Monday, May 23, 2011

In the absence of blanket coverage from Apple, app developers should start to cooperate with Lodsys -- UPDATED: Apple sent letter to Lodsys

[Update] Apple sent a letter to Lodsys [/Update]

Note that by the time I wrote this original post, Apple had not yet taken any position on the Lodsys problem of patent assertions against defenseless little app developers, and there was no guarantee that they would, although I still expressed my belief that they would act.

[Update] Macworld has just published the text of a letter Apple sent to Lodsys (and provided to the targeted app developers). Apple states clearly that the infringement allegations relate to in-app purchasing and Apple believes that the license it has to the patent in question covers that use (including its use by third-party apps). I have now analyze this new situation in detail in this new blog post. [/Update]

After what Apple has written, this present blog post has become obsolete in part. But I think it should stay online for the record, and with a view to other assertions that Lodsys and/or other entities might make in the future.

Unfortunately, time is was ticking away. I understand that some app developers received their letter from Lodsys already a week before the first reports on this patent assertion spree were published. Everyone was apparently given a 21-day deadline to respond, so some people's deadline expires later this week. That's why I determined that I now had to issue comments at least on the situation of those whose deadline is near.

But again, the situation has certainly changed due to Apple's intervention mentioned above. So for now, the opinions below are partly obsolete, but I will comment on the new situation in more detail in a separate blog post.

Disclaimer: this is not legal advice

As I pointed out before, note that I am not a lawyer (and in particular not your lawyer). These opinions of mine are not a substitute for professional legal advice based on a thorough analysis of your particular case against the background of applicable laws. I urge you to obtain real legal advice.

Your #1 priority should be to avoid a lawsuit

I heard that Chuck Norris also received a letter from Lodsys and they are now paying him. But if you're just a little app developer and if Apple doesn't give you blanket coverage for whatever the consequences of a legal fight would be (also including the risk of a devastating damage award), your paramount consideration must be to avoid that Lodsys files a U.S. patent infringement lawsuit against you. That's why you should not let Lodsys's deadline expire.

If your deadline is only a few days away, I recommend that you now indicate to Lodsys a willingness to pay up and ask them for further information on the terms and conditions of a license agreement. I'll discuss further below some of what you should avoid saying in that context, but basically you should demonstrate that you're cooperative. That doesn't reduce your risk of being sued to zero, but it's the best you can do at this stage to reduce it as much as possible. If they're going to sue developers, they'll most likely target those who appear to be uncooperative. Every one of you should avoid being part of that group. Think only of yourself in this regard.

My FAQ for app devs contained a small section on U.S. patent litigation costs. In a report on Lodsys, MacWorld quoted a lawyer who said that "even to defend a basic patent infringement claim, one can usually expect to incur legal fees of over $1 million."

Legal fees are just a part of your exposure. If you lose in the first instance (which can easily happen because Lodsys would almost certainly sue you in the troll-loving Eastern District of Texas), you may face a totally outrageous decision on damages. Your lawyers would argue that Lodsys is willing to license the patent at a 0.575% rate and that your revenues are low, so damages should be small, but none of that is a legal limit for the court. The jury could find that damages are much lower, but in many cases juries assume that licensing offers are sweet terms and there's actually more at stake. Maybe many legal experts would look at such a damage award and agree that it can be overturned, but then you have to appeal and win. Conversely, if you won in the first instance, you might still have to handle an appeal by Lodsys. Theoretically it could go all the way up to the Supreme Court.

There are also lawyers who are quoted by the media or active in the blogsphere and on Twitter and they may come up with all sorts of suggestions, including a possible reexamination request. I will explain further below why those don't deserve your trust unless they give you the coverage you need (they won't). If they try to convince you of non-solutions, ask them whether they will give you a written guarantee that limits your total exposure (including legal fees for all instances as well as possible damage awards). They'll refuse to do that. However, if they refuse to give you written assurances of the absolute limit of the risk you face but still keep trying to suggest things that would be irresponsible for you to do, they're even less trustworthy than Lodsys itself. (I'll explain further below what their motives for this kind of talk are.)

Separate your own business/legal problem from the wider political/philosophical issue

Being sued by Lodsys can ruin your little business. In case you don't have a company that comes with limited liability, it can ruin you personally, possibly for the rest of your life. In a situation like this, there's no way that you can afford the luxury of defending a principle, or depend on anyone's solidarity.

