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NFC & Contactless Payments:

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The Long Awaited Promise

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What is NFC?

Figure 1: NFC Media Coverage at MWC 2011 (NFC Forum (Sony))

NFC (Near Field Communications) is a somewhat

divisive topic in technology circles: some see it as a key

technology for unlocking the potential of smartphones,

with countless applications and advantages; whereas

others view it as a mere gimmick. Although now

somewhat diminished, the level of attention NFC

received around the time of the launch of the iPhone 4S,

may have given the impression that NFC was then a

new, cutting edge technology, but in reality, this was not the case.

NFC is based on radio frequency identification (RFID), a technology that has been around since

the early 70s, and is used in products such as: automated inventory management systems,

microchips for tracking animals, antitheft devices, library books and payment cards. RFID allows

data to be read wirelessly from a passive tag (passive meaning that the tag doesn’t have its own

power source) by modulating an electromagnetic field produced by the reader. This field also

powers the tag by inductive coupling, like in a transformer.

NFC is a standardisation of this RFID technology, focussing predominantly on incorporation into

mobile phones and other personal electronic devices. These standards are aligned with the ISO

14443 standards for contactless smart cards, to allow interoperability. It extends the scope of RFID

by adding the capability of communication of small amounts of data between two inclusive

elements, such as two mobile phones or a payment card and a Point Of Sales (POS) terminal. The

frequency of communication for NFC is set at 13.56MHz, which intentionally limits the range over

which data can be transferred by NFC to around 10cm, for security purposes.

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Although the standardising body, The NFC Forum, was established by Nokia, Philips and Sony in

2004, NFC has, so far, not been greatly successful. The growth of the smartphone market, however,

has opened up a host of new applications and, consequently, NFC seems to be finally finding its

way into a significant number of devices. It is estimated that in 2015, 53% of new smartphones (863

million units) will be equipped with NFC modules1.

There are numerous applications for NFC, including: peer-to-peer communication, simple set up of

Bluetooth or Wi-Fi connections, access and identification, and smart advertising; but the

application that has attracted the most interest is contactless payment. NB. Given the inter-related

nature of contactless payments using a mobile phone, and those using a contactless smart card,

we shall consider both, under the term ‘contactless payments’. Contactless, or tap-and-go payment

systems, have already proved very successful, particularly in many public transport systems, but

we are still some way from disposing of cash/bank cards entirely. Certainly, the prediction that the

UK would be a “cashless society by 2012”, by Visa Europe’s CEO in 20072, was somewhat

optimistic.

In the UK, contactless payment has been suffering from a chicken and egg scenario: currently,

there are not enough people using contactless payments (or knowing how to) for companies to be

willing to invest in updating POS systems, however, without the systems being installed in the first

instance, there is no incentive, nor enough education, for customers to change their habits.

Although adoption is steadily increasing, the cost of updating POS equipment is one of the key

issues hindering the deployment of contactless payments. Though companies such as iZettle and

Square have had some success in producing low cost POS solutions, they do not currently

encompass contactless technology. Other factors hindering adoption are security concerns, which

have caused transaction value limitations; and the fragmented nature of the market, with many

different players attempting to implement their own payment platforms.

With all of this in mind, ClearViewIP took the opportunity to investigate how the patent filing trends

in contactless payment have reflected industry trends; in particular, their correlation with the

adoption of contactless payment methods.

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Figure 2: Filing timeline for NFC related patents

NFC is not a new technology: as far back as 1979, Philips had patented a “Portable element for

receiving, storing, displaying and outputting digital data, and a reservation device for use in a

reservation system”, which was powered by inductive coupling and transferred data contactlessly.

However, NFC patent filing rates have grown rapidly since the early 1990s, both in absolute and

relative terms, i.e. the increase in NFC patent applications is not simply a result of the overall

increase in patent filing.

The sharp increase in filings from 2004 onwards correlates with the formation of the NFC Forum,

though there is no evidence of this relationship being causal.

THE PATENT LANDSCAPE

NFC PATENT FILING TIMELINE

NFC: THE PATENT LANDSCAPE

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In Figure 3, we can see that Sony dominates in both number of patent filings and number of

individual families. Naturally, these two measures of a portfolio go hand-in-hand, to some extent,

but the number of patent families provides a better indication of the number of distinct inventions a

company has, while the number of filings, relative to the number of families, goes someway to

suggest how widely (geographically) an invention has been protected.

