CSR Settles Bluetooth Lawsuit

By Naomi Graychase

May 31, 2007

A Seattle non-profit went after the likes of Apple, Dell and Samsung for Bluetooth patent infringement, and won -- by getting a $15 million license fee from CSR.

Roughly five months after filing suit in U.S. District Court for the Western District of Washington, the Seattle-based nonprofit Washington Research Foundation (WRF) has dropped its Bluetooth patent infringement suit against Matsusita (and its Panasonic unit), Samsung, and Nokia.

The original complaint filed on December 21, 2006 claimed infringement on four patents marketed under the "Bluetooth" name. In March, Apple, Dell, HP, Sony, Logitech International, Motorola, Sony Ericsson Mobile Communications, Toshiba and Plantronics were added as defendants. These claims were all dismissed on May 2nd after WRF settled with CSR, the U.K.-based chipmaker who supplied the manufacturers named in the suit, for a reported $15 million license fee.

WRF, which assists Washington's public universities and non-profit organizations with commercializing the products of their technology research, secured the patents in question during the mid-1990s. Since then, the virtually ubiquitous technology has been shipped in more than one billion Bluetooth devices to date, according to the Bluetooth Special Interest Group (SIG), a trade association. Only one chipmaker, Broadcom, licensed the technology from WRF.

News of the suit caused CSR's stock to drop, but the announcement of the settlement caused it to rise again.

The merits of WRF's claim appear to have been strong. Since patents can only be issued for things that are new, a strong patent will have a long list of prior art considered at the time it is issued. The four patents named in this suit were all well-researched, making it very difficult for the defendants to prove they had not been infringed.

"The more old things considered, the less likely it is that someone can come along and say you didn’t consider this old thing," says Bruce Sunstein, a Boston-based patent attorney. "The size of this list [US 7,116, 963 B2] is extraordinary. Maybe one in 1,000 might have a list that extensive. That's seriously good for a patent holder."

The suit requested a court order barring the sale of products that use the patented technology and for monetary damages to be determined by a jury. Given that the likely outcome was a judgment in favor of the plaintiff—and that trying the case could be expected to cost defendants up to $10 million in legal fees, the $15 million settlement by CSR is virtually a free ride for the defendants.

"WRF didn't sue CSR directly, but instead it went after the consumers of the chips," says Sunstein. "If their beef is with CSR, why didn't they sue CSR? CSR is lower on the food chain than these companies. Bluetooth in their products is worth more than these naked chips are in the market. So, potentially, the damages recovered by the patent owner are greater from those defendants. But they only get it once; if they sued CSR directly, that would be the end. They couldn't then sue Dell and these companies because they have already extracted what they can get from the patent situations. It's called the exhaustion doctrine. The patent owner has to pick where they are going to go after the economic activity. Here, they've picked it close to the end of where it gets to the consumer. They could sue the consumer, but then they couldn't sue Dell. In general, people don't like to sue customers."

CSR was not named in the suit, but as the chipmaker in question, it was able to settle by purchasing the license.

"When Dell gets that complaint," says Sunstein, "what they are going to say is, 'Hey, CSR, when we bought this stuff there was an implied warranty under the Uniform Commercial Code that your goods are free from defect. Chapter 2 deals with the sale of goods. There's an implied warranty that it's free of infringement. So, CSR, we're being sued; we expect you to defend us.'"

Steven Lisa, lead counsel for WRF, won't confirm the reported amount of the settlement. "The case was settled with CSR acquiring a license," he says. "The terms of the agreement are confidential. Basically, CSR accepted a license that covers its customers' uses. The case was dismissed with prejudice as to CSR's products, but without prejudice to other products. WRF has the right to pursue litigation if any of these existing defenders use infringing products or make their own products that infringe."

CSR has more than a 50% global market share of the Bluetooth chip market. Its chips are integrated into mobile devices and other consumer products from most major manufacturers. Lisa anticipates no negative impact on the marketplace.

"We are very happy with the settlements," he says. "The license agreements with Broadcom and CSR -- we don't believe that, given the size of the market that exists, that there will be any impact on the market."



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