The RFID Patent Pool: Playing Poker
RFID Consortium Charts Its Next Move
By Mark Johnson, RFID Tribe
December 19, 2005 – It has been several months since the RFID Consortium announced its
intent to form a patent pool for the intellectual property required for UHF RFID standards from
EPCglobal and ISO. The RFID Consortium is charting its structure and creating its licensing
rules.
Let the Game Begin
The RFID Consortium publicly announced its intent to form a patent pool in August 2005 and
followed with an announcement in September 2005 that it had selected MPEG LA, LLC as the
administrator for the RFID patent licensing process.
The RFID Consortium official members are Alien Technology, Applied Wireless Identifications
Group (AWID), Avery Dennison, Moore Wallace, Symbol Technologies, ThingMagic, Tyco Fire
& Security and Zebra Technologies. The group of eight companies that are official members
of the consortium has not grown since the August announcement according to Stan Drobac,
vice president of RFID applications at Avery Dennison and spokesperson for the RFID
Consortium.
Patent pool structures and consortia royalty sharing models vary. Drobac told RFID Tribe,
"We are borrowing elements from multiple business models to construct our model.”
Playing Poker
RFID Tribe talked with Andrew Updegrove, partner at Gesmer Updegrove LLP and editor of
ConsortiumInfo.org. Gesmer Updegrove has advised more than 70 standards-setting and
promotional consortia regarding their formation, member classes, dues structure, standards
and certification processes, including the Near Field Communication (NFC) Forum and the
Mobile Payments Forum.
Updegrove said. “The idea for patent pools is to cap the ‘tax’ on a device to allow for greater
market adoption.” The tax in the form of a royalty is set at ‘what the market will bear’. The cap
is typically either a percent of the device’s price or a flat fee per device.
There are several advantages to patent pool consortia. Patent pools enable efficiency when
the market can obtain a single capped royalty for a device where equipment providers need
only one license and deal with one entity for licensing. Consortium patent pool participants
benefit by sharing in the consortium’s royalty stream according to a patent pool formula
devised by the participating companies. In addition, patent pools level the playing field so that
one firm pays the same royalty fee as its competitor for selling a device. Consortia tend to
save valuable resources for member companies - they spend less time and less capital
defending a lower number of lawsuits.
With much at stake, companies work diligently to set technology standards and to
commercialize their intellectual property by pooling their patents with others. “Standards
setting is a game of hardball” said Updegrove.
Due to anti-trust issues associated with patent pooling, some consortia in the United States
send a letter to the US Department of Justice (DOJ) seeking an opinion. This letter details the
consortium’s structure, membership model and licensing algorithms and asks the DOJ for an
opinion on whether the consortium, as proposed, would violate anti-trust laws. The DOJ
issues a non-binding letter back to the consortium rendering an opinion.
The DOJ letter is not required, but gives the consortium member companies a signal on
whether their consortium will withstand potential legal challenges regarding anti-trust issues.
“Consortia and patent pools are like a poker game” said Updegrove. Anyone can play,
anyone can drop out if they don’t like the game and any player can challenge another’s
patents to “call a bluff.”
Successful consortia start with a population of “promoting companies” and grow their efforts to
include “adopting companies” which adopt the licensing model. The RFID Consortium
“promoting companies” began marketing their efforts with the August 2005 announcement,
followed by the September 2005 announcement on selecting MPEG LA as the licensing
administrator. As the poker game continues, potential member companies should receive
invitations from consortium member companies to join the patent pool, followed by
announcements defining the patent pool and regarding licensing enforcement.
According to Updegrove a typical path, for a consortium forming a patent pool might involve
the following activities: pre-formation meetings held by the initial promoting companies,
seeking a DOJ opinion letter, selecting a legal or operating structure, selecting a licensing
administrator, setting the agreement for the patent pool, selecting an expert or experts to
qualify the patents for inclusion in the pool, creating a call for patents, qualifying patents,
documenting patents included in the pool, releasing a public announcement of the patent
royalty, ensuring the licensing administrator protects patent pool IP and directing the licensing
administer to manage the royalty stream.
Gaining Efficiencies
According to Larry Horn, vice president of licensing and business development at MPEG LA,
the “most efficient” licensing structure for the RFID industry is a place to obtain a single
license for all the patents associated with a given standard. This saves transactional costs
associated with negotiating with several firms and paying multiple license fees to use a
technology. To achieve that most efficient structure requires that all of the patent holders for
the technologies required to implement the RFID UHF standard would be a part of the RFID
Consortium. Horn indicated that 100 percent participation is a goal but is not always possible.
He has seldom seen any patent pool obtain all the patents for a given standard.
A recent study published in November 2005 examined licensing rules for 63 patent pools
established between 1895 and 2001 ( “The Design of Patent Pools: The Determinants of
Licensing Rules” by Josh Lerner, Marcin Strojwas, and Jean Tirole). The study found that
pools consisting of complementary patents are more likely to allow members to engage in
independent licensing. The study also found the requirement that firms license patents to the
pool (grantbacks), should be associated with pools that consist of complementary patents and
allow independent licensing.
