The RFID Patent Pool: Next Steps
It will take five or six months to set up the intellectual property consortium, evaluate patents and make them available to licensees.
Aug 10, 2005—Companies involved with forming an intellectual property consortium to offer joint licensing through a patent pool say it will likely be early 2006 before any patents will become available to vendors looking to produce radio frequency identification tags or readers using the IP licensed by the pool.
The nine companies that have agreed to create the consortium (see RFID Vendors to Launch Patent Pool for a list) must form a limited liability company (LLC) and enter into an LLC operating agreement. The LLC must then hire an independent patent expert to review all submitted patents and determine which qualify as “essential” to standards for UHF air-interface RFID protocols.
U.S. Department of Justice (DOJ), which will do an antitrust analysis of the proposed licensing program and examine both the pool's expected competitive benefits and its potential competitive hazards. Only when these steps are completed and the DOJ has determined that the arrangement is not anticompetitive can the LLC begin to administer the patent portfolio.
It's not clear how many companies will eventually join the patent pool, but Stan Drobac, designated spokesperson for the consortium and vice president of RFID strategy and planning for Avery Dennison, says the pool still has value even if a big patent holder, such as Intermec Technologies, decides not to join.
"Obviously, it's better if everyone is in," Drobac says, "but if you think about a scenario where there are 20 companies with IP and only 16 join, there is still a benefit. If you're a licensee, you need to negotiate with five entities to get five licenses, instead of negotiating with 20 to get 20 licenses."
Some that have committed to the consortium have agreed to donate IP on a royalty-free basis under EPCglobal's IP policy, but Drobac does not feel this has limited the value of the pool. "The universe of patents that are covered by EPCglobal and available free of charge is very limited," he says. "We're not trying to supercede what EPCglobal has done. Someone could join EPCglobal and take advantage of only those patents covered by its IP policy. But this consortium is taking a broader view of what constitutes a necessary patent. We will incorporate patents that are necessary as a practical matter to implement RFID in a commercially viable way."
The patent pool will cover patents related to UHF RFID systems based on EPC and ISO standards. The group concluded it was necessary to include both standards since they are converging, and because there is a lot of overlap in the patents needed to create products based on ISO 18000-6 and EPC Gen 2.
The process for evaluating patents and determining their relative importance could cause friction among companies joining the consortium, since each company's share of the pool's revenue is based on the relative importance of its patent. As such, there will be a formal review process, as well as an appeals process for those unsatisfied with the importance assigned to their IP. Those that are still unhappy after the review will be able to leave the patent pool if they so choose.
Carl McGrath, chief technology officer at Tyco Fire & Security, participated in the formation of the MPEG LA patent pool in the early 1990s, in which 24 companies contributed more than 600 essential patents necessary to make products using the digital video standard. He reports that none of the parties walked away from the pool after the review process, though not all those with IP joined the pool.
"Most of those who didn't join did their own licensing deals outside of the MPEG LA pool," he says. "I don't expect every company that owns essential RFID patents will join our consortium, either."
Tyco has joined the RFID IP consortium, he says, because it believes that simplifying the IP licensing process and limiting royalties on products will allow more companies to join the market and speed adoption. "Our perspective is [that] the faster the RFID market grows, the better it will be for all suppliers," McGrath says. "The analogy with MPEG in this regard is quite good. Once we got the MPEG IP issues straightened out, the industry took off quickly and DVDs overtook everything else."
One issue that is unclear is what happens to licensing agreements signed by companies that later join the pool. Intermec, for instance, has created a Rapid Start licensing program, and at least two vendors—Zebra Technologies and SAMSys—have joined. If Intermec believes it is economically advantageous to join the consortium, the company might need to void or amend these contracts before joining. If not, then Zebra, which is a member of the consortium, would wind up paying Intermec to license the company’s patents, even though they would be part of the IP licensed from the consortium.
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