In recent years many smartphone manufacturers have battled one another in IP disputes to try and gain a commercial advantage in a rapidly expanding market. At the peak of Samsung and Apple's IP battle there were around 50 IP disputes globally. Following maturity in the sector, whilst little skirmishes continue, the battle is far less fierce than it once was.
A new IP war?
In June 2015, two wearable technology market leaders locked horns in what could be the start of a new global controversy. Jawbone, the $3 billion valued company, hit Fitbit with a patent infringement suit, alleging that Fitbit is infringing three of its US patents. Jawbone is seeking both damages and an injunction to stop Fitbit from selling many of its products in the US.
The three patents relate to various technical features within fitness and health tracking bands:
- US 8,446,275 relates to the app which receives and processes the data from a smartband.
- US 8,073,707 relates to the combination of the smartband and the app for reporting physiological information to the user.
- US 8,398,546 relates to the combination of the smartband and the app, but this time for managing a user's weight.
The final two patents were purchased in April 2013 as part of the $100 million take-over of the Pittsburgh based wearable tech pioneer BodyMedia by Jawbone's parent company, AliphCom.
As market leaders, both Jawbone and Fitbit have invested vast amounts of money in R&D and protected this investment with patents. In fact, Jawbone says it has spent more than $100 million on R&D and has hundreds of patents. Fitbit hits back saying it too "independently developed and delivered innovative product offerings". Fitbit says it has more than 200 patents and patent applications of its own and that it would "vigorously defend itself against these allegations". This suggests a counter suit is quite possible, and perhaps we should brace ourselves for a new IP war: both these companies clearly understand how to use their investment in patents in both an offensive and defence manner.
Given that the dispute has arisen in another fast paced market, could the dispute between Jawbone and Fitbit take a different path to that of Apple and Samsung?
Let's look at the IP held by each participant in this dispute. EnvisionIP has released analysis of the types of patents owned by Jawbone and Fitbit in the US, highlighting a marked difference between each company's approach to IP, in particular patents.
The first difference is in how each company obtains its IP rights. Jawbone acquired 147 of its 156 US patents when it took over BodyMedia. Most of Fitbit's IP has been generated in-house, with a seemingly much smaller proportion being acquired.
The second difference lies in where each company considers the innovation in their products to be. Roughly half of Jawbone's patents are design patents, protecting the look of the product. This follows the quirky design of many of Jawbone's products, such as the fitness bands that clasp over the wrist and the unique surface decoration which runs through many of its products. On the other hand, Fitbit has just over 10% of its portfolio concentrated on the look of the product and a much larger percentage (over 50%) protecting the software within the app and the wearable device.
As Fitbit has focussed on protecting the functionality (rather than appearance) of its products, Fitbit can assert its IP against unique functionality of a wearable device rather than its particular form-factor.
This puts Fitbit in a very strong bargaining position in counter-suing in an emerging market where stopping a competitor device from having certain functionality can quickly erode market share.
Indeed, one can speculate that this composition of IP may partly explain why Jawbone has brought this suit in the first place. In what on the face of it seems a counter-intuitive move, Jawbone may have struck first as it wished to protect itself from future patent disputes with Fitbit. The logic is quite simple: if Jawbone brings a patent infringement suit early, Jawbone and Fitbit can negotiate a settlement where they each agree to cross licence their patents to one another. This early agreement allows Jawbone to cease worrying about Fitbit's seemingly larger utility patent portfolio and instead to focus on the risks brought as giant companies such as Google, Apple, Sony, Qualcomm and the like enter the wearable technology market, as each of these have much larger patent portfolios than Jawbone and Fitbit combined.
Alternatively, of course, this suit could have been brought for more conventional reasons. Fitbit has just launched its first IPO and bringing an infringement action against a company about to launch an IPO is not uncommon. This is for two main reasons. The first is because the uncertainty associated with a suit like this can negatively impact the IPO and thus harm your competitor. Secondly, after an IPO, companies tend to be cash rich, meaning that they are wealthy targets.
In a remarkable prediction, Fitbit noted in its IPO filing in May 2015 that it operates in a "highly competitive" market and that "competition in [the] market will intensify in the future".
IP strategies in the wearable tech market
Clearly, it is imperative that a company in the wearable tech space protects all novel aspects of its products. In the case of Jawbone, for example, the surface decoration applied to many of its products is unique and thus capable of design protection.
With regard to protecting novel functionality, it is important where possible, to include claims that cover the software running on the wearable device without reference to the wearable device itself. This enables the patent proprietor to sue the manufacturer of the software or the wearable device for direct infringement of their patent. On the other hand, if the set of claims is unnecessarily directed to only a combination of both the smartphone and the wearable device then the patent proprietor would be restricted to suing any competing manufacturer for contributory infringement, which is less desirable.
Of course, once a company has secured IP, commercial value needs to be extracted from it. Looking back to the smartphone wars, one way in which Samsung and Apple tried to extract value was to use the courts to try and block one another from selling in different markets. This however had limited success. Typically, by the time the court had decided to grant an injunction stopping the sale of a particular product, that product was already outdated and sales were consequently limited, reducing the impact of the injunction considerably.
Furthermore, although there were some huge damage awards (most notably the $1 billion award to Apple which was subsequently reduced on appeal), the cost of the legal wrangle and awards to the other side ate into pay outs for damages considerably. On reflection, are there better ways of extracting commercial value from IP in the wearable tech space?
Court proceedings are a very powerful tool. However, the options open to the court in terms of settlement are quite limited. The court can order damages and injunctions stopping the sale of competing products in a public proceeding. However, the downside of this is that the cost consequence to both parties of a full trial, although less than it once was, is still high. Also, as most defendants will challenge the validity of the IP, if such a challenge is upheld, the IP right holder will not only lose the dispute but may also lose their IP right. One common approach to settlement out of court in the electronics sector is, of course, cross licencing, as noted above.
Other dispute resolution mechanisms are possible which do not preclude subsequent court actions should the need arise. One such mechanism is mediation. Mediation is a negotiation between the disputing parties with a neutral third party assisting the negotiation to reach settlement. This type of dispute resolution is cheaper than litigation and allows broader commercial discussions to be had. This is particularly useful for companies in fast growing markets such as wearable technology in that many more options are open to the participants to resolve the dispute. Rather than the limited (albeit powerful) mechanisms open to a court, participants can be creative in settling the terms of a resolution, to involve all aspects of the company. Further, resolution can be reached quite quickly after the mediation process has commenced. This is particularly useful in a fast-paced market such as wearable technology.
So, as Jawbone and Fitbit dust off their IP gloves and throw their first legal punches, it will be interesting to see if the dispute actually escalates to the global war of Apple and Samsung. It may well be that their competitive strategies will allow both sides to take a different tack.