License fees for the RFID Consortium have not been set. Horn commented that the license
fees will be non-exclusive – the market retains the right to negotiate bilaterally with any of the
firms in the patent pool for rights to use that firm’s technology. But most equipment providers
who want to license the applicable RFID technologies will recognize the efficiency of licensing
from the RFID Consortium’s patent pool.
Setting a Structure
“The RFID Consortium has not yet selected a structure” said Bill Dolan, of Bell, Boyd and
Lloyd, LLC, the law firm advising the RFID Consortium. The consortium may form as a limited
liability company (LLC) or it may require members to sign patent pool agreements and create
an administrative committee comprised of representatives from its member firms.
The RFID Consortium’s current agreement with MPEG LA, its licensing administrator, more
closely resembles a memorandum of understanding (MOU) than a contract. RFID Consortium
members are to be determined in the consortium’s early stages. A more detailed contract may
be forthcoming when the consortium membership solidifies and when there is more definition
regarding licensing details.
There are no patents in the pool at this point. Horn anticipates that the call for patents will
come from MPEG LA in the first quarter of 2006.
The RFID Consortium will identify an independent expert to qualify patents as part of the
patent pool. Horn says, “The expert is like an umpire in a baseball game calling strikes and
balls for each pitch.” As patent holders submit patent claims through MPEG LA, the expert will
make a call on each patent. The expert evaluates the patent to determine whether the patent
is required to implement a given technology standard.
The RFID Consortium may send the DOJ a letter seeking an opinion on the consortium’s
structure. Horn claims that the MPEG LA licensing model is widely accepted by the DOJ with
respect to anti-trust issues and that there may not be a need to seek a DOJ letter of opinion
for the RFID Consortium. That decision will be left to RFID Consortium members.
The following agreements are not completed, but are anticipated as the RFID Consortium
progresses:
“My experience is that patent pools start with a base of patents that grow and gain momentum
over time.” Horn said.
Technology standards, patent pools and efficient licensing structures are all part of the
landscape as RFID technology matures and gains market acceptance. Eight companies have
answered the call to “ante-up” and join the patent pool, optimistic that the RFID industry will
benefit from a more efficient licensing model.
Copyright © 2005 RFID Tribe. All rights reserved. www.rfidtribe.com
RFID Consortium Charts Its Next Move
By Mark Johnson, RFID Tribe
December 19, 2005 – It has been several months since the RFID Consortium announced its
intent to form a patent pool for the intellectual property required for UHF RFID standards from
EPCglobal and ISO. The RFID Consortium is charting its structure and creating its licensing
rules.
Let the Game Begin
The RFID Consortium publicly announced its intent to form a patent pool in August 2005 and
followed with an announcement in September 2005 that it had selected MPEG LA, LLC as the
administrator for the RFID patent licensing process.
The RFID Consortium official members are Alien Technology, Applied Wireless Identifications
Group (AWID), Avery Dennison, Moore Wallace, Symbol Technologies, ThingMagic, Tyco Fire
& Security and Zebra Technologies. The group of eight companies that are official members
of the consortium has not grown since the August announcement according to Stan Drobac,
vice president of RFID applications at Avery Dennison and spokesperson for the RFID
Consortium.
Patent pool structures and consortia royalty sharing models vary. Drobac told RFID Tribe,
"We are borrowing elements from multiple business models to construct our model.”
Playing Poker
RFID Tribe talked with Andrew Updegrove, partner at Gesmer Updegrove LLP and editor of
ConsortiumInfo.org. Gesmer Updegrove has advised more than 70 standards-setting and
promotional consortia regarding their formation, member classes, dues structure, standards
and certification processes, including the Near Field Communication (NFC) Forum and the
Mobile Payments Forum.
Updegrove said. “The idea for patent pools is to cap the ‘tax’ on a device to allow for greater
market adoption.” The tax in the form of a royalty is set at ‘what the market will bear’. The cap
is typically either a percent of the device’s price or a flat fee per device.
There are several advantages to patent pool consortia. Patent pools enable efficiency when
the market can obtain a single capped royalty for a device where equipment providers need
only one license and deal with one entity for licensing. Consortium patent pool participants
benefit by sharing in the consortium’s royalty stream according to a patent pool formula
devised by the participating companies. In addition, patent pools level the playing field so that
one firm pays the same royalty fee as its competitor for selling a device. Consortia tend to
save valuable resources for member companies - they spend less time and less capital
defending a lower number of lawsuits.
With much at stake, companies work diligently to set technology standards and to
commercialize their intellectual property by pooling their patents with others. “Standards
setting is a game of hardball” said Updegrove.
Due to anti-trust issues associated with patent pooling, some consortia in the United States
send a letter to the US Department of Justice (DOJ) seeking an opinion. This letter details the
consortium’s structure, membership model and licensing algorithms and asks the DOJ for an
opinion on whether the consortium, as proposed, would violate anti-trust laws. The DOJ
issues a non-binding letter back to the consortium rendering an opinion.
