Thursday, June 16, 2011

Apple and Google may be contractually precluded from challenging Lodsys's patents

I'm still waiting for the U.S. District Court for the Eastern District of Texas to grant Apple's motion for an intervention. More than that, I'm waiting for Apple and Google (that lawsuit and various Lodsys letters also target Android apps) to give blanket coverage to app developers in connection with Lodsys's claims. Otherwise there comes a point at which the only rational recommendation to shallowed-pocketed app developers will regrettably have to be to take a license.

Compared to the forceful action some other companies have recently taken against Lodsys, Google's failure to act is a shame and Apple's measures (a letter to Lodsys and a motion for an intervention) appear rather half-hearted so far, if not anemic. Apple just says it has a valid contract but neither challenges the validity of Lodsys's patents nor the infringement claim that Lodsys makes. By contrast, ForeSee Results filed a declaratory judgment action against Lodsys in Chicago and now has a pretty good chance of being able to transfer Lodsys's allegations against its customers adidas and Best Buy out of East Texas. ForeSee is much smaller than Apple and Google but appears to take better care of its customers in this particular context.

Also, antivirus software maker ESET didn't wait to be sued but filed an action in California, and The New York Times Company and OpinionLab filed their pre-emptive strikes in Chicago, where they will most likely be consolidated into ForeSee's lawsuit. But Apple and Google gave Lodsys the opportunity to sue seven app developers in East Texas, where the dispute will most likely stay.

Apple and Google are most likely precluded from challenging the validity of Lodsys's patents

I have thought about this a lot recently and I discussed it with lawyers working for major firms who frequently assist clients in such license deals. None of the attorneys I talked to knows the language of the license agreement Apple and Google signed with Intellectual Ventures while the four patents later acquired by Lodsys belonged to that entity. But they and I concur that it's highly likely that Apple and Google are contractually precluded from challenging Lodsys's patents because such license agreements often come with clauses under which a licensee will lose a license once he participates in an effort to invalidate any of the related patents (in addition to possibly having to pay contractual penalties).

So even if Apple and Google had wanted to attack Lodsys's patents proactively, they would have lost their license -- at least to any patent they attack; more likely to all four Lodsys patents; and possibly even to any or all of the more than 30,000 patents they licensed from Intellectual Ventures, a patent aggregator in which those companies (alongside many other industry players) invested.

Again, a no-challenge provision is a pretty standard term for such license agreements. It's even possible (though not as likely as a no-challenge clause) that Apple and Google are also barred from obstructing any enforcement of those patents. In that case, they wouldn't even be able to claim that the patents aren't infringed by app developers. The only thing that no contract can preclude them from doing is defending their rights under that contract. So unless they accept to lose some of the patent licenses they have, they can only argue that the license extends to app developers as well. As I recently explained, that "exhaustion" theory is far from certain to work. Lodsys doesn't believe in it at all and even offers on its blog $1,000 to any app developer they contacted if the courts agree with Apple.

This situation is really awkward. Apple and Google invested in Intellectual Ventures, which bought those patents and sold them to another entity, which then sold it to Lodsys. Because of Apple's and Google's deal with Intellectual Ventures, they are now probably restricted in some ways and can't fight Lodsys as forcefully as others. Lodsys obviously knew about those restrictions and takes advantage of them.

What worries me here in particular is that Apple and Google may never really give blanket coverage to app developers in connection with Lodsys's assertions. They have a conflict of interests. Their own patent dealings come first. Developers don't.

[Update] On Twitter, Texas-based patent attorney Patrick Anderson just said the following: "I have no information on the $AAPL / Lodsys agreement, but agree a 'no challenge' clause is fairly common" In reply to that, another patent attorney, Arizona-based Matt Macari, confirmed a no-challenge clause is "[p]ractically required." [/Update]

Article One Partners sets bounty for prior art that helps to invalidate Lodsys's patents

Now I'll also talk about something directly related to the question of invalidating those patents: the ongoing search for prior art (i.e., material that predates the relevant patent applications and can be used to show that the patents shouldn't have been granted in the first place because they didn't describe new inventions at the time of filing).

Article One Partners recently offered a $5,000 reward for prior art to invalidate the patent over which MacroSolve is suing 30 companies. I mentioned that one in the second half of this blog post. Now Article One Partners also offers such a bounty in connection with Lodsys's patents.

To be precise, Article One Partners has launched three Lodsys-related studies, one of which relates to two Lodsys patents and each of the other two studies (1, 2) to one patent. So in total, all four Lodsys patents are under attack.

Article One Partners doesn't disclose who is behind this effort. For the reasons I stated further above, I'm pretty sure it's neither Apple nor Google. But it could be any of the 27 defendants whom Lodsys has sued, or any others who have been or feel threatened, such as those who recently launched pre-emptive strikes (declaratory judgment actions) against Lodsys.

Article One Partners' initiative is the recommended way to go -- but prior art can't solve the resource problem most app developers face

I have received various emails with prior art suggestions. I have also seen blog posts and forum discussions about this. If you want to search for material predating the applications that resulted in the patents now owned by Lodsys, I strongly encourage you to cooperate with Article One Partners. They make a very professional impression. They say they have already paid bounties amounting, in the aggregate, to approximately $1.4 million.

