AIPLA 2018: The challenge of licensing in the IoT
Innovation in the internet of things has “outpaced and challenged the legal frameworks that have protected it”, according to Bryan James Mechell, principal at Robins Kaplan, who was speaking yesterday.
The IoT, artificial intelligence (AI) and financial considerations were just some of the topics discussed at yesterday’s “Back to The Future of Patent Licensing in 2019 and Beyond” panel at the 2018 AIPLA Annual Meeting in Washington, DC.
The pace and breadth of development in the IoT space is incredible and has stretched into nearly every facet of our lives, noted Mechell. Unfortunately, though, this also means that there are very important questions that the law is struggling to keep pace with.
This “enormous and sometimes disruptive growth” has raised some challenges, driven by factors such as an increased overlap and competition between previously disparate sectors such as the motor industry and IoT industry, as well as new risks to personal privacy and questions of liability, he said.
Parties negotiating in the IoT space frequently encounter challenges with section 101. Those looking to license these patents need to “be aware of the heightened and continued risk for licensing computer-implemented inventions in the space”, added Mechell.
It’s also vital to understand that IoT devices gather and share large volumes of data (‘big data’) and the complex relationships between these devices raise issues over who owns and controls the data.
Licensors and licensees also need to carefully articulate how liability is attributed.
Mechell questioned: “Who bears liability if the IP infringement occurs during the machine learning stage of the artificial intelligence operation?”
He said it’s likely that more liability will be attached to vehicle manufacturers in the future, because it’s the only way people are going to be willing to give up control of their vehicle.
“Given the risks we’re seeing developing in case law, it is critical to understand there are new risks at play in this space, and to focus on including provisions on the contours of risk,” he finished.
Licensing tips
Heather Brady, senior patent counsel at Johnson & Johnson, outlined key issues to be aware of when drafting patent licences.
“You don’t want to think about what may happen but it’s very important to do so,” said Brady, speaking on the topic of disputes. “A dispute resolution clause can help set forth the expectations at the beginning of the relationship, so you’re not relying on the courts down the road.”
Brady then turned to the Bayh-Dole Act, which allows universities to retain the rights to their inventions and commercialise the inventions themselves.
“The legislation requires the licensor to give preference to small business licensees unless it’s unfeasible … It is good practice to seek representation from the licensor that it has complied with the requirements of the act, or obtained a waiver of that requirement.”
Under the legislation, the government retains ‘march-in rights’, meaning that it can take control of the invention and require the grant of additional licences to other “reasonable applicants”.
While Brady said this was “very rarely invoked”, it does exist so it’s advisable for licensees to seek assurances on this issue.
Finally, Jeffrey Mote, shareholder at Greenberg Traurig, outlined best practices for calculating and collecting royalties.
Ease of administration is a benefit of a fixed royalty—so, while one or two patent licences may not be a big deal, ease of administration becomes important with a whole portfolio, said Mote.
He added that while licensees typically receive a discount when paying upfront, there is the danger of patents being invalidated by inter partes reviews down the line.
Mote suggested that field-of-use restrictions should be affirmatively stated, in a manner such as “this is what you have, any use beyond constitutes a breach of the licence agreement”.
“Preserve your ability to bring a breach of contract claim against a licensee rather than having to resort to a patent infringement claim,” he advised.
All participants were speaking in a personal capacity and Chris McWhinney, partner at Sullivan & Worcester, moderated the session.
The 2018 AIPLA Annual Meeting finishes today, October 26.
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