The Internet of Things (IoT) – a term used to describe the interconnectivity of electronic devices via the internet or wi-fi – is no longer an entirely new phenomenon. Smart fridges, meters, watches and countless other connectable gadgets which have the ability to store and exchange data have been at the forefront of discussions by tech experts over the last few years. The next wave of additions to the the IoT includes driverless cars and smart cities – and more as yet unimaginable changes may follow.

Issues such as security and safety, data protection and regulation have added a dash of reality to the otherwise positive picture of the IoT. Nevertheless, an increasing number of companies are incorporating some form of connectivity into their business plans. The most recent Ericsson Mobility Report for example, forecasts that there will be approximately 28 billion connected devices by 2021, of which 16 billion will be related to the IoT.

However, one area that may pose a significant barrier to companies wishing to break into the emerging market of the IoT is in the arrangements to be put in place for the licensing of relevant patents and software. The market for connected devices could be at risk of being ‘held up’ by IP disputes. One question that has not yet been comprehensively answered is how makers of connected devices can acquire the licences necessary for their IoT products in a simple and efficient way.

A possible solution has recently been introduced by a new licensing platform called Avanci. Backed by Ericsson, Qualcomm and Royal KPN (among others), Avanci builds on the traditional idea of the patent pool. It aims to offer flat rate licences on FRAND terms for a collection of standard essential wireless patents, with the aim of removing the need to negotiate multiple bilateral licences. If it works, this could speed up the expansion and uptake of the IoT.

The uptake of this initiative is yet to be seen. Its success is likely to depend upon a number of factors including:

  • Whether the licensors are able to find a mutually agreeable pricing structure;
  • Whether the price offered is acceptable to device manufacturers;
  • The number of patent holders offering their backing to the initiative; and
  • The willingness of manufacturers to take a licence without forcing the patentees to resort to litigation and potentially costly FRAND disputes;
  • How the platform deals with the relationship between its prices and those applicable in any pre-existing bilateral deals.

It is already evident that some aspects of Avanci’s pricing may be controversial – for example, royalty rates will remain fixed regardless of how many patents are added to the platform. This may sound like good value for licensees, but will it offer sufficient incentives for new licensors to join and make the platform a genuinely one-stop shop? Or does it suggest that the early prices are likely to be rather high, to allow headroom for further patents to be added. The use of fixed prices per device rather than percentage rates could also be contested by manufacturers of lower value devices, in particular if they are staring down the barrel of a patent infringement suit.

We will be continuing to monitor this fascinating space…