Lodsys vs. developers: Can Apple save the day?

An obscure company called Lodsys has mobile app developers in its crosshairs, and small software firms must weigh their options

By now you've doubtless heard about the threat to mobile app developers from Lodsys, a company that claims to own patents covering aspects of in-app purchases and upgrades. In May, the company sent letters to several iOS developers notifying them of possible infringement and requesting negotiations for patent licensing.

For its part, Apple maintains it has already licensed the patents and that its license extends to third parties enrolled in its developer program. A formal letter to this effect, addressed to Lodsys and signed by Apple's general counsel, elicited a collective sigh of relief from many in the iOS developer community.

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But it's too soon to celebrate. Lodsys disputes Apple's claim, to the extent that if it sends you an infringement notice and a court later finds Apple's patent rights extend to you, Lodsys says it will pay you $1,000. Furthermore, Lodsys's patent claims are not restricted to the iOS platform; apps that perform similar functions on Android, BlackBerry, Palm OS, Windows Phone, and other platforms may also be subject to them, and developers of apps for these OSes would not be indemnified by Apple's license.

Lodsys's chief response to Apple's letter has been to step up its game. This week it went beyond sending infringement notices and filed its first seven lawsuits against app makers, leaving developers with a renewed set of questions: Could I be next? What do I do if I am? Will Apple be able to help me, and will it even try? And when will this whole nightmare be over?

What do the Lodsys patents really cover?
Some iOS developers have expressed bitterness that Apple has "forced them to use patented technology" to conduct in-app purchases and upgrades, but the situation isn't so simple. There's likely very little Apple could have done to avoid a confrontation with Lodsys.

One traditional way companies protect themselves against patent claims is by holding patents of their own. Patent holders are less likely to assert claims against a company if doing so would expose them to costly countersuits. That's the main reason why Google bid $900 million for the patent portfolio of bankrupt telecom giant Nortel in April.

But the threat of countersuits only works if the patent holder makes a product that also infringes your own patents. Lodsys doesn't make anything. Its sole revenue source is a set of four patents it purchased from one Dan Abelow, a self-styled inventor with no engineering experience. As Lodsys puts it, "Like an app developer writing software (a copyright), [Abelow] created intellectual property (in this case, a patent)." In other words, the patents are the product.

And what a product they are. Lodsys describes Abelow's patents as "visualized/created metaphors" -- and if that sounds like mumbo-jumbo to you, you should read the text of the patents themselves. To call them "broad" is an understatement. Each begins with the following boilerplate:

The growing speed of product development (with shorter time to market, rapid addition of new product features, and transformation of many products due to technological change) makes the ability to measure and deal with complexity considerably more difficulty [sic]. The rate of product evolution in many product categories has become faster than ever, so measurement methods must evolve to keep pace with the speed and scope of business decision-making.

Abelow then goes on for around 100 single-spaced pages and 50,000 words of text for each patent, touching on topics as diverse as product testing, online surveys, field-programmable logic devices, bar code readers, automated teller machines, product design and management, TVs and VCRs, modems, communications media, market research, voice interfaces, pen-based computing, servers, and on and on.

In fact, in February Lodsys asserted the very same patents against a group of printer manufacturers -- including Brother, Canon, Hewlett-Packard, Lexmark, and others -- claiming that the printers' network-enabled management features were infringing. It seems virtually any function that facilitates communication between a device and its manufacturer could be subject to these patents; therefore, it's unlikely that any algorithm that smartphone vendors could have implemented for in-app purchases could have avoided the same fate. Blame Lodsys, not Apple.

What are my options?
This leaves app developers with a limited set of options. The easiest and safest is to avoid in-app purchases and upgrades altogether. Apps that don't perform any further interaction with an app store once they are downloaded are not subject to Lodsys's current claims. But then, doubtless many developers will be loath to forgo one of the mobile app market's most promising revenue models, particularly when so many are still struggling to turn a profit.

The second option is to go ahead and license Lodsys's patents. If you can afford it, this is probably the next-best solution. But can you afford it? Lodsys wants to negotiate a separate licensing agreement with each developer, and the license won't come with a one-time fee. A sample license structure shows Lodsys asking for 0.575 percent of U.S. revenue -- $1 million in sales would incur a fee of $5,750 for that year -- but that's just one example. You won't know what you're actually expected to pay until you talk to Lodsys, and once you initiate negotiations it will be hard to back out without drawing down a lawsuit.

A third option is to do nothing, keep your head down, and hope you never hear from Lodsys. If you aren't earning any significant revenue, it won't be worth Lodsys's time to pursue you. Still, this tack is surely the riskiest. If Lodsys does go as far as to file an actual lawsuit against you, you will be compelled to respond -- and the resulting legal battle and likely settlement will be costly.

Of course, if you're really gung-ho, you could go ahead and challenge Lodsys in court. Don't expect the fight to be easy, though. Even if a judge finds that you are covered under Apple's patent license, by the time the proceedings are over, the $1,000 Lodsys has offered to pay will seem like a pittance.

These patents must die
Even if Apple can obtain a judgment indemnifying every iOS developer under its patent license, this story won't be over. Lodsys will still be free to go after printers, televisions, stereo equipment, kiosks, or any other devices that seem to fall under the rubric of its incredibly broad patents.

The best possible outcome now would be for Apple, Google, Microsoft, and other IT vendors to band together in a consortium aimed at attacking the patents' language in the courts. If such a consortium could inflict enough damage to the patents' claims, Lodsys would likely be willing to sell the patents rather than see them invalidated outright. In this way, such a consortium could remove one barrier to innovation in the mobile app space, while simultaneously holding the Lodsys patents as a kind of "doomsday device" against future, similar claims.

The larger issue, of course, is that the Lodsys situation underscores how woefully broken the U.S. patent system has become, particularly where it applies to software. I've used this space to urge the Obama administration to explore patent reform before. That was two years ago, and not much progress has been made. Now that the patent issue is once again so prominent in the news, we can only hope that our legislators use this opportunity to push forward real change.

This article, "Lodsys vs. developers: Can Apple save the day?," originally appeared at infoworld.com. Read more of Neil McAllister's Fatal Exception blog and follow the latest news in programming at infoworld.com. For the latest business technology news, follow infoworld.com on Twitter.

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