Lemelson Technology Tax Tumbles

Users and manufacturers of automatic identification technologies breathed a collective sigh of relief last month when a U.S. district court judge in Nevada declared that The Jerome Lemelson Foundation's licensing fee claims against them were invalid. In 1999, Symbol Technologies, Psion Teklogix, Accu-Sort Systems, Intermec Technologies, Metrologic Instruments and Zebra Technologies Corporations jointly filed suit in federal court in Nevada against the Lemelson Partnership. The action was taken to protect auto ID users from claims by the Lemelson Partnership demanding one-time license fees for certain so-called "bar code" patents transferred to the Partnership by the late Jerome H. Lemelson.

In his decision, Judge Philip M. Pro wrote, "Lemelson's patented system could not be used to read a bar code, nor does the Lemelson common specification reveal any teaching or suggestion of catching information or identifying an article by the decoding of encoded information."

Lemelson's practice of "submarining" his claims, or delaying them for years until the technology was more fully developed, was also attacked by the judge. The decision continues: "... Lemelson's delay in securing the asserted patent claims is unexplained and unreasonable. Plaintiff's ample evidence of intervening rights vividly illustrates the type of public and private injury which can result from an unreasonable delay in prosecuting patent claims. As a consequence, Lemelson's asserted claims must be deemed unenforceable...."

Will this judgment have long range effects on technology research and development?

"It takes a distraction away from manufacturers and their customers," answers Peter Lieb, senior vice president, general counsel and secretary for Symbol Technologies. "They can continue doing business without the fear of having to pay royalties to Lemelson. But there are other reasons to feel good about this because there were three independent grounds on which we prevailed. If there's an appeal, we only have to win one of them and the decision will stand."

If Lemelson appeals, does that mean the foundation can continue pursuing claims?

"I don't see how," opines Constance Crosby, general counsel for Psion Teklogix. "It's a valid binding decision that these patents are invalid and unenforceable. It should give everyone the courage to stand up against him on every other patent."

Crosby also told MHM that this judgment is a precedent setter for patent law and that it will curb patent abuses.

"If you talk to people in Europe or outside the U.S., they believe our patent system is wicked," Crosby continues. "While it serves to protect the inventor, sometimes it goes too far, and here's a court saying we are respecting some boundaries of reason here."

Indeed, Lemelson has been able to collect more than $1 billion in royalties since the foundation started filing claims. Although the judge's decision will protect technology users from future claims, those who have already entered into licensing agreements with Lemelson are still bound by them, according to Arthur Stroyd, Esq., partner with ReedSmith LLC and general counsel to Material Handling Industry of America.

"The sad part of this is that the licensing agreements that were agreed to in the past almost inevitably contained a provision that states 'Notwithstanding any decision by a court at any subsequent date as to the validity of these patents, the royalties will continue.' That's why I suggest technology users take a good look at their licensing agreements." All three of the legal counsels interviewed for this article believe Lemelson will file an appeal. To read these interviews in their entirety, visit www.MHM- online.com and look for the story, "Lemelson Loses to Tech Users." — Tom Andel, chief editor

HK Systems Creates New Center

To better enable its pharmaceutical customers to respond to the growing demands of a continuously changing market, HK Systems announced the development of its Pharmaceutical Center of Excellence. The organization will provide focused solutions for the diverse demands of pharmaceutical product manufacturing, warehousing and distribution environments including consulting, design, project implementation and customer services.

A supplier to the pharmaceutical industry for more than 30 years, HK Systems develops and implements focused material handling and software solutions to improve overall operating efficiencies and cost structures. "With a heritage of success in material handling and software solutions, HK Systems is excited to offer the pharmaceutical industry an experienced single point of contact and enhanced responsiveness to its needs," says Mike Kotecki, HK Systems' senior vice president.

Acquisitions to Affect Shop Floor

GE Fanuc, Rockwell Automation, Honeywell, Brooks Automation and Agilisys have expanded their manufacturing execution system (MES) portfolios through the recent acquisitions of leading shop-floor software vendors. With these global giants positioning themselves to provide end-to-end solutions, what will the impact be on smaller players in the market?

