IP Issues in Subscription Firmware Updates: Who Really Owns a Smart Device?

Introduction

A car where the back seat heater will only turn on if you pay the monthly fee. A smart speaker that quietly loses a feature it originally had only because the company after a year decided to take fees for that feature, the biggest example is Spotify. No new sales But the manufacturer introduced a firmware update and now the owner cannot do anything with the thing that they have purchased.

This is the new way of owning hardware. Devices not sold and left alone. It raises a really tough question for intellectual property law i.e. how is it that a manufacturer still seems to be in control of the product after so many years, when on the other hand patent law says that a manufacturer's control over a product ends the moment it has been sold.

What Changes When a Product Never Stops Updating

Earlier, a patented thing was a settled thing. The company designed it, built it, and then sold it. And that was the extent of the company's rights to that particular unit. Today, most of what we call “hardware” is really hardware plus a variable layer of software on top of it. Firmware is a software that is built almost similar to the hardware and it determines what the device is actually permitted to do.

This has led to some similar business models. Some companies sell the device on a cheaper rate and then they make their money later by introducing subscriptions and they unlock specific features only the customers who are ready to pay for it. Others use firmware updates in a defensive way in order to prevent third party repairs or non-approved parts from working, when the warranty is gone. And there are some business models who use it to retire features, saying the buyer really paid for a service and not a fixed product.

All of these models discussed depend on the same technical reality: the manufacturer maintains a live remote connection to what the customer has already taken and paid for.

Patent Exhaustion: The Doctrine These Business Models Run Into

In patent law there is a very old rule called the first sale doctrine or patent exhaustion. This doctrine says that their rights in that item are exhausted once a patent owner has sold a product that includes their patented invention. The patent holder cannot sue the buyer for patent infringement over that product/invention again. The buyer can accordingly use, repair, modify or resell it.

The US Supreme Court challenged and extended this principle in Impression Products, Inc. v. Lexmark International, Inc. (2017), when a printer company attempted to stop people from refilling and reselling its cartridges after they had already sold them, at a discount. The Court held that once the sale is done, the patent right is lost. If the company still wants to stop this, it has to be done by entering into a separate contract and not under patent law. A similar logic was developed earlier in Quanta Computer, Inc. v. LG Electronics, Inc. (2008), where it was held that exhaustion has broad application, and it also includes method patents.

So How Are Firmware Updates Getting Around This ?

They are not violative of the exhaustion rule. The manufacturer can no longer, under patent law, control a sold product, so it has two other tools: code and contract.

The firmware lock is itself a technical tool, remote code which dictates which features are on, which parts are genuine and which repairs are allowed to proceed. The legal tool is the subscription agreement or terms of service that the buyer clicks. It tries to bind the buyer contractually, even if patent law can no longer do so.

The clearest example of this is farm equipment. John Deere has been the subject of multiple lawsuits and regulatory actions including a Federal Trade Commission suit in January 2025 and a class action in 2025, alleging that it barred farmers from accessing the diagnostic software that was needed to repair their own tractors which forced them to take help from authorised dealers. Deere agreed for a $99 million settlement of the class action but the FTC case continues separately. The main complaint was not about patent infringement. The law otherwise says that it gave up the control after the sale. It was rather about a company which used software gatekeeping to have control.

The Versioning Problem: What Exactly Was Sold?

Firmware versioning creates one more less obvious problem. The code running on the device you buy in January can be different from the code running on the same model you buy in December, because of the updates in between. This is very important for a patent claim, as it is usually possible to test for infringement by a specific, describable way in which the device works. If the behaviour is changing in every few months by a remote push then the product that is accused of infringing or defended as non-infringing, becomes a moving target.

The same problem works both ways. To prove patent infringement, the patent holder must specify which version of the firmware is being accused. A feature that was infringed in 3.1 can be removed by 4.0. And a device maker defending itself needs to be able to say what a specific unit was running on a specific date. When the case is heard without the records of versions, both sides are arguing about a device that is no longer technically in the same existence as they were.

Evidence Preservation: The New Battleground

It is often that part, which parties think about in the end. When litigation becomes anticipated, both sides generally have a duty to protect relevant evidence and to avoid routine deletion. In the case of a firmware-based product, that responsibility rests on the manufacturer's own update pipeline, because each new push can overwrite the code which is now an evidence.

Few tools required for this are already available to manufacturers, majorly because reliability engineering also requires them. The huge majority of over-the-air update systems have a manifest that contains a cryptographic hash of each firmware build, so that a device can check that what it has downloaded is what it was supposed to get and refuse to install code which does not pass that check. If that same hash-verified build history is preserved rather than discarded, it doubles as clean, tamper evident proof of exactly what code a device was running at any specific time, this is exactly what any court or opposing expert will ask for in case of any dispute.