The benefit to you is that you have the chance to earn a bounty, which no one else offers in connection with Lodsys's patents as far as I know. Also, they probably work on this with at least one of those already challenging Lodsys's patents in court. So it's better for you and better for everyone concerned about Lodsys to work with and through them than to discuss this matter just somewhere on the Internet.

While prior art can lead to the invalidation or narrowing of patents, any such effort takes a long time. In the meantime, Lodsys will continue to place app developers in a very difficult position: pay or risk being sued. Article One Partners and everyone else trying to take Lodsys's patents down can't solve the real problem: the inability of most app developers to afford their legal defense.

The fact that there are various efforts underway to invalidate Lodsys's patents won't discourage those guys from pursuing their agenda in the meantime. On the contrary, this is yet another reason for them to try to build a lot of pressure very quickly in order to do as many license deals and settlements as possible.

I regret to say this, but the trolls' business model works very well. Lodsys is likely to get a significant amount of money out of this. It also appears to be a well-funded front for deep-pocketed investors. They use two law firms (though one would obviously be enough). Eventually most if not all of the large players -- including Apple -- may very well prefer to solve this problem by paying Lodsys. They may at this stage all appear determined to fight it out. But they hardly ever do.

[Update] I just got contacted by a retailer who has a chat feature on his website. Lodsys sent them a letter dated June 14, 2011, claiming that such a web chat infringes one or more of their patents. In this post on Lodsys's recent lawsuit against ten more companies I mentioned that Vitamin Shoppe is accused of infringing Lodsys's '078 patent with its "live interactive chat". A webchat company, LivePerson, yesterday filed a declaratory judgment action against Lodsys in Chicago (the venue chosen by three others before them), seeking the invalidation of all four Lodsys patents. LivePerson's complaint says that "Lodsys has lodged accusations of infringement of the '908 patent, the '834 patent, the '078 patent and/or the '565 patent against a number of LivePerson’s customers and, at least in part, on their use of LivePerson products supplied to those customers." [/Update]

Don't trust patent lawyers defending the system

I have received a lot of positive feedback for my efforts on app developers' behalf -- by email (via the contact form on this blog) and on Twitter. But there are a few patent lawyers who try to badmouth and undermine the work I do.

Just to be clear: there are many lawyers, including patent lawyers, with whom I get along very well. Many of them read this blog. There are some who accept the fact that I'm against software patents (though those account for a large part of their income) but nevertheless engage in constructive discussions with me. That's why I said that there are a few -- really just a few -- who are against me and express those views on Twitter and on blogs (on their own as well as on a blog that's against anything I say or do, whatever the facts may be).

Last month I already warned everyone against "unfeasible suggestions" from such sources. They can tell you whatever they want about how they believe the patents can be invalidated or narrowed, or dismiss Lodsys's infringement claim charts. None of that solves the real problem: the cost of legal defense.

We have to distinguish here between substance and tactics. The substance of the issue is relevant to the likes of adidas and The New York Times Company, who can undoubtedly afford a patent lawsuit like this. But to little app developers it will only become relevant when they have blanket coverage from Apple and Google. Otherwise the tactical situation is that Lodsys will win for a lack of resistance.

That's a terrible problem. But the law doesn't say that little guys are free to "infringe" patents. That's why it's also rather misguided to expect much help (especially much help in the critical short term) from antitrust regulators. If Lodsys's patents are valid and infringed, the deal Lodsys offers is not that bad. The problem is that they try to collect money from entities of all sizes, including little app developers who will be bankrupt before the questions of whether the patent is valid (reexamination by the patent office typically takes several years) or infringed (which will be determined at the very end of a long lawsuit that can cost millions) will be answered.

I'm very interested in the substance of the case, and I have already blogged about some aspects of it, such as two of the defense theories that were circulating on the Internet (divided infringement and exhaustion). But there are situations in life -- such as this one -- in which one needs to solve a tactical problem before the substantive part has any relevance at all. The tactical problem here is coverage.

The problem of costs and coverage is exactly the one that patent lawyers want to downplay. They don't want to admit how broken the system is from which they benefit. To them, the trolls are a business opportunity. To me, they are proof of a need for change.

PC Advisor just published a PC World article entitled "Do Government Policies and Laws Hinder Tech Advances?" Here's one of my contributions to it:

Intellectual property rights activist and patent blogger Florian Mueller says that companies like Lodsys are able to use property rights to "exploit the miserable state of affairs of the U.S. patent system."

So I spelled it out, loud and clear. I ran an aggressive, award-winning campaign against software patents in Europe. By contrast, some of the patent lawyers who disagree with me on the prisoner's dilemma app developers face actually defend the system and the concept of software patents.

I encourage debate and I think it's not bad if app developers hear different views on this issue. No one can claim to own a patent on the truth. I have referred a number of Lodsys targets to the Electronic Frontier Foundation, which does some great work (I don't always agree with them, but on many issues I do, especially in connection with patents). For example, the EFF published this spot-on blog post on Apple's motion for an intervention. But I am worried when I see comments from some who are primarily interested in maximizing the income of lawyers.

They should not divert our attention from the most important question: do the platform makers solve the problem? Apple's motion for an intervention is nice, but what if you get sued? What will happen then?

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