Is the Internet of Automobiles the next big thing?

“The Model S is not a car but a ‘sophisticated computer on wheels’” – Elon Musk, CEO, Tesla

Given the level of technology – which includes a 17-inch tablet in the dashboard of the Tesla Model S – Musk’s comment, made in March 2015, is not too far from the truth. Above all, it is emblematic of the changes occurring in the automotive sector.

Since its advent, the automobile has been the preserve of an array of mechanical technologies. More recently, electrical and electronic advances have found their way into this sector, although nothing compares to the present changes.

Automotive is one of many different sectors looking to improve its business processes and operations by tapping into the availability of ubiquitous connectivity, low-cost connected devices (eg, sensors, phones and tablets) and the increased power of cloud computing to process and analyse real-time streams of data. The aim is to help businesses to better manage, optimise and predict outcomes, leading to greater efficiency and enhanced profitability. This transformation has been dubbed as the Internet of Things (IoT). While the exact definition of ‘IoT’ is still fuzzy, its effect has been felt in multiple sectors where it has enabled services prompted by fresh-use cases and completely new business models.

The automotive sector has been an early adopter and beneficiary of the digital technologies, giving rise to what could be described as the ‘Internet of Automobiles’ (IoA).

This article focuses on the intellectual property, primarily the patents, behind the digital technologies being incorporated into the automotive sector – both within vehicles and into the ecosystem. The analysis is based on the patent assets filed in various jurisdictions, assignment transfer data provided by patent offices and corporate information available in the public domain.

Unless stated otherwise, the analysis is based on patent equivalents. A ‘patent equivalent’ refers to a set of patent filings representing a single invention, with the same priority documents. The same holds true for the numbers in the various figures and tables. The only departure from this is in the analysis and presentation of data related to patent filings in different geographies or jurisdictions. We use unique applications to indicate numbers in this case.

We have restricted our study to patents published in the last 10 years (starting in 2007). The patents address technologies and systems connected with vehicles, the movement of vehicles and the ecosystem. Overlapping areas which are related to but not directly connected to vehicles, such as logistics, have not been included.

Ecosystem changes

The merging of the mechanical and digital worlds has resulted in a slew of new technologies and players entering the sector. It has also led to new business models driven by connectivity. Some of these are touched on below.

Vehicle ownership and on-demand business models

Compulsory car ownership is now less of a given with the availability of smart mobility services such as ride-hailing and sharing, on-demand goods transportation and peer-to-peer car rentals.

Access to vehicle data

Most vehicles today come with an onboard diagnostic system to give owners and technicians access to real-time data on the various sub-systems. This helps in identifying and fixing malfunctions. Various third-party dongles are now available which connect to this system’s communication port and ensure that the vehicle is IoT ready. This makes it possible to deliver diverse services to vehicles via apps, driven in large part by the access to vehicle data. Drivers in turn are used to receiving information relating to the vehicle’s performance and real-time traffic updates, as well as entertainment.

Vehicles as software platforms

The automotive ecosystem increasingly resembles the one for smartphones. New features and functions can be delivered to vehicles by over-the-air updates, circumventing the need to buy a new model or replace parts as vehicles become the platform where functionality and features can be enhanced with software updates and installing apps. With connected cars and application programming interfaces, developers can create apps and deliver services.

Push towards fully autonomous vehicles

The goal of having fully autonomous vehicle systems has thrown up a host of challenges which are currently being worked on. These include the technological challenges involved with integrating multiple technologies, as well as the need to solve issues around reliability, safety and network security. Another key is to understand the limitations of sensor systems and networks. Compliance with testing and regulatory frameworks is another requirement. Finally, a better understanding of how humans interact with such autonomous systems is necessary.

Shift in value chain

This technological shift is not without economic costs to incumbent business models. A PwC study estimates that revenues from connected cars will increase from $52.5 billion in 2017 to $155.9 billion in 2022 at a compound annual growth rate of 24.3%. Overall for the auto industry between 2015 and 2030, it is estimated that (shared mobility + digital services + suppliers of new tech/software) – which corresponds to the technologies we are looking at – will have the following shares of revenues and profits.

Revenues were 3% (approximately $5 trillion) in 2015 and are predicted to increase to 19% (approximately $7.8 trillion) in 2030. Meanwhile, profits were 4% (approximately $400 billion) in 2015 and are predicted to rise to 36% (approximately $600 billion) by 2030.

