Tuesday, June 21, 2011

Novell challenges Lodsys's two core patents as Lodsys victim Quickoffice gets sued again

Before I get to yesterday's new developments in the app patent arena, I also have to state -- for the sake of completeness -- that the East Texas-based court issued on Friday (June 17, 2011) a summons (a you-have-been-sued notice) to all seven app developers sued by Lodsys. The summons documents are sealed. The publicly available information is this:

E-GOV SEALED SUMMONS Issued as to Combay, Inc., Iconfactory, Inc., Illusion Labs AB, Michael G. Karr d/b/a Shovelmate, Quickoffice, Inc., Richard Shinderman, Wulven Game Studios. (Attachments: # (1) Iconfactory, # (2) Illusion Labs, # (3) Michael Karr, # (4) Quickoffice, # (5) Shindermann, # (6) Combay)(ehs, )

The list of sealed documents doesn't contain the summons for Wulven Game Studios. Since that company is based in Vietnam, there may be an administrative delay with respect to them. It's also possible that the summary of the court order got cut off after a certain number of characters. At any rate, the first part of that summary shows that all seven are summoned.

Defendants in such a lawsuit usually have to respond to the complaint within 20 days. It is relatively easy to get, as a matter of course, an extension by 30 days. Extensions beyond that are difficult, especially if opposed. I can only hope that Apple gives unlimited coverage to the sued app developers. Otherwise the only responsible thing they can do will be to settle as early as possible.

The court hasn't decided yet on Apple's motion to intervene. I will continue to follow and report on that case. Also, I'm still waiting for Google to explain what Android app developers should do when they receive a letter from Lodsys.

Novell becomes eighth company to request declaratory judgment of invalidity of Lodsys's two core patents

Novell is one of the ten companies Lodsys already sued in February. Novell was the last defendant of those ten to answer as its acquisition by Attachmate constituted a special situation.

Yesterday (June 20, 2011) Novell finally filed its answer to Lodsys's complaint. In addition to denying Lodsys's claims, Novell brought counterclaims, requesting declaratory judgment of invalidity (and non-infringement) of Lodsys's two core patents (the ones also asserted in its lawsuit against seven app developers).

Novell is the eigth company to request declaratory judgment of invalidity with respect to those two patents. Two other defendants in the same lawsuit, Brother and Lenovo, previously did the same thing. The seven remaining defendants also contest the validity of those patents, but only as a defense, not as a counterclaim. A counterclaim is more aggressive and could really do away with those patents in practical terms.

In addition to the three counterclaimants, there are five companies that brought declaratory judgment actions. They filed proactive lawsuits, and those relate to all four Lodsys patents, not just the two over which Lodsys is suing seven app developers. The first declaratory judgment action was brought by ForeSee Results (in that blog post I also explained the concept of declaratory judgment), followed by antivirus software maker ESET, The New York Times Company, OpinionLab, and webchat company LivePerson (in that blog post I also discussed the very likely possibility of Apple and Google being barred from seeking the invalidation of Lodsys's patents).

Four of the five proactive declaratory judgment suits were filed in the Northern District of Illinois (only ESET filed elsewhere, in Southern California). There will be some consolidation and possibly also some transfers (from one venue to another).

Can Lodsys handle all of this resistance?
Most probably yes

This flurry of activity has a simple explanation: Lodsys sends out many letters requesting payment. They have been doing so for a while now, and the most recent one I became aware of went out last week, so they're probably not finished yet. They make allegations in connection with all sorts of functionalities including but not limited to in-app purchasing, ad click tracking, and webchat. Then, as a result, one out of X number of targets will launch a pre-emptive strike somewhere.

Some believe that Lodsys may have taken on too many companies, but I'm afraid Lodsys is a front for deep-pocketed patent enforcers and can handle all of this.

It's a common misbelief -- to some extent spread deliberately by propagandists who want to downplay the problems the U.S. patent system causes -- that the cost for an entity asserting a given patent is the same as the collective cost incurred by the companies defending themselves against such an assertion. That is just not true. Generally it's much easier to just claim an infringement and let discovery (the fact-finding process) begin. And how much discovery can there really be concerning a company like Lodsys as compared to any of the defendants? Lodsys itself doesn't have much of a history, so there isn't much to look at. It will produce documents that show it's the rightful owner of the patents. But any of the defendants will have to disclose source code and material related to potential damages.

Also, if Lodsys doesn't let its lawyers spend much time on the pursuit of its assertions, the case will still go on and represent a serious threat to defendants. But defendants have so much at stake that they will have to make a lot of effort to try to prove that the patents are invalid and/or not infringed.

There's no such thing as parity in the U.S. between patent aggressors and defendants.

Considering how things usually play out, Lodsys is very likely to get some lucrative settlements out of all of this further down the road (most likely next year). In the remainder of this post I'll talk about the next patent assertion against mobile apps, and the company behind that new attack is living proof of how well the patent assertion business model works.

Lodsys victim Quickoffice gets sued again --
this time by Achates Reference Publishing

Quickoffice, one of the seven app developers sued by Lodsys, is already facing the next patent infringement lawsuit (again in East Texas) as Achates Reference Publishing, which publishes legal reference material (also related to patent law), sued thirteen legal entities. Other defendants than Quickoffice include Symantec, GlobalSCAPE, Common Time, Native Instruments Software Synthesis, Stardock Systems, Valve, Electronic Arts, Nero, and SolarWinds.

Achates claims that its two patents -- U.S. Patent No. 5,982,889 and U.S. Patent No. 6,173,403, both entitled "method and apparatus for distributing information products" -- cover the activation of purchased software by means of an encrypted activation code (token).

The older one of the two patents was applied for in 1997; the newer one in 1999. Besides the fact that the patents don't really look like any serious (i.e., non-obvious) innovation, one may also wonder whether such technologies didn't already exist at the time. But the related litigation history indicates that many large companies have previously settled with Achates:

In June 2007, Achates sued Microsoft and settled in December 2008. In 2009, Achates filed a suit against nine companies: BMC Software, Borland Software, Citrix Systems, The MathWorks, Dassault Systèmes SolidWorks, MindJet, McAfee, Bentley Systems, and Intuit. All of those settled between February and August 2010. In addition, it's likely that many companies agreed to pay Achates license fees even without being taken to court.

Quickoffice is larger than most (if not all) of the other app developers sued by Lodsys. According to CrunchBase, the company raised a total of $28.5 million of venture capital in four rounds (between 2005 and 2007). But those investors -- who include Mayfield (a very famous venture fund), Advantage Capital funds, and Shepherd Ventures -- wanted to finance product development and marketing, and probably didn't envision that Quickoffice would at some point get sued by two different patent holders during a period of just a few weeks, with the defense in each case easily costing north of a million dollars.

Fortunately, there are relatively few mobile apps that use activation tokens at this stage. But this is another example of the kinds of threats mobile app developers face. On the one hand, there are very broad assertions such as by Lodsys and MacroSolve; on the other hand, there are patent holders going after smaller numbers of app developers. Achates Reference Publishing going after Quickoffice is the latest example. A few years ago, some iOS app developers were accused of infringing a baby tracker patent. And there are many other patent holders who have made, are making and will make assertions against app developers, just that their activities don't receive as much publicity as Lodsys's assertions and lawsuits.

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