November 20, 2006 4:11 PM PST

Wi-Fi standards face patent threat

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.

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