Friday, May 13, 2011

What will Apple do? Second patent attack on app developers in only six weeks

Today's big smartphone patent news is not about another lawsuit against some device maker or operating system company. It's about a non-practicing entity trollishly asserting a patent against at least five (but probably even more) little, independent app developers, including James Thomson and Patrick McCarron. So far those app developers haven't been sued, but they have received letters alerting them to a need to take a license from Lodsys. [Correction] My initial understanding was that Lodsys sent formal "cease-and-desist orders". Lodsys has denied this on its blog and says those are "notice" letters. [/Correction] At this stage the assertions appear to exclusively target iOS app developers, but the purportedly asserted patent is so broad that this could also affect other platforms at some point.

The Guardian and have published reports. While none of the targeted app developers has confirmed this publicly, it's now known that the company whose lawyers sent out those threat letters is named Lodsys, and the patent that is being asserted against those iOS app developers is U.S. Patent No. 7,222,078 on "methods and systems for gathering information from units of a commodity across a network." The patent is unbelievably broad and should never have been granted in my opinion.

Apparently some or all of the app developers who were targeted have contacted Apple to discuss next steps with them. Obviously, this is a nightmare-come-true for "indie" app developers like them. They just don't have the resources to defend themselves against patent infringement assertions. I'll outline my thoughts about what Apple might and might not do further below.

Unfortunately, this is already at least the second patent attack on mobile app developers in only six weeks. On March 31, 2011, I reported on H-W Technology LLC's lawsuit against 32 parties including several app developers. Those app developers, however, were much larger organizations than the ones apparently targeted by Lodsys. H-W Technology sued the operators of some mobile online shops, including such companies as Amazon, eBay, Expedia, Orbitz, and Verizon. But in that blog post I already warned that little app developers might be the next type of target:

I'm really afraid we're now going to see more patent lawsuits against application developers. Hopefully this won't ever affect little guys who can't afford to defend themselves, but if there's a major company behind an app, or if an app is commercially very successful, it can happen and it has now apparently started to happen.

Unfortunately that warning was spot-on.

The threats made by Lodsys must be taken very seriously. In February that company filed a lawsuit against Brother, Hewlett-Packard, Lexmark, Samsung, Motorola Mobility, Novell and other companies.

The real target is Apple

Targeting little guys with patents isn't economically attractive. I'm sure that what Lodsys really hopes to achieve is to force Apple into a settlement, assuming that Apple has a strategic interest in its ecosystem. But it's not that simple...

There's no doubt that Apple must be concerned about the damage this patent could do to its ecosystem, and (in a worst-case scenario) to the attractiveness of iOS to consumers buying it for, among other reasons, its diversity of available apps. App developers might have to take current apps down, and might be so scared they don't develop new ones until this problem is solved.

Even though an immediate settlement avoiding such uncertainty among app developers would be worth millions of dollars to Apple, the problem is that there are countless patents out there that can be asserted against app developers. After H-W Technology LLC and Lodsys, there will for sure be others trying the same trick. So Apple (and any other platform company in its position) will have to think about this as a long-term problem, not just in terms of the assertions that have already been made.

If Apple turned out to write big checks every time such an attack happens, that would only encourage even more such assertions.

Another consideration for Apple (or any other platform company in its shoes) is that it's extremely hard to hold an entire app ecosystem harmless against such assertions because as the creator of the platform you just don't know, less control, what some app developer might do. I'm pretty sure that none of the app developers attacked by Lodsys intentionally infringed the patent in question. But if a platform company protected its app developers against assertions of all kinds, it would also have to side with intentional infringers, which could get very costly. Therefore, companies like Apple will look at these issues on a case-by-case basis and make a determination in each case how far they go with their support.

Apple's terms and conditions contain a clause quoted by that clearly makes app developers responsible for any intellectual property issues related to their apps.

[Update] Lodsys denies that its plan is to get Apple to pay. It says Apple already has a license to those patents for its own products, but that license doesn't cover third-party iOS apps, and furthermore explains why app developers should pay. [/Update]

Most likely scenario: Apple helping with legal defense

While I doubt that Apple will just sit down and negotiate a license deal with Lodsys to resolve the issue quickly, I think it's quite likely that Apple will provide some form of legal assistance to the targeted app developers. This would also enable Apple to control the overall defense effort.

We may also see Apple file a declaratory judgment lawsuit against Lodsys to have the patent declared invalid. That's what Microsoft and Google recently did when a company named GeoTag sued hundreds of their customers.

As Patrick Anderson notes in his blog post on the Lodsys story, the app developers who contacted Apple did exactly what Lodsys wanted them to do. It may part of Lodsys' strategy to also sue Apple for contributory infringement, or for inducing infringement.

Another problem with a cease-and-desist letter is that the developers contacted by Lodsys now face the risk of treble damages for any further infringement from here on out. If they ask lawyers what to do, those may advise them to take their apps down until this is resolved, though it may take years. However, one of those app developers, James Thomson, just made the following announcement on Twitter:

PCalc 2.4 is now live on the store, in both full and lite versions. "So no more runnin'. I aim to misbehave."

I don't know whether Apple promised to indemnify him if anything goes wrong, or whether James, who is based in Scotland, just has a Braveheart attitude. Even if Apple promises to hold those app developers harmless, we may never get an official confirmation because Apple wouldn't want everyone to have the expectation that they do that.

I think the most likely next step now will be a lawsuit. I don't know how long it will take Lodsys to prepare one, but I would expect this to happen within a matter of weeks or months. In the meantime we may see a declaratory judgment action brought by Apple.

Patent infringement? There's an app for that.

While I'm really shocked to see little guys attacked by a patent troll only to be held hostage to extract money from Apple, I found one tweet about this mess quite funny. Patent attorney Patrick Igoe said:

New NPE [non-practicing entity] slogan: "Patent Infringement? There's an app for that."

From a more practical point of view, I think app developers should think seriously about whether they want to continue to publish apps without the protective umbrella of a limited liability company. If you operate as a person, or as a sole proprietorship or other company form that makes you personally liable, you can be ruined financially for life by just one patent infringement case.

The problem is that the current patent system is yet better for large companies than having none at all. Big corporations won't advocate the abolition of software patents anytime soon because they have a strategic interest in them and the resources to deal with the problems they cause. Small and medium-sized companies generally don't take political action against them -- they just hope that they won't get hit, although that's probably what James Thomson, Patrick McCarron and others also thought before they received those threat letters from Lodsys' lawyers.

So software patents are here to stay, and app developers will be targeted again and again (unless it happens so frequently that politicians receive hundreds of thousands of letters from app developers demanding new legislation). That's why I for my part would never publish an app without limiting my liability.

This problem isn't Apple-specific. It's a problem for all other platforms, particularly Android, which has more momentum in the market at this stage than Apple (and will soon have even more apps). Once we have a similar situation with little guys being attacked over their Android apps, it will be interesting to see what Google does. Google doesn't even indemnify its device makers, so it's unlikely to offer too much protection to its app developers.

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