M&A and partnerships

Some notable acquisitions and partnerships related to the IoA are listed in Table 1 and Table 2, respectively. The acquiring companies comprise semiconductor chip makers, incumbent auto behemoths, telecoms providers and enterprise software providers. The motivation for each of these players varies.

The market for chips for personal computers has reached the end of its life. While semiconductor companies have cashed in on the boom for smartphone chips, this market is now saturated. As a result, semiconductor companies are laying large bets on the auto sector to power their future growth by manufacturing automotive chips. For the incumbent auto companies, acquisitions are a way of adapting to the imminent changes in the value chain and ensuring that they are well positioned to grow their top and bottom lines.

Enterprise software providers see an opportunity in employing their core competence to actively participate in the auto sector. There are some must-haves to successfully providing digital services to vehicles, one of which is a software management platform. These are typically vertical agnostic. Early reports indicate that the connected car vertical is a significant sector for the providers of such platforms.

For telecoms players, acquisitions are a way of generating new revenue streams by providing services for the auto sector over their existing networks.

IoA taxonomy

In order to analyse who owns the patented technologies related to the IoA, we organised them into a hierarchical taxonomy. The taxonomy and the technology categories are laid out in Figure 1. The categories themselves are specified using different patent parameters, combined to form queries like those used in patent searches. We mapped the patents published in the last 10 years to this taxonomy. The numbers indicated are the patent equivalents which matched each of the nodes or categories in the taxonomy.

Using a taxonomy helps to provide a structured view of the patents addressing the different technologies in the IoA. It also enables easy drill-down to provide a closer look at specific subcategories. Since a patent document may address multiple technologies, it is possible that it could be present in multiple categories. The hierarchical relationship is always maintained, with all the patents in each of the child nodes being necessarily present in the parent.

We identified a fairly large set of 99,254 patent equivalents related to the IoA. These further propagate through the taxonomy categorisation, as shown in Figure 1.

Figure 1. Taxonomy showing hierarchical technology categories – numbers indicate total patent equivalents published in the last 10 years

Patent quality

At various points in this article, we refer to ‘patent quality’ and so-called ‘high-quality’ patents. A quick note about what each term means. We have devised a patent rating that ranks each patent out of five, which we call the ‘patent quality rating’ or ‘star rating’.

It is a composite metric based on studies to determine the characteristics of valuable patents. These studies examine a set of litigated patents and have correlated the factors that make them successful at withstanding legal challenges.

The rating we use incoroporates the findings of these studies. Some of the factors included in our patent quality metric include the number of forward citations, number of backward citations, number of years for expiry, prosecution time, number of claims, length of the specification, number of family members and geographical coverage. We have rationalised the weights used for each of these factors to reduce the effect of anomalies.

Patents which score three or more based on this ranking are deemed to be of high quality. Notwithstanding the fact that there are differing views on what constitutes an ideal rating system for patents, our rating formula gives us a basis to compare patents and portfolios.

Of the 99,254 patent equivalents identified addressing the IoA, 5,309 are deemed high quality (quality rating three or more) based on our rating.

Top patent holders

The top patent holders in each technology category are shown in Figure 2, with their individual holdings in the category.

Figure 2. Top patent holders in each technology category

The top 20 patent holders are listed in Table 3. The heat map representation indicates the patent holders’ relative ranking in each technology category (greens = higher; reds = lower). Additional findings from Table 3 indicate that the portfolios of incumbent auto companies emphasise telematics patents. A significant portion of BMW’s portfolio addresses telematics. Bosch holds a greater number of patents in parking assistance compared to other players, while its holdings in network security are the lowest among the leaders. Aisin is the number one holder of patents related to traffic management. Meanwhile Denso, though top-ranked overall, has comparitively few patents in autonomous technologies.

Table 3. Top patent holders showing total assets held overall and in each technology category – the heat map also indicates the assignee’s relative ranking in each technology category (greens = higher; reds = lower)

 

Table 4 summarises the leading companies in each of the top-level technology categories of the taxonomy. We list the top patent holders for each category, the highest ranked companies with respect to being forward-cited by the patents in the category and finally the top companies in terms of high-quality patents held in each of the categories. Additional findings from Table 4 include that GM figures as a holder of high-quality patents across the different top-level technology categories. IBM appears in the list of holders of high-quality patents in connected car technologies – interestingly it is one of the top forward-cited companies by patents in four out of the five technology categories. Cisco holds high-quality patents related to network security in this area. Finally, a couple of companies with smaller portfolios but with high-quality patents are Cloudparc in parking assistance and Inrix in traffic management. 

