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Radio frequency ID devices give a signal of the future

By Kristi Heim
Seattle Times business reporter

TOM REESE / THE SEATTLE TIMES In a testing chamber at Impinj, CEO William Colleran holds a silicon wafer that contains about 40,000 chips designed to replace bar-code technology. Radio frequency identification tags and reading devices are a new way to monitor product movement and store information.

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Using radio waves, a sensor on the box beams information about its contents and destination so they can be tracked by computer from the warehouse to the store shelf.

It all happens in a split second as the box passes through an electronic gateway along a conveyor belt. The sensor tag, which has no battery and is usually dormant, wakes up when it comes close enough to a tag reader to receive power from its radio signal.

Such technology, known as radio frequency identification, or RFID, promises to make scanning bar codes by hand obsolete. All the information resides inside a single chip the size of a grain of sand.

At the heart of this emerging trend, companies in the Northwest are playing key roles in developing and using RFID technology, including chip-design firm Impinj, RFID hardware maker Intermec, Microsoft, Weyerhaeuser and others.

Because RFID tags emit real-time information, they can make supply chains more efficient and help prevent theft. Take a package of rice off the shelf, and a program automatically tells the store it's time to restock.

RFID systems linking manufacturers with their buyers could shrink the time it takes to process orders from weeks to seconds, proponents say, but such systems still are years away.

Tagged for use Companies that have started or plan to use RFID tags. United States Wal-Mart Target Albertsons Best Buy Michelin Hewlett-Packard 7-Eleven McDonald's ExxonMobil Europe Metro AG Tesco Marks & Spencer

Weyerhaeuser has been testing RFID technology in its lab for a year to help its customers comply with a mandate by Wal-Mart that its top 100 suppliers begin using RFID tags on their cases by Jan. 1. More than 80 percent of those suppliers, such as Procter & Gamble, buy boxes from Weyerhaeuser, so the company is preparing to sell boxes pre-tagged with RFID labels.

That same technology is making its way into all kinds of everyday objects. RFID tags now can tell how many beers you had while watching the Seahawks at Qwest Field, what library books you've checked out from the Seattle Public Library, and where and when you purchased your Michelin tires.

In the near future, they may be used to track prescription drugs and embedded into patients to tell doctors about their medical conditions. Last week, the Food and Drug Administration approved a radio frequency microchip for implanting into humans.

The Department of Defense is using RFID to track supplies and troops, and the State Department is planning to implant RFID chips into new and renewed passports.

	Intermec makes this device that reads radio frequency identification tags.

More than a dozen retail companies have gone public with plans to use RFID in their operations.

"There's a general acknowledgment that this technology is here to stay. It's not just a science experiment," said Christine Overby, senior analyst at Forrester Research.

Next technology wave?

RFID technology has existed for decades, but retailer and government mandates are pushing it forward. If it can overcome substantial technical and social challenges, it has the potential to transform business and sow the seeds of the next technology wave.

But the potential for privacy abuse is another challenge businesses and governments are just starting to address.

That hasn't stopped investment from pouring in this year. Last month, IBM said it plans to spend $250 million over the next five years in a new business unit focused on sensor networks.

Impinj, a Seattle company that designs the microchips that function as the brain of the RFID tag, has received funding totaling $50 million, most recently a $22 million infusion in July from its three original investors, plus three new ones.

Engineers at Impinj are designing a kind of silicon that allows the tags to be modified remotely with a wireless signal as far away as 40 feet at speeds of 20 tags per second, said Chief Executive William Colleran.

In the real world, this would allow instant rerouting of supplies by sending a signal to the tags as they pass through a warehouse gate.

Plywood for Florida

	MIKE SIEGEL / THE SEATTLE TIMES Tom Miller is CEO of Everett-based Intermec, which pioneered bar-code technology and now holds key patents for RFID.

"If there's a hurricane in Florida and you're Home Depot, you send a command over the network from headquarters to divert 40 percent of the plywood destined for the West Coast to Florida," Colleran said. Devices at each distribution center would reprogram the tags as soon as the wood arrives.

Until recently, RFID tags could not be reprogrammed, or it could be done only from very close range. That meant a production line would have to be stopped and pallets broken down to reach the tags. Impinj says its chips allow rewriting of 20 different labels at a time, each with a unique serial number. But the tags still can't be read through liquid or metal.

