China and the Internet of Things: A Love Story

Just because we are now dealing with a slowing China economy does not mean everything in China is slowing, and it most certainly is not. I thought of this yesterday after running into a friend-client in the elevator of my building yesterday. Very loosely, here was our conversation:

Client: We will be getting our [fill in internet of things related App] back from __________ in early April and we will then be meeting again with _________ about _________. At that time, we should sit down again and discuss how we can best protect our IP.
Me: Absolutely. I swear, this is about all we are doing these days. Figuring out how to protect our clients involved with IoT software and devices.

And we LOVE it. We love it because it is so cutting edge, so important, so complicated and — let’s be honest — so infused with legal issues that require companies to hire experienced international manufacturing and IP attorneys.

China has become an innovation hub for the Internet of Things, which Wikipedia defines as “the network of physical objects—devices, vehicles, buildings and other items which are embedded with electronics, software, sensors, and network connectivity, which enables these objects to collect and exchange data.” Think fitbit, Nest thermostats, Phillips Hue Lighting, Simplisafe home security systems. More generally, think M2M (machine to machine), smart home, smart home, connected home, internet appliance, smart devices, ubiquitous computing, smart grid, and smart objects.

Call it whatever you want, but just be sure to call it hot. A large portion of our new China clients are involved with the internet of things and nearly all do their manufacturing in or near Shenzhen.

The Internet of Things is a lawyer’s dream. The below are just some of the tort law and privacy law issues the lawyers in my firm have pondered:

  1. What happens if an IoT thermostat device goes awry and thinks it is incredibly hot out and it is actually incredibly cold out and it turns down the temperature and babies freeze to death? Would the company’s liability disclaimers be enough to prevent liability? See Nest Thermostat Glitch Leaves Users in the Cold.
  2. What happens if a fitness tracker tells someone they have run two miles when they have actually run five miles and that someone therefore decides to run another three miles and then dies of a heart attack during the last mile?
  3. What happens if an IoT flood tracking device wrongly tells someone their basement floor has flooded and that someone then rushes home from a business trip and thereby loses a big sale?
  4. What happens if someone hacks into your fitness tracker so as to figure out where you are at all times, and then robs your house when you are away?
  5. What happens if someone hacks into your IoT door lock and your IoT lighting?

All of the above we have pondered just for fun. I do not even want to list the real life issues we have pondered for our clients because to do so might expose them.

But it extends way beyond tort and privacy laws and most of what our China lawyers deal with for our IoT clients is similar to what we deal with for all of our China clients, “but on steroids.”

Because IoT devices are a combination of both hardware and software, just about every contract involving these devices is in at least some respects like two contracts. This is especially so with respect to the IP issues. Speaking very generally, IP related to hardware is usually protected in and from China by contract, by patent, and by trademark. Software on the other hand, is usually protected by contract, copyright, and by trademark.

What has been so surprising to us is how often IoT companies do not fully realize the full extent of the IP they need to protect. Many times our clients have been told us “there are no IP issues because we are buying the hardware off the shelf.” To which we often respond by pointing out that their software is what will distinguish their product from others and their software needs IP protections. For more on protecting IoT IP, check out China NNN Agreements and China Product Development Agreements, both of which we wrote this month with the Internet of Things squarely in mind.

Go to Shenzhen to see the future.