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Innovatio Case: Victory for Cisco Customers Makes the Case for Patent Reform

We’re pleased to announce today that we’ve achieved full protection for millions of Cisco customers from the overblown and specious claims of a very aggressive patent assertion entity.

Once upon a time a company called “Innovatio” set out to force retailers and small businesses to pay over two thousand dollars per location for use of WiFi patents.  They did this knowing they were obligated to license the patents under reasonable and nondiscriminatory terms and, even worse, that the majority of the businesses they were targeting were already licensed to use the patents.   Innovatio targeted over 170 million Cisco devices that Innovatio claimed could be taxed by their scheme. They sent over 14,000 letters in the first wave of an attack through which they hoped to eventually suck close to $4 billion out of the productive part of the U.S. economy by threatening innocent entrepreneurs with costly litigation.

We, together with Netgear and Motorola, intervened on behalf of our customers and accused Innovatio of running a racket, and we demanded a trial on the true value of those patents.  We also demanded damages for the breach of the contractual obligations to license standard-essential patents on fair terms.  Although Chief Judge Holderman in the Northern District of Illinois did not allow the racketeering claim to move forward, he determined that the patents had a collective value of approximately 10 cents per WiFi device.  “Innovatio” later admitted that over 100 million of the devices they targeted were already licensed, and taking into account our strong breach of contract and other claims, they agreed to license the remaining 85 million devices for a total of $2.7M, or less than 3.2 cents apiece.

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Helping the Open Internet to Thrive

Though we often take it for granted, the global data network is one of the wonders of our world.  Without that network, users around the world would not be able to surf the web, post video and text, and communicate with each other using voice, chat, and e-mail.

The success of the global data network rests on interoperability standards that were created by standards development organizations like the IETF, IEEE, ITU-T, and W3C.  In those organizations, expert technologists meet to create the standards that define how different products made by different vendors will work together.  Without standards, the Internet as we know it would not exist.

Cisco is proud that our employees have played leading roles in the creation of interoperability standards, just as they have invented many of the foundational technologies used in the global data network.  As a result of their efforts, Cisco has a portfolio of telecom and networking patents, including patents required to implement widely used interoperability standards, that is second to none.

While we have been at the forefront of networking technology, we recognize that our customers want technically excellent products and products that work well together.  For example, our unified communications customers often use Cisco products for voice and video, but products from our competitors for e-mail or instant messaging.  They are sometimes frustrated when products they purchase from different vendors don’t work well together, or when using products from one vendor forces them to implement proprietary voice or video protocols that do not enjoy broad industry support.   In unified communications, as in other areas, collaboratively developed standards are a common language that products made by different vendors can use to make their products work together, creating a better experience for customers.

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Patent Fees Should Cover PTO Expenses

Last year’s America Invents Act made major changes to our patent system, largely designed to improve Patent Office operations, reduce the backlog of applications, and the quality of patents.  A properly functioning Patent and Trademark Office (PTO) is vital both to speedy review of patents applied for by companies like Cisco, to weeding out applications that shouldn’t result in patents, and reviewing issued patents to make sure they’re not defective.  Yesterday, the PTO set out a framework to help determine fees for using the services of the PTO going forward.  While there was a lot of disagreement among various industry groups over various provisions of the patent reform legislation, most agreed on one thing at least: the fees paid by users of the PTO should cover the cost of the services the PTO provides, and the fees, once paid, should actually be available to the PTO to provide those services and not diverted to other purposes.

The PTO’s proposal yesterday fulfills the goals of the America Invents Act.  Most important, that proposal is neutral, providing special advantages or imposing special burdens neither on large applicants like Cisco (we apply for over 700 patents per year) nor on smaller applicants who may have very few applications.  It  makes clear that the higher costs of initial review of patent applications should be reflected in the fees paid, to avoid cross-subsidization among different services, and that applicants should have a choice as to the type of processing desired.  The presentation of alternative approaches should lead to a healthy discussion to help the PTO choose the best approach.  Either of the approaches is a big step forward from where we were before the AIA.  The bottom line is that there’s no free lunch, and no free patent process either.    We hope users of the patent office large and small will work together to get a fair and usable result that will lead to the benefits the new law was designed to bring about.

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