From wristbands that count your steps, to skin patches that measure your sun exposure, a wide range of products are entering the wearable-technology market and raising new questions about intellectual property (IP) claims and protection. In this hoganlovells.com interview, Katie McConnell, counsel in the Hogan Lovells London office, provides an overview of the unique challenges market players face in the highly competitive field of wearable-technology. Among many other topics, she discusses the benefits of licensing other peoples’ patents; why it can be worthwhile applying for a patent, even if you don’t get it; and the importance of fashion trends.
What is wearable-technology, and how large is the market for it?
McConnell: With wearable-technology, we’re talking about computing technology or access to computing technology in something that you wear. Normally, these technologies have some sort of portable data monitoring ability that can record things like your activities, sleep patterns, or blood pressure. They provide real-time feedback and have some communication functionality, which is important when we’re looking at what sort of IP protection there might be for these devices.
Wearable devices are predicted to grow and grow as an industry over the next five years. In 2017, the International Data Corporation anticipated that 121.7 million devices would be shipped in 2017, which is a 16.6 percent increase over 2016. In the next five years, they expect that pace of growth to continue, with shipments reaching 229.5 million units by 2021.
And there’s a trend that more smart devices will be sold. There’s something interesting going on with the price, too: in the next few years, as the devices become smarter and include more technology, it’s expected that the average selling price will go up, but then as that becomes more the norm, it’s expected to drop off again. So perhaps something similar to what we’ve seen in the mobile device market.
What does this mean in terms of IP protection for wearables?
McConnell: What we’re seeing with these different players and technologies coming together is a convergence of lots of companies that have been in related industries — in some cases, not-so-related industries — and new players coming into the market, and they’re all fighting for the same customers. There is serious competition, and that means it’s important to get your IP protection right. It’s a good way of distinguishing your product with the right brand or unique and proprietary technology, or protecting against other people copying. It’s a good way of ensuring you get investment and collaboration with other companies, because you have something valuable to offer them, and it helps protect your growth as a company.
But it’s also really important because even if you don’t get IP protection, other people will. And there are plenty of companies out there that will be in the market not just for their own products, but to license IP and get money that way, or, potentially, to fight and drive companies out of the market through litigation if they don’t want to licence their IP.
Are there wearable-technologies that are excluded from patentability?
McConnell: Patents are great protection if you have good technology, because they give you a monopoly against someone else using your patented technology. But in this area, there are a couple of exclusions to patentability that may bite, such as for wearable medical devices, exclusions in patentability for methods of treatment and diagnostics, and in the context of unique technology in software apps, exclusions in patentability of computer programs, “as such.” It’s possible to apply for patents in these areas, but you need to make sure that the patent is carefully drafted so that it works around the exclusions.
There may also be tactical questions about where you apply for your patent. For example, when you’re looking at the computer program exception, the European Patent Office tends to be more forgiving of patent applications in that area than the UK Patent Office. So strategically, it may be better to get a European patent that has application in the UK, at least from the perspective of getting a patent granted.
What are some of the challenges when applying for patents for wearables?
McConnell: With so many competitors in the market, market entrants may encounter competition with other people trying to develop similar products, who have made their patent applications first. Because a lot of this technology is being repurposed from other fields, there is also a real issue that the technology is already patented. Communications technology, for example, has patents that go way back, which means that things you’re doing now are unlikely to be new, or even if they are new, are unlikely to be inventive in areas where we’ve already seen the same sort of functionality — in mobile devices, for example.
And even if you get a patent through to grant, a lot of high-tech patents, particularly in the mobile phone sector, tend not to stand up to challenge, because they’re often protecting incremental developments and don’t show a big enough jump to meet the normal non-obviousness test that we need for patentability.
But that doesn’t mean it’s not worth seeking patent protection, because simply having applications can be very useful to show potential collaboration partners or acquirers that there’s value and something unique to your business, and you’ve got some sort of protection. Also, if it comes to licensing negotiations or litigation, it gives you something to potentially fight back with or give some semblance of more value with.
We’ve also learned from the mobile patent wars that you don’t necessarily need to have good patents to make someone’s life difficult. If you’ve got a lot of bad patents and you’re prepared to litigate on them, and if you’ve got the money to litigate on them, you can bog down other companies in years of litigation, even if the end result doesn’t look certain. There are strategic ways that you can play the patent litigation system that support that kind of tactic.
Another potential issue is where we’re looking at wearable devices as a fashion item, and fashions are changing. Anything other than the core technology is likely to be too quick-moving to be worth waiting to get a patent. It can take three, four, or more years to get a patent to grant, and you can’t enforce your patent until it’s granted. So it might not be the right protection in this field, but that does not mean people aren’t getting and exploiting patents.
