Saturday, July 30, 2011

Lodsys dismisses another app developer -- Chicago court lets four defendants depose Mark Small

On Wednesday I reported on Lodsys's opposition to Apple's motion for an intervention. Lodsys's lawyers clearly put a lot of effort into that pleading, which some others described as a sign of Lodsys being afraid of Apple. In my view, that's an exaggeration. I'm sure Lodsys knows that Apple is reasonably likely to be allowed to intervene, in which case Lodsys appears to be fully prepared to contest Apple's exhaustion theory, but Lodsys tries to nip Apple's intervention in its bud.

After dropping Wulven Games of Vietnam from its app developer lawsuit by not listing it as a defendant in its amended complaint, Lodsys has dismissed another app developer, Richard Shinderman. He was accused of patent infringement with his Hearts and Daggers game for the iPhone. Yesterday Lodsys filed the following notice of dismissal with the court:

Plaintiff Lodsys, LLC ("Lodsys"), pursuant to [Federal Rule of Civil Procedure] 41(a)(1)(A)(i), hereby notifies the Court of its dismissal of all claims in this action between Lodsys and Defendant Richard Shinderman, without prejudice and with each party to bear its own costs, expenses, and attorneys' fees.

The words "without prejudice" mean that Lodsys did not waive its right to file a future lawsuit over the same issue against Richard Shinderman. Since Richard Shinderman had not yet responded to Lodsys's complaint, Lodsys was able to unilaterally dismiss him from the litigation. However, it's more likely than not that this dismissal results from a settlement between the two parties, and if Richard Shinderman is now licensed, then he'll be fine.

A settlement can result in a dismissal with prejudice (barring the plaintiff from suing the relevant defendant over the same matter), but it doesn't have to. Since Lodsys's notice doesn't mention a settlement, it could also have been unilateral. However, it's hard to see any particular reason for which Lodsys might have thought it had a weaker case against Shinderman than against the others. I don't mean to overrate the merits of Lodsys's assertions. I'm just saying that there isn't an obvious technical characteristic that sets Richard Shinderman's software apart from that of the other defendants. Therefore, a settlement is rather likely.

In the event this was a unilateral act by Lodsys, one possible motivation might be that Lodsys wants to reduce the number of "little guys" among the defendants. In its motion for an intervention, Apple had stressed that Lodsys sued small companies and individuals. But if Lodsys had decided to dismiss all individuals from the lawsuit, it would also have dismissed Michael Karr (doing business as Shovelmate).

Absent blanket coverage from Apple (and Google with respect to Android apps), I believe every app developer who signs a license deal with Lodsys on reasonable terms does the right thing for himself without missing out on an opportunity to make the world a better place: whatever happens in the Lodsys case is not going to do away with software patents, or with trolls at large.

Chicago-based court allows ForeSee Results, The New York Times Company, OpinionLab and LivePerson to take deposition of Lodsys CEO Mark Small

App developers weren't the only target audience for Lodsys's assertion letters. Lodsys also wrote to companies accused of infringing one or more of its patents with ad click tracking, questionnaires and live chat. As a result, six companies filed declaratory judgment actions against Lodsys's patents. Companies expecting patent lawsuits in East Texas often launch such pre-emptive strikes so they can litigate in a less troll-friendly district. Four of the six companies filed their DJ actions in the Northern District of Illinois (Chicago and surroundings) because they had seen a LinkedIn profile of Lodsys CEO Mark Small that stated "Greater Chicago Area" as his place of residence, which would (if accurate) give that court personal jurisdiction over the guy.

However, in its replies to those DJ complaints Lodsys claimed that Mark Small actually lives in Oconomowoc, Wisconsin. As a side note, Wikipedia states that "The Wizard of Oz premiered at the Strand Theatre in Oconomowoc on August 12, 1939". At any rate, what matters for the question of proper venue is geography, not wizardry. Oconomowoc is located in the Greater Milwaukee Area rather than the Greater Chicago Area. According to Google Maps, it takes approximately 120 miles (by car) to go there from Chicago.

The U.S. District Court of the Northern District of Illinois granted the four aforementioned companies their request some discovery of Small as far as it is exclusively related to the question of personal jurisdiction. Those parties had asked for the right to take a deposition of Small, and that's what I guess is going to happen soon. While the court order refers to discovery and doesn't explicitly say "deposition", it's hard to imagine how this discovery would work without a deposition of Small.

