Federal Signal defeats Neology's US Court bid for preliminary injunction against its 6C tags ADDITIONS
2012-06-19: Judge Mary Pat Thynge, in US District Court in Delaware in a patent suit has forcefully rejected Neology's claim for a preliminary injunction against Federal Signal Technologies (FSTech) and its Sirit unit. The judge's ruling leaves open for further review some of Neology's patent infringement claims but found no case for interim measures to restrain FSTech.
The 72 page report contains very detailed documentation of competition for the ISO 18000 6C sticker tags between Neology, FSTech/Sirit, and TransCore and much detail on the pricing of the three companies.
The ruling appears to be a major blow to Neology's effort to assert proprietary rights to a toll technology based on what was generally regarded prior to their July 29 2011 suit as an open source standard. 6C technology is important because of reports it works well, and is available at virtual giveaway prices - such as $1.50 apiece.
This high capability/low price combination makes it the leading contender for toll interoperability across North America.
Jennifer Sherman, among other roles Federal Signal's general counsel is quoted in a PR Newswire: "We are very pleased with yesterday's result. We were confident that Neology was not entitled to a preliminary injunction, and we are gratified that the Court agreed. We look forward to prevailing on the merits of this matter at trial."
Nothing at this point from Neology.
July 29 2011: Neology sued Federal Signal and subsidiaries FSTech and Sirit with infringements of six patents in nine products:
- IDentity Windshield Mount Tag (transferable and non-transferable)
- IDentity Headlamp Mount Tag
- IDentity External License Plate Tag
- IDentity Self Declaration Tag
- IDentity Card Tag; IDentity 5100 multi-protocol reader
- IDentity 5100 ETSI multi-protocol reader
- IDentity 5200/5204 multi-protocol reader
- IDentity 5200/5204 ETSI multi-protocol reader
- INfinity 610 multi-protocol reader
October 21 2011: FSTech filed rejecting the claims
December 2 2011: Neology filed for preliminary injunction
April 30 2012: last submissions to the US court
May 1 2012: court hearing
June 18 2012: court rules against Neology on preliminiary injunction but substantive trial continues
As the Judge describes the background to the case Neology claims to be a pioneer in 6C and has invested $10m to $20m on R&D for 6C from the late 1980s on. Sirit the RFID unit of Federal Signal since March 2010 has been in 6C about two decades also and specialty has been in developing multi protocol readers to read 6C and other protocols. It prides itself on offering the package of equipments and services, being the one stop shop.
TransCore's eGo and eGo+ or SeGo sticker tags based on the earlier 6B sell in the price range $9.20 to $37.50/unit the Judge says, and is the case for electronic toll collection in the large Texas, Florida and Oklahoma markets, and initially in Georgia and Washington states.
TransCore's relatively high pricing of its proprietary 6B-variant patented tags has driven several toll operators to consider 6C, says the Judge.
In June and July 2008 a Federal Signal (FS) director Joseph Wright approached Neology about "possible synergies" and was briefed on its technologies and toured its manufacturing plant. Confidential business and technical information was provided to FSunder a non-disclosure undertaking. Included were details of Neology's patent claims on 6C products. In October William Osborne president of FS broke off the relationship saying that Neology's RFID did not fit FS current strategy and "we will not pursue a partnership with neology at this time."
The judge's case provides details of the various 6C procurements to date:
- September 2009 Georgia SRTA looking for 350k 6C tags thru 2013, or 450k thru mid 2015 initially for the I-85 HOT lanes. Contract won by TransCore bidding $1.59/tag against Neology $1.79 and Sirit $3.05. TransCore ended up buying 6C tags from Neology for 75c each and reselling them to Georgia SRTA.
- November 2009 Washington state DOT RFP for 250k to 1 million 6C tags through mid 2013 for the WA520 bridge, WA167 HOT lanes, Tacoma Narrows Bridge. Sirit won with a $3/tag bid, Neology not bidding.
