Intellectual Property Litigation and the Internet of Things

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The Internet of Things (IoT), namely the interconnection of computing devices embedded in physical objects to allow for remote monitoring and control, has moved into the mainstream during the last few years, with broad applications in everything from agriculture to personal fitness. The combination of cheaper and more efficient communications and processing technology and more mature software platforms has made the incorporation of IoT technology practical and efficient for smaller entities and entities outside of traditional “technology” oriented areas.

Unfortunately, as with all new technology, there are attendant risks. Just as with the mainstreaming of web technology and smartphones, both suppliers of IoT components and deployers of IoT systems risk exposure to intellectual property liabilities. In this article, we attempt to address some of the risks and how best for the parties involved to protect themselves from liability.

Patent Litigation Activity and the Internet of Things

Between 2016 and 2017 over 700 patent litigations were filed related to IoT technology.[1]  The vast majority of these suits were filed by Non-Practicing Entities (NPEs) who did not practice the patented technology commercially. In some cases, these may be early innovators who were unable to commercialize their technology and are seeking to monetize their intellectual property; in other cases, the plaintiffs may be dedicated patent monetization entities who have acquired the asserted patents.

These suits may present particular risks for IoT deployers and component suppliers for several reasons:
 

• First, the defendants may be smaller entities or entities not in traditional technology spaces who are not seasoned patent litigation defendants.
• Second, IoT deployers often do not make the accused technology and may not have the information necessary to defend themselves effectively against patent infringement claims.
• Finally, the multi-component nature of IoT patent claims may present complex indemnification and defense issues for both deployers and vendors of IoT technology.

For example, take U.S. Patent No. 6,594,579, which was the subject of a declaratory judgment action in the Northern District of Ohio.[2] The claims of the ‘579 patent recite monitoring fuel-efficiency related metrics in a vehicle (speed, miles traveled, fuel consumption, etc.), transmitting those metrics to a remote server, and using those metrics to analyze the vehicle’s fuel efficiency. The claimed system involves at least the following components:
 

• Embedded automotive sensors to measure the vehicle characteristics
• A wireless modem to transmit the measured values
• A database for storing information collected from vehicles in a fleet
• Analysis software

A real world deployment of these components might also include some manner of terminal or user interface for reviewing the analyzed results and even integration into more general fleet management software. 
Because no single company is likely to have this type of capacity in-house, the infringing system may be created from components purchased from multiple vendors. This presents significant issues in terms of assigning liability and gathering the information necessary to effectively defend the IoT deployer from infringement claims.

Indemnification and Third Party Liability

A defendant charged with patent infringement for use of a third party’s technology might normally seek indemnification from the vendor who provides them with the infringing component. Similarly, a component vendor having to indemnify against such claims knows how its products operate and has the information and expertise to defend itself effectively.

However, the complicated nature of IoT infringement claims can make this approach problematic. A patent infringement defendant may have multiple providers for the accused system and need to carefully examine the indemnification terms of its contracts. Many indemnification terms are limited to infringement claims arising solely/primarily out of use of the purchased components and exclude systems that add to the functionality of the purchased components.

Similarly, a component vendor that has agreed to broad indemnification terms may find itself defending an infringement suit based on unexpected uses of its technology in combination with third-party technology. In addition to the additional cost exposure, the component vendor may not have the in-house technical expertise

Accordingly, these possibilities require that both vendors and IoT deployers exercise care in the indemnification terms to which they agree. Companies deploying IoT systems may wish to negotiate the broadest indemnification terms to ensure they are not left without indemnification. Another alternative would be to utilize a single system vendor or component integrator who can accept full responsibility for any infringement arising from its deployed designs.

Conversely, component vendors should be proactive in seeking indemnification terms that protect them from potential exposure for infringement arising from combined systems.  Depending on the nature of the relationship, vendors may wish to fully investigate the intended deployment of their technologies to ensure they are not potentially forced to defend and indemnify their customers against complicated infringement claims involving complex multi-component systems.

Preventing and Defending Against IoT Infringement Claims

In addition to ensuring sufficient indemnification, parties should, to the extent feasible, try to avoid known threats. To the extent that a party’s competitors have been the target of infringement suits, it may be worthwhile to seek a freedom-to-operate opinion from counsel. Such an opinion can assess whether a party’s technology potentially infringes known patents and suggest modifications to further shield against liability. Such opinions can also have the added benefit of protecting a party against charges of willful infringement.

Should a patent-holder bring suit, several developments over the past few years have made it significantly easier to defend against IoT-based infringement claims. First, patent claims directed towards information management functions typical to IoT systems may be susceptible to patent eligibility challenges under 35 USC §101 and can be resolved under early motions to dismiss. Second, patent claims directed towards software and network functionality have not enjoyed high success rates in Inter Partes Review challenges before the US Patent Office. Finally, the Supreme Court’s 2017 TC Heartland decision has made it more difficult for plaintiffs to bring suit in their venues of choice. These three factors may place defendants in a stronger position defending IoT-based patent infringement claims and may make it easier to obtain settlement on favorable terms or obtain resolution without extensive litigation.

For more information, contact Byron Wasserman, Tom Walsh or a member of our Internet of Things Industry Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.