Ethernet patent settlement is good for the industry

The FTC this week reached a settlement with a company that was trying to make a few bucks off of an Ethernet autonegotiation patent it obtained from another company.

The IDG News Service's Grant Gross wrote that "the patent owner was attempting to collect huge license fees despite a prior commitment to the contrary."

In 2003, Negotiated Data Solutions, or N-Data, got the rights to two patents from Vertical Networks, a spinoff of National Semiconductor. The patents covered autonegotiation techniques, which allow different devices to configure themselves automatically and find a common data rate at which to communicate.

As part of a standardization process, National Semi had already negotiated a deal with the IEEE in 1994 - if the IEEE based its standard on its technology, the company would collect only a one-time fee of $1,000 from every company using the standard.

Gross reports that N-Data and Vertical Networks had collected fees "far in excess" of that amount.

The FTC said that N-Data knew full well that it would be expensive and difficult for the industry to move to another standard - one might say impossible - so it started demanding high royalties from companies using the patented technology it did not invent.

The FTC very sensibly ruled that consumers would be hurt by N-Data because its actions would push prices higher and cast doubt on standards agreements in general. The FTC wrote: "If N-Data’s conduct became the accepted way of doing business, even the most diligent standard-setting organizations would not be able to rely on the good faith assurances of respected companies."

That would make setting standards - the cornerstone of our industry's growth - very difficult indeed.

Jeff Caruso is site editor at Network World.