Any smartphone therefore risks a potential plague of patent suits.

In order for IoT to work, many different technologies must come together to create an IoT system. The technical pieces of an IoT system are generally classified into five categories: (1) end nodes, (2) connectivity, (3) data centers, (4) analytics/applications, and (5) security.

The first category, end nodes, are IoT-enabled devices outfitted with sensors that detect and collect data on the devices’ operation and surroundings. The end nodes may also receive control signals commanding them to perform tasks. For instance, an IoT-enabled pacemaker can be an end node configured with sensors that measure a patient’s blood flow, heart rate, and blood pressure, and transmit those readings to an online healthcare application, which may automatically adjust the pacemaker’s operation.

The second category, connectivity, is the network infrastructure that transports the collected data and control signals from and to the end nodes. Reliable connectivity is critical to IoT because end nodes must be network accessible (ideally wireless network accessible) for any of the IoT applications to work.

The third category, data centers, are servers that aggregate and store the sensor data from the end nodes on the network. Each IoT device will typically generate and upload large volumes of information to the Internet. Data centers fill an important role in storing that information and making it available for use.

The fourth category, analytics/applications, access data from the data centers and digest it to deduce patterns and make decisions. This is where the creative application of IoT comes into play. Once sensor data from IoT devices have been collected and stored, it is completely up to a designer’s imagination on how to use it to add value and generate services.

The last category, security, is the layer built into each part of an IoT system to protect privacy and prevent against hacking and cyber theft. IoT devices will collect and broadcast a frighteningly large amount of data about device owners and their environment, and it would be risky to have that data unprotected at any point in the IoT system.

Accordingly, even more so than smartphones, IoT requires integrating many technologies to work, each exposing them to more patent suits.

Fragmented Industry

Smartphone manufacturers constantly battle head-to-head for market share in the smartphone space. For example, Apple, Google, Microsoft, and BlackBerry offer competing smartphone operating systems—iOS, Android, Windows Phone, and BlackBerry 10, respectively. But even within a particular operating-system environment, dozens of manufacturers vie against each other. Companies like Samsung, LG, HTC, Kyocera, Nokia, and Motorola, to name a few, sell their own line of Android or Windows smartphones.

Similarly, although the IoT market is nascent, it already has many well-established companies and startups trying to get a jump-start against each other. Qualcomm has been promoting the AllSeen Alliance’s AllJoyn architecture—a software platform for enabling interoperability between IoT devices—for years. More recently, Intel—rumored to disfavor the intellectual property policy of Qualcomm’s AllJoyn platform—formed a rival group, the Open Interconnect Consortium (OIC), to create a competing platform.3 Also, heavy hitters, like Google, GE, Cisco, Huawei, and Microsoft, have spent billions of dollars in acquisitions and investment to build IoT product offerings.4 Earlier this year, IBM announced it would invest $3 billion into a new IoT business unit.5 This does not even account for the hundreds of startups that are entering and are expected to enter the IoT space in the coming years.

Billions of connected devices are required to realize the IoT dream. With its broad applications in so many different sectors, IoT companies will proliferate and become more fragmented than the smartphone companies. These companies must cooperate to make IoT work. But that also opens the door wider for disagreements and competition, which can easily lead to legal disputes.

Competing Standards

Smartphone manufacturers incorporate many standards into their products. But implementing standards in a product can make the company a target for patent suits based on standard-essential patents. Standards are agreed-upon technical specifications that make products work together. Standard-essential patents are patents necessarily practiced by everyone using the relevant standard.

Ideally, standard-setting organizations work with interested companies to set up industry-wide standards so that consumers purchasing one company’s products can use them with another company’s products. For example, to provide cellular voice and data services, smartphone manufacturers must implement an agreed-upon radio access standard, like UMTS, CDMA2000, HSDPA, or LTE. To provide Wi-Fi access, smartphone manufacturers must incorporate a wireless local area network standard into their products, like the 802.11g, 802.11n, or 802.11ac standard or the WiMAX standard maintained by the Institute of Electrical and Electronics Engineers (IEEE). To provide Bluetooth capability, they must follow the standard from the Bluetooth Special Interest Group. Additional incorporated standards may include standards for e-mail transfer, video display, etc.

