COURT RULING MAY HEAD OFF THREAT TO BAR-CODE USERS

MARTIN SCHNEIDER

WASHINGTON -- A federal appeals court decision here concerning scanning technology may extinguish a long-running threat that food industry companies using the technology would be charged large patent royalty sums.

Food industry representatives last week said companies will benefit from this important legal round in a lengthy battle between the scanning industry and the estate of Jerome H. Lemelson, which holds a patent on bar-code technology. Some say that this continuing struggle could even impact the future of scanning itself.

The industry was alerted to the situation in 1999 when Symbol Technologies, Holtsville, N.Y., six other companies and friends of the court initially filed a lawsuit, which claimed that Lemelson's estate intentionally waited several years, until the technology was widespread and integral to a company's operation, before sending letters demanding royalty payments. A U.S. District Court in Nevada denied its contention. On Jan. 24, the U.S. Court of Appeals for the Federal Circuit here upheld the seven scanning companies' appeal to that decision, stating the companies had a solid defense against the estate.

Industry associations such as Food Distributors International, Food Marketing Institute, Grocery Manufacturers of America and the National Association of Chain Drug Stores have been closely following the litigation and supported a "friend of the court" position in this case.

Over the years the Lemelson Medical, Educational and Research Foundation, Incline Village, Nev., has aggressively tried to collect costly royalty fees from bar-code users, including food retailers, through lawsuits that charge patent infringement. The estate claims that a patent Lemelson filed in 1954 gives the estate full patent rights over all scanning technology.

Attorney George Sirilla with Pillsbury Winthrop here, who represented the National Retail Federation, also based here, as a friend of the court in conjunction with the other scanning companies, said, "The conclusion of the court was when there has been an unreasonable delay between the time a patent application is filed and when the inventor starts claiming a particular invention, the inventor might lose the patent rights to which he or she would otherwise have been entitled if intervening adverse rights can be established."

John Gray, vice president and general counsel at Food Distributors International, Falls Church, Va., said if Lemelson's estate does not appeal the decision to the Supreme Court, then many companies will not have to pay the royalty fees, and the ruling in favor of the scanning industry will stand as precedent. However, the matter could still be appealed and then it's up to the Supreme Court to decide if it wants to hear the case.

Gray told SN that the estate has already received more than $1 billion from the automotive, electronics and semiconductor businesses, and that as recently as last month, the estate was sending letters to companies in the food industry demanding payment for using bar-code technology.

"We cannot be sure exactly how much money we're dealing with [in the food industry], since everything is kept confidential and the sum is based on the size of the company," Gray said. "But it is definitely millions of dollars. Also, many companies have already paid the fees, so it will be interesting to see if they have a legitimate claim for recompense."

Jim Skiles, general counsel for the Grocery Manufacturers of America here, told SN that although the decision does not necessarily mean ultimate victory if the case is pursued further, the decision is a significant victory in the long process.

"It's a very good development," Skiles said. "It will bolster the scanning industry's arguments [in the event the Supreme Court takes up the case]. The industry may still have to prove that there was an unreasonable and unexplained delay. But the court is saying this is a viable defense and they can go forward with it if it goes to the Supreme Court. It's clearly something that will help the industry's fight."

Skiles also agreed that the potential cost to the industry would be staggering. "Billions, almost impossible to estimate. Lemelson's estate has picked off industries one by one, and the food industry would not be the last industry affected if the estate is allowed to continue," Skiles said.

If the court had ruled in favor of Lemelson, the future of electronic scanning might have been in jeopardy, said Bob Gatty, vice president of communications at Food Distributors International, Falls Church, Va.

"The estate was like a submarine sitting beneath the water, waiting to strike," Gatty said. "The estate waited eight or nine years on purpose, until the technology was in widespread use, then began to seek payment for the right to use the technology."

George Green, vice president and general counsel at the Food Marketing Institute here, said that he hopes this particular case will be the determinate case against the Lemelson estate, meaning that other industries would not need to fight a separate legal battle.

"It should preclude any assertion on the part of Lemelson's estate in the future that they are entitled to a piece of any transaction that uses the technology," Green said.