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What the Round Rock Settlements Mean

Motorola and Smartrac signed settlement agreements with Round Rock Research, which sued several retailers for patent infringement.
By Mark Roberti

An inlay is the transponder and antenna mounted on a substrate. Label makers buy inlays from a variety of manufacturers and convert them into RFID labels or hangtags for garments. To comply with the settlement terms, retailers must require their suppliers to use tags with inlays from licensed suppliers. One retailer expressed disappointment at the settlement, saying: "The patents are not legitimate, and there was no reason to impose this extra burden on us."

Walmart and Round Rock
In March 2012, Round Rock Research sued Walmart for patent infringement. A source tells RFID Journal that the retailer had some initial discussion with Round Rock regarding agreement to pay a licensing fee. But Round Rock overestimated Walmart's use of RFID and the benefits it was achieving. Round Rock asked for tens of millions of dollars per year. "It was outrageous," the source says, without being more specific.

Illustration: iStockphoto
Walmart apparently had serious concerns about the case, because Round Rock was not asking for a flat royalty fee but a percentage of the benefits from RFID. This was a potential nightmare if it lost the case. It would have to account for the direct benefits of RFID, which might require hiring an army of accountants. The benefits could be in the hundreds of millions of dollars annually, once the solution was fully deployed. And no doubt other technology companies would follow the precedent and ask for a percentage of the benefits of their technology.

In March 2013, Walmart sent a letter to suppliers tagging goods, saying it still believed RFID could deliver value and would defend the lawsuit vigorously, but it was "curtailing its EPC program pending resolution of the existing litigation." Walmart's intention was not entirely clear, and many were shocked that the retailer appeared to be walking away from EPC RFID. The CEO of one RFID company said Walmart kicked the RFID industry in the teeth when it said the return on investment from RFID, when the lawsuit defense cost was factored in, was not good enough to justify expanding the RFID program.

Our interpretation of this move is that Walmart was sending a signal not just to Round Rock but to other technology companies that it would rather not use a promising new technology than pay a percentage of the benefits. The comment related to the ROI could hurt the industry, but it was simply a legal strategy to downplay any potential damages the retailer might have to pay if it lost the suit.

At the time of this writing, Walmart's lawyers are examining the terms of the deal between Round Rock and Motorola and Smartrac to understand what the retailer is required to do to comply with the agreement. But it is highly likely that Walmart will resume its RFID efforts sometime in 2014.

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