While Small has refused to answer questions from the media, this means he'll get interviewed by The New York Times, or more precisely, The New York Times Company's counsel.

The most likely scenario is that Small stated his place of residence in a very imprecise form on LinkedIn. In that case, the lawyers of the four companies who sued Lodsys in Chicago made an amateurish mistake by relying on a vague piece of information from a LinkedIn profile, and their clients might in that case pay for that mistake if their DJ action is dismissed or otherwise consolidated into Lodsys's East Texas lawsuit against the six parties that brought DJ actions. Having to litigate in East Texas may or may not be bad in the end but it's clearly what those companies sought to avoid by suing in Illinois first.

In my opinion, those companies should have made more of an effort to find out about Small's actual place of residence. When big companies really want to find out about someone's whereabouts because of a lawsuit, they sometimes even hire private investigators (for example, Oracle hired "private eyes" to hunt down former SAP and now HP CEO Léo Apotheker). Again, it baffles me how someone can rely on a vaguely worded part of a LinkedIn profile. Professionals would have taken note of that information but would have taken it with a grain of salt. They would have seen that the profile mentioned some of Small's former colleagues, which would have been another great starting point for private investigators in addition to all other information available and possible sources of more information.

By taking a deposition of Small, those companies make a last-ditch effort to maybe find a way to prove that Small does at least some business in the Chicago area. Also, even if their lawyers end up embarrassing themselves in terms of having jumped to an incorrect conclusion, they may find legal reasons for which the lawsuit should go ahead in Chicago. But if they had done their homework properly, this couldn't have happened in the first place. I'm skeptical that Small's testimony is going to be productive.

Those fighting Lodsys's assertions should not underestimate a potentially very well-funded troll. I think Apple's lawyers, too, did a sloppy job on their proposed answer to Lodsys's complaint. Even though the consequences of their sloppiness are minimal (if necessary, they can resubmit a corrected answer, while the mistake those other copanies' lawyers made about Chicago and Oconomowoc could enable Lodsys to have the dispute transferred to its preferred venue), it's disappointing that they didn't properly distinguish between iOS apps (to which their license might extend) and Android apps (to which Apple's licenses certainly doesn't extend).

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Friday, July 29, 2011

IBM's patent deal with Google

Bloomberg reported that Google "acquired a batch of patents" from IBM without specifying how many and in which field. According to SEO by the Sea, the USPTO was informed on July 12 and 13 of the fact that Google was assigned 1,030 granted patents from IBM in a variety of areas ranging from chips and object oriented programming to relational databases and business processes.

I have looked up the USPTO's patent assignment database, and based on random picks, the information reported by SEO by the Sea is plausible. I am going to take a look at more of the reassigned patents in the days ahead.

Execution date of most or all of the assignments:
May 3, 2011

There are different execution dates of the assignment documents. Based on my random picks, most (if not all) of those assignments were signed on May 3, 2011.

The Nortel patent auction took place two months later. Google still made a $4 billion bid to buy Nortel's patents and is currently rumored to be trying to acquire InterDigital LLC. The efforts Google continues to make after the IBM deal means that Google doesn't believe this one deal is enough to address its patent issues. That said, let there be no doubt that this is very significant progress for Google, which held only about 700 granted patents by a recent count before these assignments (and less than 600 in January).

Google's tactical options depend on encumbrances

If those patents were unencumbered by existing license agreements, Google could use them in a variety of ways.

In the near term, one of the most obvious ways to put them to use would be to pick some that may read on important Oracle products and propose to Oracle a cross-license that would resolve the Android IP dispute on more favorable terms than Google could negotiate without such leverage. Many of the transferred patents cover fields of technology that are key to Oracle, though this doesn't automatically mean that Oracle infringes any valid ones of them.

A countersuit by Google against Oracle would likely result in further escalation, given that Oracle owns more than 20,000 patents and could probably attack Google in Java-unrelated ways. Also, Oracle has a head start (unless the ongoing Java/Dalvik-related lawsuit gets stayed). But if Google wants a cross-license on sweet terms, it might have to countersue.

Google could also sell some of those patents to embattled Android device makers such as HTC. HTC could then, for example, use them in countersuits or counterclaims against Apple, possibly with an obligation to sell the patents back to Google after the dispute.

