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Patent issues and the Internet of Things

Paul England looks at the application of the patents system to the Internet of Things.

February 2014

The Internet of Things (IoT) is a term coined by Kevin Ashton of Massachusetts Institute of Technology. His explanation of the IoT serves as a working definition: "...people have limited time, attention and accuracy – all of which means they are not very good at capturing data about things in the real world. If we had computers that knew everything there was to know about things - using data they gathered without any help from us – we would be able to track and count everything and greatly reduce waste, loss and cost. We would know when things needed replacing, repairing or recalling and whether they were fresh or past their best."

ComputerIn other words, the IoT is the idea of everyday objects informing and being informed about other objects systematically, via connection and exchange of information over the internet. It is in its infancy at present, but if the theory is borne out, the implications of the IoT on everyday life are very great. It will, in the words of Cisco chief executive John Chambers "change the way people live, work and play.” Indeed, there is no shortage of examples put forward of things the IoT could do, including real time price adjustment for supermarket customers based on their particular shopping habits, monitoring car rentals, managing haulage logistics and optimisation of manufacturing processes according to demand and cost and supply of materials.

One attractive application of the IoT is in traffic control. Imagine a system in which the Highways Agency, automated cars (a technology already being tested), service stations, weather stations, local town traffic systems and even garages for repair, are connected by the internet. Each feeds in information about its status to the appropriate protocols on the internet so that the others can respond accordingly. A passenger starting in London could set out for Edinburgh and be guided in real-time according to traffic jams, road-works, the best price diesel (and whether the diesel pumps are working), the effect of the weather on the road, who has a replacement wing-mirror in stock and which service station still has cheese sandwiches available for lunch.

Such a system does, of course, need a highly sophisticated, technical structure and must have the capability to process and resolve a multitude of complex information streams. To operate successfully, the IoT system structure or architecture needs: appropriate sensors imbedded in all objects that can allow them to give their location and status; wireless connection to the internet; appropriate mediating software between the object, the internet and other objects; operator interfaces; encryption algorithms for security; operating platforms and protocols to manage the vast amount of competing data being exchanged.

A broad parallel can be drawn between this theoretical IoT architecture and today's smartphone systems: operating systems, protocols and remote connectivity. However, the smartphone example also points to the potential difficulties that may be faced with intellectual property ownership in the IoT, particularly patenting, because it is with these technological aspects that patents become relevant.

EU flagOne issue will be the extent to which many parts of the technology required for the IoT are patentable at all. UK and European case law is clear that software and methods of doing business are not patentable. However, computer implemented inventions that have a technical effect are potentially patentable (providing that they fulfil other requirements such as novelty and invention). Smartphones have yielded many examples of subject matter about which there is much discussion as to whether the invention is software, and/or a business method as such or whether there is technical application.

Another key difficulty will be that for the IoT to work in a truly seamless and interoperable way, it needs to use standardised technology. This is because it will need to connect objects from different commercial sources and allow the addition of new objects without disrupting the existing architecture or requiring an alternative structure. If, however, standardised elements of technology in the architecture are patented, this presents a problem because without a licence from the patent owners, third party users of the technology may be forced to infringe those patents. The attempted solution to this problem in the smartphone business, where the equivalent patents are referred to as standard essential patents ("SEPs"), has been for the various bodies who set standards to impose a condition that patent licences should be available to third parties on fair, reasonable and non-discriminatory ("FRAND") terms.

Experience has shown that agreeing FRAND terms is not always straightforward. Parties cannot always agree what terms are fair and reasonable, particularly as regards royalty rates. It is also a question under discussion in the courts of many jurisdictions as to what role the FRAND obligation plays when an SEP owner seeks to enforce an SEP against an alleged infringer. For example, in Germany, the landmark decision Orange-Book Standard of the German Federal Court of Justice, confirms that a defendant sued for the infringement of an SEP can rely on FRAND as a defence against claims for injunctive relief, providing he has, in effect, acted as a licensee in any event, and the plaintiff patent owner refuses to grant a licence on FRAND terms. However, the circumstances in which this defence can be employed by a defendant have been criticised as far too strict on the defendant. By contrast, in the Netherlands the onus is on the patentee to take steps towards a FRAND licence to avoid this defence. Hence, questions have now been referred to the Court of Justice of the European Union (CJEU), from the Dusseldorf court, in the case of Huawei v ZTE, seeking clarification of the conditions in which the FRAND defence is applicable.

CablesWith the development of the IoT, networks of standardised technology will become even more widespread and issues such as those already experienced in the telecommunications sector can be expected. However, with the telecoms market providing a model, it is hoped that a suitable way forward on some of these issues, particularly FRAND terms and their application, will soon be found. The next step in this direction will be the decision of the CJEU in Huawei v ZTE, which is expected in June 2014.

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Paul England


Paul England looks at the application of the patents system to the Internet of Things.

"With the development of the IoT, networks of standardised technology will become even more widespread and issues such as those already experienced in the telecommunications sector can be expected."