Your business faces a legal risk. That risk is independent from how meritorious Lodsys's assertion is. Even if you believed that the patent can be invalidated and that the infringement assertion is wrong, it doesn't matter until you can afford to fight this out. To be honest, while I'm far from convinced of Lodsys's claims, I've seen much weaker ones that succeeded in U.S. courts, above all in the U.S. District Court for the Eastern District of Texas, which sometimes includes outrageous damage awards. By comparison, if I had to bet money on the successful invalidation of various patents, I would be significantly more likely to place my bet on the invalidation of MacroSolve's questionnaire patent than on that of Lodsys's patent.

If you communicate with Lodsys, be a professional and be cool. Focus exclusively on solving your problem. You can't convince Lodsys that what they're doing is immoral. They want to make millions of dollars and you can't talk them out of that. It's also possible that they had to pay (or guarantee) so much for those patents that they don't have a choice anymore.

So don't insult them. Don't criticize them. Don't start a debate: if you want to take political action, do it in the appropriate fora but not in your correspondence with Lodsys. Just ask for the terms and conditions of their license agreement.

I wouldn't want to say anything that looks like an admission of infringement. But it doesn't make sense to deny it unless you have the resources in place to fight it out. Be non-judgmental on the question of whether or not there is an infringement. Lots of patents get licensed all the time just to avoid litigation.

You as a little independent guy can't do what's best for the app dev community at large. Be a coward who stays in business, not a hero who goes bankrupt. Keep in mind that you have to do what's best for you just like Lodsys does what's best for its shareholders. Lodsys is definitely not doing what would be best for all patent holders, or for all non-practicing entities. I'm sure that many other patent holders are quite afraid of the repercussions that this can have, not because of Lodsys collecting its 0.575% cut but because of what will happen if this scheme works.

Legitimate and reasonable patent holders may ultimately suffer as well. If little app devs are the victims of a fundamentally unjust easy-money scheme, there will be a point at which there will be some serious political backlash because of so much injustice happening to little software developers who never stole anything from anybody. Patent assertions against app devs are particularly tricky because they can have an indirect effect on the business of big pro-patent players like Apple. But Lodsys doesn't care about any of that longer-term political stuff. Lodsys wants to make money right now.

Take the same short-term perspective as Lodsys does. By stopping to sell your app or by deactivating the in-app upgrade button you can't even avoid the risk of a lawsuit (over past infringement). Yes, there are already others than Lodsys that require app devs to pay, and there will be more. In light of that, even 0.575% is too much because if the hurdle is so low that anyone waving with a patent can get you to pay, there will be many more assertions going forward. But in the meantime you can make money and you can still go out of this business if the collective amount of your patent royalty obligations ever reaches a point at which you decide to quit.

Even if you paid, say, 5% of your U.S. revenues in the aggregate of several patent assertions, that's just 5%. If Apple increased its app store cut from 30% to 35%, would you say goodbye to the iOS platform? I guess not. Maybe a lot of people would threaten with it, but seriously, the fewest would. Maybe that would make other platforms more popular, but app developers on other platforms also face patent assertions as MacroSolve already proves.

It will be key to analyze the terms and conditions of Lodsys's license agreement

Note that I didn't say you should sign just whatever license agreement they propose. I merely said that you should be cooperative and demonstrate that you're willing to consider a license deal.

Everything will then depend on the terms and conditions of whatever Lodsys proposes. Even the best license agreement won't reduce your risk of being sued to zero. Lodsys could sue you over that agreement, over issues outside of that agreement, and others (like MacroSolve) could sue you (even without an advance warning). But we're talking about probabilities here, and I think Lodsys may very well offer a reasonable license agreement. The letter Lodsys sent out to app devs contains lots of positions that I disagree with, but it's possible (though not guaranteed) that Lodsys wants to be reasonable. Lodsys also tries to create that perception through its blog.

The thing to make sure is that a license agreement isn't so bad that your risk of being drawn into litigation is even greater than before. Again, I see indications that Lodsys's agreement is probably not that bad, but it will be key to look at it in detail whenever they disclose it.

They're going to use the same license agreement for multiple developers. If only the common parts of all of their proposed agreements are published, they can't know with certainty who leaked it. The agreement could then be published (feel free to contact me) and discussed.

While even a collective of app devs can't realistically afford litigation, I think it would be much more feasible for several of you to have the proposed agreement analyzed by a lawyer. The cost of analyzing an agreement is much more predictable and limited than that of litigation. I do, however, realize that even if several of you share the cost, some of you may spend more money just on the analysis of one such license agreement than you paid for the hardware and software tools with which you developed your app...

Beware of unfeasible suggestions

I have been contacted on Twitter and via my contact form by patent lawyers who have sent me information on possible prior art to use against Lodsys or Macrosolve, and by some who have made general recommendations for how you (the app devs) might defend yourselves.

That kind of input may be well-meant, but I told all of them that it isn't a solution to the actual problem. The real issue here is that app devs can't afford the fight. As long as they can't afford to defend their rights, it doesn't matter if there's some great prior art somewhere out there.