For example, NXP and Mitsubishi have a similar number of patent families, but NXP has a much

larger bubble. NB. For the purposes of this study we have assumed that NXP - a spin out from

Phillips - have access to all of Phillips’ NFC related patents. This is because Mitsubishi has a

Japan-centric portfolio, with many inventions protected in Japan only, whereas NXP have filed

foreign equivalents for the majority of their inventions. It is notable that 8 of the Top 10 companies,

by number of families, are Japanese.

NFC PATENT OWNERSHIP

Figure 2: Top 20 assignees of NFC patents by count of valid filings worldwide

Consumer electronics manufacturer Smart card manufacturer Electronics manufacturer Chip maker Payment Company Digital Security

Bubble area corresponds to number of active patent filings.

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Figure 3: Breakdown of filing jurisdictions for top 20 assignees (ordered by number of NFC related filings)

However, it is clear to see, in Figure 4, that there is a strong tendency for these companies, as with

the example of Mitsubishi, to file a large proportion of their patents only in Japan.

In Figure 3, we showed citations per patent family on the y-axis, with Ask SA, a French smart card

manufacturer, the leader by some margin. The number of times a patent is cited can be an

indication of the importance of the patent, implying that Ask has a strong portfolio.

Figure 4: Top 100 patents by citations per annum with bubble size proportional to absolute no. of citations of patent

VERIFONE

US2004127256A1 - Mobile device equipped with a contactless smart card reader/writer

US2003167207A1 - System and method for incenting payment using radio frequency identification in contact and contactless transactions

US6424029B1 - Contactless chip card with touch element to activate transmission of data from data processing circuit on card

US5598032A - Hybrid chip card capable of both contact and contact-free operation and having antenna contacts situated in a cavity for an electronic module

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Figure 6: NFC applications as % of jurisdiction’s total annual patent applications

Looking at the individual patents/applications with the most citations (Figure 5), again, early

dominance is shown by Japanese firms. The earliest patents in the Top 100, by citations per year,

were all filed by Japanese companies, but later applications are predominantly filed by US firms.

The strongest patents, in terms of citations per year, were filed in the early 2000s, which correlates

with the sharp increase in applications a few years later, seen in Figure 1. The two filings with the

most citations have not been granted, suggesting that the breadth of their claims has caused them

to encounter some challenges in prosecution.

Of the patents in this landscape,

Japan has seen the most filings

(31%), followed by the US (22%).

However, in Figure 6, we can see

that the distribution of filings has

changed quite dramatically over

time, with Japan losing most of

its share to the US, China and

Korea.

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In 2011, 41% of NFC applications were filed in

the US, 19% in China and 8% in Japan. This is

not just a result of gradually decreasing

applications filed annually in Japan, as can be

seen in Figure 7, but evidence of a clear drop

in the proportion of Japanese applications

relating to NFC 2009-11 (a similar effect is

seen in Europe), in contrast to a sharp rise in

the percentage of US NFC patents 2010-11.

NFC GEOGRAPHICAL LANDSCAPE

Figure 5: How the geographical distribution of NFC patent filings has changed since 1990

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Figure 7: Keyword analysis NB. Asterisks are wildcards that can represent any character or no. of characters.

Figure 8: Change in patenting focus over time

To understand the subject matter of the patents, we looked at keywords, as shown in Figure 8.

In Figure 9, we reviewed how

the number of patents

containing smart card related

keywords and mobile phone

related keywords have

changed over time. Although

this is an approximate

method, it is clear that smart

card patenting started much

earlier than mobile and then

plateaued, while patenting related to NFC in mobile phones took off considerably later; a rate that

has been increasing rapidly since the early 2000s and now dominates the landscape.

NFC APPLICATION INDICATORS

Title contains ‘mobile phone’ or ‘mobile device’ or ‘mobile terminal’

Title contains ‘IC card’ or ‘smart card’ or ‘chip card’

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The trend, demonstrated in Figure, 9 clearly correlates with the relative success of contactless

smart cards and contactless payments via mobile phones. Contactless smart cards have been

around for some time and the technology has reached a level of maturity. The implementation of

contactless technology by mobile devices has opened up many opportunities for innovation and

the rate of patenting continues to rise.

Another trend identified was the early dominance of Japan, followed by a recent decline. To date,

contactless payments have been much more successful in Japan than in the rest of the world: in

December 2011, 9.8 million people in Japan used their phone to make a contactless payment in

just one month3; and 90% of all NFC payments in 2011 (by value) were made in the Asia/Pacific

region, particularly Japan and Korea4. Implementation in Japan benefitted from strong leadership

from NTT DoCoMo which drove standardisation in a way that encouraged participation from

relevant parties.

