So I emailed Ropes&Grey yesterday inquiring about a recent article that our lead counsel and cohorts co-authored a few weeks back on the IoT and future patent litigation. Pepe, Post, and Shapiro were all copied on my response, which kinda floored me. It was a Bloomberg Law article that I did not have access to, but they were kind enough to PDF it to me.
I haven't a clue how to post or link a PDF (I have to host it first??) but I'll copy and paste the article below for those with an interest. Remember, this was written my our lead counsel and top lawyers on our cases.
Keep in mind that when they mention increased litigation due to standards being adopted, they could well be talking about US and our standards and that they have a horse in this race too.
Pasted here:
Reproduced with permission from BNA’s Patent, Trademark & Copyright Journal, 95 PTCJ 311, 01/12/2018. Copyright
2018 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
PATENTS
Ropes & Gray attorneys contend that the technological diversity involved in Internet-of-
Things offerings will create new competitors facing an unbalanced licensing environment,
lead to more litigation, and complicate standards development and adoption.
Internet of Things: Next PatentWar Zone
BY STEVEN PEPE, KEVIN J. POST, AND LANCE W.
SHAPIRO
The Internet of Things, or IoT, has the characteristics
to become the next patent war zone as new standards
are adopted and the convergence of disparate technologies
leads to new disputes. This convergence of technologies
will likely result in an increase in litigation between
both traditional competitors and companies that
historically have not competed. While there are numerous
legal issues associated with the emergence of IoTenabled
technology, patent lawyers and in-house counsel
should be aware of three particular issues.
First, the convergence of different technological
fields and patent licensing schemes may lead to atypical
rates proposed during licensing negotiations, including
very high royalty rates that may prevent a product
from being successful in the market or very low royalty
rates that dis-incentivize future innovation. Second,
the convergence of technology and resulting complications
in licensing negotiations may result in an increase
in litigation. Third, because convergence of technology
may complicate the patent licensing environment for
IoT technology, there may be an increase in patent pool
activity, specifically involving those that directly deal
with IoT-specific issues or technological fields, in an effort
to address the wide disparity in sales prices for IoT
devices. Finally, fair, reasonable, and non- discriminatory
(FRAND) licensing of patents essential to IoT standards
(or standards that relate to IoT technologies) will
become more prominent.
Each of these primary issues is discussed in more detail
below.
IoT Technology and the Consequences
of Convergence
IoT is a ubiquitous term generally describing technology
that is connected, operated, and manipulated
through its connectivity with the internet, and more importantly,
other IoT-enabled devices. Devices that use
traditional, non-IoT technology usually operate as independent
devices with limited connectivity.
Steven Pepe and Kevin Post are partners and
Lance Shapiro is an associate in Ropes &
Gray LLP’s intellectual property litigation
practice in New York.
COPYRIGHT 2018 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0148-7965
BNA’s
Patent, Trademark
& Copyright Journal®
For example, a sport utility vehicle (SUV) in a non-
IoT world could connect to a dealer or manufacturer
through a local network or physical connection, and
typically only for a limited purpose. In the IoT world,
however, an internet-connected SUV can interoperate
with many diverse devices in different ways, such as receiving
over-the-air software updates from the manufacturer,
downloading third-party apps, browsing the
internet, streaming video from Netflix, and communicating
with a driver’s smartphone and other vehicles.
IoT also allows for entire systems of multiple components
and devices to be connected, amassing an immense
volume of shared data that companies can leverage
for the benefits of end users and for their own efficient
and effective operation. Moreover, IoT changes
the way that users interact with technology. For example,
a wearable fitness or smart watch provides an
around-the-clock connection of a user to the internet
and simultaneously collects, processes, and if permitted,
distributes data of the user, such as a heartbeat,
steps, and GPS position.
All of these developments can increase the potential
utility of an IoT device to an end user, but it will also
substantially increase the risk of disputes with new
competitors holding newly applicable patents.
