Monday, May 16, 2011

Lodsys claims to supply building blocks but actually jeopardizes the entire mobile apps ecosystem

I have read, with outrage I must say, Lodsys's new blog post with which that patent troll is seeking to justify its business model of asserting patents against defenseless little app developers. While I can imagine that Friday's news got some people worked up to the extent that their missives to Lodsys may have been less than polite, I am totally on the side of the app developers and I will explain -- maybe in a more polite and nuanced way than some of them -- why that is my position.

Lodsys is trying to abuse the patent system in a way that could ultimately destroy the entire mobile apps economy, which is not only thriving on its own but has been and continues to be a key factor in making new mobile devices so useful and popular, to the benefit of corporations and consumers alike.

Some may look at what I say and just think "oh well, he's anti-IP and especially against software patents." But the truth is that I've always been in favor of the principle of intellectual property. That is a fact I stressed on numerous occasions during my NoSoftwarePatents campaign. I'm not an IP communist or anarchist. In fact, I vigorously defended at the EU level the right of the leading Spanish and Italian soccer clubs to sell their broadcasting rights individually instead of being forced into collective selling arrangements by their leagues. In other words, I advocated the clubs' property rights.

When I started this blog a little over a year ago, I made it clear that this isn't in any way, shape or form a continuation of my NoSoftwarePatents campaign. Instead, I strive to provide rational analysis of the issues. I try to digest the chaos that smartphone-related litigation currently constitutes and present it in a comprehensible form. I am taking a balanced position on Oracle v. Google, having repeatedly expressed that those patents-in-suit shouldn't even exist while expressing doubts about some of Google's defenses and concurring with Oracle that it must not be deprived of due process. But to me there's a fundamental difference between the clashes of titans that we're seeing in the smartphone space and Lodsys's strategy of threatening to sue those who are economically unable to defend themselves against even the most spurious, dubious claims given how much patent litigation costs in the U.S. (and how difficult it is to recover those costs as a prevailing party).

Lodsys reiterates truims, then draws the totally wrong conclusion on the legitimacy of its actions

Lodsys's statement contains a number of commonplace statements that one can't disagree with. I didn't have to read their blog to learn that "[m]aking something, and selling something are different art forms." I've worked on both sides and the differences occurred to me before.

Lodsys stresses that "[p]atent licensing is a difficult business to do well." I analyze a lot of what's going on in connection with patents -- in terms of both licensing and litigation -- and have the greatest respect for those who do this job well. There's no doubt that it's a challenging job to do, especially intellectually challenging. However, in order for that job to be beneficial to the economy at large, it's not enough to just do it well and to make transactions happen. It's only legimitate and desirable if it's about commercializing actual innovations.

Also, I don't have a reason to doubt that Lodsys "lawfully acquired" these patents, but not everything that's lawful is also good for the economy at large. In terms of "lawful", it's actually questionable whether Lodsys's patents would survive a well-funded effort to have them declared invalid. Even if they could be upheld under the system as it stands, there's no way that those patents represent a fair deal between society and the "inventor" who was granted formal 20-year monopolies.

No building blocks

It's absurd that Lodsys describes its patents as "building blocks that are incorporated in the products or services" and in the final paragraph of its statement claims a right to get a part of the income made by developers who "take a year or two to write an application."

It's absurd for two reasons:

  • There's no reasonable indication whatsoever for any unfair use of someone else's inventions by those app developers. Realistically, not even one of them will even have been aware of those patents or of any product that practiced the claimed inventions. It's just that Lodsys acquired patents, which were granted by a notoriously underfunded patent office that spends an average of roughly 15 hours (distributed over several years) examining a patent application, which is usually way too little to identify prior art. And now Lodsys claims that those patents read on many apps and wants to tax certain parts (possibly even very large parts in the long run) of the mobile apps economy.

  • The other issues here are disclosure and non-obviousness, two important criteria for patentability. I've looked at Lodsys's four patents and I can't see how reading those patent documents (which those app developers didn't do anyway) would really put a developer much closer to an implementation than starting from scratch. If a developer decides to provide an upgrade button in his app, there's really nothing that those patents teach that a reasonably skilled programmer couldn't come up with on his own. The app developers Lodsys contacted last week had come up with this on their own, I'm sure. Lodsys talks about building blocks but it's not providing the actual program code to developers. It's just trying to exploit the advantage of someone having been demeed by the patent office to be first to apply for such a patent.

