The Internet of Things: Application of Current FRAND Methodologies in Developing Markets

The Internet of Things (IoT) is an ever-expanding web of diverse, interconnected devices ranging from simple consumer appliances to complex industrial systems. 5G technology promises to accelerate IoT deployment by providing accessible high-speed, high-capacity communication networks. This deployment, however, will undoubtedly lead to disputes over standard-essential patents (SEPs) covering the 5G Standard. These disputes are likely to involve parties from industries that have not previously competed against one another. The potential for friction will be especially high because industries often have diverse, individualized practices for valuation and licensing. Fairly resolving 5G IoT SEP disputes—for patent owners and licensees alike—will require creative approaches.

This article will explore ways parties can utilize two conventional SEP valuation methodologies to address problems related to 5G licensing for IoT products. These methodologies, generally used in fair, reasonable, and non-discriminatory (FRAND) disputes, are commonly known as the "bottom-up" and "top-down" approaches. In applying these methodologies to 5G and IoT, an exemplary case study will help illustrate particular problems that might emerge and explore how parties might consider approaching these inevitable SEP disputes.

The Problem

The Broad Diversity of 5G IoT Devices Makes Finding Common Ground More Difficult. The diversity in IoT products adopting and using 5G technology will likely complicate patent licensing. IoT products will use 5G technology in substantially different ways. Valuation difficulties based on these divergent use cases may impede 5G deployment. In particular, high royalties may pose a risk to profitability and discourage adaption of 5G technology while low valuations can disincentive further technological development. Placing a proper (and fair) value on 5G SEPs will be critical to realizing value in R&D efforts while continuing to encourage widespread adoption in IoT.