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Wal-Mart, Target under RFID patent attack

Case could force the mega retailers and Gillette to rework the way they manage inventory. The companies, however, say the patent in question is bogus.

Behind the scenes, Wal-Mart and Target use radio-frequency identification tracking systems to help them keep their shelves stocked, but that method could face new complications if an ongoing patent lawsuit doesn't go their way.

The suit, filed back in August 2006, accuses the megaretailers and Gillette of infringing on a U.S. patent covering an "inventory control system" that employs radio-frequency identification (RFID) technology to track the presence or absence of items and keep them from colliding. The patent belongs to a Houston man named Ronald Bormaster, who assigned it to Houston-based RFID World, which does not appear to be using the system commercially, just before the suit was filed in 2006, according to court papers.

Many months later, the case is still wending its way through a U.S. court in a Texas district with a reputation for sympathy to patent holders. A preliminary court order issued last week appears to bode well for RFID World, but the final outcome of the case isn't so clear. The targets of the lawsuit have asked for the case to be thrown out, arguing they didn't violate the patent and that the patent isn't valid in the first place.

A legal setback for the retailers could be significant. Embedding RFID tags in palettes of merchandise or on individual products has become an increasingly popular way for large retailers to keep track of their wares more efficiently. If that method is interrupted by patent warring, customers may experience visible inconveniences in their big-box shopping runs. A 2005 University of Arkansas study found, for instance, that Wal-Mart stores replenished out-of-stock items bearing RFID labels three times more quickly than those with standard bar codes.

It wouldn't be the first time that a flap over RFID patents has potentially snarled widespread use of the technology. Back in 2004, some adopters of the technology feared a newly approved RFID standard would incorporate patented techniques from RFID equipment maker Intermac, which would have required companies that used such wireless tracking systems to pay new royalty fees. Much to the relief of big RFID users like Texas Instruments and Philips Semiconductor, the new standard ultimately didn't produce that result.

The latest court order in the RFID World suit relates to a key part of any patent lawsuit: the "claim construction" stage, in which the judge mediating the dispute hears each side's interpretations of certain terms used in the language of the patent and then reconciles those often-competing definitions. The judge's conclusions are then used to guide a jury in deciding the all-important question of whether the patent was infringed.

In a February 11 order, U.S. District Judge Leonard Davis sided with RFID World's definitions of many of the key terms in the patent claims and declined to refine other term definitions as the retailers had requested. That could be a bad sign for Wal-Mart, Target, and Gillette going forward.

On the other hand, the minutiae of the patent claim wording could ultimately matter little. After all, some portions of RFID World's complaint have already been resolved outside of court. The complaint originally targeted Michelin North America, Home Depot, and Pfizer as well, but those companies and RFID World resolved their disputes and requested that the claims be dropped, although few details are available on why.

Wal-Mart, Target, and Gillette continue to deny the infringement accusations and argue that RFID World's patent should be declared invalid because it is obvious, not novel, and obtained through improper procedures. They're currently awaiting a ruling on a request earlier this year to dismiss the entire case. Barring all else, a final pretrial conference has tentatively been set for August.