Impinj is supplying chips for pilot tests with a dozen companies, including Weyerhaeuser, several consumer-product makers and companies that handle airport baggage to track lost bags.

Colleran is eyeing a piece of what he expects to be a $2 billion market for RFID chips in five years.

"In five years, you go into any distribution center and virtually all the cases you encounter will have RFID tags on them," Colleran said. "Getting 20 percent or more of that share is certainly a reasonable target."

Need for standards

But for that to happen, developers need a standard that permits the technology to operate across various companies and industries. One such standard, led by a coalition of retailers and consumer-goods companies called EPC Global, is expected to get its final approval as soon as next month.

EPC Global required all 200 of its member companies to provide their intellectual property royalty-free to advance the standard. That puts it at odds with one local company, Everett-based Intermec, a division of Unova.

Intermec says the new RFID standard includes 14 of its patents; it donated five and it wants royalties for nine of them, citing an exception that allows for reasonable fees. EPC Global attorneys are evaluating Intermec's claim.

"The reality is it's difficult to just do passive RFID without Intermec's intellectual property," said Intermec President Tom Miller. "We started this process 10 years ago, building out this technology before most companies even thought about it."

Intermec, which pioneered bar-code technology, bought IBM's RFID research and patent portfolio seven years ago. It also acquired technology that enables communication between RFID tags and readers.

Licensing fees, patent sales and royalties have made the company more than $200 million over the past three years. In June, Intermec sued rival Matrics for infringing its RFID patents.

Some observers say Intermec's demands are excessive, requiring an upfront license fee as high as $750,000 and royalties of 5 percent of the tag's cost.

"The licensing fees they're going to demand for the next couple of years may be prohibitive for companies to enter this space," said Erik Michielsen, a director at ABI Research. "It may limit organizations' ability to commit to RFID product development and deployment, given the nature of quarterly earnings and shareholder profit expectations."

"We paid millions of dollars to assemble this portfolio and we're not just going to donate it and make it available royalty-free," Miller countered. "On the other hand, we're not going to hold it back and prevent the market from growing."

RFID technology is behind a system Intermec sells to the U.S. Department of Homeland Security to speed ID checks of frequent travelers crossing the Canadian border. Intermec is also providing RFID tracking systems to German retail giant METRO Group for its RFID innovation center, which opened in the summer.

This year, Microsoft is also making some major forays into RFID. The software giant has an RFID team of 30 people within its Windows server business unit and plans to add RFID functionality to its platform and servers.

The functions will allow companies to manage their RFID devices within Windows and for a layer of Microsoft "middleware" to collect and filter the data coming in from the RFID readers, said Javed Sikander, director of global RFID solutions at Microsoft.

"A lot of our customers need this functionality, and they need it from a vendor like Microsoft," Sikander said. "There are companies providing a one-off solution for millions of dollars or very young companies building very limited solutions."

Microsoft is offering a specialized Windows operating system to manage RFID tag readers, and business applications for companies complying with RFID mandates.

And as a Wal-Mart supplier, Microsoft also has to comply with that mandate — adding RFID tags to boxes and pallets of mice, keyboards and game consoles — by January.

The company is considering using RFID tags in its own supply chain to keep track of products like the Xbox game console. Adding an RFID tag to every Xbox would help manage returns, Sikander said. Hewlett-Packard has begun tagging some of its individual printers and scanners to be sold at Wal-Mart.

But Microsoft is still evaluating whether the benefits would justify the tag cost and consumer-privacy concerns of such a move, Sikander said.

Recycling RFID boxes?

As for Weyerhaeuser, the company expects to complete a trial next year to determine whether RFID technology improves its inventory management. The company sells as many as 6.3 million tons of container board a year and is testing RFID tags on some rolls of container board.

The key question is whether the information can be linked with the company's computer system, and whether the system can use all the information the tags emit.

Weyerhaeuser will face another question of how to recycle the boxes with RFID labels, especially if electronic inks applied directly to the box replace the existing RFID labels, which have a silicon chip and silver antenna. Recycling is just one of many technical issues left to be resolved.

"Companies are just starting to realize how important RFID is," said Michielsen of ABI Research. "Over the next decade, it will transform the way they do business. But it will be a gradual process."

Kristi Heim: 206-464-2318 or kheim@seattletimes.com

Copyright © 2004 The Seattle Times Company

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