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Iris Scans' Leader Looks Secure

By Olga Kharif In the mid-1980s, ophthalmologists Leonard Flom and Aran Safir realized that no two patients' irises were alike, and the idea of identifying people by their irises -- the colored part of the eye surrounding the pupil -- was born. In 1987, the pair were issued the so-called Flom patent, which has given the company they founded, Iridian Technologies, dominance in the iris-recognition market.

But Iridian's market leadership is about to be challenged. The Flom patent expired in the U.S. in February, and it will expire in Europe and much of Asia in 2006. This means a struggle over the rollout of new iris-recognition products, with smaller startups already beginning to challenge Iridian's lock on a business expected to grow more than sixfold by 2009.

ACQUISITION TARGET? Competitiors, however, will have a hard time catching up to Iridian, which is flush with cash and likely to become more so. In April, the privately held company closed yet another $5 million round of funding. Now that iris scans are showing such promise, many venture-capital firms view Iridian as an attractive investment or acquisition prospect.

Take Robert LaPenta, co-founder of defense contractor L-3 Communications Holdings (LLL), who formed a $250 million biometrics fund on June 7. He says the money will be used to cobble together a biometrics powerhouse. LaPenta plans to purchase several outfits in fingerprinting and facial and iris recognition to develop a single, superreliable system integrating several biometric methods.

And Iridian is on the short list, says LaPenta. "We're looking at market leaders to acquire," LaPenta says. Iridian says only that it might seek more funding in the future.

CROWDING FIELD. Since its founding in 1990, Mooretown (N.J.)-based Iridian has controlled about 99% of the market, licensing its software and knowhow to a few iris camera makers such as Panasonic (MC) and LG Electronics. It has successfully sued for patent infringement every company that has tried to slip into the market without its blessing.

While Iridian still holds some two dozen active patents on everything from ways to digitize an iris scan to camera design, expiration of the Flom patent will finally allow a stream of competitors to enter the iris-recognition market. Within a year, at least five well-established players will be in the market, believes Maxine Most, principal for Boulder (Colo.) biometrics consultancy Acuity Market Intelligence. Other analysts peg the number at a dozen companies.

This influx should boost the iris-scanning market, which has long lagged behind that of fingerprinting (the leading biometric today) and facial identification. Iris recognition -- widely considered to be the most accurate method of quick biometric identification -- hasn't taken off due to governments and large corporations hesitating to rely on a single vendor, says Prianka Chopra, an analyst with Frost & Sullivan. A year ago, Iridian had to start offering no-cost licenses to developers for use in passport and visa verification so the International Civil Aviation Organization, which sets standards for international travel documents, wouldn't axe the possibility of the technology's future use over concern about having a single supplier.

AIRPORT SECURITY. Now that the Flom patent is becoming history, the iris-recognition market is projected to skyrocket. It's set to rise from $81 million last year to $518 million by 2009, Chopra estimates. That would make it one of biometrics' fastest-growing areas.

Iridian is still expected to be a big beneficiary in the next few years. But other iris-scanner startups will get a piece of the action, as various governments and agencies are expected to adopt the technology within a couple of years.

Several U.S. government and international agencies are close to rolling out iris recognition. For example, the Transportation Security Administration (TSA) is winding up a year of pilot studies involving 10,000 people at six U.S. airports. The decision to deploy the technology at all airports is expected within months.

"THROUGH THE ROOF." Chances are the technology will get the green light. After all, unlike fingerprints, irises can't be destroyed. Iris recognition is also more sanitary, since people don't have to touch a scanner. The latest iris cameras can snap an image at a distance of up to 24 inches. So, they could eventually be used to identify patients at hospitals, protect sites like nuclear plants, and safeguard various countries' borders.

That's good news for a growing crop of startups. "The level of interest in the past couple of months has gone through the roof," says Most. Many of these companies will make their public debut in August, when the National Institute of Standards & Technology kicks off the first phase of its Iris Challenge Evaluation.

In this first-ever, large-scale competition among various iris-recognition technologies, NIST will conduct independent evaluation of various techniques. The FBI, TSA, and a half-dozen other U.S. agencies -- potentially prime users of the technology in the coming years -- are sponsoring the competition. Startups that do well could have an easier time securing their first contracts.

LOYAL PARTNERS. Some new entrants are already releasing their first iris-recognition products. Vienna (Va.)-based IriTech and its two camera-maker licensees will start shipping within two months, says Ken Nosker, IriTech's vice-president for business development. Their cameras will sell for as much as 20% less than those manufactured by Iridian's partners, he says. "We're going after, essentially, the same markets," says Nosker. "Our strategy is to undercut the competition dramatically."

Already, existing Iridian customers are starting to expect price concessions. "I'm sure Iridian will adjust prices as competitors come in," says Imad Malhas, CEO of IrisGuard, an integrator that negotiates prices with Iridian on behalf of buyers such as the United Arab Emirates, the only country in the world currently deploying iris-scanning systems at borders and airports nationwide. Acuity's Most expects camera prices to fall by more than 50% in the next couple of years.

Still, Iridian is unlikely to see any customer defections any time soon. Most of its partners already have purchased long-term licenses. LG's license expires in 2015. Plus, Iridian's technology is already proven, and its camera-maker licensees have invested lots of money into developing their devices.

"We're very, very happy with the way our current system works," says David Johnston, vice-president for worldwide marketing at LG Electronics USA. And if even LG, currently embroiled in a bitter contract dispute with Iridian over royalties, feels that way, then Iridian appears to be secure.

NEXT UP: LAPTOPS. What's more, Iridian is far ahead of rivals in its designs, say several industry experts, including Frost & Sullivan's Chopra. The outfit's partners are already shipping the world's first handheld iris-recognition cameras. The size of a candy bar, the camera can be carried by police officers to identify suspects or be used at hospitals to identify patients at check-in.

And in the second half of 2005, Iridian will introduce a chip for laptops and personal digital assistants that will verify their users' identities -- with irises snapped by a cheap, built-in 1- to 2-megapixel camera. The chip's introduction should dramatically push down prices on iris-recognition systems and take the technology into a myriad of everyday consumer-electronics devices, believes Frank Fitzsimmons, Iridian's president and CEO.

Given such potential and growing markets globally, losers will be unlikely in the Flom patent's quiet passing. Kharif is a reporter for BusinessWeek Online in Portland, Ore.

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