MARSHALL, TEXAS, August 6, 2021. U.S. District Judge Rodney Gilstrap tossed out a $308.5 million patent-infringement verdict against Apple, Inc. Judge Gilstrap found the plaintiff intentionally delayed its application (originally filed in the 1980s). The resultant patents didn’t start issuing until 2010. These are called “submarine patents” and stay “hidden” until the industry implements the technology. Submarine patents have a long and sordid history. The plaintiff, Personalized Media, holds hundreds of patents and asserts them against Apple, Google, Netflix and others based on decades old technology.
Changing Patent Terms in the United States
The original law for patents in the United States was the 1790 Patent Act. The term of each patent was decided on the merits but could not exceed fourteen years. Obtaining a patent required an aggregate fee of about $4-5 dollars. The filing fee for the application cost 50 cents plus 10 cents per hundred words of specification. The issue fee cost $3.20. The next major revision of the patent laws increased the term to 21 years in 1836 by adding an optional 7-year renewal. However, in 1861 the 7-year extension was eliminated and the term changed to 17-years from the date of issuance. The term finally changed in 1995 to 20-years from the date of filing.
How Submarine Patents Worked
The key difference between the pre-1995 17-year patent term and the current 20-year patent term is the start date. Currently, once you file a patent application the clock is ticking down on the 20 years. There are provisions to add some time to that 20-year calculation. These provisions mostly account for government delays like slow patent examination or hold-ups in the FDA approval process.
However, the 17-year patent term only starts when the patent actually issues. Therefore, when the patent examiner “allows” your patent application, you do not let it “grant.” That would start your 17-year term. Rather, you file a “continuation” to keep it “underwater” or “pending.” During this time, competitors develop and adopt the technology. Once the industry embraces the technology, you finally allow your submarine patent to “surface.” This starts your 17-year patent term. However, now the technology is ubiquitous and you have greater leverage to force a settlement or payout.
It is precisely this “gaming” of the patent system that motivated the change to a patent term that started at filing. However, at the time this was perfectly legal whether ethical or not. Famously, Jerome H. Lemelson filed many submarine patents collecting over $1.3 billion in royalties. Ultimately, a landmark case in 2004 found patents of these type “unenforceable” under the doctrine of laches.
The GATT Bubble
For decades submarine patents were a problem. The law changed with the Uruguay Round of the General Agreement on Tariff and Trade (“GATT”). Applications filed prior to June 8, 1995, had a 17-year term from the date of issuance. Applications filed thereafter had a 20-year term from the date of the application.
As the change came into effect, there was a patent application gold rush in the spring of 1995, the “GATT Bubble.” For example, in the 9 days prior to the change, applicants filed over 50,000 applications (one quarter of the entire year’s projected filings). (ref) The influx from the GATT Bubble was so large that the PTO hired hundreds of patent examiners in 1995 and 1996 to process it. (Hyatt v. Hirshfield at 5).
Hyatt’s Submarine Patents
Gilbert Hyatt is one notorious inventor during this era. He is the named inventor on 399 patent applications, 381 of which he filed during the GATT Bubble. Id. Hyatt’s GATT Bubble applications, including four recently appealed, are atypically long and complex. According to U.S. Patent & Trademark Office (PTO) data, a typical patent application contains about 20 to 30 pages. In contrast, two Hyatt applications have 576 pages of text and 65 pages of figures; a third includes 238 pages of text and 40 pages of figures; and a fourth includes 518 pages of text and 46 pages of figures. In a June 1, 2021 decision, the Court of Appeals for the Federal Circuit found laches a valid defense to pre-1995 submarine patents. The Federal Circuit found:
- Hyatt’s prosecution conduct amounted to a clear abuse of the PTO’s patent examination system, which may alone suffice to satisfy the prejudice requirement of prosecution laches.
- The PTO has created a distinct art unit for Hyatt’s applications.
- The PTO has recently spent millions more dollars processing Hyatt’s applications than Hyatt has paid in fees.
- Examiners have spent inordinate amounts of time preparing office actions.
- The PTO has resorted to special, customized procedures involving its requirements to process Hyatt’s applications.
Gilstrap Leans on Hyatt Decision
The technology at issue last week is Apple’s Fairplay software which distributes encrypted content from iTunes, App Store and Apple Music. The patent asserted against Apple granted in 2012 from a filing date in the 1980s. A jury in Marshall, Texas originally found the Fairplay software, introduced in 2003, infringed the Personalized Media patent. In vacating the jury’s $308.5 million award, Judge Gilstrap relies on the Federal Circuit’s findings in Hyatt. Both Gilstrap’s ruling and the Hyatt decision call into question pending cases Personalized Media has against both Google and Netflix. Judge Gilstrap’s ruling might effectively scuttle all remaining submarine patents.
