Lemelson Loses to Tech Users

Users and manufacturers of automatic identification technologies breathed a collective sigh of relief last month when a U.S. district court judge in Nevada declared that The Jerome Lemelson Foundation's licensing fee claims against them were invalid. In 1999, Symbol Technologies, Psion Teklogix, Accu-Sort Systems, Intermec Technologies, Metrologic Instruments and Zebra Technologies Corporations jointly filed suit in federal court in Nevada against the Lemelson Partnership. The action was taken to protect auto ID users from claims by the Lemelson Partnership demanding one-time license fees for certain so-called "bar code" patents transferred to the Partnership by the late Jerome H. Lemelson.

In his decision, Judge Philip M. Pro wrote, "Lemelson's patented system could not be used to read a bar code, nor does the Lemelson common specification reveal any teaching or suggestion of catching information or identifying an article by the decoding of encoded information."

Lemelson's practice of "submarining" his claims, or delaying them for years until the technology was more fully developed, was also attacked by the judge.

The decision continues: "... Lemelson's delay in securing the asserted patent claims is unexplained and unreasonable. Plaintiff's ample evidence of intervening rights vividly illustrates the type of public and private injury which can result from an unreasonable delay in prosecuting patent claims. As a consequence, Lemelson's asserted claims must be deemed unenforceable...."

Material Handling Management interviewed the general counsels for two of the Auto ID OEMs involved with this case as well as the general counsel to the Material Handling Industry of America for their take on this decision. The text of those interviews follows. – Tom Andel, chief editor.

Peter Lieb, senior vice president , general counsel and secretary for Symbol Technologies Inc.

MHM: This issue has been hashed out for years. What made the case against Lemelson stick this time?

Lieb: There was a group of companies led by Symbol which decided they were going to pursue the case all the way to its conclusion. Over the years numerous companies have been sued or threatened by Lemelson and concluded it is in their economic interest to settle. Lemelson's lawyers had a history to not approach the manufacturers to require a license but to go to the manufacturers' customers, and the customer often calculated it would be better to settle. What happened here was these manufacturers decided this was not good for customers and that they would take this all the way. That's why we arrived at a conclusion on Friday, January 23. The case isn't completely over because there's the possibility of an appeal. This case has finally reached a conclusion in a trial court.

MHM: How much longer do you think an appeal could drag on?

Lieb: There are two ways it could go. One would be the judge enters a judgment and Lemelson does not appeal. That means it could be over in a month. The more likely situation is that a judgment will be followed by Lemelson pursuing an appeal. It wouldn't surprise me if that lasted a year or more.

MHM: So why are things any different from the way they've been with this case for the past few years?

Lieb: Because a US District judge has determined in a final order that the patents cannot be enforced as pursued against the bar code scanning industry, and in an opinion that might apply more broadly beyond that industry. This is a decision a judge has reached which will result in a judgment. If Lemelson were to approach a customer of ours tomorrow and say you can't implement this unless you pay me a licensing fee, that customer now has an opinion that says "your patents are not enforceable or valid." Now there's a solid basis to resist.

MHM: Does this have an impact beyond the automatic data collection world?

Lieb: There are three main bases for the decision: One is limited to the bar code scanning group, and that is the part of the decision that says our products do not infringe Lemelson's patents. The next is the prosecution of latches and then enablement. As I read the decision, the judge said if you wait an extraordinary amount of time without a valid excuse, you've acted inequitably and your patents won't be enforced. There is nothing in that ruling that should limit the decision to the bar code scanning industry. While this decision focused on 14 of Lemelson's patents, the reasoning would apply to other patents that Lemelson is using to pursue other companies. If you take this huge amount of time without a valid excuse, they have a problem. Enablement is a principal in patent law that says someone who files a patent must describe a workable invention that someone with ordinary skill in the art can make or use. He concluded these patents do not describe such an invention someone could make or use. It's likely the reasoning on the enablement point could be applied to other patents as well.

MHM: Will this decision have long range effects on technology development or applications?