According to analyst Taylor Smith, "The ability to offer complete solutions will be a competitive differentiator for leading industrial automation providers. However, most shop-floor solutions still require a high level of customization in order to interface with an organizations existing ERP system. These customization requirements will continue to drive demand for smaller, specialized software vendors developing application-specific solutions for integration with leading ERP providers."

In fact, small suppliers with less than one percent market share still make up more than 35 percent of all global shipments.

Some of the more significant acquisitions include:

-- GE Fanuc: One of the world's leading suppliers of industrial automation equipment, the company recently enhanced its software offerings through the acquisition of leading manufacturing software provider Intellution in November 2002, and Mountain Systems Inc. in July of 2003. The acquisition improved GE Fanuc's vertical market reach with Intellution's installed base in consumer goods and food and beverage industries.

-- Rockwell Automation: Two recent acquisitions to improve the company's production management solutions include Propack Data — a vendor of production management software for the life sciences industries — and Interwave Technologies, a consulting firm focused on manufacturing execution. A strong background in providing the hardware needed for industrial automation supports Rockwell's position to be a total solution provider.

-- Agilisys: Acquired Brain, a German ERP vendor, at the start of 2003 and in June acquired Future Three — a specialist in electronic data interchange (EDI) for the automotive industry. The combined installed base of solutions between Agilisys and Future Three thrusts the total number of worldwide automotive implementations to more than 2,400 for the new company, forming one of the leading solutions providers for the automotive industry.

-- Brooks PRI Automation: The acquisition of PRI Automation in 2002 increased Brooks' position as a provider of MES solutions with the addition of Promis, a leading MES for the semiconductor industry. While the company may be considered a relatively young player in the manufacturing software market with only five years of substantial software offerings, Brooks has been catching up fast with numerous acquisitions such as FASTech, AutoSimulations and Domain Manufacturing.

AIM Names New Members

The Technical Symbology Committee of AIM, the association of manufacturers of automatic identification products, is chartered to create specifications for symbologies used by companies around the world and is one of the longest standing committees in the AIM organization. The TSC members are nominated and elected by the members of AIM for their technical expertise in the world of bar code symbologies. The term of the membership is two years.

The following people have been elected to the committee for a two-year period: John Kessler, Paxar Corporation; Andy Longacre, HHP; Heinrich Oehlmann, EuroData Council; and Yuji Tsujimoto, TD Scan. The above members join Sprague Ackley, Intermec Technologies; Dr. Clive Hohberger, Zebra Technologies; and Rick Schuessler, Symbol Technologies on the committee.

Managers Making News

Bill Casey has rejoined Paragon Technologies (formerly SI Handling Systems), as vice president of its SI Production and Assembly Systems brand. He was with the firm previously for 36 years and active in various material handling industry associations. Currently he is president of the Conveyor Equipment Manufacturers Association (CEMA) and has been on its board of directors and chaired various CEMA committees since 1981.

Toyota Material Handling U.S.A. Inc. announced that Steve Bourdon has been appointed as territory manager for the South Central region of the U.S. ORBIS Corp. has named Tim Henkel vice-president of sales. In his new position, Henkel will be responsible for managing the global sales team. Exel, the supply chain management company, announced that its transportation services business has hired Todd Thompson as senior vice president of business development, and promoted Steve Bowers to senior vice president of operations.

Motion Industries, distributor of industrial maintenance, repair, and operation replacement parts, announced that Jim McCullar has been named corporate vice president, integrated supply and services; Chris Lewis, supplier diversity manager, has been named to the Governor's Commission on Existing Industries, and Zahir Hameer has been promoted to vice president, inventory management.

Orion Packaging Systems Inc. has announced the appointment of Jean Belair sales manager, eastern Canada.

ClearOrbit, provider of real-time supply chain execution software, announced the appointment of Andy Ewing as director of customer relations. Hoover Materials Handling Group Inc. has named Jim Pry, business development manager, dry material handling division.