IoT Will Result in Increased Litigation
The emergence of IoT and the convergence of technologies
will lead to an increase in both competitor litigation
and litigation between traditional noncompetitors
who become competitors (or at least encroach
on each other’s technological spaces) through
the emergence of IoT devices. The recent smartphone
patent wars provide an example of how convergence
can result in non-competitors (and even partners) becoming
competitors, and the widespread litigation that
can result.
For example, through 2010, Microsoft and Motorola
had rarely offered competing products—Microsoft was
a software company developing and selling operating
systems for servers and personal computers, and Motorola
was mainly a hardware and telecommunications
company. But with the emergence of Motorola’s smartphones
(which used Android’s OS) and Microsoft’s
Windows Phone 7 mobile phone and Surface tablet, Microsoft
and Motorola became instant competitors.
Motorola licensed its standard-essential patents
(SEPs), such as patents essential to the H.264 video
coding standard, at a rate of 2.25 percent of the net selling
price of the end product. While this program resulted
in royalty rates of several dollars for a typical
smartphone of that time, it would result in a royalty rate
of over $30 for a laptop computer that used Windows
OS. The issue of whether the 2.25 percent rate was
FRAND was ultimately litigated by the parties over several
years and in multiple jurisdictions worldwide. This
real-world example demonstrates just one way in which
unique licensing issues may result from convergence.
For IoT technology, this issue may become more significant
because of the greater diversity of technological
fields involved and their wide-ranging products and
price points. For example, smartphones can interact
with internet-connected thermostats, lights, door locks,
security systems, televisions, refrigerators, wearables,
vehicles, and many more devices that implicate a wide
spectrum of functionality and technologies. Devices
such as these will implicate the technology of many different
companies, including those which have not historically
been competitors. An IoT-enabled thermostat,
as one example, may implicate a variety of communication
technologies, including WiFi, Bluetooth, 3G, or
LTE, that can be used to communicate with not just
smartphones, but also home computers and potentially
even third-party monitoring companies.
The unbalanced alignment of patent portfolios
among newly aligned competitors will likely lead to a
disparity in licensing leverage and potentially increased
litigation. Traditionally, companies in related technological
fields intentionally built their patent portfolios
for the dual purpose of offensive patent assertion and
defensive patent protection. In other words, competitors
in the same field often had patents that were
equally applicable to one another’s products, which often
led to mutually beneficial cross-licensing. In the IoT
landscape—where a technology company cannot or
could not have easily identified its future competitors
and may not have patents that are applicable to a new
competitor’s business —there may not be the same balance
of patent portfolios.
Using the example above, a company that is manufacturing
an IoT-enabled thermostat may not have patents
to assert against a company that is enforcing its
WiFi patent portfolio. This creates an imbalance in negotiating
leverage, eliminates the possibility of entering
into a beneficial cross-license, and ultimately may produce
more litigation.
Patent Pools Emerge
IoT may result in the creation of new patent pools to
mitigate litigation risks. In general terms, a patent pool
can be defined as an agreement among multiple patent
owners to license their patents to each other or to third
parties. Thus, a patent pool can be used to reduce or
eliminate patent litigation between the patent pool’s
members and increase innovation relating to pooled
patents. As noted above, as IoT expands the universe of
a companies’ competitors, it also increases the potential
risk of litigation. This risk, combined with potentially
unbalanced patent portfolios and divergent licensing
programs from company to company, may result in
more companies opting to participate in patent pools as
licensors, licensees, or both.
In simplistic terms, if company A owns patents related
to thermostat technology, company B owns patents
related to WiFi technology, and company C owns
patents related to a cellular technology, then all three
companies, as members of a patent pool sharing these
patents, can each incorporate technology from these
patents into their products under a pool license. Absent
a patent pool, the parties would otherwise separately
negotiate licenses with each other. Patent pools also
can reduce the barriers to entry for cash-strapped new
entrants into the IoT field. A patent pool thus can reduce
transaction costs, and in the context of IoT technology,
align companies within different fields to reduce
the ‘‘patent thicket’’ (where many different patent
holders own patents applicable for a device).
