FTC Sends Patent Trolls a Warning

The U.S. Federal Trade Commission took a big step in protecting consumers from patent trolls last week by putting the smackdown on a company threatening to bring Ethernet to it's knees.

The Commission voted — despite the fact that it's chairman had to be dragged along kicking and screaming — to issue a complaint against Negotiated Data Solutions or N-Data, the successor to patents originally owned by National Semiconductor and included in the IEEE's 1994 Ethernet standard. The crux of the issue centered on National's deal with the IEEE, which provided that in exchange for the technology being included in the standard, National would license it to any licensee for a one-time fee of $1000. Over time, National sold off many of it's holdings, and N-Data eventually came to own the patents, at which time they decided they were no longer bound by the deal struck by National and went after larger and larger fees. The FTC found that N-Data broke federal antitrust laws in doing so, because the inclusion of the patent in the standard, and the standard's subsequent wide adoption, gave N-Data an unfair advantage, and harmed customers by undercutting the standards process.

The FCC's action — which prevents N-Data from enforcing it's patent under terms other than those set in the National Semiconductor deal — sends a warning message to other patent trolls that the FTC won't stand idly by while consumers are raked over the coals. Now, if only they would drop a line to Microsoft.

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Justin Ryan is a Contributing Editor for Linux Journal.