Controversy Flares Over RFID Patent Fees

By Jacqueline Emigh  |  Posted 2004-08-18

Controversy Flares Over RFID Patent Fees

The RFID industry is buzzing with controversy over Intermec Technologies Corp.s quietly evolving plans to tack patent royalties on to competitors future products. Opponents insist that the licensing plans could add big delays to customer-driven RFID initiatives from retailers Wal-Mart Inc., Target Corp. and Albertsons Inc.

How much money is at stake? Intermec is looking for 5 percent royalties on RFID tags, labels, chips and inlays, and 7.5 percent fees on readers and printer-encoders. The fees would be attached to future products conforming to EPCglobals emerging EPC UHF Generation 2 standard, which incorporates RFID tagging of individual items. Gen 2 was originally expected to show up in RFID hardware over the next 18 months. Current RFID pilots by retailers and consumer goods distributors revolve around EPCglobals first-generation specification for carton and palette RFID tagging.

Click here for the latest on Wal-Marts RFID pilot.

Intermec Vice President and General Manager Mike Wills told that he is "incredulous that anyone could be surprised" about the planned fees. "RFID has been an area of innovation for us. Weve been putting a lot of effort into RFID ever since the mid- to late 1980s. But without (financial) incentive, innovation ceases in a very short period of time," said Wills.

Wills said that Gen 2, a specification now nearing finalization, impinges on four Intermec-held patents. These four patents are the same ones also at issue in a lawsuit previously filed by Intermec against RFID startup Matrics Inc. Intermec obtained two of these four patents through an acquisition of IBMs RFID Lab back in 1997.

Intermec also has contributed five other patents to EPCglobal for use by the industry free of charge, Wills added.

Last month, barcode scanning industry leader Symbol Technologies Inc.—no stranger to wireless patent disputes—announced plans to buy Matrics for $238 million.

Wills insisted that Intermecs proposed royalties are unrelated to the suit against Matrics. "Matrics is already shipping its products," he said. On the other hand, Intermec will impose the future royalties to prevent patent impingement in products not yet created. But Wills stopped short of saying that Intermec will not sue any competitors aside from Matrics.

Yet Intermecs planned royalties are more than many players might have bargained for, according to industry analysts. "Intermec has been making a name for itself with its patents, but the licensing fees seem high, and Intermecs actions raise a whole new set of questions," said Michael J. Liard, a senior analyst at Venture Development Corp. "Will this stall the market?"

He noted that there is also a possibility that other patent holders might try to impose licensing fees.

"The industry had been moving forward very collaboratively. Everybodyd been pouring blood, sweat and tears into RFID. And we dont want people to start viewing Intermec or RFID in a negative way, either," Liard added.

Intermec hasnt made a formal announcement of its licensing plans. But details started trickling out after the plan was submitted to members of EPCglobal— an ever-expanding consortium of retailers, consumer goods distributors and RFID makers—at a meeting last week.

Within EPCglobal, however, Intermec has been open about its intention to charge fees, according to Wills. "Im a bit incredulous that anyone could be surprised. It cant be a surprise to people who are participating in EPCglobal," he said.

It isnt EPCglobals role to approve or disapprove the plan, Wills explained. "This is Intermecs property. So EPCglobal is in a mode of understanding, not in a position of approving."

He also pointed to the myriad cross-licensing agreements in the PC and consumer electronics industries as models, of sorts, for Intermecs plan.

Predictably, Intermecs court foe Matrics isnt exactly in Intermecs camp on the royalties issue. During a Webcast this week, John Rommel, a senior account manager at Matrics, said the RFID industry is "in a tizzy" over the patent fees. Rommel predicted that Wal-Mart and other retailers might stick with first-generation RFID technology longer than initially planned.

Next page: Some customers are furious.

Page Two

Some supply chain customers are admittedly furious over the fees. "I cant think of anything else that would be more stifling to RFID than royalties. People who charge licensing fees appear desperate to make money," said one former Intermec customer who asked not to be identified.

"Intermec is acting as though it is Microsoft or something. Meanwhile, our company is getting more and more into open-source Linux. Instead of being open and contributing to the standards group, Intermec is holding on to proprietary technology and suing the pants off of anybody it can," he said.

The customer did not criticize Intermecs products in particular, but he said that his company has abandoned earlier plans to use RFID for inventory tracking, turning instead to another technology that seems to works better under "real world" as opposed to "ideal" conditions.

Yet Wills denied that Intermec is taking a proprietary stance. "If we were being proprietary, we wouldnt let anybody on to our property— and thatd be a real showstopper," he said.

The licensing plan makes Intermecs technology available in a random and nondiscriminatory, or RAND, manner to both "competitors and noncompetitors," Wills said. He defined noncompetitors as companies that arent yet Intermec competitors, but that might be in the future.

Other players warned that the importance of the Intermec patent dispute could be getting overblown within the overall context of RFID deployment.

"Intermec is one of the leaders in RFID technology for the retail supply chain, and theyd like to see financial benefits from their IP [intellectual property]," said Jeff Richards, president of R4 Global Solutions, a consulting house that has teamed with a number of RFID vendors, including both Intermec and Matrics.

"But RFID is kind of unusual in the way that users are driving adoption," he said. "RFID users are recognized as driving the bus. Big retailers want prices to go down and they also want companies to be working together. The entire user community isnt going to say, OK. Well, well just put everything on hold now. EPCglobal had 40 or 50 members in January, and by now it has hundreds. Theres going to be a lot of dialogue going forward. This isnt going to be just Intermec, sitting across the table from a couple of startups."

Richards continued: "Texas Instruments and Philips will be entering in Gen 2. There are also companies such as Motorola and Intel that havent even really gotten involved with RFID yet. [Venture capitalists] arent going to be idly standing by, either. This should all make for a very interesting discussion."

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