Wednesday, July 27, 2011

Lodsys fiercely opposes Apple's motion for an intervention

Lodsys had an (extended) deadline today to respond to Apple's motion for an intervention in a patent infringement litigation in which Lodsys is suing 11 app developers, five of which are rather small. The non-practicing entity's lawyers just filed a set of documents, totaling 92 pages including various exhibits, with the U.S. District Court for the Eastern District of Texas in opposition to Apple's motion for an intervention.

Here's the document -- I'll sum up its gist further below:

Lodsys Opposition to Apple Motion to Intervene

Lodsys asks the court to dismiss Apple's motion or to at least stay it pending some discovery of Apple that Lodsys would want to conduct. The document is redacted, and the scope of Lodsys's proposed discovery of Apple is not made public.

Lodsys's opposition to Apple's motion is at least going to cause further delay. Apple will now have the chance to file a reply defending its motion against Lodsys's opposition, and then there will probably be a hearing and, certainly, a decision. It may take several more weeks (though presumably and hopefully not much longer than that) until app developers know whether Apple is admitted as an intervenor. In the meantime, app developers appear to depend on their own financial resources as they need to defend themselves and soon file their answers to Lodsys's complaint.

Lodsys presents the following legal reasons for its opposition to Apple's proposed intervention:

  1. Lodsys makes an argument based on the scope of Apple's license to those patents. Almost the entire related passage is redacted. Quite likely, that passage addresses Apple's patent exhaustion theory.

  2. Lodsys argues that Apple's "purported interest is, at best, purely economic", and speculative (referring, for example, to Apple's claim that Lodsys's patent enforcement against app developers could "lead to loss of significant revenues from all developers"). Lodsys claims that "courts have consistently held that economic interests do not satisfy the requirements for intervention" and that there also must be a legal interest. No doubt Apple will contradict.

  3. Apple's original motion for an intervention described the defendants in that lawsuit as individuals or "small entities with limited resources". That was the case based on the original complaint filed on May 31. But Lodsys amended it last week, dropping one of the "indie" developers and adding five games companies, all of which are presumably larger than the original defendants. The new defendants most notably include Electronic Arts and Rovio (Angry Birds). Apple just updated its proposed answer to Lodsys's complaint accordingly, but Lodsys claims Apple's argument about resource constraints is no longer well-taken since the likes of EA and Rovio "will more than adequately represent Apple's purported interest".

In its pleading, Lodsys complains that "Apple previously refused to provide even Lodsys's counsel with a complete copy of the License and, instead, redacted all but two paragraphs of the License." That statement leaves no doubt that Apple does not have a direct license agreement in place with Lodsys. I already wrote on May 17 that Apple's license (and licenses that Google and other well-known companies have) most likely harks back to the time when Intellectual Ventures held those patents. The patents were subsequently sold, and Lodsys has to respect existing licenses, but it's not Apple's direct contractual partner.

Lodsys now accuses Apple of "disingenuous conduct and repeated attempts to hide the ball" for refusing to disclose the license in greater detail. I guess Intellectual Ventures' license agreement may be very strict, as I explained in another blog post, which focused on the question of whether Apple and Google may be barred from challenging Lodsys's patents. IV may have agreed with Apple on confidentiality obligations that mean Apple can only present that contract in its entirety if ordered by a court of law.

Concerning Apple's interest in an intervention, Lodsys disputes that it's "direct, substantial, [and] legally protectable". Again, I'm sure Apple will defend its right to intervene.

Lodsys's opposition brief cites certain passages of the iPhone Developer Program License Agreement to show that Apple doesn't indemnify its developers (at least not to any meaningful extent), and holds this fact against Apple:

"Thus, by Apple's design, the relationship between Apple and the Developers is the complete opposite of the manufacturer and customer relationship [that was considered relevant in another case]."

With respect to the financial resources of some of the defendants named in the original complaint, Lodsys cites certain publicly available information:

"For example, Illusion Labs has publically disclosed that its total revenue for fiscal year-ended June 30, 2010 was (US) $5.1 million, with total assets of (US) $4.6 million. [...] And Quickoffice purports to have '[i]nstalled on over 300 million devices in more than 180 countries.'"

Lodsys's lawyers put a fair amount of thought and research effort into that brief. I have been watching Lodsys's filings in the various lawsuits it started and the declaratory judgment lawsuits in which it is the defendant. There's no doubt to me that Lodsys is pretty well-funded, at least for the time being. It spends serious money on these lawsuits. App developers thinking about picking a fight with Lodsys should take this observation into account and give serious consideration to my suggestions for a focused, cost-efficient way to work out a solution.

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