One IoT patent pool, Avanci, is designed specifically
as an open marketplace where companies and individuals
with essential wireless patents can license their innovations,
and companies creating IoT-connected devices
can access the patented wireless technologies
2
1-12-18 COPYRIGHT 2018 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965
they need in order to have a commercially-viable product.
Avanci is backed by Ericsson, Qualcomm, Interdigital,
Sony, ZTE, and others. Avanci advertises that patents
will be offered for a transparent, flat-rate price for
each device and that this flat-rate price is dependent on
the value the technology brings to the device.
But this pricing model raises a few potential questions,
including whether the royalty rates will remain
fixed regardless of the quantity, quality, and scope of
the patents within the pool. If fixed, the rates must
strike a balance between the interests of licensees and
licensors based on the expected quantity, quality, and
scope of the patents. And although, in theory, making
the rate for a given device dependent on the value the
technology adds is beneficial, determining this ‘‘customized
rate’’ will require additional analysis and negotiation
between multiple interested patent holders, the
implementer, and the pool.
FRAND Licensing Issues Remain
Ultimately, FRAND licensing will likely become more
prominent as standard setting organizations identify
and adopt standards applicable to IoT devices. Today,
there is a large number of competing standards created
specifically for IoT technology. To name a few, there is
the Open Connectivity Foundation (OCF) (which
merged with the AllSeen Alliance), oneM2M for network
layer connectivity, IEEE Standards Association’s
P2413 draft architectural framework, Thread for household
IoT technology, the Industrial Internet Consortium
(IIC) for industrial use, and the International Society of
Automation (ISA) ISA100 Wireless standard. As with
other standards, the patents covering aspects of these
standards likely will be licensed on FRAND terms.
IoT technology creates new FRAND issues beyond
those in the smartphone patent wars, largely due to the
wildly disparate technology that is built into IoT systems
and devices. In the smartphone wars, other than in
the case of Microsoft, competitors like Motorola, Nokia,
and Apple generally sold substitute products where
consumer prices did not vary considerably.
In the IoT space, however, the disparity of sales
prices of consumer devices will be greatly increased because,
for example, an IoT-enabled car will be substantially
more expensive than a WiFi home automation device.
If the same percentage royalty rate is applied universally
to the end price of each device, the royalty rate
will yield a substantially larger royalty payment based
on the sales price of the car than for the home automation
device. A flat-rate amount also is not ideal given the
large disparity in types of devices (and price points)
that will be licensed. A $5 flat fee for WiFi, for example,
may be reasonable for a SUV with WiFi but likely will
not be for a smaller device like an IoT-enabled thermostat.
Moreover, as IoT devices scale and the price of IoT
technology falls (as happened with smartphones), flatrate
royalties will consume a larger amount of the sale
price of a device.
While the underlying concept of requiring patent
holders of SEPs to license on FRAND terms should reduce
disputes, in application, FRAND licensing does
not completely eliminate patent litigation. This is because
legal battles often ensue to determine whether
patents are essential to a standard, and if so, whether
the patents are offered under FRAND terms. Because of
the variety of technological fields of IoT companies,
merely identifying the relevant community of SEP holders
is not straightforward.
Perhaps even more important, there likely will be an
ongoing battle between SEP holders, arguing that their
substantial investment in developing the essential patents
are being unfairly compensated, and SEP prospective
licensees, arguing that the demanded royalty rate is
too high.
Conclusion
The emergence of IoT technology and patents, combined
with the growing number of IoT companies and
business segments, will likely lead to novel issues, new
competitors, and a new battleground for players in IoT
fields. While the nature of IoT—integrating devices
from many distinct technological fields—will be useful
for consumers, the patent-related issues discussed here
will impact the development and adoption of IoT standards
and devices, and will likely lead to an increase of
patent litigation as this emerging industry sorts itself
out.