Patent publishing trends

The patent publishing trends for the IoA is given in Figure 3. This has been broken out by the top-level technology categories as well as the sub-categories in Figures 4 through 7. Below is what we can glean from studying the various timelines:

• The sharp upward trend in published patents in this area began in 2011.
• The surge in the filing of patents in the IoA has been led by connected car technologies, followed by telematics and autonomous technologies.
• The increase in patents published in connected car technologies has been driven mainly by navigation and infotainment patents.
• The increase in telematics patents is primarily due to a sharp increase in driver assistance patents.
• The growth of patents in autonomous technologies is largely due to patent activity in the sub-categories of routing and navigation, followed by vision.

Figure 3. Patent publishing trends in the IoA space

Figure 4. Patent publishing trends by top-level technology categories

Figure 5. Patent publishing trends for connected car technologies – sub-categories

Figure 6. Patent publishing trends for telematics – sub-categories

Figure 7. Patent publishing trends for autonomous technologies – sub-categories

The overall patent publishing trends for the top patent holders is shown in Figure 8. Surprisingly the trend line for Denso, the top-ranked patent holder, is shown to be sharply down from 2009 onwards. The publishing trajectories for Hyundai, Toyota and Bosch trend upwards beginning in 2011.

Figure 8. Patent publishing trends for the top holders

Figure 9. Patents published by geography – numbers indicated are unique applications

Geographical spread of published patents

The breakdown of patents published by jurisdiction is given in Figure 9, with the number shown referring to unique applications. With regard to the China filings – 12,655 of these are for utility models with a term of 10 years from the date of filing. This constitutes around 32% of the total, with the remainder 27,326 applications being for utility inventions.

Figure 10 shows the filing of the top patent owners by jurisdiction. Toyota, Denso, Bosch, Mitsubishi, Aisin and Continental are covered for technologies related to this area, with filings in multiple jurisdictions. Toyota and Bosch also have a significant number of Patent Cooperation Treaty filings. The two US companies on the list – GM and Ford – have relatively less worldwide coverage. Apart from the United States, they have filed in Germany and China.

Patent quality by company and technology categories

In the complete set of nearly 100,000 patent equivalents addressing the IoA, we identifed 5,309 high-quality patent equivalents (quality rating of three or more on a scale of five). By mapping these high-quality patents we can determine the number of such patents in each technology category, as well as the holders of these valuable patents. The results of this exercise are displayed in Figure 11. The colour coding indicates the percentage of high-value patents in each category to the total number in the category. Various sub-categories under autonomous technologies have a large number of high-quality patents. Likewise, the patents in telematics and its sub-categories have a relatively large proportion of high-quality patents.

Figure 10. Patents published – top holders by jurisdiction

The overall list of the top high-quality patent holders is given in Table 5. There are more than a few companies on the list with modest patent portfolios addressing this area, but with a high percentage of high-quality patents.

Figure 11 and Table 5 point to one way in which patent ratings may be used to identify companies holding high-quality patents in technology areas of interest. This may be useful when looking for companies to acquire patents from. Conversely, comparing the patent holdings of different companies working in a given technology area and comparing the relative strengths of their portfolios, may suggest companies to approach to either sell to or license out patents.

Figure 11. Percentage of high-quality patents in each category

A new approach

Avanci, the IoT patent pool formed in 2016, has identified connected cars as a sector on which to focus. This points to a need and appetite for patent transactions in the sector. The partnership between Microsoft and Toyota announced earlier this year is essentially a patent licensing agreement (Table 2).

Companies such as Lyft which have been actively partnering with different players in the auto sector, see the need to develop their own intellectual property as well. It recently announced a new self-driving division to develop its own autonomous ride-hailing technology.

Acquisitions are sometimes driven by the need to access relevant patents for strategic reasons. For example HERE – acquired by BMW, Daimler and Audi from Nokia – has a large percentage of high-quality patents in its portfolio of mapping and location patents (Table 1, Table 5).

A survey of this data therefore suggests that patents acquire added significance in sectors which are undergoing rapid changes and where new technologies and business models are being introduced. For that reason, the IoA sector remains one to watch.