In the IoT area, many competing standards exist or are under development. In addition to the standards created by the AllSeen Alliance and OIC for the IoT software platforms previously mentioned, various other organizations are working on IoT standards. Google and its partners recently announced a new networking protocol called Thread that aims to create a communication standard for connected household IoT devices. The Industrial Internet Consortium (IIC) is developing IoT standards specifically for industrial use. The International Society of Automation (ISA) is working on establishing the ISA100 Wireless standard to provide an industrial network protocol compatible with IoT.

Meanwhile, oneM2M—a global initiative launched in 2012 to ensure efficient deployment of IoT devices—is developing technical specifications for a shared machine-to-machine (M2M) network layer, to globally connect a wide range of IoT devices using application servers. Additionally, the IEEE Standards Association (IEEE-SA) has several standards and projects directly relating to the IoT, such as the IEEE P2413, which is a draft standard defining an IoT architectural framework, including descriptions of various IoT domains. Apple has been characteristically tightlipped about its plans to enter the IoT market, but from past experience it would not be surprising to see it jump into the fray with its own propriety standard or solution. Hence, just like it was during the smartphone patent wars, many competing standards are rising to the surface and adding fuel to looming IoT patent battles.

Patent Stockpiles

It is conventional wisdom for companies to patent their technology to ward off patent infringement suits from competitors. The idea is that your competitors will not sue you on their patents if they know you can sue them with your own patents, because it would lead to an expensive and fruitless legal battle. No party would rationally want to go down this path of “mutually assured destruction.” Or at least that was the principle among smartphone manufacturers. But then, in 2009, a few smartphone companies began using their patent stockpiles to sue each other just as the smartphone market started exploding, and that escalated to countless suits across the entire industry. IoT companies are following the same trajectory.

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 for IoT technology.6 And the number of IoT patents and applications increased on average more than 40 percent annually during that period compared to an average 6 percent annual increase in patents and applications across all other technologies. The reported statistics also showed that no single company owns a lion’s share of all IoT patents and applications, although some companies have significantly more than others. Thus, like the smartphone companies, IoT companies are steadily building large defensive patent stockpiles.

It only takes one errant lawsuit to start a brushfire of patent suits across the entire IoT industry.

IoT Litigations

Some parties are already litigating over IoT technology. Earlier this year, AliphCom and BodyMedia, the parent and sister company of Jawbone—a manufacturer of wearable devices that wirelessly sync with other IoT devices—sued Fitbit for patent infringement.7 AliphCom and BodyMedia’s patents cover a wearable device for detecting fitness and health statistics, like an individual’s body temperature and heart rate, and storing that information for later processing and presentation over the Internet. Fitbit sells wearable wristbands with built-in sensors, wireless technology, and health applications. AliphCom and BodyMedia originally sued Fitbit on three patents, but later added three more patents to the suit. The case is currently pending.

BodyMedia also sued Basis Science Inc. in 2012 for patent infringement.8 Basis sells wearable fitness trackers and competes with BodyMedia in the market for wearable IoT devices. Intel acquired Basis in 2014, and the parties dismissed the case without prejudice nine months later.

In 2013, Samsung was sued for allegedly infringing Alex Is the Best’s (AITB’s) patent directed to an integrated Internet camera system. The system included an Internet-connected camera for capturing images and a website for storing and managing them.9 In its complaint, the New York-based AITB claimed that Samsung smartphones capture and transmit images to a web application over Wi-Fi and cellular networks.

