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Behind the scenes of the Avery-Round Rock RFID licensing deal

This week’s patent licensing agreement between Avery Dennison Retail Branding and Information Solutions (RBIS) and Round Rock Research should jumpstart RFID deployments among U.S.-based retailers. As the threat of litigation from Round Rock grew over the last 18-24 months, many U.S. retailers went into a wait-and-see mode, falling behind their counterparts in Europe when it comes to large rollouts.

The Avery agreement, which comes one month after Smartrac and Motorola reached a similar patent licensing deal, should significantly accelerate RFID adoption in retail and begin to push apparel tagging closer to the potential 60 billion units that Avery projects could carry RFID tags in the future. By comparison, about two billion apparel items will be tagged in 2013.

Avery Dennison

Shawn Neville, president of Avery Dennison, says 60 billion apparel items could carry RFID tags some day.

In an exclusive interview with RFID 24-7, Shawn Neville, president of Avery Dennison RBIS, said that he attributes the uncertainness from the Round Rock situation as a major deterrent to adoption in the U.S. over the last 24 months. He also explained why Avery settled now, and provided commentary on the future of RFID and retail.

“From our view, three years ago the U.S. market was twice the size of the EU market in the number of units that we shipped,” says Neville. “Today, the EU market is 50 percent larger and growing at a much faster rate. I’m not sure how much of that has to do with Round Rock, but it clearly hasn’t helped.”

Industry sources have already indicated that tag manufacturers have seen a huge uptick in business since the Smartrac/Motorola deal was announced last month. Now that Avery RBIS is on board, far greater growth is expected.

“RFID adoption in the apparel industry is accelerating around the world due to the strong investment case and fundamental advantage it affords retailers to better manage inventory and serve customers,” says Neville.

Avery’s Retail Branding and Information Solutions business is a major player when it comes to offering RFID solutions for the apparel and retail industry, with more than 800 patents and applications. The company has sold more than 3 billion RFID tags and labels.

RFID 24-7: How significant is the licensing agreement, not just for Avery RBIS but for the retail sector?

Neville: “From my view, it’s as much a question of what would happen if it didn’t occur and we couldn’t move past it. The future is definitely in a better position with [Round Rock] behind us versus in front of us. The noise it created in the U.S. market in the last couple of years wasn’t helpful.”

RFID 24-7: Walk us through the timeline for getting the deal done. Why was the time right?

Neville: “The reason we ultimately did the deal was … we were a lead player in the joint defense council and the litigation was in a stayed position, so we felt at the time that the best thing was for the council to work through it until a time came when we felt the patents were valid and we could move it forward.

“Obviously a couple of our competitors broke off from the defense council. We don’t fault them; they made their own decision. But for us being the largest player in the industry, ultimately after they [settled], if we had not done so, I think we could have created more of an issue for the industry. So the ultimate rational for us moving forward was that we didn’t want to be an impediment to the industry.”

RFID 24-7: If the Round Rock situation was negatively impacting the industry for so long, why not settle sooner?

Neville: “Some have asked why we waited so long. I don’t think that we were laggards. I think we were trying to do what was right for our shareholders and also for the industry at the time. When the time came when we felt we needed to get a deal done, we did that.”

Specialty retailers like NEO in Berlin are rushing to deploy item-level tagging.

RFID 24-7: Will the legal costs from the settlement impact pricing for tags and RFID solutions?

Neville: “Obviously there is a cost that we’ll have to bear as a result of this. Just as we do every year when we face significant rises in labor costs around the world, our objective is to minimize the impact to the marketplace.”

RFID 24-7: What is the overall status of RFID within the retail sector?

Neville: “As I travel around the world and work with retailers and brands on RFID and other solutions, people aren’t asking why or how anymore. The conversation is clearly changing. Where three or four years ago people were quite skeptical, I believe that today the vast majority of retailers that are serious are looking not just to pilot this because they need to, but because this is something that is significant.”

RFID 24-7: What is the potential for the industry to accelerate adoption now that Avery has a deal in place with Round Rock?

Neville: “I think it’s always good to be incredibly passionate about how quickly it can move, but also to be cautious. Our simple math is that the market is at about two billion units in the apparel and somewhat adjacent soft line industries. Our research shows that today, based on the business case, over 25 billion units should be RFID enabled. Yet only two billion are tagged and that is out of a 60 billion unit universe that we look at in the entire apparel industry.

“So the market is less than 10 percent of what it should be today. It doesn’t mean we’ll get there any time soon, but every single impediment that we overcome is a positive.”

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