Once Upon a Patent

Posted: 08/1998

Once Upon a Patent

By Jennifer Knapp

In early May, Aerotel U.S.A. Inc., a wholly owned subsidiary of
Holon, Israel-based Aerotel Ltd., announced it had concluded a patent license agreement
with AT&T Corp. "relating to prepaid calling card products and services."
The details of the agreement were not released, but it was touted by company spokesman
Mitchell Knisbacher as "the most important achievement for Aerotel since we licensed
Bell Atlantic [Network Services Inc.] over three years ago."

The patent in question–#4,706,275–is known also as the "Kamil
Patent" after Zvi Kamil, founder of Aerotel and the patent’s creator. On Nov. 13,
1985, Kamil filed for the patent, which outlined a system designed to allow prepayment for
telephone calls. Since that filing, Aerotel has addressed the U.S. prepaid phone card
market to ensure that companies using this technology do so with permission.

Kamil’s patent was granted Nov. 10, 1987, at which point the inventor sought the
interest of U.S. telecommunications companies but was consistently turned away, says
Knisbacher. Kamil returned to Israel where he continued work at Aerotel, advancing
pulse-to-tone conversion technology. It was not until 1993, when prepaid calling cards
began to hit the U.S. market in large quantities, that Kamil came back to the states to
investigate the technology behind the boom. Aerotel then retained Knisbacher, who
immediately approached a variety of telecom companies that operated prepaid platforms,
subsequently reaching an agreement with Bell Atlantic in the fall of 1994.

Inspired by this initial success, Aerotel U.S.A. appealed to other companies using
prepaid technology to follow Bell Atlantic’s lead. In March 1995, however, the situation
took a turn for the worse.

"We received responses from some [companies]," says Knisbacher, "who
said they were not subject to the patent because they were using NACT (National Applied
Computer Technology Inc.) equipment and that NACT had indicated that they would indemnify
them."

While Knisbacher admits that companies using card-based memory instead of network-based
memory would not be subject to this patent, it was not immediately apparent why NACT felt
its equipment did not apply.

Following unsuccessful negotiations between the two companies, in which NACT attempted
to prove that its technology was in existence prior to 1985, Aerotel chose to enter
litigation with NACT in August 1995 for patent infringement. Under U.S. law, if NACT can
prove that it invented and used the technology specific to the Kamil Patent prior to the
file date of November 1985, it would not be subject to licensing.

Nearly three years later, NACT and Aerotel still are behind closed doors in their
struggle, with a "no comment" from both sides on the current status of
proceedings.

The technology at issue, as stated by Executive Director Howard Segermark for the
then-United States Telecard Association (now the International Telecard Association) in
1995, "relates to telephone systems with prepaid calling features, which include the
following features in various combinations:

Use of the technology from one or all of the claims stated in the patent would be
considered an infringement.

With Bell Atlantic and AT&T secured, Aerotel’s Knisbacher says the company intends
on addressing the prepaid arena in the United States aggressively, and examining companies
offering what could be the technology from the Kamil Patent. Knisbacher recommends
companies offering prepaid services consult a patent lawyer or patent firm as a
precaution.

Raising Revenues

Patents on telecommunications technology are far-reaching and apparently profitable to
holders, whether companies have the capability of inventing or choose to purchase the
technology outright.

Hackensack, N.J.-based IDT Corp. has enjoyed success with prepaid patents by
"negotiating an agreement to receive income derived from a master patent covering
prepaid calling cards throughout Europe," according to an October 1997 company
announcement.

In addition to receiving royalties from those companies sub-licensed under the patent,
IDT’s Sarah Hofstetter, vice president, corporate communications, says companies can
negotiate an agreement with IDT to receive credit toward royalty obligations through the
purchase of IDT telecom services. The company is able to offer this alternative to a
sub-license through its telecommunications infrastructure in Europe and its own switch in
London.

Claims on the European patent include:

InterDigital Technology Corp. (ITC), King of Prussia, Pa., a subsidiary of InterDigital
Communications Corp. and developer of wireless telecommunications systems, has been
patenting its technology since the 1980s. Currently, ITC holds about 550 patents on time
division multiple access (TDMA) and code division multiple access (CDMA) in 50 different
countries, says Susan Sutton, senior manager of corporate communications for ITC. ITC’s
parent company controls the patent portfolio with experts around the world keeping the
patents up to date, tending to refiling and re-examining their patents.

In June, ITC entered into a worldwide, royalty-bearing TDMA patent license agreement
with Toshiba Corp., receiving an up-front payment of $15 million in exchange for a license
for personal handiphone system (PHS) and Pan-Asian digital cellular (PDC) equipment
manufactured, sold and used in Japan.

In addition to the $15 million, Toshiba will pay ITC future royalties on the sale of
products built under TDMA-based IS-54, IS-136, global system for mobile (GSM), DCS
1800/1900, PHS and PDC equipment manufactured, sold or used outside Japan. ITC’s licensing
program helps increase shareholder value and builds revenues for the company, says William
Doyle, president of InterDigital Communications.

Securing patents on technology and granting licensing on that technology can be a long
and difficult process, often taking 18 to 24 months for the patent alone, and then years
to enforce licenses on a patent. But the system is available to help companies maintain
rights to their intellectual property and share that property with the industry in a fair
and reasonable manner.