
This technique is described in John Allen's book called The Machine Knitting Book, originally published in 1985 and republished in 1987. I got it from Amazon a couple weeks ago and love the book, I can't believe I didn't already have it in my collection.
The technique is also shown on Diana Sullivan's UTube video: http://www.youtube.com/watch?feature=player_detailpage&v=le-ecDD70EE She calls it Fern Lace. She knits it on a bulky machine. Since its hand manipulated lace you can knit it on any machine, even the USM.