Have patent filings for wearables been increasing?
McConnell: Yes. A Lux Research report showed the growth rate of patent filings in this field at 40 percent between 2010 and 2015. What is quite interesting is how many different players own patents in each sector: we’ve got established technology companies, chip manufacturers, mobile manufacturers, newer wearable companies, medical device companies — a real mix of companies in this space.
The fact that there are lots of other players means that when you’re looking at IP protection, you need to be looking at what other people are doing as well. A number of these established players hold strong patent portfolios. New entrants into the industry — or any companies in the industry — need preparing for what to do about licensing, and potentially fighting, other peoples’ patents.
How do we advise our clients to prepare?
McConnell: One way is to have your own portfolio of patent applications, because it may give you an arsenal with which to negotiate or fight back. That can be through your own organic development, or acquiring companies or being acquired as a company to consolidate patent offerings.
Another way is being prepared to take licenses of other peoples’ patents. So when you’re looking at business planning, you need to look at how much money you might have to put aside to take those licenses and be able to operate in the field. And potentially, have a litigation strategy ready to challenge other peoples’ patents, either defensively or offensively, as a way of challenging competitors. That means having a fighting fund because patent litigation is often very expensive.
You should also note that in some areas of technology, particularly communications technologies, you’re likely using something that’s standardized and that someone else has developed, because with most of these devices, you won’t want to develop your own new proprietary communications technology, because that will limit your product’s interactivity with anyone else’s.
There’s a benefit to standardized technologies, in that most standards bodies require people who own patents that use standardized technology to offer licenses on fair, reasonable, and non-discriminatory terms. So you should be able to get a license to the IP you need without having to find other technology. But it does mean that there are advantages for people holding those patents if they want to have fights with you because they think what you want to pay is not fair, reasonable, and non-discriminatory. There’s a whole body of competition law about how the licensing negotiations should proceed and when you can and can’t fight and potentially stop someone from using that technology.
Non-practicing entities (NPEs) have made impacts in other markets. Do you anticipate them entering the wearable-technology sector as well?
McConnell: We’ve seen it happen in the mobile phone sector and I can see the potential for another battleground in the wearable sector. The NPE strategy is to apply maximum pressure and get their settlement. One way they do this is to take patents that have broad claims and probably infringed but may not be valid, to somewhere like Germany.
The German patent system is bifurcated, which means you look at infringement separately from looking at whether or not the patent is valid. At the moment, infringement proceedings take place much more quickly than validity proceedings, which means that if you get sued for patent infringement in Germany, there’s a quick infringement trial, and unless there’s a very strong invalidity case, the German courts won’t usually stay the infringement proceedings. So they’ll give a judgment finding infringement and then they’ll allow the patentee an injunction, and if the patentee pays security, they’ll allow the patentee to enforce that injunction. That can be a very powerful tool to keep people off one of the largest markets in Europe. It’s something I could see coming in this sector, and something market participants need to be aware of.
Some technology firms are partnering with brands we haven’t seen in the wearable market before. What’s the strategy behind these collaborations?
McConnell: What is quite interesting is that most of these partnerships between a technology company on the one hand and a big-name brand on the other is slightly different than other tech sectors, because we’re talking about things that you’re wearing here, and the brand and design matter even more to the consumer. Several founders and CEOs of technology companies have spoken out as to the importance of these partnerships, saying that it’s difficult to be legitimate in the wearable- technology space without the brand, and brand partners are needed to bring products to market. It’s unsurprising, but if you’re a technology company wanting to break into the wearable market, there is a difference in how important branding is, and in getting the right brand and identifying the right collaboration partner.
Are there other types of licensing or registration clients should consider for their wearable products?
McConnell: It’s possible to get utility models, which is a type of patent that is less strongly examined, but doesn’t provide a long period of protection — normally six to 15 years, depending on the country. But if you’re in licensing discussions or litigation against some of the big players in the industry, we don’t see those sorts of IP being litigated because they tend not to be as strong.
There are various design rights and protections available in the UK and Europe, both registered and unregistered, which can protect the look and feel or ornamental design of your products. Unregistered design rights in the UK come into being as soon as you design your product. Others, like the registered community design, you need to apply for, but they tend to last longer.
Copyright can be relied on to protect software in situations where you’re looking at the pure code and don’t have a technical effect or software invention that you need to patent. But again, it only protects against copying, and there are potential issues in proving that. Trade secrets can protect confidential information, and we’ve already seen people relying on those in this area before the U.S. courts.