But all of this is a matter of encumbrances, and it's highly unlikely that those patents are entirely unencumbered. IBM has over the years entered into many license agreements with other companies in the industry. It's hard to find announcements of such deals, but IBM has always been very active in that regard. At least in negotiations in which IBM wasn't able to unilaterally dictate the terms, licensees will usually have ensured that their license agreement can't be rendered useless or circumvented by selling the patents to another entity. Lodsys is an example of a patent holder who bought patents that a previous owner (Intellectual Ventures) licensed to many others, and Lodsys and Apple now disagree over whether Apple's related license extends to its app developers.

I don't know if IBM ever licensed any of these patents to Oracle. If it did, Google would not be able to use the related patents as leverage against Oracle. The same applies to any other company in the industry, be it Apple, Microsoft, Nokia or you name them.

How strong is Google now?

If there are encumbrances that limit Google's ways to use those patents, the strength of this package deal could be much less than it appears at first sight. Assuming for the sake of the argument that Google has many tactical options regarding different companies asserting patents against Android, the question is how much Google can do now to protect Android.

This is difficult to assess from the outside, but my feeling is that this deal can help Google to defend itself against other patent holders if it's sued directly. It can serve to deter some companies from suing Google directly. But it's hard to imagine that this deal puts Google into such an incredibly powerful position that it can give an intellectual property guarantee (including indemnification) to its device makers.

IBM's motivation

With tens of thousands of U.S. patents, IBM can easily sell 1,000 of them without being in an appreciably weaker position. The question is whether this was a lucrative deal for IBM -- an opportunity to cash in on patents that IBM might have earmarked for divestment -- or driven by a a more strategic rationale.

Most patent auctions take place in private. Maybe IBM auctioned these patents off and nobody talked about it because of non-disclosure agreements. But if IBM had shopped those patents around, it's likely that something would have leaked, at least after the transaction.

If IBM didn't sell those patents in an auction, some other questions come up:

  • Why didn't IBM seek to maximize the selling price? A month before the execution date of the deal -- May 3 --, it was already known that Google's stalking horse bid for Nortel's patents amounted to $900 million, and everyone knew those patents were going to be sold for more since an auction isn't truly an auction until it's for real. So the obvious way for IBM to drive up the price would have been to have some of the same players bid. After all, IBM's executives have a fiduciary duty to sell the company's assets at the best possible price. They can't just sell patents below market value unless there's a strategic reasoning. That leads to the next question.

  • If the motivation was more on the strategic than the financial side, why would IBM support Google (potentially against different other companies)? IBM doesn't have any direct economic benefits from Android. While Android is basically a Linux fork, IBM's own business is about Linux, not Android, so any effects would be highly indirect and actually doubtful. Instead, IBM might be interested in Android as a platform for its own mobile client applications. Mobile access to enterprise solutions is increasingly important. IBM appears less concerned about a possible need to compete with Google's cloud services in some fields in the future -- maybe not right now, but this could happen, and Google could use Android as leverage against everyone else's -- including IBM's -- offerings. The deal between IBM and Google may address this potential future conflict in some way.

  • It also seems that this direct deal between IBM and Google bypassed the Open Invention Network, a patent holding firm that claims it wants to protect Linux against patent assertions. Google recently became an associate member of the OIN, and IBM is one of its founders (and probably the most active player involved with it besides Red Hat). While the OIN doesn't cover Android so far (otherwise Oracle couldn't have sued Google), IBM could have tried to bring those 1,000 patents into OIN -- possibly with a significant financial commitment on Google's part to support the transaction and a broader scope of the OIN. The fact that IBM and Google sidelined the OIN in this case is interesting. The OIN may play only a secondary role in IBM's and Google's future plans.

  • IBM actually sided with Oracle late last year with respect to the Java Community Process against Google and the Apache Software Foundation. But if IBM and Oracle don't have a cross-license in place (maybe they never formalized a patent deal because they thought that destruction is mutually assured if they sue each other), then IBM's patent deal with Google could now give Google leverage to weaken Oracle's control over Java.

Again, the above bullet points are all based on the assumption that it wasn't just a cash-in-on-excess-baggage type of deal. I believe it was about more than that, but I don't know for sure.

[Update] I also gave comments on this to the Los Angeles Times and VentureBeat. [/Update]

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This blog was temporarily deactivated due to suspicious account activity

For about six hours, this blog was down, and so was my Google Plus profile. Also, I didn't have access to my Google Mail account.

I noticed this after several hours -- the outage occurred while I was asleep.

The problem was ultimately solved by entering two subsequent authentication codes that were sent to me by text message. After the first auth code (for a password reset), I was told that my account had been suspended due to suspicious account activity. I was then asked to enter another auth code, which I received by text message as well, and then everything was restored.

