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Cisco Relents on Wi-LAN Claims

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When (Nasdaq: CSCO) settled its patent dispute with Wi-LAN Inc. (Toronto: WIN) last week, many wireless industry observers thought, "Chalk one up for the trolls."

Coming on the heels of a legal decision last week that set aside a settlement in the patent dispute between BlackBerry maker Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM) and patent-holder NTP Software, the Cisco/Wi-LAN deal could be seen as emboldening so-called "patent trolls" -- companies that have little core business of their own but hold enforceable patents related to widespread technology used in products from larger, better known firms.

"I wouldn't be surprised if Cisco thought of Wi-LAN as a patent troll," says Pamela Samuelson, a law professor at UC Berkeley and the co-director of the Berkeley Center for Law and Technology.

That's a simplistic reading of the Wi-LAN case, though. In this case, while Cisco has challenged the Wi-LAN patents with the U.S. Patent and Trademark office, Wi-LAN's claims seem more likely to hold up on appeal; the company has promised to "fairly and impartially" license the technology to anyone who wants to use it, and in May 2004 Redline Communications Inc. signed a royalty agreement with Wi-LAN, settling a case similar to the dispute with Cisco.

But the Wi-LAN case probably holds less significance for the wireless world than Qualcomm Inc.'s (Nasdaq: QCOM) acquisition of Flarion Technologies, which gives it a major intellectual-property position in emerging wireless technologies. And broader relief for product vendors that get sued by ostensible patent holders may be on the way, in the form of a Supreme Court ruling in the eBay vs. MercExchange case that should come next spring.

Founded in 1992 by two Canadian researchers, Wi-LAN holds a variety of patents related to orthogonal frequency division multiplexing (OFDM), a modulation technique at the heart of the WiFi standards 802.11a and 802.11g, as well as the emergent WiMax standard 802.16. Wi-LAN has taken a visible role in the Institute of Electrical and Electronics Engineers Inc. (IEEE) standards process for wireless data transfer and has not been shy about announcing its intention to enforce its patents.

"This legal action against Cisco puts the industry on notice that Wi-LAN will aggressively protect its patent right," said Sayed-Amr El Hamamsy, then-CEO of Wi-LAN, when the company sued Cisco in Canadian court last year. (See Wi-LAN Takes On WiFi.)

Under the settlement agreement, all Wi-LAN legal claims against Cisco have been dropped, and Cisco is purchasing several WiMax and antenna patents, while licensing the remainder of Wi-LAN's patent portfolio. But that doesn't end Wi-LAN's pursuit of other companies it sees as infringing upon its patents, according to current CEO Bill Dunbar.

"We do believe that other companies are infringing," says Dunbar, declining to name them. "We are not currently in talks with any of them."

While it's unlikely that the courts will eliminate the scourge of patent trolls altogether, notes Samuelson, it may give judges in such cases more leeway to promote "the useful arts" -- which, after all, is one of the purposes of patent law.

Rather than issuing injunctions that essentially shut down major services, such as BlackBerry email or eBay auctions, explains Samuelson, the high court could allow judges to award damages relating only to specific, patented components of larger systems. "The Supreme Court, in the eBay case, could say 'This is a really complex thing,' and give the lower courts the ability to exercise more discretion in finding for the plaintiffs."

In other words: If there's a patent troll at your door, it might be wise to pacify him for a while, rather than settle for major dollars.

— Richard Martin, Senior Editor, Unstrung

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