We've written a few times about patent troll Innovatio, which claims to hold some patents on WiFi, saying that anyone using WiFi (including home users) are infringing, though it has chosen "at this stage" not to sue home users. It is, however, going after
tons of coffee shops, hotels, grocery stores and restaurants for offering WiFi, demanding $2,300 to $5,000 to settle. A year ago, we wrote about how a bunch of WiFi equipment manufacturers, including Cisco, Motorola and Netgear had teamed up to go after Innovatio
. Not only do they contest the validity of the patents in question, but they highlight a ton of really questionable behavior by Innovatio and claim that the troll is involved in a form of racketeering. Among other accusations, the manufacturers note that Innovatio includes expired patents in its list that it threatens people over, and it leaves out that the patents are part of the WiFi standard, and there are commitments related to them that they'll be licensed on RAND (Reasonable and Non-Discriminatory) terms.
The lawsuit is moving forward, and there was just a ruling on one key part of it
. The court decided that before getting into everything else, it would try to determine what the RAND rate should be
for the manufacturers (which are separate from the end-users like the coffee shops that Innovatio is going after). The idea is that having the rate set upfront might help the parties settle. Innovatio pushed (of course) to have the rate be calculated based on the price of the final product
that was for sale. For example, it claimed that 10% of a laptops value is from WiFi (um, what?!?) and that its patents deserve to get 6% of the value of WiFi. This calculates down to them wanting $4.72 per laptop. The company has other prices for other items: $3.39 per WiFi access point, $16.17 per tablet and $36.90 per "inventory tracking device."
The manufacturers point out that this is insane. And if there needs to be a base from which to calculate a royalty rate it should be the WiFi chip itself, which these days go for about $3 each. Thankfully, the court agrees with the manufacturers and more or less eviscerates Innovatio's "expert" who came up with the prices it thought were reasonable, even highlighting a ridiculous exchange showing that the guy, Chris Bergey, was more or less coming up with ways to support these claims based on questionable assumptions, and no connection to how these things are normally priced.
Bergey testified in part as follows:
Q. I'm saying you are unaware of a single case where this approach has been
Mr. Bergey's testimony about the methodology he used to produce the Wi-Fi feature
factor confirms that his approach was not based on an established method of analysis, but is
instead speculative and subjective.
A. Correct. I'm not well versed in patent cases.
Q. Well, what do you mean by that?
A. I ... couldn't tell you if this is something that's widely used or not widely
Q. You have no idea whether this approach has ever been used?
A. I do not know.
Q. Or whether it's an appropriate approach?
A. It seems logical to me, and I know that this is an emerging, you know, area of
law where there is a lot of challenges, but ... I allow that to the experts and, you
Q. And on this issue, you're not an expert, right? Fair?
A. On which issue?
Q. On the issue of whether this is even the right approach to take.
A. Again, I think it's logical, but, you know, I think that's up to others in the case
to determine, you know, what they want to use.
Q. Because you don't have any expertise or training to say yourself whether or
not it's appropriate, right? You're not a lawyer, for example?
A. I believe my education allows me to say I believe it's accurate, but if it's
appropriate, no, I don't believe I'm qualified.
The ruling is definitely a loss for Innovatio, as it massively limits the royalties it claims it's entitled to. Of course, Innovatio's lawyer, Matthew McAndrews, seems to want to turn lemons into obnoxious lemonade to spit all over everyone, arguing that now that a rate is set, he can't wait to get all that money from all those WiFi chips:
“At a minimum, the court’s determination that the Wi-Fi chip is the appropriate base to which the RAND rate applies opens the door for Innovatio to potentially license hundreds of millions of units sold by numerous Wi-Fi chip suppliers,” Matthew McAndrews, an Innovatio IP attorney, said yesterday in an e-mailed statement.
Meanwhile, Cisco notes that (1) this much lower rate should hopefully limit the threats that Innovatio can send to users and (2) there's still a long way to go before anyone has to pay anything. Cisco's general counsel, Mark Chandler, told Bloomberg: "We would be shocked if we had to pay anything" by the time the case is over. Meanwhile, in an emailed statement, Chandler told us:
Now, instead of sending letters to businesses asking for thousands, Innovatio can send letters asking for a dime, and only if Innovatio can prove that the patents are valid and that the accused products use the WiFi features and are not already licensed – none of which they have done yet. I suggest they save the stamp.
Ouch. Of course, that's not entirely
accurate, since the case is clear that it only applies to the manufacturers, and not the WiFi users, which will be discussed separately, apparently. But, given the RAND rate set for the manufacturers as a starting point, it is likely that any rate that might apply to WiFi users would also be greatly diminished from Innovatio's nutty claims. And, of course, the company still has to show that actual infringement occurred, and that is still likely to be difficult.