Controversy Flares Over RFID Patent Fees

Intermec's plans to seek patent licensing fees for RFID tags and readers has competitors crying foul.

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.

/zimages/2/28571.gifClick 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.