The US Federal Trade Commission today settled a complaint against a company the agency said was trying to collect huge license despite a prior, paid up agreement.
The FTC said Negotiated Data Solutions LLC or N-Data, allegedly violated federal law by engaging in unfair methods of competition and unfair acts or practices regarding its enforcement of certain patents against makers of equipment employing Ethernet which is the industry’s ubiquitous communications standard.
The settlement will protect consumers from higher prices and ensure competition by preventing the company from charging higher royalties for the technologies used in the Ethernet standard, the FTC said.
The Commission found N-Data liable for its conduct under Section 5 of the FTC Act, alone, without a concurrent determination that the conduct rose to the level of a Sherman Act violation. N-Data, based in Chicago, is engaged in the business of licensing patents that it has acquired from inventors or other holders of patents. The patents involved in this matter were originally held by National Semiconductor Corporation. According to the FTC’s complaint, in 1994 National made a commitment to an electronics industry standard setting organization, the IEEE, that if the IEEE adopted a standard based on National’s patented NWay technology, National would offer to license the technology, for a one-time, paid-up royalty of $1,000 per licensee, to manufacturers and sellers of products that use the IEEE standard.
NWay technology lets two devices at opposite ends of a LAN link exchange information and automatically configure themselves to optimize their communication. This process is sometimes referred to as “autonegotiation.” Standardizing on a single autonegotiation technology allowed devices made by different manufacturers to work with one another and with different generations of Ethernet equipment. As alleged in the complaint, N-Data obtained the patents knowing about National’s prior commitment and after the industry became committed to the standard, but N-Data has refused to comply with that commitment and instead has demanded royalties far in excess of that commitment.
The FTC alleges that because N-Data began demanding royalties after it became expensive and difficult for the industry to switch to another standard, N-Data was able to demand higher royalties than the industry otherwise would have paid for the technologies. The complaint also alleges that customers would be harmed because of N-Data’s conduct for a number of reasons, including that firms would be less likely to assist in the development of industry standards, and that many firms would be unwilling to rely on such standards even if they were developed. In addition, the complaint alleges that consumers would be forced to pay higher prices because of N-Data’s conduct, the FTC said in a release.
N-Data doesn’t sell any products but rather is a patent licensing company and makes its money from enforcing or licensing patents. On it’s Web site, the company said: “N-Data is disappointed that the FTC decided to take this unnecessary and unprecedented action. N-Data and its predecessor, Vertical Networks, have at all times acted in good faith in their dealings with the IEEE and with the companies to whom licenses were offered. N-Data believes that the FTC statement and complaint convey an inaccurate impression of what actually occurred.”
N-Data has settled the charges and will be placed under an order prohibiting it from enforcing the patents unless it has first offered the patent license attached to the order, which is based on the terms offered in 1994, before the patented technology was incorporated into the Ethernet standard.
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