3
PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 1-12-18
I haven't a clue how to post or link a PDF (I have to host it first??) but I'll copy and paste the article below for those with an interest. Remember, this was written my our lead counsel and top lawyers on our cases.
Keep in mind that when they mention increased litigation due to standards being adopted, they could well be talking about US and our standards and that they have a horse in this race too.
Pasted here:
Reproduced with permission from BNA’s Patent, Trademark & Copyright Journal, 95 PTCJ 311, 01/12/2018. Copyright
2018 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
PATENTS
Ropes & Gray attorneys contend that the technological diversity involved in Internet-of-
Things offerings will create new competitors facing an unbalanced licensing environment,
lead to more litigation, and complicate standards development and adoption.
Internet of Things: Next PatentWar Zone
BY STEVEN PEPE, KEVIN J. POST, AND LANCE W.
SHAPIRO
The Internet of Things, or IoT, has the characteristics
to become the next patent war zone as new standards
are adopted and the convergence of disparate technologies
leads to new disputes. This convergence of technologies
will likely result in an increase in litigation between
both traditional competitors and companies that
historically have not competed. While there are numerous
legal issues associated with the emergence of IoTenabled
technology, patent lawyers and in-house counsel
should be aware of three particular issues.
First, the convergence of different technological
fields and patent licensing schemes may lead to atypical
rates proposed during licensing negotiations, including
very high royalty rates that may prevent a product
from being successful in the market or very low royalty
rates that dis-incentivize future innovation. Second,
the convergence of technology and resulting complications
in licensing negotiations may result in an increase
in litigation. Third, because convergence of technology
may complicate the patent licensing environment for
IoT technology, there may be an increase in patent pool
activity, specifically involving those that directly deal
with IoT-specific issues or technological fields, in an effort
to address the wide disparity in sales prices for IoT
devices. Finally, fair, reasonable, and non- discriminatory
(FRAND) licensing of patents essential to IoT standards
(or standards that relate to IoT technologies) will
become more prominent.
Each of these primary issues is discussed in more detail
below.
IoT Technology and the Consequences
of Convergence
IoT is a ubiquitous term generally describing technology
that is connected, operated, and manipulated
through its connectivity with the internet, and more importantly,
other IoT-enabled devices. Devices that use
traditional, non-IoT technology usually operate as independent
devices with limited connectivity.
Steven Pepe and Kevin Post are partners and
Lance Shapiro is an associate in Ropes &
Gray LLP’s intellectual property litigation
practice in New York.
COPYRIGHT 2018 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0148-7965
BNA’s
Patent, Trademark
& Copyright Journal®
For example, a sport utility vehicle (SUV) in a non-
IoT world could connect to a dealer or manufacturer
through a local network or physical connection, and
typically only for a limited purpose. In the IoT world,
however, an internet-connected SUV can interoperate
with many diverse devices in different ways, such as receiving
over-the-air software updates from the manufacturer,
downloading third-party apps, browsing the
internet, streaming video from Netflix, and communicating
with a driver’s smartphone and other vehicles.
IoT also allows for entire systems of multiple components
and devices to be connected, amassing an immense
volume of shared data that companies can leverage
for the benefits of end users and for their own efficient
and effective operation. Moreover, IoT changes
the way that users interact with technology. For example,
a wearable fitness or smart watch provides an
around-the-clock connection of a user to the internet
and simultaneously collects, processes, and if permitted,
distributes data of the user, such as a heartbeat,
steps, and GPS position.
All of these developments can increase the potential
utility of an IoT device to an end user, but it will also
substantially increase the risk of disputes with new
competitors holding newly applicable patents.
IoT Will Result in Increased Litigation
The emergence of IoT and the convergence of technologies
will lead to an increase in both competitor litigation
and litigation between traditional noncompetitors
who become competitors (or at least encroach
on each other’s technological spaces) through
the emergence of IoT devices. The recent smartphone
patent wars provide an example of how convergence
can result in non-competitors (and even partners) becoming
competitors, and the widespread litigation that
can result.