Harris Waste Management Group Inc. announced a number of organizational changes. Kenneth Booth, project manager/hydraulic shear and balers, has added the responsibility of group administrator for the ferrous and TransPak line of equipment. The company has hired George Elkins as general manager for the Baxley, Georgia manufacturing facility. Don Barnes, project manager/special product Mosley, will assume additional duties of group administrator for the horizontal and 2-Ram line of equipment.

RedPrairie Corporation, supplier of supply chain technology software, has appointed Michael Dempsey as industry strategy leader.

Real Time Solutions, an FKI Logistex member company, supplier of integrated material handling solutions, announced the appointment of Michael Cleary as regional sales manager for its western sales region and David Mickelsen as regional sales manager for its south central sales region.

Companies Making News

Symbol Technologies and IBM announced a global alliance partnership to offer a new generation of advanced hand-held wireless and scanning solutions customized for specific industries to help customers improve operational efficiency. These mobility solutions will be based on a combination of the two companies' software, hardware and services.

Antenna Software Inc., a provider of wireless solutions for the mobile enterprise, announced that it has acquired RPA Wireless Inc., a mobile systems integrator providing software development, global message delivery and network management to the field service industry.

RedPrairie Corporation has opened its Asia-Pacific headquarters in Shanghai, China. With an initial staff of 20, the office will grow to 60 employees by the end of 2004. The Asia-Pacific headquarters is responsible for sales, customer support and product development for the Far East. RedPrairie is the first in its industry to establish Asia-Pacific headquarters in China.

Best Software Inc., announced that its UK-based parent company, The Sage Group PLC, has agreed to acquire Pleasanton, California-based business management software vendor ACCPAC International Inc., a subsidiary of Computer Associates International Inc., for an equity value of $110 million.

Exel, supply chain management provider, announced the opening of a new office in Buenos Aires, Argentina, to support its global freight management operations. The new office accesses key transportation services in Latin America's South Cone.

Checkpoint Systems Inc., integrator of RFID technology into consumer product packaging, today announced the expansion of its RF Source Tagging Design Center. This global network of centers, in operation since 1993, will now offer EPC/RFID compliance and business design services to consumer products manufacturers, logistics providers and their retail partners.

RFID Potential Demonstrated

Retailers, manufacturers, distributors and packagers saw a glimpse of the future when Checkpoint Systems Inc., a provider of shrink management and supply chain technology solutions, demonstrated EPC/radio frequency identification (RFID) capabilities that enable automated identification, tracking and securing of merchandise at key checkpoints in the supply chain, including loading dock doors, store shelves and point of sale.

"We have real-world RFID solutions that can provide near-term ROIs, and the technology is ready to pilot," said John Thorn, general manager for Checkpoint's supply chain and brand solutions group.

The demonstration took place at the Radio Frequency Inventory Management conference held recently in Las Vegas. The event also included presentations on shrink management, educational sessions and panel discussions on RFID/EPC, addresses by industry analysts, and source tagging workshops for hard goods and soft goods retailers.

"A lot of creativity can go into harnessing this technology, and we saw that demonstrated," said Sean Campbell, who leads IBM's RFID efforts for the Distribution Sector. "We've seen a practical example of how this technology could be used to address real business issues."

Attendees saw a manufacturing and distribution application that tracked a pallet of boxes as it passed through an archway representing a manufacturer's shipping dock door. The items passed through another reader at the distribution center receiving dock, where the system compared the items received against the shipping manifest and identified a missing box by serial number.

The retail store portion of the demonstration area featured a "smart shelf" and a "smart zone" with EPC-compliant readers that allow the retailer to track real-time shelf inventory status. Tied to the retailer's inventory system, the application can trigger replenishment when inventory drops to a pre-determined safety stock number in order to maintain proper shelf inventory levels. The application can generate an alert if too much inventory is removed too quickly, as in the case of a theft resulting from a shelf sweep, and can transmit real-time event information to a manager's mobile PDA.

Retailers will be able to establish smart zones in any sensitive area of the store. Readers can be placed over high-value, high-risk merchandise. Apparel retailers who want to pilot smart zone applications in the near term can use EPC/RFID-based reusable hard tags to leverage tag costs.

