ADASA Inc v. SML Group Ltd

I. Executive Summary and Procedural Information

• Parties & Counsel:
  • Plaintiff: ADASA Inc. (Oregon)
  • Defendant: SML Intelligent Inventory Solutions, LLC (Delaware) and SML (USA) Inc. (New Jersey)
  • Plaintiff’s Counsel: Friedman, Suder & Cooke
• Case Identification: 4:24-cv-00370, E.D. Tex., 07/18/2024
• Venue Allegations: Plaintiff alleges venue is proper in the Eastern District of Texas because Defendant SML Intelligent Inventory Solutions, LLC maintains its principal place of business in Plano, Texas, and Defendant SML (USA), Inc. operates a regular and established place of business, its "Retail Ideation Space," within the district.
• Core Dispute: Plaintiff alleges that Defendant’s RFID tags and associated encoding systems infringe a patent related to a method for ensuring the uniqueness of RFID serial numbers in a decentralized manner.
• Technical Context: The lawsuit concerns Radio-Frequency Identification (RFID) technology used for item-level inventory tracking and supply chain management, a critical function in modern large-scale retail.
• Key Procedural History: The asserted patent, U.S. Patent No. 9,798,967, previously survived an ex parte reexamination initiated by a third party, which confirmed the patentability of the claims with clarifying amendments. The patent was also the subject of a successful prior infringement lawsuit against Avery Dennison Corporation, which resulted in a jury verdict of infringement, a final judgment exceeding $88 million, and a finding that the patent claims were valid and directed to patent-eligible subject matter, a determination affirmed by the Federal Circuit.

Case Timeline

Date	Event
2005-08-19	'967 Patent Priority Date
2010-01-01	SML expands business to offer RFID products and services
2017-10-24	'967 Patent Issued
2017-11-29	Ex parte reexamination of '967 Patent requested
2018-07-30	'967 Patent Reexamination Certificate Issued
2021-01-01	Jury finds '967 Patent infringed in prior litigation
2023-09-01	Plaintiff collects allegedly infringing tag data
2024-04-24	Plaintiff sends notice letter to Defendant
2024-07-18	First Amended Complaint Filed

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 9,798,967 - "SYSTEMS, METHODS, AND DEVICES FOR COMMISSIONING WIRELESS SENSORS"

• Patent Identification: U.S. Patent No. 9,798,967, "SYSTEMS, METHODS, AND DEVICES FOR COMMISSIONING WIRELESS SENSORS," issued October 24, 2017.

The Invention Explained

• Problem Addressed: In large, distributed supply chains, multiple vendors or facilities may need to encode RFID tags for the same type of product simultaneously. The patent identifies the technical challenge of ensuring that each tag receives a globally unique Electronic Product Code (EPC) without requiring every encoding device to have a real-time connection to a central database to request the next available serial number (Compl. ¶15; ’967 Patent, col. 2:21-31). Such reliance on a central database could introduce delays and points of failure (Compl. ¶28).
• The Patented Solution: The patent proposes a specific data structure for the binary EPC encoded on the tag's memory chip. The structure partitions the total available serial number space into large, pre-authorized blocks. This is achieved by designating a "limited number of most significant bits" (MSBs) within the serial number field to act as a unique prefix identifying a specific encoder or encoding authority. The remaining bits are then used to generate a unique serial number within that allocated block (Compl. ¶¶17, 19). This method allows each encoder to operate autonomously, guaranteeing unique EPCs across the entire system without constant database communication (’967 Patent, col. 8:5-34).
• Technical Importance: This approach enabled scalable, on-demand RFID tag commissioning across disparate locations, improving efficiency by removing the bottleneck of continuous connectivity to a central serialization server (Compl. ¶¶27-28).

