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Snohomish County business
A fight for the (patented) right

By Jane Hodges
Times Snohomish County bureau

BRIAN CASSELLA / THE SEATTLE TIMES Linda Verdier assembles a handheld bar-code reader at Intermec in Everett, where the company employs 700 people. A patent-infringement lawsuit filed last week against an East Coast firm underscores Intermec's stake in innovative technology.

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When Intermec filed a patent-infringement lawsuit last week against Matrics, a rival company in Maryland, more was at stake than the $185 million company's pride.

At Intermec, licensing fees, royalties and sales of patents have generated more than $200 million in revenue over the past three years, said Steve Winter, the Everett company's executive vice president.

"We're in an industry that has a history of innovation, so patents are core to our business," said Winter, who oversees the company's patent portfolio.

Intermec develops bar-coding technology, including handheld printers, scanners, mobile devices and wireless systems. They help companies manage and track merchandise on store floors, in warehouses, at border crossings and at ports, where even shipping containers can be coded and tracked using the company's technology.

Winter said the company's portfolio of 700 patents serves three purposes:

• Defining the company's role.

• Distinguishing the company's products from those of rivals, including rivals who might infringe on its patents.

• Making money by licensing patented technology to other companies or sharing technology with other companies in exchange for other assets or revenue in collaborative agreements.

The suit against Matrics isn't the only patent-related suit Intermec has filed against another company. In recent years, much of the patent-related revenue the company has generated resulted from suits against major electronics companies, including Compaq Computer, NEC and Matsushita Electrical Industrial, to protect Intermec's patents on battery design in mobile devices such as handheld computers and electronic pocket organizers.

Lawsuits typically occur when Intermec suspects rivals of borrowing its technologies without paying licensing fees.
 
In its suit against Matrics, for instance, Intermec accuses the company of infringing on patents for radio-frequency-identification (RFID) technology, a wireless technology that has grown in popularity among retailers, the military and the transportation industry.

Intermec's suit does not specify monetary damages but does ask Matrics to pay licensing fees, Winter said. If an infringement is found and Matrics refuses to pay for licensing, Intermec will then calculate damages and demand them.

A claim for damages is rare in such cases, Winter said. "This is friendly licensing — as long as they decide to license."

Matrics spokesman Kevin Rushalko said the company hasn't responded to the lawsuit. He said Intermec hadn't notified Matrics of its concerns before it announced June 7 that it had filed suit.

Jeff Woods, an industry analyst at Gartner in Stamford, Conn., reviewed the lawsuit and characterized it as "aggressive."

"The patents are pretty broad," he said.

However, he said, Intermec is justified in protecting its intellectual property, particularly in RFID. Right now, the technology is in its infancy, with 50 to 75 percent of all applications expected to fail by 2006, leaving only the most significant uses of RFID in the marketplace, he said. Many companies are competing to develop the winning technologies.

"Intermec was here before a lot of other people were," Woods said. "They have a multimillion-dollar RFID patent portfolio. You can't reasonably expect them not to defend it."

Woods said Intermec did not ask Matrics to "cease and desist" from developing the RFID technology in question, which he called an "interesting" omission. The likely reason, he said, is Intermec doesn't want to quash innovation within the industry where it develops products.

"They don't want to halt exploration of the technology," Woods said. "They don't want to create intellectual-property barriers."

Right now, RFID accounts for less than 5 percent of Intermec's revenue, but it's a newer technology, and analysts value its market at $1 billion. The most dramatic growth in the near future is expected in an area for which Matrics and Intermec both manufacture products — "supply-chain" management, the tracking and timely delivery of products traveling from different vendors to a common destination. RFID can track a product from a factory line to a warehouse, to a cargo container and on to retail-store stockrooms or another factory line.

Supply-chain technologies account for $10 million of the RFID market now but are expected to become a $2 billion market by 2008, said Intermec Vice President Mike Wills, the company's chief RFID strategist.

Wills said corporate customers are interested in RFID because they want to improve and accelerate product delivery and tracking. Once RFID is installed, companies can see financial benefits within six months, justifying the investment and pleasing shareholders.

Some government agencies and large retailers, among them Wal-Mart, are asking small suppliers and partner vendors to launch RFID or similar tracking systems that can synchronize with the larger organizations, Wills said.

Though Intermec has managed a patent-review committee for more than 30 years, the rapid growth of its patent portfolio came in the late 1990s. Intermec gained rights to numerous technologies as it acquired a company called Norand, obtained patents for wireless applications in the transportation industry from Amtech and secured another set of patents for RFID technology from IBM Research.

The company now develops 60 to 100 patents a year, and 200 await approval, Winter said. Most come out of discoveries product designers and engineers make as they do routine work for the company. Intermec anticipates more innovation in the coming year because it has increased its research-and-development budget from 7 to 9 percent of revenue.

Companies often acknowledge Intermec's technologies through informal licensing agreements, and litigation never arises. That's what happened when Broadcom paid Intermec $24 million for use of 150 patents addressing wireless technology, power management and other applications. Winter keeps a framed plaque describing that deal in his office.

"The hope is that we'll end the (Matrics) lawsuit with a license," Winter said.

Jane Hodges: 425-745-7813 or jhodges@seattletimes.com