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A closer look at Smartrac & Motorola’s licensing deal with Round Rock

The industry continues to digest the patent licensing agreement that Motorola Solutions and Smartrac NV signed with Round Rock LLC on Monday. The deal is the biggest to date for Round Rock, which began suing Macy’s, American Apparel and other users of RFID almost two years ago.

Round Rock now has agreements in place with five RFID solution providers, including Checkpoint, Intelleflex and UniLabel. Pfizer also has an agreement in place. Round Rock, however, is far from finished.

“This is certainly the most impactful announcement and will get the most attention because of the nature of the litigation with Motorola and the size of Motorola and Smartrac with respect to the industry,” says James E. Burris III, vice president of licensing at Round Rock. “The intention is to continue the model to license the industry. That was our intent and that’s what we’ll continue to do.”

Retailer's like Macy's are rapidly rolling out RFID technology.

The announcement by Smartrac and Motorola Solutions is certain to spark an acceleration of new deployments, specifically in retail, where the tagging of apparel and other specialty items has soared over the last two years. It’s well known that many retailers have slowed or curtailed deployments over the past 12 months because of the uncertainty surrounding the Round Rock issue.

“This agreement with Round Rock Research reflects Motorola Solutions’ unyielding commitment to protect our customers and to grow the RFID market,” says Mike Poldino, vice president of product management and market development, Data Capture Solutions, Motorola Solutions. “By removing this uncertainty that threatened to slow adoption, we have removed a distraction, which will help our customers focus on what they do best – running their businesses.”

The licensing arrangement with Round Rock is non-exclusive, allowing other RFID reader and tag providers the opportunity to reach similar agreements. It remains to be seen, however, if the terms that Round Rock drew up for Motorola and Smartrac will be acceptable for other players in the RFID industry. The agreement also ends litigation that Motorola filed against Round Rock in March of 2012, and indemnifies Motorola’s customers who had previously received patent infringement letters from Round Rock.

The licensing deal raises questions, however, such as if  the agreement will impact the cost of deploying RFID, and what course of action other vendors will take in the future.

“What the Round Rock announcement means for rest of the industry is a fair question,” says Michael Liard, vice president of Auto-ID at VDC Research. “Who’s next and what is their course of action?”

Many wonder if the costs associated with the Round Rock licensing agreement be passed on to end users in the form of higher prices to deploy RFID technology? Or will Motorola and Smartrac absorb the additional expense as a cost of doing business? While the terms of the agreement remain confidential, patent lawyers suggest that most patent licensing deals vary from a fraction of one percent, to one percent or sometimes more.

Industry sources say that up to a half dozen RFID solutions providers have been negotiating with Round Rock, the result of which was the deal announced on Monday.

Jan Svoboda, vice president of sales for Smartrac, says that the agreement was designed to have a minimal impact on all players in the value chain.

“This reinvigorates many retailers commitment to move forward with new RFID deployments,” Svoboda said from a customer site in Sao Paulo, Brazil. “For us, the goal was to solve this in the most amicable and commercially practical way with minimum cost impact on everybody involved, including all of the value chain players between the chip and the end user.

“The cost impact on that value chain is minimal compared to the risk of exposure to IP infringement and should not have any significant negative cost impact on the user. The solution removes a burden from the industry and the end user so they can resume and accelerate programs and provide growth for the industry.”

The deal could force other RFID solutions providers to play a similar game with Round Rock. Another option is to remain in a holding pattern until some of the patents expire, which could take two years or longer, or form an industry alliance to negotiate a blanket agreement.

The remaining players in the industry could work toward a blanket agreement with Round Rock that covers the entire RFID sector, instead of working out individual deals which could take years. It remains to be seen, however, if big name players like Avery Dennison, Zebra, NXP and others will flex their muscles in a battle with Round Rock, or if they will simply realize that this is an added cost of doing business and carve out deals similar to Smartrac and Motorola.

“The current landscape is that there are some that have settled and then there is a huge number that have not,” said a patent attorney familiar with the case who did not want to be identified. “There is a potential to solve the problem by pooling resources and developing joint defense groups so that the industry as whole reacts to the threats, and you don’t have the problem of being targeted individually, and in effect allowing the patent troll to divide and conquer.”

Regardless of the path taken by other vendors, many industry observers view this week’s licensing deal as a positive step for the industry. It’s likely that retailers that have been sitting on the sidelines, but are anxious to improve inventory accuracy and pursue omni-channel strategies, will begin rapid deployments once the holiday shopping season concludes.

“Impinj has very closely followed intellectual property developments in the RFID industry, particularly the litigation and licensing activities related to Round Rock,” says Bill Colleran, president and CEO of Impinj, Inc.

“Although many of the licensing details remain unknown, we think [this week’s] announcements probably represent a positive step forward for the industry.  With Smartrac and Motorola joining Checkpoint as nonexclusive licensees to the Round Rock RFID patent portfolio, we believe that end users can continue RFID deployments with confidence, knowing that the community of solution providers, including Impinj, will protect their customers from future patent litigation.”

Bill Hardgrave, Dean of the College of Business at Auburn University and the founder of the RFID Research Center was addressing conference attendees at the Retail Value Chain Federation when he got the news about the Smartrac and Motorola agreement.

“I think we’re going to move past this issue because of these deals,” he says. “Round Rock won something out of this, but if Motorola and Smartrac can provide indemnification for retailers and suppliers then there are no more obstacles. This should help us to turn the corner now and get back to the strong growth that we saw a year ago.”

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