Microchip melee broaches monopoly

BIRMINGHAM, ALA. — The newest battle in the war for microchip market share is being waged via an antitrust lawsuit. The Crystal Import Corp. is demanding $10 million from AVID Identification Systems and Digital Angel Corp. for monopolistic behavior, including preventing competition and discouraging adoption of competing technologies.

"There are a number of individual acts that when taken together constitute antitrust violations and unfair competition," says Larry Drucker, attorney for Crystal. "I don't think there is any one single act that you can highlight; it's a cumulative effect of what they are doing."

More than 90 percent of Crystal's business is propelled by Medical Management International Inc. (MMI), which licenses and operates veterinary clinics as Banfield, The Pet Hospital.

The suit was filed in the U.S. District Court for the Northern District of Alabama's Southern Division and alleges the defendants:

• Employed encryption technology to make their radio-frequency identification (RFID) products incompatible with other manufacturers,

• Entered into cross-licensing agreements that affirmatively exclude use of the (International standards organization) ISO-compliant 134.2 standard, including the right to sell products incorporating the ISO-compliant frequency,

• Disparaged the ISO-compliant 134.2 products,

• Conducted numerous legal actions in federal and state courts against potential competitors in the United States.

AVID calls the suit an expected legal counterstrategy and a waste of resources for both parties.

"We're getting more attention over a frivolous lawsuit than a real verdict," says Dr. Hannis Stoddard, founder, president and CEO of AVID. "I'm surprised by the lack of fact in the allegations."

The "real verdict" occurred in Madison, Wis., where a federal district court found that certain products used and distributed by Pethealth Services Inc. infringed on a patent held by AVID. The decision was handed down in October 2004. A similar ruling last June protected an AVID patent in a U.S. Appeals Court, and other patent infringement cases currently are being tried in Texas and California.

The latest legal foray follows a preliminary injunction that stems from an ongoing case in San Diego. The Superior Court of California froze the sale and distribution of Crystal's microchip unless accompanied by a written correspondence stating that the majority of shelters presently will be unable to read the 134.2-kHz chip. AVID uses a 125-kHz chip.

Crystal is "enjoined from resuming the sale and promotion on the RecoveryChip, or other 134.2-kHz electronic identification tags absent accurately disclosing, in writing, that such tags cannot be read by the vast majority of scanners in U.S. shelters an other animal control facilities," court documents state.

The injunction also forced Crystal to send letters to veterinarians that participate in its microchip program as well as thousands of clients who had the ISO chip implanted into their pets indicating that "only certain, specifically listed shelters equipped with the ISO scanners can read the defendant's 134.2-kHz chips, and the fact that the listed shelters are equipped with the ISO scanner does not guarantee that the shelters will actually use those scanners on lost pets and that the majority of shelters presently use a scanner that will not detect or read the defendant's implanted chip."

Subsequently, Banfield voluntary ceased to offer the Crystal product in its facilities.

"We have 37 patents, and we've never filed a patent infringement suit anywhere in the world until the Wisconsin case," Stoddard says.

The continuing contention likely drives uncertainty among private practitioners as veterinarians now must choose the most-viable product for clients. The answer for each doctor lies in the scanning infrastructure already in place in any particular region. Though much of the country uses the 125-kHz scanner, some pockets in Wisconsin and Oregon, for example, are furnished with the ISO scanner, too.

"I would advocate using a chip that your shelter operators use. That is the lowest level of adoption," Stoddard says. "Then reach out to shelters outside your area; 18 percent of people move more than 1,000 miles each year."