It is worth noting that many of the use cases for IoT that are currently receiving much attention (like connected cars), likely won’t fall into litigation because of SEP enforcement challenges. Frankly, I don’t see a scenario where the number of cars being sold and the proportionate value that IoT will bring to those cars (with the possible exception of self-driving cars) are such that high value licensing will make sense. On a volume basis, a connected car manufacturer like BMW probably sells fewer cars than the smallest smartphone manufacturer and the absolute value of any apportioned royalty base is likely smaller than that of a smartphone. Additionally, it is worth noting that many of the higher value IoT products and services will have wireline connections to the Internet, and wireline has traditionally had a less contentious licenses ecosystem than wireless connections.
That said, I believe that for at least these seven reasons IoT will likely be the battlefield for large litigations:
Money is pouring in: IoT is a new field with a lot of money pouring into it, but no one has figured out or agreed on the best ways to make money from IoT. This has led to:
Convergence: IoT encompasses multiple converging technologies – each with their own economic rhythms and technical and business solutions to not dissimilar problems. While some of the technologies in this space that have gotten a lot of press (like connected cars) have licensing ecosystems that may not trend to litigation, many ecosystems of technology businesses will function, or will very likely function, like the smartphone ecosystem (e.g. connected home systems or home security or entertainment systems, as well as connected logistics systems) and thus will likely develop similar economic structures to what exists in telecom, which has fostered so much litigation. I believe therefore that this convergence has led to:
Fragmentation: Each of the various groups within IoT are jockeying for position – including acquiring rivals and/or complementary business. Moreover, at least until recently, all of this activity has been taking place in a business climate that favors winner take all approaches (see the Unicorns craze, the lax enforcement of antitrust against monosponists), which is in turn leading to:
Competing Standards: Companies are developing competing technical standards and business approaches on how IP should be monetized (e.g., the recent fight between various stakeholders regarding European Commission communication entitled “Setting out the EU approach to Standard Essential Patents” illustrates), part of this fight is driven by:
Large patent stockpiles: 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. This is a very significant percentage of overall patents when you consider that recent studies show that around the same time there were only 2.1 million active and issued patents in the United States, and there are only some 200,000 active and issued SEP families globally. Much of this growth comes from companies trying to buttress their licensing position by engaging in a massive landgrab in a hot area, as well as from acquisitions leading to too many patents (both of which will increase pressure for divestments – if only for relief from maintenance payments). These large stockpiles tend to be global in nature because of:
The geographic fragmentation of the IP monetization landscape: With the United States no longer a favorable forum for patent litigation, many countries are vying to take over and make their courts more viable. However, given that few countries have the economic clout of the United States, especially since it looks like the Unified Patent Court with its European-wide reach is unlikely to happen any time soon. For the foreseeable future, jurisdictions like Brazil, Australia, India, Mexico, Germany, France, Spain, Canada, the UK etc. will vie with each other for prestige and other reasons – to become the jurisdiction of choice to resolve disputes. Most importantly and perhaps the most unpredictably:
The emergence of China as an IP rich and confident jurisdiction: China has become IP rich, because its champions now have robust IP – made by themselves or acquired elsewhere. In fact, China’s national champions, Huawei and ZTE have been recently crowned as Asian leaders in 5G SEP holdings, as well as top global patent filers. All of this IP is already being used on a small scale and will likely soon be used more broadly against third parties, ultimately for net royalty payments. Finally, China is much more aggressive on IP enforcement: It is confident, and allows its courts to follow the rules as written and issue injunctions and high damages for infringement.
All it takes is an ornery executive to act as the kindling.
The answer is not to do away with IP licensing, but to be prepared. If you think about it, the smartphone wars may have had no victor from an IP perspective. But from a business perspective, phones now are better, more feature laden and cheaper than ever. At the end of the day, while patent wars may be a distraction, they are unlikely to impede overall progress and are important safety valves for the IP incentive.
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