By Dann Anthony Maurno
Intermec Technologies Corp. is offering its version of a summer sale on its patent portfolio; and, yes, it’s only available until just before Labor Day.
The company announced on May 4 its Rapid Start Licensing Program, which provides RFID manufacturers access to Intermec’s 140+ portfolio of RFID patents at reduced rates. That program begins June 1, 2005, and concludes Aug. 31. According to Intermec, this will provide the marketplace with clear guidance about which vendors are licensed to use Intermec’s RFID intellectual property and will simplify complicated technology cross-licensing issues. Intermec’s announcement sparked excitement in the investor community, with Intermec parent company Unova’s stock leaping from $17 at closing May 4, to $19.88 on May 5.
“A ninety-day window means that all manufacturers will compete on an even playing field, having signed up in that short period of time,” said Intermec’s Program Director Chris Kelly. “It’s all about market adoption, delivering the products that the marketplace asks for and that all the vendors and manufacturers have access.”
Manufacturers in the marketplace became confused when EPC Global, the body driving RFID standards adoption, announced the long-awaited Gen 2 standard was royalty free at the same time Intermec announced that, in order for Gen 2 to be commercially viable, their proprietary IP was a necessity. Some criticized EPC Global, some blamed Intermec for the situation. The net result? Signs of a stalled market, some vendors said.
Dennis Gaughan of AMR Research issued a statement May 13, saying, “Intermec is extending the olive branch to the industry by lowering the licensing costs and simplifying the licensing process.
“It puts the focus back on who’s got the best product versus the IP issue,” said Kelly. Intermec at first contended that its IP was at the heart of the EPC Global Generation 2 (Gen 2) RFID Standard. Intermec has since accepted EPC Global’s contention that Gen 2 product is royalty free, but believes most producers will use Intermec IP for higher performance, and is aggressively pursuing licensing fees from those producers.
Although Kelly describes the vendor community as positive, several vendors who are deciding on their IP licensing needs declined to comment for this article. Intermec is counting on Rapid Start to settle issues of past infringement and free partners from risk of future infringement. And Intermec believes the savings of Rapid Start will spur those vendors who have dragged their heels in the past into action.
“Some of them have stalled,” said Kelly, “Figuring ‘if I sign now but my competition waits, am I at a cost disadvantage?’ They’re gambling that they’ll pay down the road, potentially in litigation.”
At first glance, Rapid Start appears to be similar to Intermec’s Fall 2004 60-day suspension of IP licensing, to allow protocol testing to proceed. However this is altogether different. The fall IP hiatus was perceived as “enlightened self-interest,” in the words of Tom Ryan of Aberdeen Group; but the suspension clearly allowed the RFID industry to proceed with protocols that might have been Intermec-owned intellectual property, without fear of repercussions. This time around it is not testing, but rather market acceleration, that is the expressed goal.
The cost-savings appear to be significant. Under Intermec’s original ISO Reasonable and Non-Discriminatory (RAND) program, the company charged a 5 percent royalty rate to chip manufacturers, but will charge 2.5 percent under Rapid Start. Intermec charged 5 percent royalties for label, tags and inserts under ISO RAND, and 4.5 percent under Rapid Start; portable reader technology is reduced from 7.5 percent royalty to 6.5 percent. But the RAND offerings were no longer on the table, thanks to back-pedaling by EPC Global in their determination of how Intermec’s IP affected the Gen 2 standards.
Before and after this licensing window, with RAND no longer relevant, vendors are on their own in negotiating royalty fees with Intermec, with no announced guidelines to rely upon. Intermec designed Rapid Start to simplify its licensing as well, dividing its 140+ patents into four portfolios; further reducing the potential complications versus the every-man-for-himself climate vendors found themselves in. The groupings are by field of use: chips; tags, inserts and smart labels; fixed readers and coders; and a mobile category, including portable RFID readers. Each portfolio is subject to the $250,000 licensing fee.
In addition to those reduced royalty rates, the program offers .5 percent reduction in royalties to licensees that cross-license to Intermec – thus, the royalty rate drops to 2 percent for chips.
Also, Intermec’s origination fee—up front payments against royalties—are substantially less under Rapid Start, at $250,000 per portfolio, versus $500,000 – $750,000 under RAND. As a further incentive, Intermec allows for that $250,000 fee to be paid over a year. Lastly, Intermec will raise its origination fee to $1 million after the Rapid Start window closes.
Intermec has felt heat over those origination fees, which could kneecap VC-backed and startup companies. Said Kelly: “This helps them, absolutely, in our opinion, with a lower origination fee and the ability to spread it over a year.”
“It becomes in my opinion a no-brainer,” said Kelly. Analysts seems to agree. Jeff Woods, research vice president for enterprise and supply chain research at Gartner Group, said in a Wall Street Journal interview that “people will have some explaining to do if they don’t take the deal,” but further described Rapid Start as a “clever way for Intermec to say they aren’t holding up the market.”
Woods said in another statement that “Gartner advises our user clients to factor royalties for Generation 2 RFID equipment and tags into their business cases even though they will not directly pay them.”
This article originally appeared in the June 2005 issue of RFID Operations.