Tuesday, May 31, 2011

Lodsys sues 7 app developers in East Texas, disagrees with Apple; Android also targeted

I almost appeared to be a "party spoiler" last week: amid all the enthusiasm among iPhone/iPad app developers over Apple's letter to Lodsys, I wrote that "Apple's letter in and of itself is not yet a reason to celebrate. This could still get quite unpleasant for some app devs."

Unfortunately, I was right. Today -- on Tuesday, May 31, 2011 -- Lodsys filed a lawsuit with the U.S. District Court for the Eastern District of Texas (the place in which I predicted that it would do so) against seven little iOS app developers. Lodsys asserts two of its four patents: U.S. Patent No. 7,620,565 ("the '565 patent") on a "customer-based design module" and U.S. Patent No. 7,222,078 ("the '078 patent") on "Methods and Systems for Gathering Information from Units of a Commodity Across a Network." Note that Lodsys so far emphasized the '078 patent, although Lodsys always mentioned its other patents as well. The defendants are:

  • Combay, Inc. of Roanoke, Texas; accused of infringement of Lodsys's '565 and '078 patents with (at least) Mega Poker Online Texas Holdem for iPhone

  • Iconfactory, Inc. of Greensboro, North Carolina; accused of infringement of Lodsys's '565 and '078 patents with (at least) Twitterrific for iPhone, Twitterriffic for iPad, and Twitterriffic for Mac

  • Illusion Labs AB of Malmö, Sweden; accused of infringement of Lodsys's '565 and '078 patents with (at least) Labyrinth for iPhone and Labyrinth for Android

  • Michael G. Karr [doing business as] Shovelmate of Las Vegas, Nevada; accused of infringement of Lodsys's '565 and '078 patents with (at least) 69 Positions for iPhone

  • Quickoffice, Inc. of Plano, Texas; accused of infringement of Lodsys's '565 and '078 patents with (at least) Quickoffice Connect for iPhone

  • Richard Shinderman of Brooklyn, New York; accused of infringement of Lodsys's '565 and '078 patents with (at least) Hearts and Daggers for iPhone

  • Wulven Games of Hanoi, Vietnam; accused of infringement of Lodsys's '565 and '078 patents with (at least) Shadow Era for iPhone

As you can see, two of the defendants are based outside of the United States. In this section of my Lodsys FAQ I had pointed out that possibility.

And very importantly, this lawsuit is not limited to iOS but also targets Android in at least one case (emphasized in the list above: Labyrinth for Android). I discussed Lodsys's assertions against Android apps in this recent blog post. I also emphasized the Mac version of Twitterriffic, which is explicitly accused in the complaint.

Lodsys asks for injunctions and damages. As I warned in this section of my Lodsys FAQ, Lodsys indeed claims that its letters to app developers may already have created a basis for willful infringement, which could result in treble damages. At the latest, Lodsys claims that the filing of its complaint marks the point in time from which all further "infringement" is willful.

Lodsys is represented by the two law firms mentioned in its original assertion letters to app developers:

  • The Davis Firm, PC of Longview, Texas

  • Kelley, Donion, Gill, Huck & Goldfarb, PLLC of Seattle, Washington; note that the patents-in-suit temporarily belonged to Intellectual Ventures, a patent firm based in Bellevue (in the greater Seattle area), so the involvement of a Seattle law firm may fuel further speculation about IV's role (although this is definitely not a "smoking gun" all by itself)

Lodsys's litigation strategy

Lodsys announced this lawsuit (without all the detail stated above) on its blog. Lodsys published a series of FAQ-style blog posts, and one of them addressed this question:

"Why did Lodsys sue some App Developers on May 31, 2011"

Lodsys then provided the following answer:

"Lodsys chose to move its litigation timing to an earlier date than originally planned, in response to Apple's threat, in order to preserve its legal options."

Let me explain this: Apple didn't really make any "threat" against Lodsys. Apple took a position concerning the scope of its license, and Lodsys today made it clear -- in addition to the lawsuit it filed -- that it disagrees with Apple (see "Apple's License Claim Disputed and Lodsys's other blog posts).

The only way I understand Lodsys's claim that it needed "to preserve its legal options" is presumably that Lodsys feared Apple might seek declaratory judgment of non-infringement in a different jurisdiction than East Texas, the troll-friendly venue Lodsys chose (as I expected). Maybe it would have been a good idea for Apple to seek declaratory judgment much sooner, but Apple either didn't want to do that or was just too slow.

Some have expressed doubts about Apple's standing against Lodsys (its right to sue), but that's a legalistic detail. If Apple didn't find a theory based on which it would have standing, it could always have funded a declaratory judgment action by one or more app developers.

For the app developers who have been sued, this is now a very critical situation. As I explained in my Lodsys FAQ, patent litigation in the United States is extremely costly. The most important thing for those app developers is to clarify with Apple -- and to the extent that Android apps are involved, with Google -- whether they will be held harmless and receive blanket coverage including possible damage awards.

There was at least one patent attorney who disputed on Twitter that it would make sense for Lodsys to sue little app developers given that there isn't much money to be made with them. But I explained before that the economics of this would be different. I said Lodsys would sue to set an example and demonstrate its determination. The mobile app ecosystem at large is certainly enough of an opportunity for Lodsys, and let's not forget that they previously sued a group of large companies.

Lodsys displays a strong conviction of being right

Lodsys disagrees with Apple's analysis in the strongest terms. On its blog, Lodsys says that it sent a letter to Apple with "a detailed legal position on the license interpretation issue" and that Apple has Lodsys's permission to publish that letter, but Lodsys does not want to do so without Apple's consent "because it refers to information that was obtained with an obligation of confidentiality to Apple."

To emphasize its position even more strongly, Lodsys offers a wager, promising $1,000 to "each entity to whom [Lodsys has] sent an infringement notice for infringement on the iOS platform, or that [Lodsys will] send a notice to in the future, if it turns out that the scope of Apple's existing license rights apply to fully license [the app dev] with respect to [Lodsys's] claim relating to [the app dev's] App on Apple iOS."

Obviously, $1,000 is not much to gain considering that even an initial analysis of a patent assertion letter by a qualified attorney will typically cost much more than $1,000. And a lawsuit can cost millions. However, the fact that Lodsys publishes such a promise shows that it really doesn't believe in Apple's representations (concerning the scope of the license) at all.

Lodsys clearly states in one of its latest blog posts that it targets Apple and Android developers because it believes that "if you are a Developer, it's about knowledge about the scope and risks of your own business." That's a formalistic position. Of course, being small does not mean that one can ignore the law. But Lodsys's motivation is stated as well: "Lodsys has only one motivation: we want to get paid for our rights."

In this section of my Lodsys FAQ I already explained that in my view Lodsys had a Plan A and a Plan B from the outset: preferably Lodsys would like Apple and (with respect to Android) Google to pay up to address the problem, but failing that, Lodsys was (as no one can doubt today) fully prepared to take action against little app developers.

With Apple's Worldwide Developer Conference coming up next week, there's no doubt that there will be much talk about this. And the discussion among Android app developers will also heat up now in light of Lodsys having sued over one Android app and having sent assertion letters to Android app developers -- but that discussion will mostly have to take place on the Internet since they had their big annual conference just recently...

And while there's so much attention to Lodsys now, let's not forget about MacroSolve, a company that previously sued (and is still suing) several small app developers -- in at least one case even without any prior patent assertion letter of the kind Lodsys sent out.

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