The DOJ letter is not required, but gives the consortium member companies a signal on
whether their consortium will withstand potential legal challenges regarding anti-trust issues.
“Consortia and patent pools are like a poker game” said Updegrove. Anyone can play,
anyone can drop out if they don’t like the game and any player can challenge another’s
patents to “call a bluff.”
Successful consortia start with a population of “promoting companies” and grow their efforts to
include “adopting companies” which adopt the licensing model. The RFID Consortium
“promoting companies” began marketing their efforts with the August 2005 announcement,
followed by the September 2005 announcement on selecting MPEG LA as the licensing
administrator. As the poker game continues, potential member companies should receive
invitations from consortium member companies to join the patent pool, followed by
announcements defining the patent pool and regarding licensing enforcement.
According to Updegrove a typical path, for a consortium forming a patent pool might involve
the following activities: pre-formation meetings held by the initial promoting companies,
seeking a DOJ opinion letter, selecting a legal or operating structure, selecting a licensing
administrator, setting the agreement for the patent pool, selecting an expert or experts to
qualify the patents for inclusion in the pool, creating a call for patents, qualifying patents,
documenting patents included in the pool, releasing a public announcement of the patent
royalty, ensuring the licensing administrator protects patent pool IP and directing the licensing
administer to manage the royalty stream.
Gaining Efficiencies
According to Larry Horn, vice president of licensing and business development at MPEG LA,
the “most efficient” licensing structure for the RFID industry is a place to obtain a single
license for all the patents associated with a given standard. This saves transactional costs
associated with negotiating with several firms and paying multiple license fees to use a
technology. To achieve that most efficient structure requires that all of the patent holders for
the technologies required to implement the RFID UHF standard would be a part of the RFID
Consortium. Horn indicated that 100 percent participation is a goal but is not always possible.
He has seldom seen any patent pool obtain all the patents for a given standard.
A recent study published in November 2005 examined licensing rules for 63 patent pools
established between 1895 and 2001 ( “The Design of Patent Pools: The Determinants of
Licensing Rules” by Josh Lerner, Marcin Strojwas, and Jean Tirole). The study found that
pools consisting of complementary patents are more likely to allow members to engage in
independent licensing. The study also found the requirement that firms license patents to the
pool (grantbacks), should be associated with pools that consist of complementary patents and
allow independent licensing.
License fees for the RFID Consortium have not been set. Horn commented that the license
fees will be non-exclusive – the market retains the right to negotiate bilaterally with any of the
firms in the patent pool for rights to use that firm’s technology. But most equipment providers
who want to license the applicable RFID technologies will recognize the efficiency of licensing
from the RFID Consortium’s patent pool.
Setting a Structure
“The RFID Consortium has not yet selected a structure” said Bill Dolan, of Bell, Boyd and
Lloyd, LLC, the law firm advising the RFID Consortium. The consortium may form as a limited
liability company (LLC) or it may require members to sign patent pool agreements and create
an administrative committee comprised of representatives from its member firms.
The RFID Consortium’s current agreement with MPEG LA, its licensing administrator, more
closely resembles a memorandum of understanding (MOU) than a contract. RFID Consortium
members are to be determined in the consortium’s early stages. A more detailed contract may
be forthcoming when the consortium membership solidifies and when there is more definition
regarding licensing details.
There are no patents in the pool at this point. Horn anticipates that the call for patents will
come from MPEG LA in the first quarter of 2006.
The RFID Consortium will identify an independent expert to qualify patents as part of the
patent pool. Horn says, “The expert is like an umpire in a baseball game calling strikes and
balls for each pitch.” As patent holders submit patent claims through MPEG LA, the expert will
make a call on each patent. The expert evaluates the patent to determine whether the patent
is required to implement a given technology standard.
The RFID Consortium may send the DOJ a letter seeking an opinion on the consortium’s
structure. Horn claims that the MPEG LA licensing model is widely accepted by the DOJ with
respect to anti-trust issues and that there may not be a need to seek a DOJ letter of opinion
for the RFID Consortium. That decision will be left to RFID Consortium members.
The following agreements are not completed, but are anticipated as the RFID Consortium
progresses:
- Agreement to pool patents using reasonable and non-discriminatory pricing (RAND).
This is an agreement between the patent pool participants – the licensing administrator
is typically not a party to this agreement. The agreement would detail license fees and
royalty split algorithms. - Agreement in which RFID Consortium grants licensing rights to the licensing
administrator (MPEG LA). - Licensing administrator agreement in which MPEG LA and consortium agree to the
terms for services provided by licensing administrator and details of payments for those
services. - License for the RFID Consortium’s pooled patents detailing the rights purchased by the
licensee.
“My experience is that patent pools start with a base of patents that grow and gain momentum
over time.” Horn said.
Technology standards, patent pools and efficient licensing structures are all part of the
landscape as RFID technology matures and gains market acceptance. Eight companies have
answered the call to “ante-up” and join the patent pool, optimistic that the RFID industry will
benefit from a more efficient licensing model.
Copyright © 2005 RFID Tribe. All rights reserved. www.rfidtribe.com
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