Lieb: It takes a distraction away from manufacturers and their customers. They can continue doing business without the fear of having to pay royalties to Lemelson. There are other reasons to feel good about this because there were three independent grounds on which we prevailed. On appeal we only have to win one of them and the decision will stand. So if the judge happens to be wrong on two of the three, it won't mater to our customers because they still won't have to pay licensing fees.

Constance Crosby, general counsel for Psion Teklogix

MHM: What's the significance of this announcement to our readers?

Crosby: This is an incredible victory for the users of bar code equipment. We couldn't have wanted a stronger win. Lemelson had more than 500 patents. Most of these were tiny add-ons of patents that were filed early in the business. They then didn't exit the patent office between 19 and 31 years. These were submarine patents, meaning he watched how industry developed and formulated his patents around the developments that the leaders in the industry implemented. This was one of the biggest abuses of the patent system ever recorded. There were only a small number of patents issued out of this 500 that were focused on bar coding. Others were machine visioning and other innovations used in manufacturing devices. We were able to take Lemelson on and protect our customers.

Lemelson approached users of this equipment and demanded a license. He received more than a billion dollars in licensing fees. The lawyer for Lemelson was the richest known lawyer in the world, having made nearly $1 billion in contingency fees. Going forward, he will not have a claim against the users of this equipment.

MHM: What were the grounds on which the decision was based?

Crosby: There were three. One is that even if the patents were valid, the manufacturers' equipment doesn't fit within their scope. Two, even if there was infringement, it would be unenforceable because of the latches argument, which is the submarining. This activity was prejudicial to the public. Three, the patents themselves are invalid because they don't disclose a workable device. These were three major independent headings. The strength of the decision is that patents are not valid or infringed and even if they were, the patent claimant could not enforce them because of this inequitable conduct of submarining and delay [in enforcing the patents].

He can appeal, but he'd have to win on all three grounds, which makes the possibility of victory fairly remote.

MHM: If Lemelson appeals, can they continue to pursue license fees?

Crosby: In light of this judgment I don't see how. It's a valid binding decision that these patents are invalid and unenforceable. The decision will give everyone the courage to stand up against him on every other patent.

MHM: What if the decision had been in Lemelson's favor?

Crosby: If there had been a loss on all three counts, the licenses would have been applicable to every user and there would have been an enormous cost to using automation technology. Users would have been hard pressed not to pay it. These were systems patents that Lemelson was claiming, so at no point did he come against the manufacturers. Still, it was in the manufacturers' best interests to help the customer base.

MHM: To what do you attribute the success of this case?

Crosby: Two people deserve a lot of credit for their contributions from the start of this case. One is our patent counsel, Jesse Jenner, of Fish and Neave and the other is Len Goldner, formerly the lead general counsel for Symbol. They were instrumental in maintaining the course of this case. This was a joint defense group of competitors, and you can imagine how difficult it would be to manage such a group. The other challenge was, this was really three major cases combined and they were handled by different courts in different proceedings. In our wildest dreams we didn't think we'd be able to win on every front, and we did.

MHM: Do the implications of this success go beyond the world of data collection?

Crosby: Yes, in the sense that the court said it would stop patent abuses. If you talk to people in Europe or outside the US, they believe our patent system is wicked. While it serves to protect the inventor, sometimes it goes too far, and here's a court saying we are respecting some boundaries of reason here.

MHM: This is a victory for innovation, isn't it?

Crosby: Yes, to get protection and not be stopped by people who really weren't inventing is significant. So I think everything you're doing with innovation in your magazine is absolutely right. It's good news for innovators and good news for industry, especially with these particular patents that let industrialization proceed.

MHM: Will this decision help spur additional R&D in automatic data collection?

Richard Bauly, vice president, strategy and business development for Psion Teklogix:

Often some of the most interesting innovations come at that point between what's covered by patents and where there's a gray area. This enlarges that gray area and potentially offers people the ability to be more aggressive in intellectual property development. Psion Teklogix hasn't been affected in its R&D efforts because most of our R&D dollars weren't spent on the areas in question here.

Arthur Stroyd, Esq., partner with ReedSmith LLC and general counsel to the Material Handling Industry of America.

MHM: How does this decision change the status quo in automatic data collection?