For example, through 2010, Microsoft and Motorola
had rarely offered competing products—Microsoft was
a software company developing and selling operating
systems for servers and personal computers, and Motorola
was mainly a hardware and telecommunications
company. But with the emergence of Motorola’s smartphones
(which used Android’s OS) and Microsoft’s
Windows Phone 7 mobile phone and Surface tablet, Microsoft
and Motorola became instant competitors.
Motorola licensed its standard-essential patents
(SEPs), such as patents essential to the H.264 video
coding standard, at a rate of 2.25 percent of the net selling
price of the end product. While this program resulted
in royalty rates of several dollars for a typical
smartphone of that time, it would result in a royalty rate
of over $30 for a laptop computer that used Windows
OS. The issue of whether the 2.25 percent rate was
FRAND was ultimately litigated by the parties over several
years and in multiple jurisdictions worldwide. This
real-world example demonstrates just one way in which
unique licensing issues may result from convergence.
For IoT technology, this issue may become more significant
because of the greater diversity of technological
fields involved and their wide-ranging products and
price points. For example, smartphones can interact
with internet-connected thermostats, lights, door locks,
security systems, televisions, refrigerators, wearables,
vehicles, and many more devices that implicate a wide
spectrum of functionality and technologies. Devices
such as these will implicate the technology of many different
companies, including those which have not historically
been competitors. An IoT-enabled thermostat,
as one example, may implicate a variety of communication
technologies, including WiFi, Bluetooth, 3G, or
LTE, that can be used to communicate with not just
smartphones, but also home computers and potentially
even third-party monitoring companies.
The unbalanced alignment of patent portfolios
among newly aligned competitors will likely lead to a
disparity in licensing leverage and potentially increased
litigation. Traditionally, companies in related technological
fields intentionally built their patent portfolios
for the dual purpose of offensive patent assertion and
defensive patent protection. In other words, competitors
in the same field often had patents that were
equally applicable to one another’s products, which often
led to mutually beneficial cross-licensing. In the IoT
landscape—where a technology company cannot or
could not have easily identified its future competitors
and may not have patents that are applicable to a new
competitor’s business —there may not be the same balance
of patent portfolios.
Using the example above, a company that is manufacturing
an IoT-enabled thermostat may not have patents
to assert against a company that is enforcing its
WiFi patent portfolio. This creates an imbalance in negotiating
leverage, eliminates the possibility of entering
into a beneficial cross-license, and ultimately may produce
more litigation.
Patent Pools Emerge
IoT may result in the creation of new patent pools to
mitigate litigation risks. In general terms, a patent pool
can be defined as an agreement among multiple patent
owners to license their patents to each other or to third
parties. Thus, a patent pool can be used to reduce or
eliminate patent litigation between the patent pool’s
members and increase innovation relating to pooled
patents. As noted above, as IoT expands the universe of
a companies’ competitors, it also increases the potential
risk of litigation. This risk, combined with potentially
unbalanced patent portfolios and divergent licensing
programs from company to company, may result in
more companies opting to participate in patent pools as
licensors, licensees, or both.
In simplistic terms, if company A owns patents related
to thermostat technology, company B owns patents
related to WiFi technology, and company C owns
patents related to a cellular technology, then all three
companies, as members of a patent pool sharing these
patents, can each incorporate technology from these
patents into their products under a pool license. Absent
a patent pool, the parties would otherwise separately
negotiate licenses with each other. Patent pools also
can reduce the barriers to entry for cash-strapped new
entrants into the IoT field. A patent pool thus can reduce
transaction costs, and in the context of IoT technology,
align companies within different fields to reduce
the ‘‘patent thicket’’ (where many different patent
holders own patents applicable for a device).