"Unlike many demonstrations, what we saw is an integrated, end-to-end solution that is prepared to handle the data generated from EPC/RFID and to enable the user to do something meaningful with that data," said Kyle Smith, Global Alliances Manager, with Accenture.

As part of the demonstration, Checkpoint showed solutions designed to help its customers move toward RFID pilots while protecting their legacy EAS investment. Concepts include a hybrid scanner that reads both bar codes and EPC/RFID and can disarm the security function at the point of sale. Warehouse Study Establishes Benchmarks

A recently completed study of third-party logistics providers' (3PL) warehouse prices has for the first time established benchmarks for the U.S. The study covers both contract and public warehousing. Regional price differences are reported. Major metropolitan area prices are reported for principal U.S. logistics locations. The report tracks profitability by region in terms of operating margins, EBITDA and EBIT.

Lengths of contracts reviewed in the study were from one to seven years. The study found that most contracts have three- and five-year terms. In the report, components of standard warehouse pricing models are given. The major variables are space utilization, labor, administrative costs and margins.

Expected operating margins and profitability measures are compared to actual results for 3PLs in the study. These relationships are reviewed in detail and in reference to the Negotiation Zone. Statistical analyses were performed showing the effects on profitability of open book relationships and leasing versus ownership.

"We undertook this study because we had a consulting client who wanted to know what and how 3PLs and commercial warehouses were charging for their services in the U.S.," said Richard Armstrong, president of Armstrong & Associates, a supply chain management consultancy. "There was not a good source available and the only way to get the information was to put out an RFP. Our report is the first public explanation of what the real prices are in warehousing."

The analysis emphasizes the growth of contract warehousing at the expense of public warehousing. The results indicate, however, that profitability is not inherent in either of the models but owes more to company cultures and practices.

CLM Publishes 2003 Annual Conference Proceedings

The Council of Logistics Management (CLM) announced the publishing of its 2003 Annual Conference Proceedings — a collection of papers based on presentations made during its annual conference in Chicago. More than 3,100 logistics executives worldwide participated in the event. Of these executives, more than 400 served as speakers or session leaders in the program. Topics in this edition of the Annual Conference Proceedings cover a wide variety of relevant research reports, statistics, debates, opinions and dialogue of interest to those working in the logistics profession.

An annual highlight of the Proceedings is The Ohio State University's 2003 Survey of Career Patterns in Logistics, conducted by James L. Ginter, dean's distinguished professor, and Bernard J. La Londe, professor emeritus of transportation and logistics, both of The Ohio State University. This study provides current information about the typical chief logistics executive's age, education, salary, mobility, responsibility, staff size, budget and positioning within the operation. Another annual feature is a compilation of industry statistics entitled Logistics Cost and Service 2003 by Herbert W. Davis and William H. Drumm.

As one of CLM's member benefits, all members have online access to the 2003 annual conference proceedings on CLM's Web site, www.clm1.org, on the "Research Center" link.

3M Acquires HighJump Software

3M announced that it has entered into a definitive agreement to acquire HighJump Software Inc., a provider of supply chain execution software and solutions, including related trademarks and patents. Terms of the transaction were not disclosed, and the transaction is subject to regulatory approval and approval by HighJump Software's shareholders.

"Adding HighJump's suite of supply chain execution solutions gives 3M a powerful new platform to grow our existing service and solutions business," says John Pohl, division vice president, 3M Industrial Services and Solutions Division. "HighJump Software brings to 3M tremendous market knowledge and experience, strong industry and channel relationships and proven business practices."

Commenting on the transaction, Chris Heim, CEO, HighJump Software, says, "We are excited about our future with 3M. This is the right thing to do for our customers and our employees. We'll be located in the same place, with the same strong focus on serving our customers. Our business has a strong history of innovation and growth. 3M's global strength and brand leadership will make us even stronger."

Ask the MHM Editorial Advisory Board

Supply Chain Security

In concert with our story on supply chain security, we asked our board members: Which aspect of supply chain security is of most concern to you — data security or physical asset security? What measures have you taken to make your supply chain more secure? Their responses follow:

David Rogers, vice president logistics, Rockwell Automation: Security is a major concern. I would say that the physical security is most at risk and more of a concern. We have issues internally which contribute to this, such as shipping and receiving dock area insecurity and interplant movement of shipments prior to export. There is less concern once we have given the shipment to the forwarder because they have security measures in place at their facilities. However, they also have third party companies that handle pickup and delivery of these shipments, so it does not have the same level of security 100 percent of the time.

