How the Honeywell, Nest lawsuit could stifle innovation

Honeywell & Opower's iPad smart thermostat app

When tech patent lawsuits land in the middle of an industry they tend to make a loud, dull, thud sound. Nobody particularly likes them (other than maybe the media), both parties can often times end up looking bad, (or at least petty) and patent lawsuits are a guaranteed time and money-suck. But, in addition to all these moderate downfalls, when it comes to a newly emerging industry like smart, Internet-connected thermostats, tech patent lawsuits can also deliver some real harm by potentially hampering innovation.

Of course we’re talking about this week’s shocker: that thermostat giant Honeywell (s HON) has filed a lawsuit alleging seven different patent infringements against learning thermostat startup Nest Labs. While we’ve solicited your survey results, and you’ve given some great comments on our posts, one thing seems clear to me that I wanted to expand on, and that’s that Honeywell’s patent lawsuit appears broad enough that it could potentially slow down innovation in this space. Here’s why:

  • Patents need to be non-obvious and inventive enough to be worthy of a patent. Some of the patents in the Honeywell case — like the natural language Q&A patent and the remote control patent — just seem to be so obvious that I’m not sure how defensible they are. As one of our commenters on this post put it: there’s only a few ways to do certain things, so sometimes the obvious way is obvious to multiple people and companies.
  • Major patent wars can be a damper on investment. Say, a promising young startup is building smart thermostat analytics, but they are looking to raise money next month, and all anyone is talking about around smart thermostats is this patent war. An investor could think twice about funding a company that a massive thermostat maker like Honeywell could set its sites on.
  • This is a truly David and Goliath scenario. Honeywell has a $47 billion market cap. Nest raised several tens of millions of dollars in venture funding and just launched its learning thermostat. Nest could really struggle if Honeywell pursues this case, even if Honeywell isn’t able to win.
  • The really large companies like Honeywell, but also GE (s GE) and Johnson Controls (s JCI), have been in this thermostat industry so long that they no doubt have researched a wide portfolio of things that they haven’t actually ever been able to commercialize. Honeywell said as much in its latest interview with me. But it’s unfortunate that instead of commercializing some of these products, these big companies will just crush them rather than see them come to market.
  • Go big or go home. This is one of the trends I noticed at the annual DistribuTECH event in January. This industry is maturing and companies have to grow to compete and survive. Particularly if there are patent lawsuits around.