Key Claims at a Glance

• The complaint asserts infringement of at least independent claim 1.
• The essential elements of reexamined Claim 1 are:
  • An RFID transponder comprising a substrate, an antenna, and an RFID integrated circuit chip.
  • The chip is encoded with a unique object number, which comprises an object class information space and a unique serial number space.
  • The unique serial number space is encoded with one serial number instance from an "allocated block of serial numbers."
  • This allocated block is assigned a "limited number of most significant bits."
  • The unique serial number space comprises these limited, most significant bits "uniquely corresponding to the limited number of most significant bits of the allocated block" combined with "remaining bits of lesser significance" to form the complete serial number instance.

III. The Accused Instrumentality

Product Identification

The accused instrumentalities are SML's encoded RFID tags and labels, which incorporate various inlays (e.g., GB14M700, GB27U9, etc.), and the associated encoding services and software platforms, including SML's Service Bureaus, "In-Plant Printing solutions" (IPPS), E-Platform, and Clarity software (Compl. ¶¶38, 42-45).

Functionality and Market Context

• SML provides encoded RFID tags for item-level tagging to major retailers, such as Walmart, and their suppliers (Compl. ¶¶40, 52). SML's systems encode these tags with a unique EPC, allegedly in the SGTIN-96 binary format (Compl. ¶49). The complaint alleges that in this process, SML fixes a set of most significant bits (MSBs) in the 38-bit serial number field to correspond to a block of serial numbers allocated to the encoder, while the remaining bits are used for serialization within that block (Compl. ¶¶48-49). The complaint provides a diagram illustrating the structure of an SGTIN-96 EPC, highlighting the 38-bit "Serial" field where the alleged infringement occurs (Compl. ¶18). This diagram shows the memory structure of an RFID chip with distinct fields for header, object type, company prefix, item reference, and the serial number (Compl. ¶18, p. 7).
• SML is described as a "leading full-service RFID solution provider" and a key partner to major global retailers, indicating significant market presence (Compl. ¶38).

IV. Analysis of Infringement Allegations

’967 Patent Infringement Allegations

Claim Element (from Independent Claim 1)	Alleged Infringing Functionality	Complaint Citation	Patent Citation
An RFID transponder comprising: a substrate; an antenna structure formed on the substrate; and an RFID integrated circuit chip which is electrically coupled to the antenna structure	SML makes and sells converted RFID tags that are comprised of a substrate, an antenna, and an RFID integrated circuit chip.	¶46	col. 13:5-10
wherein the RFID integrated circuit chip is encoded with a unique object number, the unique object number comprising an object class information space and a unique serial number space	SML encodes its RFID tags with an EPC, which is a unique object number containing an object class information space and a unique serial number space.	¶48	col. 8:15-24
wherein the unique serial number space is encoded with one serial number instance from an allocated block of serial numbers, the allocated block being assigned a limited number of most significant bits	SML allegedly fixes "a limited number of most significant bits of the serial number space" to correspond to a block of serial numbers allocated to the encoder. For tags supplied to Walmart, this is alleged to be up to 18 of the 38 bits in the serial number field.	¶¶48, 49	col. 8:5-15
wherein the unique serial number space comprises the limited number of most significant bits uniquely corresponding to the limited number of most significant bits of the allocated block and of remaining bits of lesser significance	The complaint provides scanned data from tags found in Walmart stores, alleging they show a static sequence of 18 leading bits (the MSBs) and a variable sequence of 20 trailing bits, which together form the unique serial number instance. A table in the complaint illustrates this structure for multiple product GTINs.	¶¶54-57	col. 8:25-34

Identified Points of Contention

• Evidentiary Question: The complaint's direct evidence of infringement is based on an analysis of RFID tags collected from Walmart stores (Compl. ¶53). While SML is identified as a major, approved Walmart supplier, the complaint concedes that "not all of the scanned RFID tags were necessarily encoded just by SML" (Compl. ¶58). A central point of contention may be whether ADASA can prove that the specific tags exhibiting the infringing data structure were in fact manufactured and sold by SML.
• Scope Questions: The infringement analysis may turn on the construction of "uniquely corresponding to," a phrase added during reexamination. A question for the court is whether SML's alleged practice of using a fixed MSB prefix to define a number range falls within the scope of this term, or if the term requires a more specific relationship between the bits of the serial number and the "allocated block" as described in the patent's specification.

