A bizarre situation is confronting many small-business people. Over the past year, businesses have received demands for license fees from the Lemelson Foundation as owner of patents and successor to the individual who purportedly developed "automatic identification technology." This includes bar-code reading systems and other automated inspection equipment. The foundation asserts that use of bar-code reading equipment for warehousing, inventory control, distribution and point-of-sale transactions might be infringing on the Lemelson patents. This technology has become so widespread that almost any business dealing with inventory could become a target.
As with many such threats of litigation, there is a temptation to "buy out" of trouble to avoid the hassle and expense of defending lawsuits. The license fees sought from wholesalers, for example, range from $55 to $80 per million dollars in sales revenue for a 10-year period, according to the National Association of Wholesaler-Distributors. Initially, several hundred major companies decided to sign licensing agreements with Lemelson rather than go to the expense of determining validity of the claims at trial.
This is changing, however: A number of court challenges are pending. Seven major manufacturers of automatic identification equipment filed suit in federal court seeking a declaration that the Lemelson patents are invalid and unenforceable against the users of bar-code equipment. The manufacturers' attorneys claim that the foundation is simply trying to take advantage of innovations that have been developed by the industry over the past 30 years and that Lemelson has been able to collect fees only because users have not been in a position to economically litigate against the claims.
Responding to this, a Lemelson spokesman said the suit is a publicity stunt to curry favor with potential customers.
Another interesting development arose when U.S. Metal Refining Co., a former employer of Mr. Lemelson, sued for a declaration that it is the true owner of the bar-code patents because of employment agreements allegedly signed by Lemelson. The agreements assigned invention and patent rights to the employer for inventions conceived during course of employment. A number of related lawsuits are pending.
As of now there is no clear-cut answer for what to do if your company is contacted with a request for license fees. George Keeley, general counsel for NAW, says the combination of cases challenging Lemelson has slowed the pace of litigation to enforce the patents and hampered attempts to settle.
"It has thrown a monkey wrench into the whole process, and that is good for the small businesses targeted for license fees," says Keeley. "Any company that is negotiating with the foundation should be represented by counsel."
This is a situation that could be repeated in today's world, where new information technology is being developed every day. Some of it has the potential for wide acceptance in industry. Which is more important: providing rewards for innovation and invention, or ensuring unfettered access to and use of widely used technologies in which many had some hand in development?
And what of the fairness to product users? They really don't know what is the right thing to do and whether the claims are valid. In this sense, the court challenges currently pending are a welcome effort to bring the matter to a head.