There was some speculation on Twitter about it in light of the fact that I'm vocal about the intellectual property issues facing Android and WebM -- just like I'm vocal about issues involving and concerning various other companies. All of my concerns are based on my convictions, and such concerns have repeatedly been proven right. It's certainly not implausible at all that someone who disagrees with me (who could be employed by whichever company) might have attempted to hack my account and thereby triggered the suspension of my account and all of my Google services, including this blog. Since I frequently change my password and use very long (in this case, more than 40 characters) and safe (a random mix of lower-case letters, upper-case letters, numbers and symbols) passwords, brute-force algorithms that try out huge numbers of passwords in a short period of time wouldn't realistically succeed in actually getting access. However, it appears that such activity then triggers a suspension.

I believe the deactivation of blogs due to suspicious activity is not a good idea -- freezing them to protect against edits would be better. But even if one agrees that a blog should be suspended in such a case, the message that visitors get when trying to access it should indicate that it's a suspension. Instead, the message was just that the blog had been "removed" (not sure if that's the word that appears in English since I only saw the German-language message, which contains the word "entfernt", which in turn means "removed"). Here's a screenshot (click on it to enlarge):

I had received a notification of suspicious account activity just about 10 days ago. So this is the second such incident.

Any intellectual property issues affecting certain Google offerings are absolutely unrelated to my own use of various Google services. I like Blogspot (Blogger), the platform on which this blog is hosted; GMail, which is perfect for a "heavy-duty" user like me; Google Plus, which is off to a good start and has a lot of potential; Chrome, which I use for more than 50% of my web browsing; and, last not least, Android.

Not only do I like to use those Google services and products but I have also recommended them to many others. Any related intellectual property issues involve third-party intellectual property, not Google's own software, though I do believe Google needs to address those third-party IP issues and shouldn't expose others to risks related to IP enforcement.

Since anyone trying to perform suspicious activity on my account can get it suspended and thereby shut down my blog (even if only temporarily), I will now have to think about possibly switching to another blogging platform to avoid such outages. I would actually like to stay here, so I may wait and see if this problem reoccurs.

Meanwhile I have activated two-step verification for my Google account, which will hopefully take care of this problem for good.

Fortunately, I always make local copies of blog posts -- after each and every edit (I often fix typos or enter updates after publication). So even if all of my blog posts had been lost on Google's servers, I could have restored all of my content elsewhere.

Thursday, July 28, 2011

Google's WebM (VP8) allegedly infringes the rights of at least 12 patent holders

Google's attempts to promote "royalty-free" open source technologies just can't succeed in a world in which software is patentable -- a circumstance that Google increasingly realizes and complains about. No one can safely claim anymore at this stage that Android is a "free" mobile operating system without making a fool of himself, given that approximately 50 patent infringement lawsuits surround Android, an initial determination by an ITC judge just found Android to infringe two Apple patents (with many more still being asserted in other lawsuits), and ever more Android device makers recognize a need to take royalty-bearing licenses from Microsoft and other patent holders. Now Google's WebM codec project is apparently bound for a similar free-in-name-only fate as Android.

As a result, WebM seems unfit for adoption as part of a W3C standard, given the W3C's strict policy that its standards must be either patent-free or at least royalty-free.

In February I reported on MPEG LA's call for submissions of patents deemed essential to the VP8 video codec, a key element of Google's WebM initiative. I had already expressed doubts about Google's claims of WebM/VP8 being unencumbered by third-party patents shortly after WebM was announced more than a year ago. The commercial issue here is that Google's claims of WebM being "royalty-free" would be reduced to absurdity the moment that any patent holder rightfully starts to collect royalties on it.

I just became aware of a new interview with MPEG LA. MPEG LA serves as a one-stop shop for licenses to AVC/H.264 and other multimedia codecs; is the website of Streaming Media magazine. In that interview, MPEG LA stated affirmatively that there have been submissions relating to the February call, and disclosed, at a high level, a preliminary result of the vetting process that commenced subsequently to the submissions period:

Thus far, 12 parties have been found to have patents essential to the VP8 standard.

12 parties -- that's really a high number, and it could even increase in the future.

For now, MPEG LA doesn't want to name those companies. Chances are that there is an overlap between those 12 companies and the ones that contributed to MPEG LA's AVC/H.264 pool. I sent MPEG LA an email to inquire about this, but the only answer I received was that "confidentiality precludes [MPEG LA] from disclosing the identity of the owners".

