Cisco Reaches $2.7 Million Deal With WiFi Patent Troll

The network giant will pay Innovatio $2.7 million, which comes to about 3.2 cents for each wireless device at issue.

Cisco Systems scored a win against a patent firm that had sent more than 14,000 letters to organizations that use Cisco WiFi equipment demanding thousands of dollars in licensing fees.

The patent firm, Innovatio IP Ventures—which Cisco officials had accused of trying to leverage $4 billion from business through the licensing demand—on Feb. 6 agreed to settle for $2.7 million, or about 3.2 cents per wireless device in dispute.

Innovatio had bought some older Broadcom patents, and then targeted coffee shops, supermarkets, retailers, hotels and other businesses that used the wireless routers and access points with patent demand letters asking them to pay between $2,300 and $5,000 in licensing fees.

Innovatio officials claimed that use of these wireless network products infringed on 23 patents that the company owned.

The makers of the wireless products—including Cisco, NetGear and Motorola Solutions—filed suit against Innovatio, claiming that not only did the wireless equipment and those businesses using it not infringe on Innovatio's patents, but that those customers already were licensed to use those patents. Lawyers for the vendors claimed in their lawsuit that Innovatio was running a racketeering scheme, although the judge overseeing the case in the U.S. District Court in the Northern District of Illinois dismissed the racketeering claim.

Innovatio in their 14,000-plus letters targeted more than 170 million Cisco devices, with hopes of getting almost $4 billion from these companies in the United States, according to Mark Chandler, general counsel at Cisco. Innovatio eventually agreed that more than 100 of the devices it targeted were already licensed, and the judge in the case ruled that Innovatio's patent claims had a value of about 10 cents per WiFi device.

The settlement at 3.2 cents per device was a victory for the vendors and offers "full protection for millions of Cisco customers from the overblown and specious claims of a very aggressive patent assertion entity," Chandler said in a post on the Cisco blog.

"We spent $13 million on this litigation, not including the $2.7 [million] settlement," he wrote. "I’m proud that we stepped up for our customers. … But that expenditure would not have been necessary if Innovatio had met its obligations to license on reasonable and non-discriminatory terms, and had come to Cisco seeking a reasonable license first rather than targeting our customers and those of other manufacturers."

The case shines a light on an issue in the industry that is gaining attention not only of vendors but of U.S. lawmakers, as well. Patent assertion entities—also called "patent trolls"—make money by buying patents from companies and then asserting those patents against other companies that have products already on the market. An outgrowth of this is "patent privateering," when businesses that have created products want to generate more money from their patents by transferring their patents to patent assertion firms, which then file lawsuits themselves and share any proceeds with the business that created the patent.

Companies like Cisco and Google have been trying to fight back against patent trolls by signing cross-licensing patent deals with others in the industry. At the same time, attorneys for vendors have been pushing for legal solutions to protect the companies and their customers from being threatened with costly, frivolous and unwarranted ligitation unless licensing fees are paid. The U.S. House of Representatives in December 2013 passed legislation that would require the patent firms to prove that their claims are justified or risk having to pay all of the litigation costs if they lose a case. The bill is now before the Senate.

Cisco's Chandler said there are other steps that could be taken, such as requiring such patent firms to register their claims with the Federal Trade Commission and letting customers know they can take those claims to manufacturers like Cisco.

If those provisions were in place, "it seems unlikely Innovatio would have engaged in its letter-writing shakedown against end users," he wrote. "And if they thought they might be on the hook for the $13 [million] we had to spend, they might have thought twice about the way they approached their licensing scheme."