Monday, August 3, 2015

IoT Business Models & Patent Eligibility

I. IoT Application Business Models

A business model is the way in which a company makes money through its business. The key building blocks of a business model are the value proposition, profit model, and business resource. The IoT (Internet of Things) has various applications across diverse industries including, smart homes, connected cars, smart grids, smart healthcares, smart businesses and smart cities. The key building blocks of business models for IoT applications can be summarized as follows.

A. Business Resource
·         IoT devices: Devices that can sense/recognize their surrounding environments (including position/movement/identification) and communicate with other devices
·         Networks: Connecting/communicating  medium/infrastructure that can interconnect devices and connect devices to the internet
·         IT systems: Back-end or embedded systems that can process information (data) obtained by the IoT devices (e.g. cloud computing/big data analytics) and provide the value added services exploiting the information

B. Value Proposition
·         Automation: Providing various automation services for the customers’ job to be done (e.g. order the out of stock product automatically; mobile payment; self driving car)
·         Care: Caring for customers (e.g. monitor customers’ body status and provide various health care services; control customer’s home cooling and heating/lighting system for energy savings)
·         Business Intelligence: Providing better working tools/environments (e.g. analyze customers’ shopping behavior for proactive promotion/advertisement)
·         Entertainment: Providing fun to customers (e.g. virtual reality games)

C. Profit Model
·         Device/IT system sales with value added services
·         Subscription fees
·         After-market sales (e.g. part sales)
·         Third-party sales (e.g. advertisement)

Combing the key building blocks, various business models for the IoT applications can be developed.

II. Post-Alice Patent Eligibility Test

The Supreme Court’s Alice Corp. v. CLS Bank decision provided two-step process to determine whether an invention is the patent-eligible:

Step 1. Determine whether an invention claims ineligible subject matter (laws of nature, natural phenomena and abstract ideas)
Abstract ideas identified by the courts include fundamental economic practices, certain methods of organizing human activities, a mental process and mathematical relationships/formulas.

Step 2. Determine whether an invention, otherwise directed to an abstract idea, recites elements, either in isolation or combination with the non-patent ineligible elements, that provide “significantly more” than the abstract idea itself (sufficient to “transform the nature of the claimed invention into a patent-eligible application,” and thus, there must be an “inventive concept:” “Simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept does not meaningfully limit claim scope for purposes of patent eligibility.”).

Courts’ decisions provide the examples of claim elements that provide “significantly more” than the abstract idea itself:

DDR Holdings, LLC v. The patent provides “an Internet-based solution to solve a problem unique to the Internet that (1) did not foreclose other ways of solving the problem” (preemption of every application of the abstract idea), and (2) “recited a specific series of steps that resulted in a departure from the routine and conventional sequence of events” (departure from a human activity implemented into generic computer functionality)

Fairfield Industries, Inc. v. Wireless Seismic, Inc.: The patent outlined “a specific method of data transmission that is a (1) new, useful and practical application of a generic relay system” (new, useful and practical application beyond generic system functionality; improved technology), and (2) recited a “close connection to a specific machine, the seismic acquisition unit” (connected (implemented) to specific computer functionality)

Diamond v. Diehr:  The patent provides “a method that is directed to a mathematical relationship and steps that could be performed mentally,” but has additional process of shaping uncured material into cured synthetic rubber (amount to significantly more than the abstract ideas because transforms a particular article to a different state or thing)

USPTO’s Guidance on Subject Matter Eligibility also provides additional examples of claim elements that provide “significantly more” than the abstract idea itself: Please visit following site and see the appendix 1.

III. Patent Eligibility of IoT Business Models

Patents for the IoT application business models can claim various value propositions incorporating claim elements (steps) using the relevant business resources (and/or profit models). With respect to the patent eligibility test, most of the value propositions of the IoT business models can be identified as abstract ideas because they are the certain methods of organizing human activities and a mental process. Thus, one must devise claim elements that provide “significantly more” than the abstract idea. Simply transferring the sensed data through the wireless networks or processed the data for providing customer-aware services will not sufficient to transform the nature of the claimed invention into a patent-eligible application. Rather, it is necessary to provide claim elements that connect to a specific machine/article (e.g. medical device, thermostat, drug) and either recite a specific series of steps that resulted in a departure from a human activity or transform a particular thing to a different thing or use the value propositions to improve other technologies.

For details regarding the patent development strategy for the IoT business models, please contact Alex G. Lee (

©2015 TechIPm, LLC All Rights Reserved

No comments: