The document discusses business models and patent eligibility for Internet of Things (IoT) applications. It describes key components of IoT business models including business resources, value propositions, and profit models. It then outlines the two-step test for patent eligibility established by the Supreme Court, where an invention must not claim ineligible subject matter and must provide an inventive concept or elements that transform the nature of the invention. Finally, it notes that most IoT business model value propositions will be considered abstract ideas, so claims need additional elements connecting the idea to a specific machine or process to demonstrate patent eligibility.

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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

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• 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

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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:

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DDR Holdings, LLC v. Hotels.com: 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.

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2015 Update on Subject Matter Eligibility: http://www.uspto.gov/patent/laws-and-regulations/examination-
policy/2014-interim-guidance-subject-matter-eligibility-0
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
(alexglee@techipm.com).

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