On 26th November 2020, I presented ‘The regulation of the Internet of Things: fit for the sustainable development goals?’ at the Digital Technologies for Sustainable Development: Legal Challenges, organised by the Lomonosov Moscow State University. Thank you to Professor Larisa Sannikova (Russian Academy of Sciences, Institute of State and Law) for the kind invitation!
In this paper, I discussed how the Internet of Things (IoT) can facilitate the achievement of the UN sustainable development goals. In this context, I critically assessed whether intellectual property (IP) laws can play a positive role in governing the IoT and unleash its ‘sustainability-friendly’ potential. I offered a European IP perspective, with a focus on patent law, but many of the things I said raise similar issues in other jurisdictions and in other IP sub-systems such as copyright and trademarks.
The Internet of Things
The IoT refers to all those ‘smart’ devices that are connected to the Internet, equipped with sensors and actuating capabilities. Your smartphone, Amazon Echo, Apple Watch, Google’s Nest Thermostat. The phrase ‘Internet of Things’ was coined exactly 30 years ago by Procter & Gamble’s Kevin Ashton. Interestingly, Ashton saw the IoT as the fundamental disruptor of existing supply chains thanks to the fact that machines can now communicate with each other without human intervention. We now have accurate real-time information about our products wherever they are, because it is the product itself that talks to us. The IoT has unprecedented potential to realise the sustainability agenda and improve the global supply chain.
IoT and sustainability
To provide just an example of how the IoT is pivotal to sustainability let us simply focus on one aspect. The WTO considers enhancing the services sector as a key step to making sure that international trade contributes to accelerating progress in achieving the sustainable development goals. Enhancing the services sector. No other technology will bring an as extraordinary revolution on this front as the IoT.
Unleashing the sustainability potential of the IoT may require to change our existing laws on trade. Indeed, our understanding of trade – and the relevant regulation – has always relied on a fundamental dichotomy between goods and services. For example, disputes regarding goods will fall under the General Agreement on Tariffs and Trade and the Agreement on Technical Barriers to Trade. Conversely, if services are at issue, the General Agreement on Trade in Services will govern the litigation. With the IoT, traditional dichotomies fade away. Indeed, smart devices are an inextricable mixture of goods, services, hardware, software, and data. A more adequate way to regulate the IoT should take into account of the overcoming of the good-service dichotomy.
Servitization on steroids
Enhancing the services sector is seen as pivotal to the achievement of the sustainability agenda. Servitization has been a trend for many years now and rightly so. As research by Guillot found, 70% manufacturers are adopting servitization, thus shifting their focus from products to end solutions as a means to enhance their competitive advantage.
The IoT brings servitization to its extreme consequences: indeed, when every machine and everyday object becomes embedded with services and software, it becomes meaningless to imagine goods and services as separate entities. Smart devices have outnumbered human beings. They are allowing a number of actors that were excluded from traditional manufacturing to provide new and cheaper services in several fields, including smart home, smart cities, smart grids, and quantified self. The creation of IoT-enabled services may ultimately benefit more vulnerable stakeholders, including SMEs and entrepreneurs in developing and least developed countries, by contributing towards key sustainable goals such as decent work and economic growth, as well as industry, innovation, and infrastructure.
Intellectual Property: incentives to sustainable innovation
For the IoT to unleash its potential and facilitate the achievement of the sustainability agenda, it is crucial that it be governed adequately by the law, and in particular by IP Law.
IP is the law that creates temporary monopolies on inventions, literary works, and other intellectual creations in order to incentivize innovation and creativity. The main examples of IP rights include copyright, patents, trademarks, designs, and trade secrets. For many companies, including SMEs, IP assets are more valuable than physical assets. To give a sense of the value of IP, according to Interbrand, Apple’s trademarks are worth USD 215,000m; whereas Amazon’s branding value has jumped an outstanding +56% last year. The key to Google’s success is a trade secret on their search algorithm. IP is not just about creating value.
IP laws are a vital element of any sustainability strategy, in that they can promote innovation and economic growth, while reducing inequalities and improving access to health. However, depending on how they are interpreted and on which stakeholders can exercise actual influence on the lawmaking process, IP laws can also run counter the sustainability goals.
Is IP fit for the IoT?
IP can determine the success of the IoT. Or it could doom it to failure. To understand whether the IoT can be governed so as to contribute to the achievement of the sustainable development goals, we need to critically see if IP laws are fit for purpose. This means answering the fundamental question whether, in an IoT world, IP laws can still incentivise innovation and creativity while striking a balance between private economic interests and public non-economic ones. I would like to make just two examples of how IP laws govern – or fail to govern – the IoT.
Software patents and the IoT
One of the requirements for patentability is that the invention does not fall within the so-called excluded subject matter (Article 52 of the European Patent Convention). This means that there are public policy reasons not to allow patents on certain things, such as discoveries and scientific theories.
