It's the Internet of Things — Just Not YOUR Things

Wireless technology, cheap sensors and cheap broadband are enabling a wide range of micro-communication between, well, basically, anything.  The Internet of Things (IoT) is coming, although probably not as fast, and definitely not as efficiently as the hypesters want us to believe.

Connecting my jogging vest with my GPS and my cardiologist's office sounds great, as does connecting my refrigerator with a grocery store, my washing machine to electricity pricing data monitors, my food scale and even my fork to my fitness app, and my car to a repair shop. And this is only on the consumer end of the movement. Gartner predicted in February that the number of connected things will reach 25 billion by 2020. But flags turn red when the electric car manufacturer can use that same communications conduit to prevent my battery from charging if I fall behind on the battery rental payments, as Renault has done.  Welcome to the IoT, warts and all. You can own a new electric Renault, just not the very thing that defines it as a "moving vehicle."

As the primary utility/value of our stuff shifts from the thing it actually does (hold my coffee) to its ability to communicate with other stuff (a coffee shop) usage will become increasingly dependent on the software enabling that communication, which means an increasing amount of our stuff becomes somebody else's intellectual property and all the control that affords.

The problematic nature of all this has been summed up by agricultural machinery manufacturer John Deere in a 24 page statement sent to the Copyright Office last year:  "A vehicle owner does not acquire copyrights for software in the vehicle, and cannot properly be considered an 'owner' of the vehicle software." But the vehicle is an immobile pile of steel without the software.  

In other words, despite the farmer's opinion that she has purchased a new John Deere tractor, she doesn't actually own it. According to Deere's lawyers, "In the absence of an express written license in conjunction with the purchase of the vehicle, the vehicle owner receives an implied license for the life of the vehicle to operate the vehicle" (emphasis added).

In a similar move, Keurig coffee brewers entered the DRM game by placing sensors on K-cup coffee lids. In the most recent version, the coffee machine will only work if it can read the sensor on the lid. In other words, only Keurig brand cups will work now. Even a reusable accessory cup made by Keurig for use in previous versions of the machine doesn't work in the new ones, infuriating Keurig's more environmentally minded customers and contributing to its recent stock price plunge.

Perhaps lured by the securing of revenue that DRM has offered the music industry, Keurig thought it could apply the same logic to beverage consumption. That reasoning has, so far, proven faulty.

In a recent Goldman Sachs IoT report, the financial giant compared this new technological development to the building of the US highway system, "Before there could be 300 million cars in the USA, there was a program to build the interstate highway system."  But the analogy exposes IoT's challenges as much as its promise.  Those companies currently taking the lead in IoT technology (ARM, Amtel, Cisco, Ericsson, etc) are building proprietary or semi-proprietary communication systems. If President Eisenhower's vision had led to some roads only supporting Ford brand cars while others could only carry Chevys, Goldman's analogy would be more accurate.

A brief published last week by the US Solicitor General just strengthened the case for lots of tiny, privately run Internets of Things.

Oracle claimed that Google violated a copyright when it produced the Android operating system. The district court disagreed and declared that APIs are not copyrightable. The appeals court disagreed with the district court, saying APIs can be copyrighted, but that Google might be able to claim fair use of Java's APIs. Google has asked the Supreme Court to take this on, but the U.S. Solicitor General recommended that SCOTUS deny Google's request, in what many believe to be a blow to IoT's interconnectivity.

It's a fact of life that technology companies have to find ways to monetize their innovations, and copyright has become the most effective legal means of protecting those investments. It's entirely possible that consumers will be fine merely leasing the rights to their refrigerators and cars instead of owning them, in the same way that they only rent the music on their leased mobile devices.  They may not even notice (unless their coffee machines no longer function as expected or their tractors need repair).

Companies who want to get into this game, however, have much at stake, depending on where the final lines are drawn.

If any CPAs think the accounting for the "Implied Usage License  of Everything" will differ significantly from the "Ownership of Everything," I'm eager to know your thoughts.