A variety of well-known names in the fashion industry may pay a steep price for attempting to streamline inventory tracking by equipping their retail outlets with radio frequency identification (RFID) technology. Round Rock Research LLC (Round Rock), the holder of several patents encompassing RFID technology, recently filed lawsuits in a Delaware federal court against numerous retail companies, including Macy’s Inc., Gap Inc., and J.C. Penney Co., over the alleged infringement of Round Rock’s patents. Having grown frustrated with the slow pace of licensing discussions, Round Rock elected to bring these suits in order to provide a catalyst for stalled negotiations.

RFID technology is commonly used to identify, track, and manage inventory, assets, vehicles, and even people or animals. It utilizes intelligent bar codes, known as “RFID tags,” that communicate with a networked system via radio waves to transfer electronic data about the objects or products to which they are attached. RFID has many advantages over traditional bar code technology, including the ability to read hundreds of RFID tags at a time without requiring a line of sight for the RFID reader to “see” the tags. These readers can scan tags that are located several meters away and concealed inside boxes or other containers.

Retailers have recently begun to implement RFID technology, as it provides a fast, cost-efficient, automated, and accurate method for tracking inventory both through the supply chain and within the retail environment. RFID allows retailers to accurately assess and manage the amount and types of inventory on the floor, save on time and labor costs, and reduce clearance items that result from inaccurate inventory-tracking and excess ordering. Indeed, testing has shown that inventory accuracy can be maintained, on average, at better than 97 percent, and the technology allows stores to perform multiple counts throughout the year, rather than a single physical inventory once per year.

A JC Penney executive announced in November that the retailer had begun to rollout an item-level RFID program in 1100 stores and across three product categories. This followed a similar announcement by Macy’s in September, in which the company stated that it would adopt RFID technology on an accelerated timeline in its Macy’s and Bloomingdale’s stores, in order to more precisely manage item-level merchandise inventories. In becoming one of the first retailers to implement RFID on a national scale, Macy’s will—during the initial phase of its RFID launch in 2012—collaborate with vendors to utilize RFID technology in connection with size-intensive replenishment categories, including men’s furnishings and slacks, denim, intimate apparel, and women’s shoes. In a press release issued by Macy’s chief administrative officer, the company explained that “RFID is a tool to better serve customers and drive sales by ensuring we have the right product in the right place at the right time for our in-store and omnichannel shoppers. RFID will allow us to more frequently count item-level inventory with precision so our inventory is readily accessible to our customers. This is technology that has proven effective in our testing, and we believe now is the right time to roll out RFID aggressively.”

Round Rock, founded by patent attorney John Desmarais, is a patent-licensing company that has acquired a patent portfolio consisting of several thousand issued patents and pending applications through the United States, Europe, and Asia. In the nine complaints that it filed in the US District Court for the District of Delaware, Round Rock cites the same five patents—Patent Numbers 5,500,650, 5,627,544, 5,974,078, 6,459,726, and RE41,531—which cover communications methods or RFID. Although the complaints differ in some ways, such as allegations of notice through letters sent to certain defendants by Round Rock, each claims that a given defendant has infringed Round Rock’s patents by making, using, selling, or importing products or systems that consist of or include ultra high frequency RFID tags and readers. Likewise, Round Rock has consistently asked the court to declare that a defendant’s infringement is “willful” and to award unspecified damages, attorneys’ fees, and expenses incurred in litigation.

In light of the rapid expansion of RFID in the fashion industry, both manufacturers and retailers should be aware of the legal risks involved in utilizing this technology. Arent Fox is continuing to monitor this case. For more information, please contact Anthony V. Lupo, Sarah L. Bruno, or Anthony D. Peluso in the Intellectual Property practice group.