Whatever the names of those companies may be, it's obvious that they wouldn't have submitted patents to MPEG LA if they weren't interested -- at least in principle and always subject to agreement on the particular terms -- in collecting royalties on WebM. While the Moving Picture Expert Group (MPEG) is a standardization body that also has plans for a (truly) royalty-free codec, MPEG LA is independent from MPEG and in the licensing business. Even MPEG LA offers freebies. For example, it doesn't charge for the use of AVC/H.264 for free Internet video. But that's fundamentally different from declaring a codec royalty-free without any field-of-use restrictions.

The WebM Community Cross-License intiative can't solve WebM's patent problem

I'm sure that none of those 12 companies is a member of the Google-led WebM Community Cross-License initiative. The companies behind the WebM CCL are Google partners who have committed not to assert their patents (should they have any that read on WebM) against that codec. The significance of that initiative was overestimated by some people. It's just a non-aggression pact. Those companies didn't commit to launch retaliatory strikes against patent holders who may bring assertions against WebM. Also, there's a notable absence: Motorola is a top three Android device maker and should be an obvious partner for Google but apparently reserves the right to sue WebM adopters. A Motorola subsidiary named General Instrument Corporation is suing other companies, such as Microsoft and TiVo, over various codec-related patents, including (but not necessarily limited to) U.S. Patent No. 5,949,948, 6,356,708, 7,310,374, 7,310,375, 7,310,376, and 7,529,465. If Google can't even get all of its Android partners on board, that shows how incomplete the WebM cross-licensing group is.

The process

Following a process similar to that of standard-setting organizations (though MPEG LA is a licensing body for patents related to standards previously set by others), MPEG LA evaluates the essentiality of such submissions, meaning that a group of patent experts has to make a determination on whether a patent declared essential really reads on a standard. Without such a vetting process, companies could declare patents essential only for the purpose of participating in a royalty-sharing agreement with those whose patents truly are essential to the relevant standard. In the Streaming Media interview, MPEG LA stresses that "[i]ndependent evaluations of patent essentiality are key to MPEG LA's pool licensing programs and have stood up well throughout its history".

While some have claimed all along that MPEG LA has a vested interest in WebM being deemed non-free (since that result takes a major differentiator away from AVC/H.264's competitor), it's important to consider that MPEG LA's credibility depends upon (among other factors) the quality of its essentiality assessment process. If the experts who perform this analysis overshoot and declare too many patents essential to a standard, MPEG LA's patent contributors will be concerned that their share in any royalty-sharing agreements related to a pool gets diluted. And if MPEG LA failed to recognize the essentiality of patents, licensees would be less likely to believe that MPEG LA is really a one-stop shop. MPEG LA doesn't give guarantees that it's a one-stop shop, but it certainly strives to form pools that minimize the risk of licensees facing infringement assertions related to patents that are not part of the given pool.

In the Streaming Media interview, MPEG LA said that there was a meeting "with VP8 essential patent holders in late June to facilitate a discussion among them whether and on what terms they may want to create a VP8 patent pool license", and that these efforts are continuing.

MPEG LA now has a clearer idea as to which patents would have to form part of the pool. Such a pool "typically remains open for the inclusion of additional essential patents", but there's now a group of a dozen patent holders who may or may not reach an agreement on the formation of a pool. To form a pool, they will have to determine what royalty rates MPEG LA would charge for the pool and how it would redistribute income from the pool to its contributors.

MPEG LA is a licensing -- not litigation -- entity

MPEG LA always stresses (in that interview and on previous occasions) that MPEG LA itself does not file patent infringement lawsuits on behalf of contributors to its pools. I guess that if a company uses a standard and refuses to take a license, MPEG LA will inform its contributors (maybe proactively, maybe just on request). But contributors don't appear to have an obligation to do so if an alleged infringer is unwilling to pay.

Obviously, if none of the actual patent holders ever sued an infringer, licensees might prefer to "roll the dice on litigation". If the 12 patent holders identified by MPEG LA so far (or possibly even more further down the road) join the pool, and if there are deep-pocketed organizations behind them that can afford to bring infringement actions, it's very likely that most of the alleged infringers would give serious consideration to a license deal.

