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IOT & The Patent Wars to Come

May 11, 2018

(Disclaimer – I am not a patent expert, or an attorney and I am not giving legal advice)

 

“Si vis pacem, para bellum“ – “If you want peace, prepare for war.”

 

Internet of Things projects are hitting a tipping point in 2018. Most companies now have some level of understanding of the power of data from connected products and services to reduce costs, increase revenue and simplify regulatory compliance. Market potential and growth attracts intense competition from a variety of new entrants and existing companies. The larger the market, the fiercer the fight. But most companies are very unprepared for the big fight to come – patent wars.

 

Carl von Clauswitz, the Prussian general, famously said that "war is the continuation of politics by other means." A good way to look at offensive and defensive patent activities is the continuation of business by other means. Patents are a critical part of any business, especially around activities that touch technology. IoT is still early in its evolution, but we can learn a few lessons from an industry that helped pave the way for IoT - smartphones.

 

Business Insider estimated the total global revenue for smartphone sales in 2012 was just over $200B. The chart below (courtesy of Verizon) provides a high-level view of the patent assertion activity at that time as part of the larger smartphone market competition.

 

 

 

IDC predicts that worldwide spending on the Internet of Things will reach $772.5 billion in 2018, and by 2021, global IoT spending is expected to total nearly $1.4T in hardware, software, services, and connectivity that enable the IoT. IoT use cases gaining the greatest investments in 2017 included Manufacturing Operations ($105B), freight monitoring ($50B), and production asset management ($45B).

 

The bottom line is that the IoT market value is already worth almost four times as much as the market which produced the complex patent situation illustrated in the map above! The greater the increase in the value of the IoT market, the more important patents will become.

 

Large companies have understood the value of patents for many years, but smaller to medium sized companies tend to put less emphasis on patent activities. In addition to the money that it takes to write, file and maintain patents, it also requires a particular set of skills and an organizational culture that supports and encourages patent creation.

InterDigital has been one of the best in the patent business for many years. (disclosure - I formerly was the EVP – Solutions at InterDigital) All the way back in January 2013, InterDigital announced Convida Wireless, a large joint venture with Sony and Stephens Capital to develop patents and a platform specifically around M2M/IoT.

 

(https://www.businesswire.com/news/home/20130103005665/en/Sony-InterDigital-Team-Launch-Machine-to-Machine-Focused-Joint) As the Chairman on Convida, I had a front row seat to see the benefit of developing intellectual property in a very early market.

 

Ericsson announced an IoT patent licensing platform in early 2016 (https://www.ericsson.com/en/press-releases/2016/2/ericsson-establishes-industry-patent-licensing-platform-for-iot) . The former head of licensing for Ericsson then launched Avanci, which brings together IoT patent holders to make it easier for licensees to obtain license coverage with published licensing rates. In December 2017, Avanci announced patent license pricing of $3-$15 per car depending on the amount of wireless technology. It also announced its first licensee, BMW.

 

Because IoT is so fragmented along industry segments, you can expect to see companies like Avanci emerge in every major vertical. This development is both a threat and a great opportunity. Much of the innovation in IoT is coming from companies with deep expertise in their specific industry. The solutions that they create can be great generators of intellectual property. Most of this IP will only be used for operational and defensive purposes, but these assets will be essential as the traditional players in patent licensing become more active in IoT.

 

A final thought about patents. The Silicon Valley Bank (SVB) is a big player in providing financing to growing technology companies. Patents have become a huge part of the collateral on these loans. Potential strategic and financial buyers of companies also take patents into account when evaluating both assets and enterprise value. If you do not want to create a strong patent program to defend your company, create the program to increase the value of your organization to any potential partner or acquirer. 

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