Article Source: IMechE

With the revolution of the Internet of Things we are seeing thousands of innovative developers coming up with great ideas as to how they can use the IoT and wireless components to develop new products and industries and improve existing ones.

We can’t yet imagine all of the new, exciting products that will be developed in the coming years, but we are already seeing innovations such as smart meters, smart lights, smart heating and connected devices in our homes. And we are beginning to see what the future holds for autonomous driving, smart factories and smart cities. 

Standards such as 3G, 4G, 5G, Zigbee and wi-fi are administered by standards-setting bodies and, in accordance with the intellectual property rights policies of most organisations, licences for standards essential patents (SEPs) should be made available on a fair, reasonable and non-discriminatory basis.

Suppliers’ warranties

One of the challenges that developers and device manufacturers face is ensuring that they get the appropriate warranties and indemnities from their suppliers when they are buying wireless components. On the face of it, and as is the case in most industries, it should be common practice to ask the supplier or distributor of a wireless component for a warranty that the intellectual property rights have been paid for and to seek an indemnity against patent claims relating to the part.

However, many companies licensing their SEPs relating to wireless standards have developed practices that create uncertainty in the normal supply chain. The uncertainty is created partly because several patent owners refuse to license their SEPs to the manufacturers of the wireless components. 

This means that component suppliers cannot give the usual warranties and indemnities to their customers (such as distributors) that the products are free from infringement claims. And, in turn, distributors and others further up the supply chain can’t give the usual warranties and indemnities to the developers and manufacturers of the end devices. 

Many SEP holders are seeking licence fees from small firms and others that are developing the end-product hardware, and are seeking to take a share of the end selling price of the device. In effect, they are seeking to take a share of the innovations of the developers of the end products. 

It is a bit like a company selling bricks saying that the price of the brick if used in a small house is £1 but the price of exactly the same brick if used in a palace is £5. 

Multiple claims

In any event, the net result of these claims is that the device manufacturer may be left dealing with multiple claims from SEP holders that relate to technology that it is not familiar with and, in many cases, for which it is not able to obtain the appropriate warranties and indemnities from suppliers. Because claims can go back six years, the historic claims could be significant and could build up, with the small firm knowing that the problem is accumulating in the background.

On top of that, and with so many of the SEP holders seeking multiple licence fees, the cumulative licensing fees can be exorbitant. 

Any company buying components or products compliant with standards should check very carefully the terms and conditions of purchase and try to obtain warranties and indemnities that cover SEPs. And the firm should ensure that the appropriate intellectual property indemnification provisions are passed through the supply chain from the original component supplier. 

If it is not able to obtain the necessary warranties and indemnities, it should consider what the potential costs and liabilities might be.

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