Given that MPEG LA itself doesn't sue, it would be incorrect to claim that MPEG LA created this pool in order to litigate against Google or its partners. MPEG LA can legitimately claim that it offers a way for infringers to more efficiently address a problem that someone else (in this case, Google) may have created. It's not even that MPEG LA was needed to make the holders of those patents aware of the fact that their patents read on WebM. Those patent holders participate in a call for submissions, so it was the patent holders' own assumption that WebM infringes their rights.

It's important to understand that MPEG LA is just an aggregator. Even if MPEG LA didn't exist, those patents would still be around, and an adopter of WebM seeking to obtain a license to all of the declared-essential patents would have to talk to a dozen different companies.

A few months ago, the Wall Street Journal reported that the United States Department of Justice is looking into MPEG LA's activities. In that article, MPEG LA's CEO is quoted as describing his entity as "a convenience store" for licensing patents.

MPEG LA neither made software patentable nor filed the applications that resulted in the patents that were apparently submitted in response to its call for submissions. I believe a world without software patents would be a better place, and in such a world, MPEG LA wouldn't exist either. But in a world in which software is (unfortunately) patentable, MPEG LA can help to address the problem in one particular field.

I wouldn't even hold it against MPEG LA that Google itself didn't ask for the creation of a VP8 pool. The possible creation of an MPEG LA VP8 patent pool wouldn't be on the agenda if there weren't patents that read on VP8 according to their holders as well as MPEG LA's essentiality evaluators. This would also be a non-issue if Google had truly cleared all of the relevant rights instead of creating what could in the worst case become another lawsuit magnet like Android, potentially exposing a variety of companies and also non-profits like the Mozilla Foundation to the risk of litigation. I'm against the root cause of the overall problem, but MPEG LA is a partial solution in one field.

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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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S3 Graphics deal appears increasingly unlikely to help HTC against Apple

In my previous posts on the dispute between Apple and HTC, most recently this one (in which I explained why Apple won't just settle for money like most other patent holders do), I consistently pointed out that HTC's best chance to force Apple into at least a partial cross-license would probably be S3 Graphics' assertions against Apple. HTC is in the process of acquiring S3 for approximately $300 million.

Over the last couple of days, some additional information concerning the ITC investigation of S3's complaint against Apple (investigation no. 337-TA-724) became available. Based on this new information, it seems increasingly unlikely to me that HTC can get much leverage out of that process. It looks like HTC is going to have to use some other patents than the four at issue in that proceeding in order to put Apple under serious pressure. Right now it seems that the validity of those four S3 patents is uncertain, and even the worst-case scenario for Apple may just come down to a need to equip its Macintosh computers with NVIDIA chips. The iPhone, iPad and iPod product lines aren't even affected at all. Against that background, Apple can apparently keep pursuing its multiple lawsuits against HTC.

In addition to the hard facts that cast doubt on the impact of S3's assertions against Apple, there are other signs of weakness, such as HTC's public averments of its willingness to negotiate (though it takes two to tango and unilateral press conferences rarely bring another party back to the negotiating table) and, which I actually consider much more telling, HTC's attempts to slow-roll the ITC's efforts to make the details of its initial determination on the S3 complaint public. The details of that determination greatly diminish its business impact.

Before I get into more detail, let's look at the overall battlefield between Apple and HTC/S3:


I presented that battlemap before. The overview of the current state of affairs is the same, but I have added some detail to the slideshow that shows the escalation of the dispute. Apple dropped two patents from its ITC complaint: one in February and another one in April (during the hearing). As a result, only four (not six) Apple patents were still in play when the Administrative Law Judge issued his initial determination.

The battlemap shows that HTC asserts a limited number of patents of its own, and those aren't overly impressive. Apple is already asserting many more, and it could easily add more anytime.

Therefore, HTC's potential leverage against Apple depends very much on whether S3 Graphics would be in a position to obtain an import ban against product lines representing a significant part of Apple's revenue base.

Conclusions of law (on S3's complaint) were finally made public

On July 25, 2011, the Administrative Law Judge in charge of investigation no. 337-TA-724 (ITC v. Apple) ordered the release of the conclusions of law from his final initial determination. I have uploaded the order, which contains those conclusions of law, to Scribd.

That document states that on July 22, Apple's lawyers requested "that the conclusions of law in the final initial determination be made public." This shows that Apple wanted the world to see that any leverage HTC might hope to get out of the S3 case is much less than most people thought after they heard that an import ban might be ordered against Apple.