If you are developing a product with firmware updates, You should keep in mind the following checklist:

• Store all the firmware builds that have been shipped, linked to device serial numbers and dates pushed to, not just the current version.

• Keep OTA update logs and rollback records, this not only show what was installed but when it was installed.

• Always use hash-verified builds, it does affect the integrity of old evidence.

• Immediately freeze the history of the relevant version once a dispute is reasonably foreseeable, just like a company would preserve emails or documents under a litigation hold.

Right to Repair and Competition Law: The Pressure From the Other Side

Patent law limits the control once the sale has occurred but if we see from a different angle, a parallel and growing body of law is attacking those same firmware locks not because they infringe a patent but because they restrict competition and repair. In the United States, right to repair laws that require manufacturers to make parts, tools and diagnostic software that are available to independent repairers on fair terms are now in effect in several states including California, Colorado, Minnesota, New York, Oregon and Washington and more bills keep getting introduced. The European Union’s Right to Repair Directive is a step in this direction, extending guarantees when consumers choose to repair rather than replace.

India’s own framework is still evolving along the same lines. The Department of Consumer Affairs has set up a right to repair committee and portal, targeting exactly the categories that are most affected by firmware locks, mobile phones, consumer electronics and farm equipment. Competition law has already intervened once in the case of Shri Shamsher Kataria v. Honda Siel Cars Ltd. & Ors. (2014), wherein the Competition Commission of India held that restricting access of spare parts and repairs for only authorised dealers alone by car manufacturers was an abuse of their dominant position and in such cases, intellectual property rights could not be used as a protection against such conduct.

Practical Points for Device Makers and SaaS-Hardware Hybrid Products

1. Separate patent strategy from contract strategy: Patents do not control what happens once the sale has occurred. If ongoing control is necessary, make it a part of licence or subscription agreement.

2. Be transparent about what is being sold and licensed: Any future update should not be able to remove a feature if it’s not obvious during the process of sale. Confusing and unclear language about ownership invites consumer complaints and reputational harm.

3. Treat the firmware version history as a valuable legal asset and not just as an engineering log: Build retention and hashing into the update pipeline from day one. It is much harder and much less credible to retrofit it once a dispute has started.

4. Initial mapping of repair and parts pairing decisions vs right to repair exposure: A lock can also be seen as an anti-competitive restriction if it excludes independent repairers.

5. Build litigation readiness into the update system itself: A device which is not able to tell you what code it was running six months ago is a liability the moment a dispute arises, and it is about patents, warranty or repair rights.

Conclusion

The law of patents was established around one discrete, pristine moment, the sale, after which the manufacturer’s control ends. Subscription firmware breaks that assumption by dragging the fight to contract terms, remote code and constant changes in version that patent doctrine was never meant to track. The result is a product that continues to be rewritten after the money has changed hands and a legal landscape that has responded less with patent litigation and more with right to repair statutes and competition law. The takeaway for all the device makers who are developing the next generation of connected hardware is not that firmware-based control is not possible. Currently, winning it is less about the patent strength and more about how carefully a company drafts its subscription terms and how honestly the company is able to demonstrate, each version, exactly what its product was doing at a specific moment.

Author: Vaidehi Singh, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

References

1. Impression Products, Inc. v. Lexmark International, Inc., 581 U.S. 360 (2017).

2. Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008).

3. “Deere & Co. settles right-to-repair lawsuit for $99 million,” Fast Company, April 2026, https://www.fastcompany.com/91523182/john-deere-repair-lawsuit-settlement.

4. “John Deere's $99 Million Settlement and the Accelerating State Right-to-Repair Landscape,” Arnold & Porter, April 2026, https://www.arnoldporter.com/en/perspectives/blogs/consumer-products-and-retail-navigator/2026/04/john-deeres-99-million-settlement-and-the-right-to-repair-landscape.

5. Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors., Case No. 03/2011, Competition Commission of India (2014).

6. “Spotlight on the right-to-repair movement and IP rights in India,” World Trademark Review, https://www.worldtrademarkreview.com/article/spotlight-the-right-repair-movement-and-ip-rights-in-india.

7. “Repair, Reuse, Regulate: Framework for the Right to Repair in India,” The Contemporary Law Forum, April 2026, https://tclf.in/2026/04/08/repair-reuse-regulate-framework-for-the-right-to-repair-in-india/.

8. “The Right to Repair in India and the EU: A Comparative Legal Analysis,” Bridge Counsels, June 2026, https://bridgecounsels.com/the-right-to-repair-in-india-and-the-eu-a-comparative-legal-analysis/.

9. E-Waste (Management) Rules, 2022 (India).

10. “Patent Exhaustion and Its Impact on Post-Sale Restrictions,” PatentPC, https://patentpc.com/blog/patent-exhaustion-and-its-impact-on-post-sale-restrictions.

11. Directive (EU) 2024/1799 on common rules promoting the repair of goods.