Apple Sinks ‘Submarine Patent,’ Escapes $308.5 Million Verdict

(Bloomberg) -- Apple Inc. won a ruling that tossed out a $308.5 million patent-infringement verdict after a federal judge said the iPhone maker was the victim of a company’s plan to milk the tech industry for high royalties on old ideas.

That company, Personalized Media Communications LLC, has a patent for digital rights management that is unenforceable because the company intentionally delayed its application at the U.S. Patent and Trademark Office so it could get more money later, U.S. District Judge Rodney Gilstrap in Marshall, Texas, ruled. Gilstrap said that Personalized Media “shall take nothing” and instead will have to cover some of Apple’s legal costs.

Personalized Media’s patent application dates back to ones filed in the 1980s, when the term of a patent would last 17 years, no matter how long the application process took. While the company filed hundreds of applications in the late 1980s and 1990s, no patents were awarded until 2010 -- and 101 have been issued since then.

“Are we really going to today allow people to enforce patents claiming technology from 1981?” said Joseph Matal, a former acting director of the Patent and Trademark Office now with Haynes and Boone. “It makes a mockery of the system to allow this kind of stuff. All of this should have been in the public domain as of two decades ago.”

Gilstrap relied on a June ruling from the nation’s top patent court that made it easier to challenge so-called submarine patents, where applicants would delay issuance of a patent until after an industry had adopted the technology and infringement suits would be more profitable. Since 1995, patent terms last for 20 years from the date of application, making the submarining strategy impractical.

“The course of conduct undertaken by PMC constitutes an unreasonable delay and an abuse of the statutory patent system,” Gilstrap wrote.

Officials with Apple and lawyers for Personalized Media didn’t immediately respond to requests for comment.

The company was just following the rules as they existed at the time, said Bryan Wheelock, a lawyer with Harness Dickey & Pierce.

“It is ridiculous that a patent could issue in 2012 on technology from the 1980’s but this is what the system once allowed, and the USPTO was an active participant in the result,” he said.

The company pursued a strategy to ensure this and other patents wouldn’t be issued until “infringement becomes widespread in an industry,” according to internal documents cited by the judge. Apple, a 1991 document showed, would be one of the “natural candidates” for such a program, along with Intel Corp., International Business Machines Corp. and Microsoft Corp.

Apple’s FairPlay software, which is used for the distribution of encrypted content from its iTunes, App Store and Apple Music applications, was introduced in 2003. A jury in Marshall in March said the software infringed the patent and awarded a running royalty of $308.5 million.

Personalized Media, based in Sugar Land, Texas, has filed dozens of lawsuits, often reaching settlements with companies. Last year, a jury in Marshall cleared Alphabet Inc.’s Google of claims it was infringing Personalized Media patents for adaptive video streaming. A case against Netflix Inc. in New York is on hold while Personalized Media appeals the Google verdict.

The case is Personalized Media Communications LLC v. Apple Inc., 15-cv-1366, U.S. District Court, Eastern District of Texas (Marshall).

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