Conversely, the order describes in detail how S3 tried to slow-roll the process in a way that apparently annoyed the judge. S3 was slow in proposing redactions. The proposed redactions were apparently overreaching. While there can be some confidential information in such documents, there's also a certain level of transparency. And the worst part is that S3 wanted to appeal to the Commission -- the six-member body at the top of the ITC -- against the judge's decision to release the conclusions of law. The judge, however, pointed out that he "has the discretion pursuant to [the relevant ITC rule] to decide whether information designated by a supplier is entitled to confidential treatment in an initial determination". Therefore, the judge denied S3's request for leave to appeal.

You can read the detailed conclusions of law in the Scribd document I mentioned (starting on page 5). Any references to "[t]he accused iDevices and iOS SDK" state that those products and technologies don't infringe. Still, a massive threat to its Macintosh business could also be a reason for Apple to settle. But that threat appears limited:

While the initial determination finds "[a]ll of the accused Mac OS X Devices identified in [a section that was not published]" to "literally infringe" various asserted patent claims, all asserted claims of the '087 patent and the '417 patent were deemed invalid for obviousness, and more importantly, Apple doesn't face a problem for any Mac OS X devices with the NVIDIA GPU:

"20. An implied license and the doctrine of patent exhaustion apply to those Mac OS X Devices incorporating the NVIDIA GPU that are protected by the NVIDIA License (MacBook, MacBook Air, and Mac mini)."

Patent exhaustion means that S3 already granted a license to NVIDIA and therefore can't assert the related patents against NVIDIA's customer Apple. I discussed the concept of patent exhaustion in connection with the Lodsys case, in which Apple also uses exhaustion as a defense. S3 argued (unsuccessfully so far) that NVIDIA's license didn't apply here:

"21. The evidence does not demonstrate that the NVIDIA Term Sheet was unenforceable for lack of substantial performance."

But S3 did convince the court that there's no patent exhaustion with respect to an "Intel License", which may mean that an Intel graphics chip (or an Intel multifunctional component that includes the functionality of a graphics chip) wasn't licensed at all or at least not to the particular patents NVIDIA asserts against Apple:

"22. The doctrine of patent exhaustion does not apply to those Accused Products protected by the Intel License."

What I conclude from this (though not with absolute certainty since I'd need to see the actual agreements) is that Apple can, in a worst-case scenario (in which the ITC reaffirms the initial determination), work around the whole issue by incorporating NVIDIA graphics chips into its Macintosh computers and avoiding the distribution of Intel's allegedly infringing chips.

From an economic point of view, it would make a whole lot of sense for Apple to do this in the event the ITC orders an import ban, even if it resulted in a limited reduction of the gross margins of its Macintosh product line. There's a lot more for Apple to be gained by fending off Android than by settling with HTC only in order to maximize its flexibility in the Macintosh business.

For a realistic worst case, that's pretty manageable. But Apple may be able to avoid even that one.

Reexamination of S3's asserted patents

In addition to defending itself against S3's ITC complaint and bringing a declaratory judgment action against S3's asserted patents in a federal lawsuit, Apple requested reexaminations of those patents by the US Patent & Trademark Office.

The Litigating Apple blog believes HTC's strategy to use S3 as leverage against Apple "may have some holes in it" and points out the following fact:

The very day (July 1) the ITC issued its ruling that Apple infringed claims from the First Patent Group, the Patent Office issued actions in Apple's favor, finding that the relevant patent claims from the First Patent Group were not patentable. As such, all of the patent claims remaining in the ITC ruling against Apple now have been rejected by the Patent Office. Again, this all happened on the same day. As a result, the ITC has not yet had an opportunity to consider these new Patent Office rejections of the First Patent Group. What does this mean? It means Apple is likely eager to get these recent developments in front of the ITC for consideration.

If the term "First Patent Group" confused you, that's because the USPTO processed Apple's reexamination requests concerning S3's four asserted patents in two groups of two patents each.

I agree with Matt Macari that timing is important. Those first Office actions by the USPTO arrived by a hair's breadth too late for Apple to be able to influence the Administrative Law Judge's decision on that basis. Also, I could imagine a hypothetical scenario in which S3 obtains an import ban, Apple works around it by buying NVIDIA chips, and at some point the USPTO invalidates those patents, in which case the import ban would no longer be in force and effect, so Apple would regain its flexibility to purchase other graphics chips.

However, I tend to be cautious about first Office actions. As I wrote in connection with Oracle's litigation against Google, those aren't final. There are examples of patents asserted in high-profile lawsuits that also appeared to be in bad shape based on a first Office action but were ultimately upheld. That could happen here as well.

