Electronic Business, March 2004

Businesstrends


Judge scuttles patent attacks

Bill Roberts -- 3/1/2004

Electronic Business

The world of intellectual property is safer from submarine patents"–so–called because its developers keep the application secretly submerged while the technology advances–thanks to tiny Cognex Corp. It waged a five year, multimillion-dollar legal battle against the foundation that owns the patents of late inventor Jerome Lemelson, a notorious filer of patent lawsuits.

A U.S. District Court judge in Las Vegas ruled on Jan. 26 that 14 patents related to machine vision and bar code technology held by the Lemelson Medical, Education & Research Foundation cannot be enforced because the foundation waited too long to pursue the alleged violators. The judge also ruled that the Lemelson patents are invalid and that the bar code and machine vision technologies do not infringe.

If upheld on appeal, the decision would end the rash of suits and threats Lemelson has filed against electronics companies and the retail industry, and possibly dry up what had been a licensing gold mine.

"This kills the submarine patent as we know it," says James Pooley, a partner in the Palo Alto, Calif., office of Milbank, Tweed, Hadley & McCoy, which does not represent Cognex or Lemelson. "Cognex deserves credit for having stood its ground and representing the industry as it did."

Submarine patents have been the bane of electronics companies for years. While it's "submerged," the applicant secretly amends it to cover emerging developments in a technology. At some point the applicant surfaces with a patent and threatens infringement suits unless developers pay a license fee.

The tactic gained much of its notoriety from Jerome Lemelson, a nationally recognized inventor who had more than 550 patents to his name when he died in 1997. Lemelson spent his career licensing patents to others. For years, he also used the submarine tactic. Some of his machine vision patents were originally filed in the 1950s.

Over the years, Lemelson hit hundreds of high-tech companies for machine vision licensing fees totaling $1.5 billion. Most companies opted to settle because Lemelson asked for license fees that were less costly than protracted legal battles.

Lemelson never asked Cognex for a fee or accused it of patent infringement, but took aim at its customers. In 1998 Cognex requested a declaratory judgment by the federal district court in Nevada that its technology did not infringe on Lemelson patents. The Cognex suit later was combined with a similar one by Symbol Technologies and six other companies that supply bar code technology to the retail industry.

Michael Steir, vice president of corporate legal affairs at Cognex, estimates Cognex spent between $5 million and $10 million on the case. With the legal issues settled, Cognex management hopes sales will increase now that the threat of a Lemelson shakedown is gone for potential customers, he adds.

Cognex had net income of $15 million on revenue of $150 million in 2003. Since it was founded in 1981, the company has shipped more than 200,000 vision systems, received more than 165 patents and has more than 130 patents pending in the U.S. and elsewhere.

Pooley says Cognex clearly had more at stake than larger companies that capitulated to Lemelson. "Cognex was very courageous," says Pooley, adding that it had everything to lose if Lemelson had won.

As a result of the Cognex ruling, Pooley says, the federal district court in Phoenix will likely issue a similar ruling in a suit involving Intel, Cypress Semiconductor and four other chipmakers that was on hold pending the outcome of the Cognex case. He says companies that already paid licensing fees aren't likely to get their money back unless they can prove to a court that they were defrauded.

Lemelson's lawyers say they will appeal, but Pooley believes they have little chance of getting the U.S. Circuit Court of Appeals to overturn the district court. The circuit court would have to find that the district court judge misread the facts in the case—which is rare, says Pooley–because the more abstract point of law had already been decided.

Lemelson's lawyers had also failed to get the courts to throw out Cognex's defense based on prosecution laches. Under laches, someone accused of patent infringement can argue that the patent holder waited too long to get the patent to the detriment of other inventors.

In January 2002, the U.S. Court of Appeals ruled that Cognex could use the defense. The U.S. Supreme Court declined to review the decision. With that legal hurdle cleared, Cognex only had to prove the facts supported prosecution laches, says Pooley.

The broader significance of the Cognex case is that for the first time, a court has agreed with a patent defendant arguing prosecution laches. Until the circuit court upheld the defense, courts disallowed its use in patent cases. The combination of the circuit court ruling, the Supreme Court declining to review it, and now an actual case using it successfully, go a long way toward ending the use of submarine patents, Pooley says. He cautions, however, that "a submarine is in the mind of the beholder. But clearly things kept in the patent office as long as Lemelson's are dead."

Two recent pieces of legislation will also stem submarine patents. In 1995, Congress changed the terms of a valid patent, from 17 years from the date granted to 20 years from the date the application is filed. Now, if an applicant ties up his patent through continuations and amendments he's only doing it to his own detriment. Patent applications used to be secret until the patent was granted, but in 1999 Congress passed a law that makes applications open to the public from the date they are filed except in a few cases. The new openness should also help scuttle new submarine launches.


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