Patent fight may slow radio tags

As a standards-setting body readies a protocol for radio frequency identification, known as RFID, a bid for royalties from a holder of critical patents has threatened to disrupt the smooth rollout of a technology that could spawn one of the decade's biggest industries.

Some who work with the fledgling technology fear the royalties sought by Intermec Technologies Corp., of Everett, Wash., could thwart efforts to drive down the cost of RFID tags to a nickel or less, the price point pegged as necessary to spur widespread use.

''They're really playing hardball here, and I'm disappointed with them," said Daniel Engels, director of MIT's Auto-ID Center, which pioneered the technology and continues to research systems and applications.

Over the summer, Intermec notified the standards-setting group, EPC Global of Cambridge, that it holds patents on technology that is key to a proposed protocol governing the interface of the tags, readers, and chips that will be used with crates, pallets, and eventually individual products to help retailers track shipments.

For example, Intermec is demanding a licensing fee of $750,000 and royalties of 5 percent of a tag's cost for companies that use the protocol in developing their own tags.

The protocol is set to be approved in Anaheim, Calif., next week. Members of the organization's technical steering committee had hoped for a royalties-free process. Having common standards for the technology, which beams a signal from bookmark-size tags to devices known as readers, would boost efforts by retailing giants like Wal-Mart Stores Inc. and Gillette Co. to cut costs.

Spokesmen said both companies plan to press forward with their rollouts of the technology in the coming year, despite Intermec's move. ''We're aware of it," said Paul Fox, a Gillette spokesman in Boston, ''but we don't believe it will affect the adoption of the technology."

''We don't anticipate it slowing us down at all," said Wal-Mart spokesman Gus Whitcomb in Bentonville, Ark.

Behind the scenes, there may be more concern, suggested Michael J. Liard, senior analyst at Venture Development Corp., a Natick research firm that has estimated the technology will become an industry with $1.8 billion in worldwide sales by next year and between $2.5 billion and $3 billion in sales by 2007. He said the big fear is that Intermec's move will inspire others to come forward with patent claims -- presenting new obstacles in the short term, if not the long run.

''It's not like they're violating any of EPC Global's rules," Liard said of Intermec, ''but the end users see this as a tax. It's only increasing the cost of implementing RFID technology. It's one more hurdle."

Mike Wills, general manager of Intermec, which has participated in the standards-setting process for the new technology, said his company's royalty demands are reasonable and no different from those made by the owners of crucial intellectual property in the cellphone or semiconductor industries.

''Bottom line: for-profit companies that make intentional investments for the future expect a return," Wills said.

Intermec, a division of UNOVA Inc., has sold bar-coding and auto-identification services for three decades. In 1997 it acquired the radio frequency research operation, and its patent portfolio, from IBM Corp.'s Thomas J. Watson Research Center in Yorktown Heights, N.Y. The following year, Intermec bought the radio frequency business unit of Amtech Corp. in Albuquerque, N.M., which makes turnpike readers and transponders and holds the patent on technology enabling radio frequency readers to interface with tags and update data.

Josh Lerner, a Harvard Business School professor who has co-authored a book on the patent system, said standards-setters have to grapple with patent claims more frequently as they become increasingly dominated by business people pushing their agendas, rather than engineers.

''Obviously, for users, royalty-free is the best kind of commitment to get," Lerner said. ''In cases where everyone takes a bite of the apple, the cost can end up being prohibitive."

Robert Weisman can be reached at weisman@globe.com.