November 20, 2019

The smart features included in cars, refrigerators, or even microwave ovens can quickly become a nightmare for device manufacturers if the patent protection for the standardized technology they use is ignored. Sami Aromaa, European patent attorney at Kolster, has some invaluable IPR tips for smart device manufacturers.

German company Daimler, renowned as the Mercedes-Benz car manufacturer, and the Finnish information technology firm Nokia were involved in one of the best known patent disputes of recent times in relation to networked vehicles. Daimler uses third-and fourth-generation standardised mobile phone technology, including numerous tech solutions developed and patented by Nokia. 

Other car manufacturers using network technology in their vehicles have also sown up licensed agreements. For example, Audi and Porsche have this year secured licenses for 2G, 3G, and 4G technology.

“This issue affects the industry as a whole. Patented radio modems that utilize standardized technology are now in-demand for various so-called smart devices; i.e. those that connect to a network. It’s important, therefore, for OEMs to be aware that exploiting technology without a license can lead to unexpected complications”, says Kolster’s European patent affairs attorney Sami Aromaa.

Nevertheless, these kinds of devices are often manufactured in such a way that the technology licensing requirement is not taken into account.

“One potential consequence is that the patent owner's licensing team contacts the OEM and offers an operating licence covering use of the patented standardized technology. The costs of such licenses may come as a surprise to many companies, especially smaller ones whose budget can’t stretch to the sums required.”

Licencing fees depend on the volume of the products sold, the technologies used, and the size of the licensable patent portfolio. The costs may vary from tens of thousands to millions of euros. 

What does a licensing agreement include? Read our expert tips.

A modem utilizes patented technology

As the Internet of Things (IoT) is becoming more widespread, an increasingly diverse range of devices are connecting to the Internet. Wireless connections are typically used by devices to add networked functionality, and the 5G network in particular is enabling more devices to go online.

For example, over the last decade, it has become more common for cars to be fitted with features that allow owners to turn on the car heating or control the lock remotely via a mobile app. For this to succeed, cars must have a cellular modem that connects to the car manufacturer's server.

“The self-driving vehicles of the future will be increasingly dependent on fast radio connections to detect objects in the environment and gather information on traffic", says Aromaa.

The IoT is also becoming increasingly common in smart homes. For example, refrigerators can be fitted with features that allow the owner to check the contents of the fridge while they are at the grocery store and buy the missing ingredients for their dinner that evening.

“The data can only be sent from the refrigerator to the owner's cellphone if the refrigerator is fitted with the required sensors, such as a camera, in addition to a data transfer modem. Home devices typically connect to a server using a WiFi connection that is also standardized and protected by patents”, Aromaa explains. 

The IoT market is expected to become so large over the next decade that IoT device manufacturers are becoming increasingly interested in standard patent holders.

The radio interface between devices and base stations is the key

According to Aromaa, the factor that sows everything together, from the perspective of IPR, is the radio interface and the traffic between an Internet-enabled device and its base station, which is standardised and protected by patents.

“When a device manufacturer installs a radio modem in its device and the modem operates using standardized technology, the patent holder has the right to demand licence fees.”

Aromaa highlights the huge sums of money that wireless network developers are currently investing in product development to enable increasingly large amounts of data to be transferred more efficiently and to serve an ever larger user base. The various forms of the IoT, Industrial Internet, Big Data, and Artificial Intelligence (AI) largely rely on devices being networked.

Licensing at the heart of IPR strategies

As soon as a company begins using a standardized network technology in its devices, the alarm bells should start ringing – and the sooner, the better. Preparing for a licensing agreement needs to be an integral part of such a company's IPR strategy.

“The smart thing for companies to do is be proactive and anticipate any potential licensing needs relating to the technologies used in their products as part of their IPR strategy. An IPR strategy can predefine the measures and resources needed when negotiating licensing agreements. If these aspects are not taken into consideration and device manufacturers don’t react to a patent holder’s license offer, patent infringement litigation may be lurking around the corner. Since licensing fees depend on sales volumes, small companies can, to a certain extent, fly under the radar, especially when they only operate in Finland”, Aromaa explains.

However, growth companies looking to internationalise can no longer rely on their small scale to avoid running into these kinds of difficulties. This makes a comprehensive IPR strategy, including coverage of the potential patent issues affecting the technologies a company may be using, an integral part of any growth and internationalisation efforts.

FRAND terms regulate technology licensing

The licensing of standardized technology has its constraints. Before anyone can challenge the unauthorised use of a technology, and in line with the so-called FRAND terms (Fair, Reasonable, and Non-Discriminatory), a licensing option must be tabled.

“The FRAND terms compel any entity seeking to patent a standardized technology to grant licences for the technology in question to third parties, including its competitors. The FRAND terms also define the scope of any licensing negotiations. The patent holder must offer OEMs a licence before it can claim a patent infringement”, Aromaa notes.

He goes on to highlight the importance of drawing on the experience of industry professionals familiar with the nuances of a particular industry sector when preparing an IPR strategy.

"We help manufacturers develop IPR strategies that support their business and growth plans and defines the most appropriate business models and the resources required in various scenarios. We can also act as advisors when a company is invited to enter into licensing negotiations. It is also worth remembering that the FRAND terms impose certain obligations for all parties involved in these negotiations”, Aromaa emphasises. 

Encountered a licensing issue? Get in touch with Sami:

Contact us

Sami Aromaa
sami.aromaa@kolster.fi
+358 40 56 34735


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