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Surprise Attack

Inventors beware: Submarine patents could surface when you least expect it.
November 1, 1998
URL: http://www.entrepreneur.com/article/16738

Lately, Congress has paid quite a bit of attention to improving current patent laws. That's good news for inventors: One of the main issues driving this reform is a phenomenon known as the "submarine patent."

To help you understand the concept of a submarine patent, let me share with you some patent history. Prior to the 1995 patent reform that resulted from the General Agreement on Tariffs and Trade (GATT), you would fill out a patent application for your great idea, then file it with the U.S. Patent and Trademark Office (PTO). Once received by the PTO, your application was date-stamped, and that date was known as your patent filing date.

Back then, the patent application would normally remain on file with the PTO for one and a half to two years before it was assigned a patent number. The date this patent number was assigned was called the patent issue date. From the date of filing until the date of issue, your patent was in "patent pending" status and you, the inventor, had no rights. Once your patent was granted, however, your idea had 17 years of patent protection beginning from the issue date.


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Rising Tide

Now that you have this bit of historical background, I'll explain the emergence of the submarine patent. Before 1995, when a patent was filed with the PTO, there was a possibility the issuance of that patent could be delayed for many years. Once the patent was granted, however, the inventor had 17 years of protection from the patent issue date. There are documented cases where patents were pending for more than 40 years before finally being issued.

Now, I'm sure most of you are thinking you'd like your patent to be issued as soon as possible to protect your idea. However, let's say you came up with an idea in 1970 for a "computer on a chip," and for various reasons, your patent wasn't issued until 1990. In the meantime, companies such as Texas Instruments (TI), Intel and others had also developed this technology and were selling it. Then, like a submarine, your patent finally emerged--with a filing date preceding their development. According to the former patent laws, TI and Intel would be violating your idea, and you'd be entitled to sue them for patent infringement.

The above example is actually a true one. Gilbert P. Hyatt was granted a patent in 1990 for the rights to the single-chip microcontroller that he filed a patent application for back in 1970. Although TI also had a patent for a single-chip microcontroller, because Hyatt's patent was filed before TI's, he now had the rights to the idea for the next 17 years. No one in the semiconductor industry had even heard of Hyatt or his patent until its 1990 issue. According to a June 1996 New York Times article, Hyatt had collected $70 million in royalties by 1992. But in 1996, a court decision overturned his patent.

The most notable inventor to benefit from submarine patents is Jerome H. Lemelson. An engineer who never manufactured any of his ideas and rarely even made prototypes, Lemelson accumulated nearly 500 U.S. patents throughout his life. Because he never personally tried to commercialize any of his ideas, his critics argue that he unfairly manipulated the patent system. He is criticized for coming up with ideas, then purposely delaying the issue of patents on them. In the meantime, companies would unwittingly spend their time and money developing the idea--only to have Lemelson's secret patents get issued, stealing their profits.

According to press reports, by 1994, Lemelson had collected more than $500 million in royalty fees from his patents, including those for bar-code scanning and the "machine vision" method used in assembly-line manufacturing. According to American Lawyer magazine, Lemelson's attorney, Gerald Hosier, made $150 million in fees in a single year from lawsuits resulting from Lemelson's submarine patents. Since Lemelson's death in October 1997, his heirs have continued the legal battles to collect more royalty money. Just this past June, the Lemelson Foundation reached an undisclosed settlement with Ford, General Motors and Chrysler over a patent battle that had been raging since 1989.

Below The Surface

So when did submarine patents first begin to emerge? According to Herb Wamsley, executive director of the Intellectual Property Owners Association, the phenomenon probably started when the PTO began offering inventors the option to refile their patent applications. Back in the 1940s, the PTO would only review a patent application twice. If the application failed after two reviews, it was rejected and no patent was issued. This practice meant that applicants would lose their valuable early filing date. If applicants wanted a third review, a new application had to be completed, and it was assigned a new, later filing date.

Because so many patents were being rejected, the PTO eventually decided to allow patent applications to be refiled for an additional fee without losing their valuable early filing dates. Because they could now be refiled, patents sometimes remained in the PTO system for years before they were finally issued.

As the previous examples show, once a submarine patent surfaces, it can be very costly to companies unaware of its existence. This situation has led both the Senate and House to write reform bills that are still pending in Congress. One recommendation is that patent applications should be published for public review 18 months after being filed with the PTO. However, most individual inventors fear the secrecy enjoyed during the patent-pending stage could potentially be destroyed.

But many legal experts support the concept of early publication. Bob Chiaviello, a patent attorney with Baker & Botts in Dallas, believes it's a good idea for two reasons: First, publication of pending patents would make the United States' patent laws consistent with those of other countries; and second, it would offer a level of comfort to businesses that fear surprise patents might surface for technologies they're developing.

Today, some patent-filing reforms have been achieved. Currently, patents filed after 1995 have a 20-year term, but the term begins on the patent filing date. If a patent takes 10 years to issue, for example, the patent will only have a remaining term of 10 years (unless the patent qualifies for the five-year Patent Term Extension). This modification provides some insurance against submarine patents. But because technology is changing so rapidly, a patent popping up 10 years after a product hits the market could still have a devastating impact on an industry.

Although some inventors will tell you that owning a submarine patent is like winning the lottery, others would disagree. Like many windfall profits, it's the consumer who ultimately pays--in higher prices. And as an inventor, I have a problem with people who profit from ideas they didn't actually develop. It doesn't seem fair that the person who takes the time, energy and risk to pursue an idea, and then markets that idea, should have to share his or her profits with someone who invested little but filed first. The fact that submarine patents may be lurking is something to remember the next time you approach the PTO with an invention.

Contact Sources

Baker & Botts, (214) 953-6677, bchiavie@bakerbotts.com

Intellectual Property Owners Association, fax: (202) 466-2893, info@ipo.org