Here the judge reports a dispute as to why Neology didn't bid, the dispute centering on Eric Redman, then Neology head of sales. Joe Mullis of Neology said Redman had told no one at the company about the WsDOT procurement. Redman however testified he'd informed his superior at Neology, Barry Cropper, who ruled out a bid because of an earlier legal issue. Regardless FS was not involved, Judge Thynge observed.
- mid December 2010 Dave Kristick operations director at Colorado's E470 emailed Redman for Neology pricing on 350k 6C tags. Redman offered $1.75/tag. Kristick then asked for a unit price for 750k 6Cs, Redman responding with $1.45/tag for the larger order. In August 2011 E470 announced it had signed with FS to supply 6C tags at $1.25.
Redman testified FS won the contract because they provided the Colorado toller a broader range of equipment and services than Neology, and the tag price alone was not decisive.
- May 2011 Utah DOT sought bids for 3,000 6C tags, Neology winning the contract at $1.59/tag, below Sirit/FS $1.64 and TransCore $3.50. In August 2011 Utah DOT did a second procurement this time for 7,000 6C tags, FS bidding $1.15 and winning against TransCore $2.17 and Neology $2.20.
Neology told the court FS was bidding 6C tags below cost and it couldn't compete. Neology only made money on a REPUVE contract in Mexico.
The judge's report has a long discussion of the strength of Neology's patent infringement charges which seem to center on the way access to memory is encrypted, the use of a security key in the tag. On one claim on encryption Judge Thynge says Neology are likely to prevail. On a second on 'cloaking' a tag the Judge says neither party makes a compelling case.
The judge held again Neology that it claimed Sirit's 6C offering infringed its patents as far back as the fall of 2009 but did nothing about it until nearly two years later. And the Judge said that the evidence was not there for the claim Sirit/FS had denied Neology entry to the market. Georgia went to TransCore. Neology flunked in Washington state by failing to bid. In Colorado Sirit/FS simply bid lowest, and had a strong longterm relationship with the toller.
Redman switches horses
A complication was that in the fall of 2011 the head of sales Eric Redman was disagreeing with Neology's chief executive Velasco on business strategy and making moves to go over to Federal Signal.
December 8 2011 Neology was being acquired by a Dutch company SMARTRAC, ultimately owned by JPMorganChase.
Neology claimed that FS' 6C tags are of inferior quality and damaging the reputation of the technology - based largely on difficulties in Washington state. The judge rejected the claim, noting an expert panel found TransCore's E6 multi protocol reader had troubles reading 6C tags, not that the tags were at fault.
FS was able to provide glowing testimony from several major customers, and FS denied it was selling tags at a loss. Manufacturing costs were being covered even if there was no allocation of overhead administrative costs.
"Although Neology criticizes the costs defendants include in their determination of the profitability of its product lines, the court is not convinced Neology has established they are selling tags at below their cost. To date, defendants’ lowest bid for 6C tags is $1.15/unit. Under cross-examination at oral argument, Redman stated he was told Federal Signal did not want to go below $1.00/unit, which defendants did not by selling 6C tags at $1.15/unit….
"In addition to failing to convince the court defendants are selling 6C tags below cost, Neology is unable to establish the actual cost it incurs to make its 6C tags, or at the very least, the price required for a profitable sale. Velasco testified the direct cost to Neology for its tags sold to the Mexican government for the REPUVE project was approximately $1.00."
Neology's REPUVE contract is for 25 million 6C tags at $1.39 each, one of the world's largest 6C orders to date.
Other contracts had costs of manufacturing or purchase of about $1.00, the Judge said was shown by testimony.
Thynge wrote: "Neology’s assertions of the price it must charge for 6C tags, versus the prices it offered and/or sold those tags, appears inconsistent and contradictory."
Neology had failed to show irreparable harm - essential to any claim for a preliminary injunction, so the court did not need to address the public interest or balance of hardship.