Law & Disorder

US consumers will be making a multimillion dollar donation to an Australian government agency in the near future, whether they like it or not. The great majority won't even know about it—the fee will be hidden within the cost of a huge array of tech products. After the resolution of a recent lawsuit, practically every wireless-enabled device sold in the US will now involve a payment to an Australian research organization called the Commonwealth Scientific and Industrial Research Organization, or CSIRO.

In the culmination of a nearly decade-long patent campaign, CSIRO has now scored a $229 million settlement from a group of nine companies that make a variety of wireless devices and chips, including Broadcom, T-Mobile, AT&T, and Lenovo. The settlement was reached last week just before the companies were scheduled to face a jury in Tyler, Texas—a location with a growing reputation for patent lawsuits.

CSIRO (commonly pronounced “si-roh”) adds this lump sum to the $205 million it received in 2009, when a settlement with 14 companies was struck midway through another East Texas trial. Soon after that, CSIRO began boasting to the Australian press that WiFi was a homegrown invention. By suing over its patents, it anticipated an additional "lazy billion" out of tech products sold in the US. Ultimately, this didn't quite happen—but CSIRO is about halfway there.

Haven't heard of CSIRO? It's no mistake. While the organization has been eager to brag to the Australian press about its big-money exploits in US courts, CSIRO has been circumspect about its lawsuits in the US. When it began its litigation campaign in 2005, CSIRO considered filing under the name "Government of Australia" but decided that would be "too provocative," according to a cable about the issue published by WikiLeaks. CSIRO also considered filing a case at the US International Trade Commission—a move that could have resulted in a ban on the importation of wireless devices—but realized that step was "too drastic," according to a US diplomatic official.

CSIRO started out by making a stunning $4-per-device royalty demand. The number may have looked small buried within the cost of a $2,000 laptop but it would have significantly increased the price of a $20 router or a $10 wireless card. The ultimate settlement payments aren't anywhere near that high—especially when you consider around 700 million WiFi-enabled devices were shipped in 2011 alone—but the demand was high enough that CSIRO officials reached out to US diplomats. They wanted to emphasize the $4 gambit was "an opening figure" that CSIRO did not "expect to get in the end."

Now that we're paying the real bill, it's fair to ask: who exactly are we paying? And why?

WiFi according to CSIRO

CSIRO was founded in 1926 as the Australian government’s research lab. During World War II it focused on issues like food preservation. Today, the company works in a wide range of research areas: food security to environmental science, chemistry to energy exploration, even mineral science. CSIRO still receives most of its budget from the government; similar in some ways to the National Institute of Health in the US. The company has 6,400 employees (the majority of whom are scientists) at 55 different sites throughout Australia.

Its path to becoming the "WiFi inventor" started when a CSIRO astrophysicist, John O’Sullivan, was tasked with building a high speed wireless network. He didn't begin building a team for the project until the early 1990s—well after many of the key technologies already existed, and the ultimate relevance and success of O’Sullivan’s project is now one of the most heavily litigated issues in the history of technology. CSIRO's $229 million payday is just the latest example.

The recent settlement means that the nine defendant companies (Acer, Atheros, AT&T, Broadcom, Gateway, Lenovo, T-Mobile, Verizon, and Sony) will avoid yet another courtroom showdown in East Texas. CSIRO officials now claim that 90 percent of the WiFi-enabled device market has licensed its patent.

But what if this case had gone forward? The partial transcript from the 2009 trial still stands as the only extensive public record of CSIRO's outsized claims to have invented WiFi. The decision about who invented WiFi within this recent case would have been up to a small panel of citizens. They would have convened over two weeks in Tyler, Texas to listen to competing teams of the nation's top patent lawyers spar over the origins of WiFi.

In a sense, it's surprising such a debate could happen at all. Why is the history of such an invention in dispute? The premier world engineering institution, the IEEE, created a working group for the evolving 802.11 wireless standard in 1990, a full three years before CSIRO filed for its key wireless patent. The group voted repeatedly on which way to go forward and produced heaps of records, but CSIRO didn't even participate in the 802.11 committee. The group published the first 802.11 standard in 1997 and CSIRO came forward years after the fact.