And when I point out that fact -- that it's economically unfeasible --, some of them just continue to insist that there are ways to defeat Lodsys. To some of them I told again and again that they can forget about all of that unless the resources are in place, but they would keep coming back to what they think are great ideas...

There are a couple of reasons for why they do that. The short version would be, "If all you have is a hammer, everything looks like a nail." Their whole work is all about fending off such issues, so they just propose what they would be able to do, but they don't understand that there's no way an app dev can fight against a 0.575% royalty demand if the alternative comes with a considerable risk (in some cases, an incredibly high risk) of possibly going bankrupt.

What those lawyers propose works for clients who can afford the costs and the risks. Even if someone was optimistic about being able to defeat Lodsys in court, a low risk of financial ruin is still not acceptable, but some of those who insist on those alternative approaches just don't want to face that fact.

One very popular suggestion now is to ask the USPTO to reexamine the Lodsys patent in question. It was mentioned in various places, including this Macworld article, which quotes a patent professional who says that the cost for this is "lower" and "more predictable": his estimate is in the $20,000 to $30,000 range.

Unfortunately, reexamination takes years and in the meantime Lodsys can litigate. This makes it a non-solution for all those who can't afford the costs and risks of patent litigation. Also, the likelihood of such a patent infringement case being stayed pending reexamination is limited. Google has been trying for a few months now to have Oracle's patent lawsuit stayed for the duration of the reexamination of the patents-in-suit, but right now that case is more likely to go on trial in five to six months than to be stayed. Reexamination would make a lot of sense as part of a whole package of measures to be taken against Lodsys, but not on its own.

I believe the reason why some patent professionals insist so much on suggestions of non-solutions is this: they would like to believe (and would like the world to believe) that patents are fundamentally a good thing and do justice. But the Lodsys scenario is a case of blatant injustice and raises serious questions about the system as a whole. That's why some lawyers would like to propose a fix that works within the system, so as to prove that the system has the tools in place to fight its own excesses (such as low-quality patents being granted). But until they answer the question of how the app devs can afford the costs and risks of a patent infringement lawsuit that Lodsys might bring against them (most probably in Eastern Texas, where Lodsys is based), don't rely on their advice. Instead, do a deal with Lodsys if you can get one that greatly reduces your risk of being sued.

I want Lodsys and MacroSolve to fail

After taking such a strong position in favor of a license deal, some may wonder on which side I stand. I can answer this question easily. I'm giving you independent views here. No one influenced them in any way. I'm telling you what I think works best for each of you, even though I do know that ultimately this is bad stuff for the app dev communtiy at large. I just want to avoid that any one of you goes bankrupt when the alternative may be to pay a 0.575% royalty (and possibly more royalties in the future, for different ways to use that particular patent, for different Lodsys patents, and for different patents held by others).

I still hope that Apple will take action and enable app devs to defeat Lodsys in court. In this analyis of all the patent issues Apple is facing I have also explained that I believe it would be the right thing for Apple to do, though Apple certainly knows more about its business than I do.

In my opinion, Apple should also help iOS app devs who are currently being sued by MacroSolve. To the extent that non-iOS versions of certain apps are targeted, they should work with other platform makers (in that case, Google and RIM would be the key ones to partner with) to jointly support the app devs.

MacroSolve is worse than Lodsys. I want both of them to fail, and I want anyone else to fail who attacks little app devs who haven't committed any wrongdoing.

In fact, I told this directly to MacroSolve's CEO. After I reported on their two lawsuits against app devs, their PR agent contacted me and we set up a call in which their president and CEO wanted to explain their strategy to me. I accepted to have a conversation (even on the same day) because I do want to be fair and hear different views. He tried to convince me that they're actually very nice to little guys. It was clear, however, that they're only nice if you license their product. If you dare to develop your own software, they may claim a monopoly based on an unspeakable patent and just sue you, and he didn't even want to answer when I asked him whether he could deny that they sue app devs even without any advance warning.

The call lasted more than 30 minutes and they thought they could convince me that what they do is perfectly fine and good for little guys. In order to make it clear that all he explained about his business just reaffirmed my concerns and that the conversation was becoming a waste of time, I said this: "Let me be frank. Just like Rush Limbaugh said he wanted [President] Obama to fail, I want you to fail." I explained that I hope some big players would provide the app devs with all the funding that's needed to defend themselves vigorously against MacroSolve's claims.

I just told you this so you can see where I stand philosophically on this issue. But as a blogger I can tell these kinds of companies what I think of their "business models." However, when you try to work out a license deal with them, just steer clear of getting into any of that debate.

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