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Wi-Fi standards face patent threat

A patent ruling in favor of an Australian government agency could mean equipment makers will have to pay up.

Companies working with popular standards for wireless technology may have a patent infringement problem.

A federal judge in Tyler, Texas, ruled last week that an Australian government agency holds the rights to patents on the underlying technology used in two Wi-Fi standards and a third proposed standard. The decision--if it survives what many assume will be a lengthy appeals process--could have a wide-ranging impact on wireless equipment makers and consumer electronics manufacturers.

"If the cost of the technology goes up to pay for the license, even a little bit, it could throw off the economics."
--Stan Schatt, vice president at ABI Research

Judge Leonard Davis ruled that a patent granted in 1996 to the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia's national science agency, is valid. The patent describes the implementation of several aspects of the 802.11a and 802.11g wireless standards developed by the Institute of Electrical and Electronics Engineers (IEEE). The court also ruled that Buffalo Technology, a small maker of Wi-Fi routing gear, had violated this patent.

The judge in the case issued a summary judgment, which indicates the court is wholly convinced by the evidence, to the point where there are no questions of fact. In general, a summary judgment is rare in patent disputes.

The ruling is certainly a blow for Austin, Texas-based Buffalo Technology, which--unless it wins an appeal--could be forced to pay between $1.5 million and $2 million in damages to CSIRO. But the decision, which essentially upholds the notion that CSIRO owns the rights to widely used standards-based technology, could have a huge impact on the entire Wi-Fi industry, particularly as companies start embedding Wi-Fi chipsets into consumer electronics devices like music players and mobile handsets.

"One reason that Wi-Fi has proliferated as it has is because it's reached a point where it's incredibly cheap, so it's easy to just stick a Wi-Fi chip in a consumer electronics device," said Stan Schatt, a vice president at ABI Research. "But if the cost of the technology goes up to pay for the license, even a little bit, it could throw off the economics."

More than 100 companies could end up paying royalties to CSIRO for use of the technology, claimed Daniel J. Furniss, a partner at Townsend and Townsend and Crew, the law firm representing CSIRO. Furniss said that CSIRO sued Buffalo first because the company wouldn't meet with them to discuss their claims. He also wouldn't specify how much money his client could expect to generate from any future license agreements. A Buffalo Technology representative could not be reached for comment.

In 2005, an estimated 140 million to 155 million Wi-Fi-enabled devices shipped, according to ABI Research and InStat, market research firms. That number in 2009 is expected to balloon to 450 million devices shipped. At the end of the day, patent licenses for all these products could generate a significant amount of money.

Indeed, Wi-Fi products generate billions of dollars in revenue for equipment makers. Just the access points that provide the actual Wi-Fi signals in local area networks are expected to generate $1.9 billion in 2006, according to ABI Research. That figure is expected to jump to $3.7 billion in 2010.

Because Wi-Fi chips cost only a couple of dollars, the technology is popping up in all kinds of new devices. It is also one of the reasons that many consumer electronics device makers are embedding Wi-Fi into devices instead of technology like Bluetooth.

For example, Microsoft's new Zune music player uses Wi-Fi to allow people to share music. And many mobile handset makers are starting to introduce phones that can switch between Wi-Fi and cellular technology. T-Mobile just introduced the Dash, a so-called dual-mode handset, in the U.S. this fall. Most of these products comply with the 802.11a and 802.11g IEEE standard, which CSIRO claims is included in its patent.

CSIRO claims that its patent covers a core method for transmitting wireless signals that use orthogonal frequency division multiplexing (OFDM) modulation, which breaks signals into different parts to transmit data simultaneously over different frequencies to maximize performance. IEEE standards including 802.11a, 802.11g and the proposed standard called 802.11n--which is expected to be ratified in 2007--all use OFDM to transmit data wirelessly.

Buffalo Technology is not the only company fighting CSIRO's patent claims. In 2005, Dell, Intel, Hewlett-Packard, Microsoft and Netgear sued CSIRO in federal court in San Francisco to invalidate the patent. The case is currently on hold because CSIRO requested that it be transferred to Texas, where Judge Davis has already done extensive research on the case.

"I don't see any immediate impact on the wireless industry as a result of this case. And to be honest, it's not even definitive that other judges or courts will uphold this patent and also find it valid."
--Craig Mathias, analyst with Farpoint Group

A judge in San Francisco is expected to rule either this week or next on whether to move the case to Texas, said Furniss. The companies involved in suing CSIRO in San Francisco declined to comment for this story.

While CSIRO has won a significant battle in Texas, analysts say it still has a long road ahead before it will be able to get any of the equipment makers to pay a dime. Buffalo can appeal the court's decision, and the cases in which CSIRO is being sued in San Francisco to invalidate the patents must also decided.

"It takes a very long time to go through the legal process," said Craig Mathias, an analyst with Farpoint Group. "I don't see any immediate impact on the wireless industry as a result of this case. And to be honest, it's not even definitive that other judges or courts will uphold this patent and also find it valid."

CSIRO filed for its patent in 1992. The patent, No. 5,487,069, was granted by the U.S. Patent Office in 1996. Furniss said CSIRO disclosed the patent to the IEEE in 1997 when the standards body was developing a faster Wi-Fi standard, which in 1997 became known as 802.11a. The IEEE extended the technology again and, in 2003, ratified the 802.11g standard, which was based on the same fundamental principals as the 802.11a standard.

Furniss said that once the 802.11a and 802.11g standards were ratified, the IEEE sent a letter to CSIRO acknowledging that part of the technology used in the new standards was covered under CSIRO's patents. The IEEE asked CSIRO, as it does all companies that hold patents on technology used in a standard, if it wanted to license the technology to the industry for free or if it wanted to charge a reasonable fee for the license. Furniss said CSIRO indicated it wanted to charge a fee for the use of its technology.

"The original proposal was spearheaded by Lucent Technologies, and not anyone from CSIRO," he said. "There were choices of technologies to be used, and the IEEE adopted the use of this technology with knowledge of the patents. It's clearly a very valuable technology to the industry. And it took CSIRO seven to eight years to develop. But it's also clear the industry doesn't want to pay anything for using it."

He said that CSIRO has spent several years trying to get companies to license the technology, but so far it hasn't been successful. Cisco Systems pays a license fee for the use of the technology, but only for technology that it bought through the acquisition of a high-speed wireless chipmaker called Radiata in 2000. Cisco's popular Linksys wireless routers, which use 802.11a and 802.11g technology, do not currently pay royalties to CSIRO, according to Furniss.

Furniss said he doesn't expect CSIRO to sue everyone using the 802.11a, 802.11g and eventually the 802.11n technology. In fact, CSIRO is focusing only on obtaining licensing fees from equipment makers, such as Netgear and Microsoft, and not chipmakers, such as Broadcom, Intel or Atheros. He claims the chips themselves don't infringe on the patents; it's only when the technology is used in a specific device.