Apple licensing FireWire for a fee

Apple Computer may have found a way to profit from the convergence of PC and consumer electronics technologies: Charge royalties for the means of connecting them together.

The scheme doesn't seem to be popular with some companies looking to take advantage of high-speed, "plug and play" data transfer, and could slow the technology's adoption. But the changes also show how companies drive technologies to become industry standards, and how Apple is following others in using intellectual property as a powerful bargaining chip.

As prospects brighten for Apple's FireWire, formally known as IEEE 1394, the Cupertino, California, company has begun asking new licensees for around $1 "per port," according to Dick Davies, spokesperson for a trade association devoted to promoting FireWire. Only a nominal flat fee used to be charged.

The change means that a FireWire-enabled hard drive, for instance, could cost $2 more if there are two connectors on the drive. The fees may seem small to end-users, but can translate into huge sums of money when devices like hard drives ship in large quantities. Many who see the technology as a bridge to the world of seamlessly merged computer and consumer electronics devices worry the move will further delay what has already been a slow rollout.

"IEEE 1394 is a technology that needs to proliferate to take advantage of itself, and a royalty isn't the way to do that," said Mark Bridgwater, vice president of marketing for Digital Harmony, an opinion shared by others involved with the technology who talked to CNET News.com. Digital Harmony is an independent company hoping to become a Dolby Labs of sorts by charging fees for ensuring 1394 devices actually work together, testing them, and licensing its logo to companies which pass muster.

FireWire, invented by Apple, is a networking standard recognized by the Institute of Electrical and Electronics Engineers (IEEE) in 1995. Though currently little-used, it promises users the ability to easily connect electronics devices such as digital TVs, cameras, cable set-top boxes, and stereo equipment to each other and to PCs.

Beginning last year at the Comdex trade show in Las Vegas, observers say, Apple started asking for more money for 1394 technology licensing. The plan has made a number of executives in both the consumer electronics and PC industry privately nervous.

Microsoft, Intel, and to a lesser extent, Compaq are trying to move the industry to use FireWire as a universal interface for such peripherals such as storage drives, CD-ROM drives, and DVD drives. That's because FireWire can transfer data at rates of up to 400 mbps (million bits per second), many times faster than the 12-mbps rate of Universal Serial Bus (USB) connectors, now commonly found on newer PCs.

More important, FireWire makes it easy to hook up devices like digital camcorders, thus encouraging new uses for the PC--and new reasons to buy more systems.

PC industry peeved?
Leverage, not royalties, may be the ultimate goal for Apple. Many companies never collect royalties or go the tortuous route of trying to collect in court, analysts say. Instead, companies swap intellectual property in an effort to expand their technological capabilities without having to spend research dollars. Cross-licensing could be especially important to Apple because it has slashed its own R&D spending considerably in the past few years.

Industry sources said Fujitsu might just be one such company ready to bargain with Apple for its 1394 technology. Fujitsu has significant patent holdings in memory technologies, the source said, which could be used in advancing the state of the art in Macintosh computers.

Some think Apple may be trying to use its position as patent holder to gain a competitive edge in its core market of desktop and graphics publishing-and that may be the main cause for the grousing about increased fees, according to several industry sources who are caught between the warring parties. The main players in the PC industry, used to getting their way in moving new technologies onto the Windows-Intel platform, are now having to contend, albeit indirectly, with an Apple that's more vigorous about pursuing its own self-interests.

To date, relatively few PC makers have incorporated FireWire-ready ports into new PCs, while Microsoft only began supporting it with Windows 98, but that trend is starting to change. Compaq and Sony recently introduced consumer computers with 1394 connectors, while Silicon Graphics' first Windows-based workstations are shipping the technology. Compaq has also been trying to standardize a technology called "Device Bay" for allowing components of a PC such as CD-ROM and hard disk drives to be swapped in and out without restarting the system or opening up the case. To date, efforts have not translated into shipping products, though.

Apple itself just shipped its first computers with the technology built-in. And at a recent Macintosh trade show, manufacturers were showing a slew of FireWire-ready peripherals from Mac-friendly companies. These companies have licensed Apple's trademarked FireWire name, probably for a nominal fee, as a way to help jump start the market for the new gadets.

Start-ups could be affected
The companies that stand to be most affected are start-ups interested in peripherals for the PC market, Davies said. These smaller businesses are most likely to make FireWire commonplace in the new world of convergence.

And the companies that wind up being indirectly affected by that issue are big-league PC companies such as Compaq, Intel, and Microsoft.

"The thinking is that this will temporarily confuse the [Windows-Intel] companies, so then they give the convergence market to Apple by default," said one source, who declined to give his name because he is closely involved with the ongoing development of 1394 technology. "Or it could just be a side effect of what Apple is doing," he conceded.

Apple declined to comment.

Few industry experts think Apple's decision will inhibit the growth of the market for FireWire-enabled devices, but the changed licensing policy will have an impact. "The view in the [computer] industry is that [the new fee] is a challenge but is not stopping design, because there is ample supply of silicon," Davies said.

No one is willing to guess how much of an impact the changes will ultimately have on peripherals makers or development of faster versions of FireWire.

"I can't imagine they'd prohibit the proliferation of 1394," said Bridgwater, whose company stands to lose out if FireWire doesn't take off as the connector of choice. However, if Apple included some patents in exchange for the royalty that would prove worthwhile for vendors, he said. 1394 association spokesman Davies noted that only chip makers are directly affected by the licensing changes. Current licensees of the technology such as Sony, Philips, IBM, and Texas Instruments--all of which make their own chips for 1394 devices--aren't expecting to see any changes in their agreements, most of which involved a one-time, flat fee.

The stakes are higher for electronics manufacturers, facing razor-thin margins but not wanting to miss out on the industry's evolution, but few are openly worried about Apple's shift.

Marty Gordon, a spokesperson for Philips Electronics, noted that the world's third largest consumer electronics company "view[s] connectivity as one of key platforms of future, and 1394 is a huge part of that. That hasn't changed."

Any changes in licensing didn't seem to deter, Matsushita, the world's largest consumer electronics company, which just recently licensed FireWire from Apple. Terms of the agreement were not disclosed.

Is a swap in the offing?
In the end, Apple may mostly use its more aggressive stance on FireWire to get more technology. If anything, such a course would be more practical than developing technology on its own.

"When it comes to multi-corporation standards?companies have a bad track record for keeping account," said Richard Doherty, president of The Envisioneering Group. In the instance of the MPEG (Motion Picture Experts Group) standards for sending compressed video, as an example, Doherty said there probably hasn't been a check written to anyone--though companies keep money in reserve to do so.

"If demands are too high, people will say come after me," he said.

Money, or lack thereof, is also a factor. After 1997's closure of Apple's research arm, called the Advanced Technologies Group, the company focused its research and development dollars on pragmatic things like the Macintosh hardware platform and its operating system. Company executives have stated that they don't intend to return to the company's former days of high R & D spending, either.

"I'm a big believer that what you get out of R&D is not dependent on what you spend but on focus and leadership," interim CEO Steve Jobs told the New York Times this week after the company posted its fifth straight quarterly profit under his tenure. "We're not looking to spend lots more on [research and development."

Like its FireWire technology, cross-licensing deals could help close the gap between Apple and the rest of the world.