One IoT patent pool, Avanci, is designed specifically
as an open marketplace where companies and individuals
with essential wireless patents can license their innovations,
and companies creating IoT-connected devices
can access the patented wireless technologies
2
1-12-18 COPYRIGHT 2018 BY THE BUREAU OF NATIONAL AFFAIRS, INC. PTCJ ISSN 0148-7965
they need in order to have a commercially-viable product.
Avanci is backed by Ericsson, Qualcomm, Interdigital,
Sony, ZTE, and others. Avanci advertises that patents
will be offered for a transparent, flat-rate price for
each device and that this flat-rate price is dependent on
the value the technology brings to the device.
But this pricing model raises a few potential questions,
including whether the royalty rates will remain
fixed regardless of the quantity, quality, and scope of
the patents within the pool. If fixed, the rates must
strike a balance between the interests of licensees and
licensors based on the expected quantity, quality, and
scope of the patents. And although, in theory, making
the rate for a given device dependent on the value the
technology adds is beneficial, determining this ‘‘customized
rate’’ will require additional analysis and negotiation
between multiple interested patent holders, the
implementer, and the pool.
FRAND Licensing Issues Remain
Ultimately, FRAND licensing will likely become more
prominent as standard setting organizations identify
and adopt standards applicable to IoT devices. Today,
there is a large number of competing standards created
specifically for IoT technology. To name a few, there is
the Open Connectivity Foundation (OCF) (which
merged with the AllSeen Alliance), oneM2M for network
layer connectivity, IEEE Standards Association’s
P2413 draft architectural framework, Thread for household
IoT technology, the Industrial Internet Consortium
(IIC) for industrial use, and the International Society of
Automation (ISA) ISA100 Wireless standard. As with
other standards, the patents covering aspects of these
standards likely will be licensed on FRAND terms.
IoT technology creates new FRAND issues beyond
those in the smartphone patent wars, largely due to the
wildly disparate technology that is built into IoT systems
and devices. In the smartphone wars, other than in
the case of Microsoft, competitors like Motorola, Nokia,
and Apple generally sold substitute products where
consumer prices did not vary considerably.
In the IoT space, however, the disparity of sales
prices of consumer devices will be greatly increased because,
for example, an IoT-enabled car will be substantially
more expensive than a WiFi home automation device.
If the same percentage royalty rate is applied universally
to the end price of each device, the royalty rate
will yield a substantially larger royalty payment based
on the sales price of the car than for the home automation
device. A flat-rate amount also is not ideal given the
large disparity in types of devices (and price points)
that will be licensed. A $5 flat fee for WiFi, for example,
may be reasonable for a SUV with WiFi but likely will
not be for a smaller device like an IoT-enabled thermostat.
Moreover, as IoT devices scale and the price of IoT
technology falls (as happened with smartphones), flatrate
royalties will consume a larger amount of the sale
price of a device.
While the underlying concept of requiring patent
holders of SEPs to license on FRAND terms should reduce
disputes, in application, FRAND licensing does
not completely eliminate patent litigation. This is because
legal battles often ensue to determine whether
patents are essential to a standard, and if so, whether
the patents are offered under FRAND terms. Because of
the variety of technological fields of IoT companies,
merely identifying the relevant community of SEP holders
is not straightforward.
Perhaps even more important, there likely will be an
ongoing battle between SEP holders, arguing that their
substantial investment in developing the essential patents
are being unfairly compensated, and SEP prospective
licensees, arguing that the demanded royalty rate is
too high.
Conclusion
The emergence of IoT technology and patents, combined
with the growing number of IoT companies and
business segments, will likely lead to novel issues, new
competitors, and a new battleground for players in IoT
fields. While the nature of IoT—integrating devices
from many distinct technological fields—will be useful
for consumers, the patent-related issues discussed here
will impact the development and adoption of IoT standards
and devices, and will likely lead to an increase of
patent litigation as this emerging industry sorts itself
out.
3
PATENT, TRADEMARK & COPYRIGHT JOURNAL ISSN 0148-7965 BNA 1-12-18
9
