WASHINGTON, DC — America is an unusual country. As the government assured citizens after the New York City terrorist attack of 9-11, one of the chief ways of showing patriotism in the modern world is to spend money and consume goods. Once upon a time, patriotism was shown by cutting costs, conserving materials, and producing goods. Now it’s possible to create absolutely nothing – but make enormous amounts of money from the work of others. Fortunately for computer technology lovers, the Federal Trade Commission has stopped one company from doing precisely that.Negotiated Data Solutions describes itself on its website as “a successor to the ownership of certain patents originally owned by National Semiconductor (National.) Owning patents is the business of N-Data – and recently it attempted to include an important part of the Ethernet networking standard in its portfolio. Then it promptly boosted the licensing fees.
While this may simply have been part of N-Data’s self-proclaimed “mission… to further socially and environmentally responsible practices in both the developed and developing worlds,” the FTC apparently doesn’t consider it to be a good way to do business within the United States.
According to a finalized consent decree from the FTC, N-Data failed to uphold a “licensing commitment to a standard-setting body and thereby was able to increase the price of an Ethernet technology used by almost every American consumer who owns a computer.” This, in the opinion of the FTC and likely nearly all of the American consumers involved, is something that could be “enormously harmful to standard-setting.”
That means that N-Data doesn’t get to maintain its lock on the Ethernet autonegotiation technology that handles the speeds and capacities of common devices such as hubs and routers.
As explained by Arstechnica.com, the company came into possession of the patent in 1994, when National Semiconductor Corp.
Institute of Electrical and Electronics Engineers, Inc. persuaded the Institute of Electrical and Electronics Engineers, Inc. (IEEE) to use the NWay autonegotiation protocol for Ethernet use, with the understanding that there would be a one-time $1,000 charge for each license. When N-Data procured the NWay patent, it decided to increase the cost associated with using the technology. Given how entrenched the protocol had become over time, it “was able to demand higher royalties than the industry otherwise would have paid for the technologies,” in the opinion of the FTC.
The written opinion of the FTC expands beyond that, and includes an observation that companies such as N-Data are “non-producing” entities that are “sometimes referred to as ‘patent trolls.’” Naturally, this is not how N-Data chooses to present itself. Instead, it describes itself as being on a mission to “recoup value for the Vertical shareholders, which included prominent venture funds who had invested well over $100M in Vertical Networks.”
“Vertical” refers to the company which had previously acquired the National Semiconductor patents.
For now, the Vertical shareholders will have to live with a little less profit, although not all FTC commissioners agree with the decision to return the fees to their 1994 level. The FTC Chair, Deborah Platt Majoras, for instance, “respectfully dissents” on the issue, insisting that worries about unfair consumer impact is merely a cover to excuse the behavior of “large, sophisticated computer manufacturers” that claim the higher fees result in higher networking gear prices. Majoras believes that the companies could easily take care of themselves without the FTC’s involvement, and points out that only one company wound up paying “materially more than the originally-quoted $,1000 for rights to the NWay technology,” and that the IEEE has allowed license term changes in the past.
As for now, N-Data is making the best of the situation public-relations-wise by promising to donate all proceeds from the license to non-profits dedicated to “environmental responsibility and sustainable development projects.”