V. Key Claim Terms for Construction

The Term: "uniquely corresponding to"

• Context and Importance: This phrase was added to Claim 1 during reexamination to secure patentability and is therefore critical to defining the claim's scope. It describes the relationship between the "most significant bits" and the "remaining bits" within the serial number space and the "allocated block." Practitioners may focus on this term because its interpretation will determine whether a common industry practice of number block partitioning meets the specific requirements of the patented invention.
• Intrinsic Evidence for Interpretation:
  • Evidence for a Broader Interpretation: The patent's overall objective is to enable decentralized encoding (’967 Patent, Abstract). A party could argue that any data structure where a fixed prefix (the MSBs) is used to identify a distinct block of serial numbers "uniquely corresponds" to that block, as this structure achieves the patent's stated goal.
  • Evidence for a Narrower Interpretation: The reexamination certificate states the MSBs correspond "uniquely" to the MSBs "of the allocated block" and "of remaining bits." A party could argue this requires more than simple prefixing, perhaps pointing to specification language describing the system's "quasi-autonomous" nature and its ability to operate for extended periods "without receiving further authorizations from a higher level authority" as a necessary functional context (’967 Patent, col. 8:43-48).

The Term: "allocated block of serial numbers"

• Context and Importance: This term defines the "sector" or subset of serial numbers that an encoder is authorized to use. The dispute will likely focus on what constitutes an "allocation."
• Intrinsic Evidence for Interpretation:
  • Evidence for a Broader Interpretation: The specification discusses allocating "blocks of numbers for specific object classes" to an encoder, which suggests any pre-defined set of numbers for a given purpose could qualify (’967 Patent, col. 8:5-8).
  • Evidence for a Narrower Interpretation: The specification describes a hierarchical system where a "central authority" like GS1 passes down authority to "member companies," who then "further allocate numbers from its upper level database" (’967 Patent, col. 7:59-65). A party might argue that a true "allocated block" requires this formal, hierarchical delegation of authority, not just an ad hoc or internal partitioning of a number space.

VI. Other Allegations

Indirect Infringement

The complaint alleges that SML induces infringement by providing its customers with encoded tags and instructing them on how to "use" the tags (e.g., scanning for inventory), and contributes to infringement by providing a component (the encoded tag) especially made for infringing use with no substantial non-infringing purpose (Compl. ¶¶71-75). It also alleges infringement under 35 U.S.C. § 271(f) by supplying encoding data from its U.S. offices for combination with tags at foreign locations (Compl. ¶¶68-70).

Willful Infringement

The complaint alleges willfulness based on both pre- and post-suit knowledge. Pre-suit knowledge is alleged based on SML's asserted monitoring of the widely publicized litigation on the same patent against its competitor, Avery Dennison (Compl. ¶80). Post-suit willfulness is based on continued infringement after receiving an actual notice letter on April 24, 2024, and after the filing of this lawsuit (Compl. ¶¶76, 79, 81).

VII. Analyst’s Conclusion: Key Questions for the Case

• A core issue will be one of evidentiary attribution: Can ADASA present sufficient evidence to prove that the RFID tags it analyzed from third-party retail stores, which form the basis of its infringement theory, were in fact encoded and sold by SML, as opposed to another supplier?
• The case will likely hinge on a question of claim scope: How will the court construe the term "uniquely corresponding to," which was added during the patent's reexamination? The outcome may depend on whether this phrase is interpreted broadly to cover any use of a fixed-bit prefix for number block partitioning, or more narrowly to require a specific functional implementation tied to the "quasi-autonomous" encoding authority detailed in the patent specification.
• A third key question will concern willfulness: Did SML's alleged awareness of the prior, successful, and high-profile infringement litigation involving the same patent against a direct competitor establish an "unjustifiably high risk" of infringement, thereby supporting a finding of pre-suit willfulness or willful blindness?