Stroyd: The judge made certain findings of fact, and on an appeal these are legal issues. He made sound and difficult findings. He came to two legal conclusions. First was that Lemelson waited too long and allowed the technology to grow up. These companies were proceeding with their product development, relying on the fact there was no patent out there. Then when the submarine patent surfaced and Lemelson said he owned the technology under development, the entire industry was taken aback. Second, Judge Pro said that even if the patents were valid, because of the inordinate delays they were invalid. The companies did not actually use the technologies covered by the patents, so it was a second fall-back argument. Now the Lemelson Foundation has to defeat both legal issues on appeal.

This is such a big case there's no question that the Federal Circuit in Washington that handles all appeals in patent cases will take a very hard look at this one. But they're not going to mess with a trial judge's findings or interfere with the judge's initial reaction. However, for a case with such far-reaching implications in an industry, the Federal Circuit will take a hard look at it. Regardless of what the Federal Circuit does, the losing party at that level will petition the Supreme Court to look at it.

MHM: How long can this go on?

Stroyd: The Lemelson Foundation has 30 days from when the order was entered to appeal. Then there's a briefing scheduled for the Federal Circuit, and you're probably looking at 90 days for them to come up with a decision. This will be such a juicy record for them to review they might take even longer to write their opinion.

MHM: While this goes on is Lemelson still free to pursue cases against customers?

Stroyd: There are cases still pending, but in light of this, those cases will be in limbo until there's a final decision made on the validity of these patents.

MHM: Does this case have implications beyond auto ID?

Stroyd: It will be cited as precedent from the standpoint of the kind of delays that are unreasonable and unjustified according to this judge. But there aren't many cases like this because there are very few patents that have taken this long to go through the system. And of course the law changed so that now when you apply for a patent that triggers the 20-year monopoly that you get from when you apply for a patent. Back when Lemelson applied in the 50s for these 14 patents, because they were rejected then he reapplied continually and refined his application, the patents didn't surface until from the late 70s until the mid 90s. At that point, under the statute, they then had a 17 year monopoly beginning from the date on which they were granted. In 1995 they changed that law so that patents are only valid for 20 years from the date of application instead of the date on which they were granted. Still, one of these patents is not due to expire until 2011, which ended up being 55 years after the original application was entered. That shows how egregious the delays were.

Of the 5 million patents that were issued in the last 90 years, by far the lengthiest were 13 of Lemelson's patents. This was an aberration in the patent process and Jerome Lemelson knew exactly what he was doing. He refined his application while watching what was developing in the industry. As he reapplied he would refine the technology and the scope of the patent as he was learning more from what the companies were doing in R&D.

MHM: Was there a chilling effect on R&D as a result?

Stroyd: There was, and this decision stops new licensing fees from being siphoned off from this industry. It's guesstimated that Lemelson has taken out about $1 billion from the auto ID/machine vision industries in the form of royalties. The sad part is that the licensing agreements that were agreed to in the past almost inevitably contained a provision that states "Notwithstanding any decision by a court at any subsequent date as to the vailidity of these patents that the royalties will continue." In other words, the licensees out there now will not breathe a sigh of relief. Users will have to take a look at their licensing agreement. Who does get a break is any alleged infringer, or user of bar code or machine vision technology that resisted the overtures of Lemelson to sign up as a licensee. There are hundreds of cases pending against those companies, most of them filed in the US District court in Arizona.

MHM: Can the Lemelson Foundation be found guilty of any wrongdoing themselves in the way they conducted themselves as they pursued these claims?

Stroyd: The district judge Pro did say that the delay in securing the claims under these patents is the same as culpable negligence. That means Lemelson had a duty to claim his invention as soon as was reasonable and justifiable and that he sat on those rights too long.

MHM: Can any legal action be taken against Lemelson?

Stroyd: When someone tries to assert they have a monopoly when in fact they do not, they are restraining trade. I don't know what the strategy is or what the potential claims are. There is a body of law that says if you try to muscle a company into compliance with your patent knowing it's invalid, you're essentially restraining trade, which is a violation of the anti-trust laws.

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