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13 June 2018PatentsPeter Koch

Standard-essential patents: help or hindrance in the IoT?

The internet of things (IoT) will result in an increase in connectivity between devices. In order to enable seamless communication of devices with each other, regardless of manufacturer, operating system, or other technical components, standard based communication is key.

This is generally achieved by the use of patents which have been declared essential to use of the standard: standard-essential patents (SEPs). In turn the holder of a SEP must commit to license it on fair, reasonable and non-discriminatory (FRAND) terms.

In the past, this has not prevented litigation, in particular in the area of mobile communication, which has become widely known as the “smartphone wars” and has been responsible for a variety of decisions trying to determine whether the parties are in fact FRAND compliant—and what that actually means.

As more types of products with connectivity are developed which will have to make use of standards, it is expected that licensing negotiations and subsequent SEP/FRAND litigation risk is not only increasing but becoming more complicated, which has been noted also by the European Commission (EC).

This leads to the question of whether standards and issues in relation to FRAND as currently applied by courts will delay the uptake of new technologies, standardisation and the rollout of the IoT, and are thus more of an obstacle than an enabler?

IoT and standards

It is expected that the digitisation of the economy is going to create great opportunities for those who participate. The EC reported in its 2017 communication on SEPs that the economic potential of IoT applications in devices for humans, homes, offices, factories, worksites, retail, environments, cities, vehicles and the outdoors will be up to €9 trillion ($10.4 trillion) per year by 2025 in developed countries.

According to PwC and the Boston Consulting Group (in 2015), the digitisation of products and services have the potential to add more than €110 billion in revenue to the economies in Europe per year over the next five years.

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