Economic implications

Lodsys, which is already suing several large companies (Brother, HP, Samsung, Motorola Mobility), has the resources to go to court. Its statement on the app tax issue mentions "litigation" as something they'd rather not need -- a thinly-veiled threat to go to court if the app developers don't pay up.

So what can all those little guys do? They make a small amount of money with their apps. The whole app business is a typical "long tail" business. Some apps are provided by big players like Amazon and eBay (who are among those being sued by another company targeting app developers). But most apps address very small niches. Those app developers can't afford to defend themselves, and if they lost a patent case (even if they were reasonably confident that the patents are weak, they'd have to consider the worst case), they'd be out of business and, without the protective umbrella of a limited liability company, might be financially ruined for the rest of their lives.

Why does Lodsys bother at all to catch such small fish? Its blog post suggests that they acquired patents from Intellectual Ventures because IV itself wouldn't want to pursue that kind of opportunity, while Lodsys apparently has discovered a niche market opportunity of asserting patents against large numbers of very little guys. As long as I don't know on which commercial terms the transaction happened, I can't accuse Intellectual Ventures of anything. IV owns about 30,000 patents and routinely does license deals with large companies. Patent attorney Gene Quinn, who runs the IPWatchdog blog and is the opposite of an anti-IP campaigner, has hurled fairly strong accusations at IV, but I don't want to get into the details of that debate here. I want to focus on Lodsys and the implications of what it's doing here.

For Lodsys it may seem to be a great money-making opportunity to send letters to countless little app developers. Unless Apple or a non-profit organization stands by those developers, they will eventually have to pay because they can't afford the cost and especially the risk of U.S. patent litigation. If Lodsys succeeds with this scheme, two things will happen:

  • Lodsys will acquire even more patents (from all kinds of sellers) to assert them against app developers or other little guys. Among little software developers, app developers are probably the ones who are most easily identifiable, but they might also go after operators of small semicommercial websites with suitable patents.

  • Other businesses adopting Lodsys's commercial model will shoot up all over the place if this becomes a game of shaking trees for money that you just can't lose because your opponents can't even defend themselves.

In other words, this approach of asserting patents against the defenseless will, if it works, scale up very quickly. On the surface, Lodsys only demands a very small percentage of each app developer's revenues -- on its blog, the company says that it "is seeking 0.575% of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage." So one may argue it's not much. However, each app can be accused of "infringing" a large number of such patents. If an app developer has a revenue base of X, of which 30% go to Apple, and has to pay many times a small percentage of revenues, he'll get to the point at which there's no longer an economic incentive to stay in this business. Also, every right holder to whom he has to make payments creates additional administrative effort, and every time he gets a letter, he'll have to be afraid of someone being in for more than just a small percentage. Apart from the implications of multiple assertions, every single such instance of is undeserved injustice like a hold-up.

As a result, little guys would increasingly be discouraged from developing apps for iOS as well as any other systems: Android, BlackBerry, Windows Phone... you name them. They would be forced to conclude that the intellectual property rights regime under which they have to operate, mostly in the U.S. market although software patents also exist and are enforced in Europe and most of Asia, requires a software developer to have substantial resources and an in-house legal department to fend off those threats.

For most of the mobile apps out there, the capital requirements amounted to the need to buy a computer of the kind you can get for 500 bucks. If, however, those little guys suddenly have to deal with widespread patent assertions against them, every one of them would need a capital base amounting to many millions of dollars.

While the major mobile platform makers like Apple, Google, Microsoft and RIM are unanimously in favor of software patents, I don't think they would want to see countless app developers go out of business. They don't just court those developers for no reason with all their evangelists, conferences, and occasional freebies. They know that all those little developers are also very important to today's innovation economy. But what can and will they do to address the problem? There's no easy answer.

The ball is in Apple's court, and we'll know soon how they will deal with the Lodsys situation. For what I know, they haven't given an answer to any app developer by the time I write these lines. As they think about what to do, they, too, will be perfectly aware that this won't be the last problem of its kind to respond to.

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