The company hired US patent lawyers who told a very different story about innovation, ultimately a very lucrative tale in an East Texas courtroom. The narrative goes like this: CSIRO's idea of using "multicarrier modulation" to defeat the problem of indoor interference with radio waves was way ahead of its time. However, the "multicarrier" strategy was met with skepticism by a tech industry going in the wrong direction. They didn't even start to "get it" until a key, almost magical, date: January 23, 1996. That's when the US Patent Office granted CSIRO US Patent Number 5,487,069. "After that things began to change, not rapidly right away, but they did change," said CSIRO's attorney at the time Dan Furniss, a well-respected San Francisco patent lawyer (Furniss died in 2010, surely a blow to CSIRO's new case).

The five CSIRO scientists named on the '069 patent changed the world, in Furniss' eyes. "CSIRO did not invent the concept of wireless LAN, it just invented the best way of doing it, the best way it's used now throughout the world," Furniss told the jury in 2009. CSIRO scientists had tirelessly tested hundreds of techniques until it found a "unique combination" that worked at high speeds.

That combination involved multicarrier modulation (also called OFDM) as well as two techniques called "forward error-correcting" and "interleaving." The combination was CSIRO's intellectual property and deserved protection. "In some ways it [the intellectual property] may be the most important property we have, because it protects our ability to go forward in the future," said Furniss. "It protects innovation."

When the IEEE adopted the 802.11a standard in 1999—and the more widely-used 802.11g standard years later—the group was choosing CSIRO technology. Now CSIRO had come to court to get the payments it deserved.

CSIRO wasn't in the business of actually making things but, in the case of the WiFi patent, it couldn't find a commercial partner to work with, either. CSIRO scientists shopped its ideas around to Apple, Hewlett-Packard, Lucent, and others. No takers. CSIRO lawyers explained away the rejections as evidence of how visionary the Australian group was. "These are large companies," Furniss told the jury in 2009. "They're very innovative. They have a lot of scientists. And yet they didn't come up with this idea. They knew about it, they considered it, but they didn't do it."

The organization formed a short-lived alliance with IBM, but the US tech giant ultimately chose to drop the arrangement. The closest thing CSIRO ever had to a commercial product was a "demonstration chipset" produced by Radiata, an Australian wireless company formed by ex-CSIRO employees. Radiata was acquired by Cisco in 2000 for $295 million but turned out to be a dot-com era boondoggle. Its products weren't successful. Cisco ultimately took a large write-down on the value of the Radiata acquisition.

A few years after the Radiata venture, CSIRO officials knew they had no footing in the actual market of wireless products. Yet, they recognized there was still an area they could pursue to get a second chance to make money off their invention: threatening companies with patent lawsuits in far-off US courts. It was a practice rapidly becoming an industry of its own. In 2003 and 2004, the organization sent letters to 28 different wireless companies asking for money but was rebuffed by all of them. In 2005, CSIRO picked a "test case" against a small Japanese company called Buffalo Technology. Buffalo wasn't like US tech heavyweights, already used to dealing with a barrage of patent litigation. Instead, Buffalo stood out for its impertinence. CSIRO official Nigel Poole said the company had practically "picked itself" as the first victim by accusing CSIRO of being "swindlers." Even if other companies had thought it, Buffalo said it.

The case was filed in the Eastern District of Texas. Advantage: patent-holders. Buffalo asked to change venues, but Judge Leonard Davis (who has overseen all the CSIRO lawsuits) wouldn't allow a move. The Buffalo case didn't even get to a jury. Davis ruled on summary judgment that the company had infringed CSIRO's patents. He even issued an injunction that would have banned the company from the US market. Buffalo appealed but ultimately settled.

The Buffalo case itself probably wasn’t a huge money-maker, but as a “test case” it worked well. Future cases would be heard in the court preferred by CSIRO’s lawyers, by a judge who had already ruled in CSIRO’s favor.