Justice Department Gives Nod to EPC Gen 2 Patent Pool

By Claire Swedberg

A group of UHF RFID technology vendors received a business review letter approving their request to negotiate patent licensing agreements as a single entity.

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In a business review letter issued on Tuesday, the U.S. Department of Justice (DOJ) approved a proposal by the RFID Consortium—a group of RFID technology vendors—to begin jointly licensing patents for EPC Gen 2 passive UHF RFID tags, interrogators and printer-encoders. With the announcement, the Justice Department asserted that the proposed patent-licensing arrangement would help to lower costs of ultrahigh-frequency (UHF) RFID technology, as well as speed its adoption.

In the letter, Thomas O. Barnett, assistant attorney general in charge of the department’s antitrust division, wrote, “The proposed patent-licensing arrangement has the potential to speed up the commercialization of UHF RFID technology to the benefit of competition and consumers, without harming competition or impeding innovation… The consortium’s pool appears reasonably likely to yield some tangible cost savings by limiting the threat of hold-up and royalty stacking, and by lowering transaction costs.”


Jason Johnson

The RFID Consortium was formed in 2005 by a group of technology vendors, with the goal of combining their RFID-related intellectual property (IP) or patents (see RFID Vendors to Launch Patent Pool). The current members consist of Motorola, Zebra Technologies, ThingMagic, Hewlett-Packard, France Telecom, LG Electronics and 3M. With the DOJ’s approval, the group intends to offer a joint patent portfolio to make it easier for RFID software and hardware vendors to obtain licenses related to those patents, as well as lower the cost of that process and expedite the development of RFID technology.

Each consortium member holds one or more patents that an independent patent evaluator deemed essential to the EPC Gen 2 UHF standard. Altogether, the consortium holds a total of 10 such patents. All patent holders in these cases have granted the consortium nonexclusive rights to license their patent or patents.

The consortium will now license its patent portfolio, or pool, on reasonable and nondiscriminatory (RAND) terms to manufacturers under the management of VIA Licensing, which was named the consortium’s independent licensing administrator in 2006 (see RFID Consortium Names Patent-Pool Administrator).

“The RFID Consortium has been waiting for this letter, and now it can move forward in launching the licensing agreements,” says Jason Johnson, Via Licensing’s VP of marketing and business development.

As with other patent pools, the RFID Consortium plans to charge one royalty fee for the right to use IP covered by each of the 10 patents. The revenue would then be divided among all membership patent holders. Half of the royalties will be allocated to participating companies based on the number of patents contributed by each participant, with the other half allocated substantially equally among participants. Members believe the pooling method will be the best way to keep RFID equipment costs down, as well as to prompt adoption by ensuring companies are compensated for their IP.

Although the consortium began in 2005 with 20 members, only the seven current members were judged to have patents considered essential for EPC Gen 2 technology. With the Justice Department’s approval, the group now hopes to recruit other companies holding essential patents to join them. “Since we have the blessing from the DOJ, we now must educate those companies who own patents,” Johnson says, regarding how the group can help those firms reduce their cost of licensing by providing it as a pool with other licenses.

“We certainly encourage as many patent holders as possible,” says John Ehler, Via Licensing’s director of licensing programs. “We expect a great number of essential patents and their patent-holders to come in [to the group],” Johnson adds. In fact, according to the DOJ, the membership of many patent-holders in the pool will be important to the market.

In his letter, Barnett further stated, “Licensees could shop at a single stop for the patents of consortium members, rather than negotiating individually with seven separate parties for licenses. Licensees, though, would incur additional transaction costs to license patents from non-members.”

The Department of Justice’s response was strikingly supportive for the RFID patent pool, Ehler says, as well as surprisingly detailed regarding the opportunities for the market with this pool. Although the agency has previously approved other patent pool review requests, he notes, it has not done so with as much supportive language. “The DOJ has weighed in on patent pools a number of times,” he states, “but nothing to this extent.”

Ehler attributes that to the details by which the consortium described its efforts to offer fair and non-discriminatory rates, and to allow competition from independent patent-holder licensing agreements. The consortium, in a letter to the Department of Justice, also indicated that all members will be subject to the determination of an independent party as to whether their patented technology is essential.

“The consortium appears structured to preserve the patent expert’s independence regarding his decisions about each patent’s essentiality to the Gen 2 standard,” Barnett wrote, adding that “members would no longer face the expensive and time-consuming tasks of searching out manufacturers who are using those members’ intellectual property, or negotiating individual licenses… Instead, they would reap the cost savings of centralized licensing and would realize an immediate return on their intellectual property.”

The business review request and the DOJ’s response are available at the Department of Justice Web site.