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Patent Proposal

The intellectual property issue could be more significant than people realize, but there's a way to resolve it.
By Mark Roberti
Oct 18, 2004Earlier this month, I had the privilege of speaking at the International RFID IP Conference, the first event ever to address this important issue. More than 70 patent lawyers, vendors and venture capitalists had an open exchange of views on intellectual property and its potential impact on the cost of RFID technologies and therefore on adoption.

During the event, I learned that the royalty-free IP policy established by EPCglobal, the nonprofit organization set up to commercialize EPC technology, is narrowly defined to cover only patents that another vendor could not avoid infringing when creating tags and readers based on EPC protocols. Let’s say, for example, ABC Company has a patent for getting power to a passive microchip and it's used in the Gen 2 protocol. XYZ Corp. would have to pay royalties to use that method if there was another way to get power to the microchip, regardless of whether that alternative method would be too expensive to implement or would result in inferior tag performance (see Navigating the RFID Patent Landscape).

That's worrisome for end users and vendors alike. If manufacturers have to pay royalties, it would inevitably increase the price end users pay for tags and readers. A substantial increase in costs would slow adoption, because higher equipment costs make it harder for end users to achieve a return on their investment in the technology.

EPCglobal has done a lot of good work on the IP issue, and the vendors have been reasonable. Still, some vendors want to be compensated for their IP, which is needed to create a standard. If 10 vendors each want manufacturers to pay a 2 percent to 7 percent royalty on each tag and reader sold, the cost of the hardware will be too high. So the question is: How can vendors be compensated without driving up the cost of the technology to the point where it slows adoption?

At the IP conference I proposed the creation of a patent pool. It's a solution I first supported almost two years ago (see Patently Obvious) when the Auto-ID Center raised the idea. A patent pool is the best way to balance the need to foster adoption with the need for vendors to recoup the investments they made in technology that EPCglobal now wants to use in its standard. Here's what I proposed at the conference.

A company would be set up to hold RFID patents. Vendors that contribute patents would get shares in the company based on the importance of their technology to EPC protocols (this would be judged by representatives of the companies donating IP and outside experts). EPCglobal would levy a 5 percent "tax" on all sales of technology that use its protocols.

This 5 percent would not add unreasonably to the cost of the technology and could generate millions of dollars annually for the new patent-holding entity. The company's profits would be divided among the shareholders, so vendors would be compensated for the IP they contributed.

This is essentially the model that was used to create a standard for radio in the 1920s. Radio Corporation of America, RCA, was set up by General Electric with patents contributed by AT&T, Marconi, Telefunken and Westinghouse.

Why would any company contribute IP to a pool? The answer, I believe, is simple: If they don’t, excessive royalties will inhibit adoption. Vendors need to consider whether they will make more money by charging a higher fee on limited sales or by taking a smaller fee on much higher sales.

There seemed to be some interest in the idea among all present at the event, including the vendors. But some people raised potential problems, including the difficulty involved with determining the value of a particular patent and antitrust issues. My understanding is that the pool would have to be approved by the Justice Department to ensure that it doesn't restrict competition, but it's something I need to investigate further. I'll also be looking into other issues in this area.

As I said at the conference, a patent pool is just one idea for resolving the patent issue. There may be others. I encourage anyone with expertise in this area to either contact me with their idea or submit a column by sending email to editor@rfidjournal.com. And if you are interested in following developments around an RFID patent pool, send e-mail to Patrick Reillyof the IP Society, which hosted the International RFID IP Conference.

Mark Roberti is the founder and editor of RFID Journal. If you would like to comment on this article, click on the link below.

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Correction: In the article Navigating the RFID Patent Landscape, we incorrectly stated that Checkpoint Systems had not signed EPCglobal's IP policy. Checkpoint has, in fact, signed. The story has been amended. We regret the error.
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