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The Internet of Things and Patent Pools

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This article provides an overview of the topics discussed in the recent webinar hosted by BrightTALK titled ‘The Essential Value: IoT Standard Essential Patents and the Case for Patent Pools’, and which is available here.

The so-called ‘Internet of Things’ (IoT) refers to the use of wireless or cellular technology to connect different devices that can transmit and receive data to one another. Whereas previously the use of cellular technology was limited to relatively few types of devices – most notably, mobile telephones – more and more consumer and enterprise devices and products are now being equipped with such technology, making possible wireless communication between various devices in different technological fields.

Wireless communication is typically performed according to a number of different industry defined and approved technical standards. Standards are often developed by committees formed of experts from various companies in the relevant industry. Each expert, or group of experts, will bring ideas for new practices or technologies – possibly reflecting the innovation occurring within their company – that they believe should be adopted into a new standard. The committee will decide which of these practices or technologies are written into the new standard.

In many cases, practices or technology defined in a new standard will have pending or granted patent protection, owned by the company whose experts brought the technology to the committee, for instance. In such cases, this means that operating within the scope of such patents is unavoidable to implement the standard. Patents satisfying this condition are therefore known as ‘Standard-Essential Patents’ (SEPs).

Those companies in industries that make use of standardised technology – e.g. telecoms companies – are familiar with operating under licensing models that give access to technology covered by SEPs. Often, licences are negotiated for a ‘pool’ of SEPs covering certain standardised technology. However, the rise of IoT-enabled devices means that companies from different industries that have not traditionally used standardised technology will be entering this SEP licensing area.

This may introduce some issues both for the companies already in the SEP space, and companies newly entering this market. The sheer number of licences that will be needed will increase drastically. Telecoms companies have plenty of experience negotiating such licences, and this could be intimidating for a company from a different industry entering this licensing landscape.

It may be relatively easy for companies in the telecoms industry to perform licence negotiations with one another. This is because it can be simpler to assign a value to the technology, e.g. come up with a royalty rate at the level of a mobile handset, for instance. In contrast, different technologies or applications will derive different value from the standardised technology covered by a particular patent, or pool of patents. That is, with IoT the uniformity of application for standardised wireless communication is no longer limited to mobile telephones and other similar devices, but instead there will be a greater diversity of application of the technology.

A notable growth area for IoT wireless communication technology is in the automotive industry, with the push towards ever more connected vehicles and, eventually, self-driving vehicles. Such vehicles may be constantly monitoring a situation, meaning that their wireless communication needs to have high bandwidth, low latency, and high mobility.

On the other hand, a stationary ‘smart’ meter that, for instance, automatically sends a household’s energy usage directly to the energy supplier to calculate a billing amount does not need wireless communication that has high bandwidth, low latency, or high mobility.

In both the automotive and smart meter examples the same wireless technology may be being used; however, the technology will not be offering the same value to the respective applications. This gives rise to the possibility of needing different, and more complicated, licence negotiations depending on the use case for the technology.

Discussions with different industries will be needed about the value that is being added to a device or service by a certain wireless technology covered by SEPs. Even within a certain industry there can be significant differences depending on the use case. In the automotive industry there will be ‘high-end’ use cases – e.g. self-driving vehicles – in which a vehicle will be constantly monitoring its surroundings and will use certain wireless technology for a number of different applications such that the wireless technology is continuously being used. However, there will also be ‘low-end’ use cases in which a vehicle may use the relevant wireless technology for only a single application such that the wireless technology is only occasionally being used. A different royalty rate will likely be needed for high-end and low-end use cases.

A licensing framework such as a patent pool has many benefits for both licensors and licensees that participate. A public, flat royalty rate may be offered to all licensees for access to a particular pool of SEPs, thus reducing uncertainty for licensees as to whether they are getting a good deal relative to others. By pooling the SEPs needed to implement a certain wireless technology all in one place, licensees can access the relevant technology with just a single license agreement. In particular, for both licensors and licensees a patent pool reduces the number and costs of undertaking lots of different license negotiations.

This is also beneficial to the licensors to protect the value that is in their developed technology to ensure that they receive a fair price. It will help industries new to this patent pool licensing landscape to be educated about the fact that this value actually exists in the technology. Specifically, it will help new industries recognise that a great deal of R&D expenditure may go in to developing the relevant wireless technology so that they may better understand that it is only reasonable that a price should be paid for access to the technology.

The need for a platform to provide all of the relevant technology at a reasonable price is therefore even more important for IoT because of the new companies/industries entering patent pool license negotiations who do not have experience in the sector.

A platform for operating patent pools can also address issues surrounding different traditional approaches to enforcement of intellectual property by different industries. For instance, unlike in the wireless technology industry, the automotive industry does not have a history of broad licensing, or technology sharing. In particular, the automotive industry has typically been more likely to deal at the level of single patents or patent families, which is quite different to the broad patent pool agreements that are familiar to the wireless technology industry.

New issues may also need to be addressed when dealing with new industries to the patent pool licensing space even before getting to the stage of negotiations of a royalty rate. For instance, discussions will be needed on what is being licensed, what the licensing approach is going to be, and identifying the parties that are actually entering into the license agreement. In the automotive industry, for a particular use case it may not be clear whether it is the OEM, Tier 1 supplier, Tier 2 supplier, etc. that is the relevant company that needs to agree a license. There may therefore need to be other agreements within the different companies in the supply chain of a particular industry as to how the costs of entering into a license agreement are shared.

In summary, the IoT will lead to companies from a variety of industries coming together to use standardised wireless technology: patent pools are one tool that may be used to ensure that everyone has access to the relevant technology at a fair price.

Colin Paterson 30 June 2020


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