In the USA and Europe, however, there are too many companies competing to control the

ecosystem, meaning that no platform has been widely adopted. Implementation requires

cooperation between chipmakers, handset makers, service providers, financial institutions and

retailers; all of whom are naturally unwilling to cover the cost of implementation but who have to

make a profit, whether directly or indirectly. Japan benefits from a tech savvy population and a

high number of commuters, used to using contactless smart cards for public transport; it is

perhaps surprising then that, despite the relatively fast uptake of contactless payments, Japan still

lags behind the US and Europe in terms of the number of non-cash transactions per person5. iIt is

CONCLUSION

HOW DOES THE LANDSCAPE CORRELATE TO CONTACTLESS PAYMENTS?

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possible, therefore, that the improvement in convenience that contactless payment offers has

encouraged its adoption in Japan.

Another key factor in the adoption of the technology is the number of

available handsets. Although smart phone manufacturers are

advertising NFC as a new feature, the first NFC handset, the Nokia

6131 (pictured), actually shipped in 2007. It is only now, however, that

the majority of Android and Windows smartphones are coming

equipped with NFC as standard (Apple does not support NFC).

47 million Japanese people adopted tap and go phones in the 3 years preceding 2011, whereas

only 30 million had been adopted in the rest of the world 6, 7. In Japan there was an incentive to

adopt NFC enabled smartphones, as the infrastructure for using them was in place. Perhaps the

adoption of the technology by Apple, a significant brand leader in mobile devices, would be the

push contactless payments needs to enter the main stream in Europe and the US – although this

seems somewhat unlikely to happen.

Patents may yet have a further part to play in the progress of contactless payments and NFC. In

December 2013, France Brevets, the company appointed by Inside Secure to license their NFC

portfolio, filed lawsuits in the US and Germany against HTC and LG for infringing two NFC related

patents. The strong US/European portfolios of Nokia (soon to be a non-practising entity, in terms of

handsets) and RIM, may also provide cause for concern: the likely imminent litigation cases can

only complicate matters in the battle for our mobile wallets.

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Figure 10: Nokia 6131. (Picture: GSM Arena)

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Links

1 Frost & Sullivan NFC Prediction, ‘Despite Apple, NFC is catching on...’, Matt Hamblem (Computerworld, http://www.computerworld.com/s/article/9234736/Despite_Apple_NFC_is_catching_on_just_not_for_payments_quite_yet, 19/12/12, 06:00AM)

2 “Future of Contactless Payments” (E&T Magazine http://eandt.theiet.org/magazine/2013/07/new-ways-to-pay.cfm 30/12/2013)

3 “Global mobile statistics 2012 Section F: Mobile payment, NFC, m-commerce, m-ticketing and m-coupons” (Mobithinking, http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/f#mpaycountries, 27/04/2013)

4 NFC Country Profile: Japan (Contactless Intelleigencehttp://contactlesscities.wordpress.com/2012/03/13/nfc-country-profile-japan/ 30/12/2013)

5 ‘World Payments Report 2013’ (Capgemini,http://www.capgemini.com/resource-file-access/resource/pdf/wpr_2013.pdf)

6 30 MillionNFC-Equipped Phones Shipped in 2011…’ (Engadget, http://www.engadget.com/2012/03/27/30-million-nfc-equipped-phones-shipped-in-2011/, 27/03/2012)

7 ‘What is Near-Field Communication (NFC)? ’ (MobiThinking, http://mobithinking.com/blog/near-field-communications, 16/06/2011)

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About the Author

Tim Butler is a Technology Analyst at ClearViewIP. He is involved in patent analytics across a range of high-tech industry sectors. He is responsible for carrying out both technical and commercial assessments of patent portfolios and enjoys conducting competitive analysis to indicate which patents are of relevance to a specific industry and which may have applications across other sectors. Tim has a Master's Degree in Materials Science from Oxford University, where he wrote his thesis on nanocomposite ceramics. He also specialised in biomaterials, metals and alloys, and microstructural characterisation. Before joining ClearViewIP Tim spent time teaching English in Russia and materials science in China.

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HOW CAN CLEARVIEWIP HELP?

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Disclaimer: This document is for marketing purposes only. The information contained in this document should not be considered as legal or tax advice. ClearViewIP is an IP Management Consultancy and not a law firm or tax advisory consultancy.

i http://www.capgemini.com/resource-file-access/resource/pdf/wpr_2013.pdf

DISCLAIMER This document is for marketing purposes only. The information contained in this document should not be considered as legal advice. ClearViewIP is an IP Management Consultancy and not a law firm.

For a free, confidential discussion on how ClearViewIP can help your company, or for a more detailed look into the current NFC or payment technology market, please contact: Tim Butler – Technology Analyst

: +44 (0) 845 690 1953

: tim_butler@clearviewip.com