The most controversial exclusion from patentability regards computer programs. Applicants will not be granted a patent if the invention regards software “as such” (Article 52(3)). The EPO interpreted this exclusion to mean that a computer program can be patented if it produces a ‘further technical effect’ when run on a computer (T 1173/97 and G 3/08). Computer programs will have a technical effect, for example, when they affect a process that is carried out outside the computer or make the computer run more efficiently or effectively (HTC v Apple).
The IoT is likely to have an impact on this system in that the aforementioned exclusion rests on the software-hardware dichotomy, that the IoT disrupts. Moreover, as smart devices are increasingly used to control real-world processes and make traditional devices more effective, the relevant software inventions are likely to be regarded as producing a ‘further technical effect’ and therefore not excluded from patentability. With the ubiquitous presence of the IoT, we may factually overcome the software’s exclusion from patentability. It should not come as a surprise, therefore, that IoT patents and applications increased annually on average more than 40% compared to an average 6 %annual increase across all other technologies (UKIPO 2014).
A future where all software becomes patentable would not be a positive one, because it would lead to chilling effects and to the deployment of IoT devices and systems that are proprietary and therefore go against the openness ethos of the IoT. Indeed, the IoT must be open and interoperable, otherwise it becomes the Internet of Silos. It is my contention that a proprietary IoT would not be innovative and ultimately it would not achieve the sustainability goals.
Exceptions: limiting IP to favour sustainable innovation
Unlimited monopolies do not benefit innovation – if patents gave absolute powers to the IoT companies that own them they may benefit those companies but damage the competitors and the public at large. In this sense, it is fair to say that IP laws must be limited for them to be conducive to sustainability. Limitations can be internal and external.
The main example of internal limitations are called ‘exceptions’. In IP Law, by ‘exceptions’ we mean that under certain circumstances it is possible to use third parties IP without their permission. For example, under the UK Patents Act 1977, s 60, companies do not infringe competitors’ patents if they use the competitors’ patented invention for ‘experimental purposes’. For example, WattTime’s system, installed on selected devices, batteries, and thermostats, continuously monitors and updates power data from grids and allows smart devices to automatically switch to the cleanest energy supplier available. WattTime competitors can use this system without WattTime’s permission in order to experiment and develop a better and more sustainable product. The ‘experimental’ exception constitutes a very important limitation to the patent holder’s powers.
Patents are there to stimulate innovation: important to give others in the same field the right to carry out experiments using the public information that is made available as a result of the patent application procedure. This increases the likelihood of a further patent race as the patent reaches its 20 years expiry date. Competition between sustainable solutions will ultimately improve the way we tackle sustainability.
The overlaps conundrum
The possibility to rely on mechanisms such as the experimental patent exception is limited in the IoT. This is due to the problem of IP overlaps. Let’s take the example of Amazon Echo, that is Amazon’s speaker equipped with virtual assistant Alexa. Its code is protected under software copyright, its shape under design rights, its mechanisms under patent law, its logo under trademark law, its algorithm under trade secrets law, and its data under the sui generis right. One simple speaker, dozens of IP rights. These overlapping rights have a negative impact on IP exceptions.
Linking back to the experimental purpose exception, a company could rely on it to use its competitor’s IoT invention and make it more sustainable. However, the latter IoT company could still prevent its competitors from relying on the experimental exception by invoking the other IP rights. For example, under copyright law there is no experimental exception – therefore, the IoT company could claim that making experiments with their invention constitute an infringement of their copyright on the code of the computer program. In simple terms, IP overlaps effectively prevent the possibility to limit the powers of the IoT company by relying on the IP exceptions.
To address this situation, the best solution would be to introduce a form of fair use open-ended exception in all IP laws. A second best solution could be to amend the IP laws to streamline existing exceptions so that all IP laws provide the same exceptions.
To conclude, we can all play an important role in the achievement of the UN sustainable development goals. Investments in IoT could go a long way, in that they could lead to economic growth, innovation, good health, and new services. For this to happen, however, they must be adequately governed. This means, practically, that we need IP laws that are fit for the IoT. The IoT is set to disrupt patent laws for a twofold reasons.
First, because the non-patentability of software may be factually circumvented by the ubiquitous presence of software in any mundane device and at any step of the supply chain.
Second, because the overlapping of many IP rights in every smart device make it impossible to limit the IoT company’s powers by relying on the IP exceptions.
To wrap up, IP laws as they currently stand are likely to play a limited role in facilitating the sustainability potential of the IoT. The climate change movement made it clear that sustainability is an imperative – a moral imperative, but also a legal one. It’s crucial that IoT regulations is changed to overcome dated dichotomies (good/service, software/hardware) and that it limits monopolies so that the competition between different sustainable solutions will ultimately benefit society at large. This should include the generalised introduction of a fair use open-ended approach to IP exceptions and a stricter examination of software patent applications. Only more balanced and flexible IP laws would be allow the IoT to unleash its sustainability potential.