WAVEFRONT Issue Summer 1987
DO PATENTS SERVE IDEAS OR PROFITS?
by Ken Daeton
...Those who achieve the highest quality of origination in the
content rather than the form of the new medium ... receive the greatest
As the technology moves into the mainstream, it may actually be
disadvantageous to exclude others from pursuing business based on sole
ownership of a particular technology.
THE TIME LAG BETWEEN THE ADVENT OF AN IMPORTANT TECHNOLOGY AND
SUCCESS IN THE MARKETPLACE I S A RECURRENT FEATURE IN THE ANNALS OF
BUSINESS. PATENTS ON TYPEWRITERS DATE BACK TO 1829 BUT DID NOT COME INTO
WIDESPREAD USE UNTIL THE LAST DECADES OF THAT CENTURY. TELEVISION WAS
DEMONSTRATED IN THE 1920s, BUT THE FIRST COMMERCIAL TV SETS WERE INTRODUCED IN THE
XEROGRAPHY WAS PATENTED IN 1939 BUT DID NOT BECOME A BIG BUSINESS
UNTIL THE 1960S.
The problem of patents in holography is not unique in the landscape
of new methods of storing and distributing information. The introduction
of almost every new medium has been accompanied by conflicting claims
over the priority of invention. It is possible to say that patent
litigation is more the rule than the exception; photography
(see WAVEFRONT, Vol. 2, No. 2), radio and motion pictures were all
disputed in their times. If the experiences of Tesla, Marconi, Edison et
al are any indication, a patent is as valuable as the money available to
The root of the problem may lie within the patent laws. First
enacted in 1790 (in the U.S.), the revision now in effect was legislated
in 1953. In the language of the statute, any person who "invents or
discovers any new and useful process, machine, manufacture or
composition of matter, or any new and useful
improvements thereof, may obtain a patent". The term of a patent
is 17 years from the date the patent is granted.
The tricky part is determining what constitutes "new" or an
"improvement", as well as establishing that the invention was not known
or used by others and had not been described in a printed publication
more than one year prior to the application for patent. It is this
nebulous realm in which Emmett Leith's principal patents now reside. If
Leith's paper for the Optical Society of America in 1962 is interpreted
as containing the essence of the patent, or for that fact, any of the
papers which were published between Gabor and Leith, then
Citibank/American Bank Note would find their patents unenforceable.
In Canada, our Copyright and Broadcast Acts are impoverished
with respect to the transmission and storage of information in any
other form than paper. As the laws were drafted prior to the invention
of electronic or holographic media, they provide only an ambiguous
protection for those working in these fields. Recently, the problem as
it has been experienced by those using digital storage and communication
has been acute and it seems that the protection of computer software is
driving a massive reform in the definition of patentable representations
In the short term, some may be unfairly prosecuted for infringing
rights on proprietary inventions. But in the long term, if we look at
the history of other media, there will be a shift in emphasis from
proprietary individual rights to general commercial standardization. As
with cassettes, video or compact discs, as the technology moves into the
mainstream, it may actually be disadvantageous to exclude others from
pursuing business based on sole ownership of a particular technology.
Returning again to other media which were revolutionary in their
day and vociferously protected, when the market comes to fruition it is
those who achieve the highest quality of origination in the content
rather than the form of the new medium who receive the greatest benefit.
The current holography patents controversy began with a suit lodged
by American Bank Note against Steve McGrew and Light Impressions. ABN
claimed infringement of its exclusive license to supply holograms, based
on patents owned by Citibank, to the security market.
This litigation had the potential to set a precedent with respect to
the validity of several principal patents, including Leith and Upatnieks' pioneering
work in off-axis holography, the foundation of modem technique. The suit also stemmed
from apparently poor administration of the patents on the part of Citibank and Atari
(which has sub-licensed both ABN and Light Impressions).
ABN is now back at square one after its suit was removed from
U.S. Bankruptcy Court in Seattle, Washington because of improper venue.
If ABN wants to renew the fight, it must proceed in Federal Court, in
the northern district of California, where Light Impressions is based.
The trustee in bankruptcy has not yet renewed its motion for a
preliminary injunction against Light Impressions. Meanwhile, Light
Impressions is proceeding with its suit against ABN, Atari and
Citibank, filed in the same Federal Court jurisdiction, for trade
interference and antitrust violations--i.e. for conspiring to establish a
A fresh perspective may help in understanding ABN's initial
motivation in launching the suit. Perhaps, rather than a corporate
behemoth steamrollering innovative small business, it is a struggling
enterprise in a precarious position with respect to both its technology
American Banknote Holographics is distinct from American Bank
Note Company (a wholly owned subsidiary of International Bank Note),
which prints stocks, bonds, banknotes and other paper securities.
The Nilson Report, which tracks the credit card industry, reported
in late 1985 that ABN Co. had "serious financial problems" and had been
selling off properties and closing unprofitable plants to reduce the
heavy debt. Sales had slid from $227 million in 1981 to less than $100
million in 1985 with the company declaring consistent losses.
ABN Holographics claimed revenues of more than $10 million in
1985 when it released its prospectus for a public offering. Although the
holography business wasn't large percentage wise, ABN (or more
accurately IBN, which owns at least 80 per cent of ABN Holographics)
needed every dollar to offset ABN's other losses.
ABN Holographics employs about 60 people, half of whom are in
Though it grossed tens of millions of dollars in sales, it had
to ship hundreds of millions of holograms to do it. That's a lot of
foil. Its only edge in the holography market to date has been a
stranglehold on bank and credit card applications.
As the protecting patents lapse in the coming years, this edge
will inevitably diminish. Even now ABN Holographics is facing
competition from Dai Nippon (Japan), Landis & Gyr (Switzerland) and
National Business Systems (Canada), among others. Many of these
companies claim to be using technology which doesn't infringe on the
principal patents so they may compete freely in the security market.
It seems that ABN must diversify to fields other than security
regardless of the outcome of any action against Light Impressions. It is
more than 60 per cent dependent on sales to Visa and MasterCard alone;
this is far too narrow a revenue base, given that its dominion in the
field is being challenged.
The other major force in the area of holographic patents is Polaroid
Corporation. Over the last 15 years, the pioneering work of Dr. Stephen
Benton and his associates has resulted in numerous patents, including
the rights for white- light transmission holography. Polaroid has not
exercised these rights, although many companies market commercial
products using the rainbow technique.
This difference in corporate attitudes may be explained by the
two firms' differing mandates. ABN is essentially a service company
which generates revenues by selling prestamped holographic images under
contract for a select group of clients. Polaroid, on the other hand,
will most likely sell either holographic film or eventually holographic
cameras in a broad commercial realm. The recent use of its photopolymers
for holographic toys may be an early example of this.
Polaroid may currently see the holographic market as nascent and
wait until there is a strong consumer demand for the product before
fully committing its resources. This demand will probably be triggered
when full-color images can be inexpensively developed or mass- produced.
In the interim, anyone practicing in the field would be viewed as
developing the market. However, as a Polaroid spokesman once said: "If
any significant money is made on these patents, there can be no doubt
that somebody will have their day in court."