June 10, 2011 | By Julie Samuels

Apple Steps into Lodsys Litigation

When we learned that Apple had stepped forward to support iPhone app developers who had found themselves threatened with patent litigation (and, in some instances, actually sued) based on their use of Apple-provided technology, we hoped that could be the end of the matter – or at least that Lodsys would pick its fight with Apple, who has the resources to fight back.

Unfortunately, the company that started the mess, Lodsys, has decided to up the ante, suing seven developers in the notoriously "troll-friendly" Eastern District of Texas. But Apple is staying involved. Yesterday it filed a motion in Texas to intervene in the suit pending against those developers. In its filings, Apple claims that its license to the Lodsys patents covers the uses of the technology at issue by the app developers or, relatedly, that Lodsys' rights were exhausted. Apple does not argue that the Lodsys patents are invalid (and it likely can't under terms of that license).

As this story doesn't appear to be ending soon, some background may be helpful. The players are:

  • Lodsys: the company that owns the patents at issue. Like many patent trolls, Lodsys does not make or sell anything, but appears to exist solely to exploit rights in patents that it obtained from another company, Intellectual Ventures, which reportedly owns more than 30,000 patents. Of note, like Lodsys, Intellectual Ventures did not invent the patents at issue.
  • App developers: at least seven of Apple’s app developers have been sued. In addition, many more – including those who develop apps for Android phones – have received letters accusing them of infringing patents that allegedly cover in-app purchasing (and upgrade) functionality. As a side note, app developers are increasingly becoming a target of patent trolls.
  • Apple and Google: the companies that, as has been much reported, have already taken a license to the Lodsys patents. Both Apple and Google provide (and require) that their app developers use technology in their apps that Lodsys claims is infringing.
  • ForeSee Results, Inc.: a Michigan web analytics company that filed a suit against Lodsys last week in Chicago. ForeSee itself has not been threatened by Lodsys, but its high-profile clients, such as Adidas AG and Best Buy, have. In response, ForeSee alleges that all four of Lodsys’ patents are invalid.
  • Non-app developer defendants: Lodsys has also sued (and threatened to sue) many companies, alleging that their web-based businesses infringe the Lodsys patents. These include Adidas and Best Buy, listed above, and other companies that over products that are not even web-based such as Brother, Canon, HP, Hulu, Lenovo, Lexmark, Motorola Mobility, Novell, Samsung, and Trend Micro, in a case pending in Texas.
  • The patents: Lodsys owns four patents, two of which have been asserted against app developers in the lawsuit (the ‘565 patent and the ‘078 patent). Those patents are set to expire no later than 2013. As discussed above, they were invented by an individual who, short of making a sale presumably to Intellectual Ventures, has no connection to Lodsys or any of the potential defendants.

So what’s next? The Lodsys patents may be found invalid in either the ForeSee case in Chicago or the case against companies like Brother, Canon, HP and Hulu, which is currently pending in Texas. Both cases are at an early stage, however, and it could take years to get a final ruling on the patents’ validity. Or, those cases could end in a settlement, which would leave the patents untouched and enforceable. Another option would be for Apple and/or Google to pay the litigation expenses of the app developers in an effort to invalidate the patents.

In the meantime, the targets of Lodsys’ cease-and-desist letters will have to decide how to proceed. The licensing fee Lodsys claims to be seeking – 0.575% – may seem low, and, in many instances, will come out to less than the cost of defending a lawsuit: that's how the troll business model works. But paying the fee, especially in these circumstances, looks a lot like paying a tax on innovation. What is worse, for some developers it will be enough to make their business unsustainable.


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