To address physical security, we are reviewing the C-TPAT requirements and analyzing what can be done to better secure our supply chain and dock areas.

From a supplier perspective, we are in the process of changing Rockwell Automation's standard contract terms. The contract now includes a statement informing any potential supplier that Rockwell recommends that it adopt the Customs and Border Control C-TPAT supply chain security recommendations, and that failure to do so may result in the loss of business with Rockwell. A supply chain security review is also part of the supplier screening process.

We have applied for C-TPAT. We are also working with purchasing to send a notice/questionnaire to all of our domestic and international suppliers, informing them that Rockwell is C-TPAT-certified and as such, we expect our suppliers to be C-TPAT-certified. This notification will also inform them that failure to adopt the Customs security recommendations may result in the loss of business with Rockwell.

We have already screened our supply chain partners and they are all either C-TPAT-certified or in the process of obtaining certification. We also ask if they participate in any other programs such as The Carrier Initiative Program (CIP) or The Business Anti-Smuggling Coalition (BASC), and most do. We are also keeping an open mind with regards to the RFID initiative. Initial applications for RFID will be used for productivity and quality improvements in Rockwell Automation's distribution facilities. However, subsequent use of technology could be to enable order visibility to Rockwell Automation's trading partners, Customs and transportation providers.

Regarding information security, we feel adequate steps have been taken through IT to safeguard information.

David Lockman, manager of engineering, Distribution Operations, L.L. Bean, Inc.: L.L. Bean is certified and validated with C-TPAT. Because of the nature of our goods (soft goods/ apparel), we do not have significant security issues or threats. We have partnered with the federal government for testing systems in which goods enter the country, and I understand that is going well. This revolves mostly around the documentation necessary to enter goods.

Gregg Schwerdt, distribution manager, Beauty Care, Procter & Gamble: RFID is a measure for ensuring security at the customer end as a safeguard against theft. There are also security benefits when it comes to inventory accuracy, both within the store and at the warehouse. The security comes from keeping shelves filled for consumers. This will also have an impact on accuracy of both shipments and receipts.

Brian O'Donnell, director of technical operations and planning, Liz Claiborne: I am concerned mostly with safety of the physical movement of product. At Liz, we have enacted several strategies, the most critical being C-TPAT. Liz has already obtained its certification, along with our service providers. At the factory level, the factories we do business with either already have their certification or are in the process of obtaining it.

From an IT perspective, adequate steps have been taken to insure the integrity of our data. This includes: 1) tightened security; 2) limiting access; 3) back-up strategies; and 4) disaster recovery plans.

I am currently looking into RFID, mostly from the productivity/financial return side of the equation. My goal is to justify the implementation within the four walls of the distribution center. Undoubtedly, there will be additional benefits, including:

1) customs clearance

2) shipment tracking along the entire supply chain

3) security

4) counterfeit prevention

5) merchandising

6) in-store promotion, and

7) inventory control.

Roger Huff, plant operations manager-N.A., Powertrain Operations, Material Planning and Logistics, Ford Motor Company: Security is always a priority in our business, given the size and complexity of our supply chains. We give attention to data security and to physical asset security because we need to have confidence in the integrity of both security streams. The risks are higher with physical security and therefore more robust actions are required.

There are several touchpoints in our supply chains — shipping areas, receiving dock areas, warehouses and consignment locations — that must be secure from a physical perspective. There is also a need, given potential emerging market sourcing opportunities, to improve security measures for our physical assets going through country customs and borders. Incorporation of the C-TPAT requirements allows us an opportunity to further secure the physical assets in our supply chains.

If you have a material handling problem or a question that you'd like to pose to the MHM Editorial Advisory Board, please forward it to Tom Andel, chief editor, at tandel@penton.com. We'll print the board's responses in future issues.