In 2014, Samsung was also sued by Penovia, a patent-holding company located in Texas, for allegedly infringing its patent on an office machine-monitoring device connected to a wireless network.10 The year before, Penovia sued Cisco on the same patent.11 In the smart home sector, iControl—a security and automation firm backed by Comcast, Rogers Communications, and Intel—sued Alarm.com and FrontPoint Security for infringing its Internet-based home-security patents.12 iControl provides software platforms for home security and monitoring. Alarm.com and FrontPoint sell home alarm systems controlled by laptops and smartphones over the Internet. None of the IoT patent suits has reached the intensity and level of the smartphone patent suits, but these are just the very first litigations.

Conclusion

Regardless of whether you believe IoT represents just an extension of the mobile Internet revolution or forms its own technology area, there is no denying that it will bring about new innovations, new patent rights, and new competition. It will also likely lead to a new front in the ongoing smartphone patent war. The question remains—will it be a hot war with companies launching volleys of patent suits at each other or a cold competition with grudging exchanges of cross-licenses and agreements not to sue?

Endnotes

1. Press Release, Int’l Data Corp. (IDC), Worldwide Smartphone Growth Forecast to Slow from a Boil to a Simmer as Prices Drop and Markets Mature, According to IDC (Dec. 1, 2014), http://www.idc.com/getdoc.jsp?containerId=prUS25282214; Global Revenue from Smartphones from 2008 to 2015 (in Billion U.S. Dollars), Statista, http://www.statista.com/statistics/237505/global-revenue-from-smartphones-since-2008/ (last visited Sept. 7, 2015).

2. Steve Lohr, McKinsey: The $33 Trillion Technology Payoff, N.Y. Times (May 22, 2013), http://bits.blogs.nytimes.com/2013/05/22/mckinsey-the-33-trillion-technology-payoff/?_r=0; Gil Press, Internet of Things by the Numbers: Market Estimates and Forecasts, Forbes (Aug. 22, 2014), http://www.forbes.com/sites/gilpress/2014/08/22/internet-of-things-by-the-numbers-market-estimates-and-forecasts/.

3. Quentin Hardy, Intel, Qualcomm and Others Compete for “Internet of Things” Standard, N.Y. Times Bits (July 8, 2014), http://bits.blogs.nytimes.com/2014/07/08/standard-behavior-in-an-internet-goldrush/?_php=true&_type=blogs&_r=1.

4. See, e.g., Press Release, Google, Google to Acquire Nest (Jan. 13, 2014), https://investor.google.com/releases/2014/0113.html.

5. Press Release, IBM, IBM Connects “Internet of Things” to the Enterprise (Mar. 31, 2015), http://www-03.ibm.com/press/us/en/pressrelease/46453.wss.

6. UK Intellectual Prop. Office Informatics Team, Eight Great Technologies: The Internet of Things, A Patent Overview 4 (2014), https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/343879/informatics-internet.pdf.

7. See Complaint for Patent Infringement, AliphCom v. Fitbit, Inc., No. 3:15-cv-02579 (N.D. Cal. June 10, 2015).

8. See Complaint, BodyMedia, Inc. v. Basis Sci., Inc., No. 1:12-cv-00133 (D. Del. Feb. 2, 2012).

9. See Complaint for Patent Infringement, Alex Is the Best, LLC v. Samsung Elecs. Co. Ltd., No. 1:13-cv-01787 (D. Del. Oct. 30, 2013).

10. See Complaint, Penovia LLC v. Samsung, Inc., No. 2:14-cv-00235 (E.D. Tex. Mar. 14, 2014).

11. See Complaint, Penovia LLC v. Cisco Sys. Inc., No. 2:13-cv-00774 (E.D. Tex. Sept. 27, 2013).

12. See Complaint for Patent Infringement, iControl Networks, Inc. v. Alarm.com Inc., No. 1:13-cv-00834 (E.D. Va. July 10, 2013).

Kenie Ho

Kenie Ho is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. He has litigated over 50 patents in district courts and the ITC, and handled hundreds of patents at all stages of prosecution, including reexaminations and IPRs.