Also, the ITC and the federal courts don't necessarily take first Office actions into account. Patent holders have successfully prevented such non-final actions from being presented in jury trials. In this ITC investigation (where there is no such thing as a jury), Apple previously tried to convince the Administrative Law Judge to admit first Office actions as new evidence. The ALJ found those two S3 patents invalid, and maybe he was going to do so anyway, with or without those first Office actions. But Apple's request to admit those findings as evidence encountered resistance. S3 Graphics and the ITC staff (the Office of Unfair Import Investigations, which acts as a third party trying to defend the public interest) opposed Apple's motion. For instance, the OUII wrote:

"Contrary to Respondent's contention that the office actions are relevant and instructive, the Staff submits that at best the PTO reexamination office actions are informative of the proceedings in the PTO, but are not relevant or instructive on the issues of invalidity in this investigation. As an initial matter, the PTO office actions are not final office actions. Thus, the rejections are not a final assessment and determination of the patentability of the claims by the PTO examiner. Moreover, even if the office actions were “final” for purposes of the reexamination, they would still be non-final in that they would be appealable to the Board of Patent Appeals and Interferences and then to the Federal Circuit."

"The Staff submits that contrary to [Apple]'s contention, the introduction of the office actions in the reexamination proceedings is prejudicial to [S3 Graphics]. As explained above, the PTO office actions are not final office actions. The reexamination proceeding allows for several opportunities for the patentee to respond to the office action to rebut the PTO examiner's rejections. [...] Introduction of this issue at this late stage is unbalanced and prejudicial and should not be permitted."

That was from a June 23 pleading by the OUII, which is a third party. S3's lawyers opposed Apple's motion in even stronger terms:

"The reexamination file histories stand in a premature state, with the potential for any number of additional responses, arguments, amendments, office actions, and even appeals still on the horizon. Accordingly, based on the timing of Apple's requests for reexamination the PTO's processing of those requests, the record before the PTO at this stage is preliminary, entirely one-sided, and wholly unbalanced."

I guess Apple will try to get mileage out of the first Office actions that call into question the validity of the S3 patents deemed infringed in the initial determination. Apple will ask the ALJ to consider them. S3 will surely oppose this, and the OUII will probably raise similar concerns as in June. But even if the ALJ didn't formally admit those first Office actions as new evidence, he would see them (if he hasn't already) and they may affect his position on the validity of those patents anyway.

Just like HTC reaffirmed its intent to appeal the initial determination that found it to infringe two Apple patents, so is Apple still trying to defeat S3's compaint. We're going to see some more fighting, and if HTC wants a near-term settlement, it will probably have to remove certain features from its products, at least in the U.S. market -- and it might additionally have to pay royalties for a license to only some but not all relevant Apple patents.

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Google doesn't want techies to testify on value of Java to Android

[UPDATED after judge's order to continue search for experts, on modified basis, until August 3, 2011]

Damages claims are a highly controversial issue between Oracle and Google, and once again they couldn't agree. This time they disagreed on possible candidates for the role of a court-appointed expert. That comes as little surprise to me.

In a pretty swift reaction, the judge has modified his order: Oracle and Google now have until August 3 to propose candidates they can agree on or propose separate candidates (under seal) for the court to consider. And the judge continues:

"If no candidates are submitted by that date, then the Court will independently search for candidates, and the parties will still be required to pay the costs of the expert(s) chosen from that pool pursuant to [Federal Rule of Evidence] 706(b). Such a search likely would portend delay of the trial date, because any expert will need time to be brought up to speed on the facts of the case after being appointed."

A delay of the trial date would certainly not be in Oracle's interest. Therefore, Oracle will certainly make an effort to present the court with choices.

While the disagreement on candidates was almost expected, here's one thing that probably will surprise many observers of this process: for the question of the contribution Oracle's Java-related intellectual property rights make to Android's success, Google wants the court to pick a marketing expert rather than a technical expert -- and Oracle disagrees. That's a generic preference because they don't know whom the court might choose, so this has nothing to do with any candidates known to them. Here's what Google wrote:

"Third, if the Court decides to appoint a technical or industry expert regarding the basis of demand for Android, Google believes that an industry expert would be more helpful to the Court and the jury than a technical expert. An industry expert would have first-hand knowledge of the market for handsets, operating systems, and applications, how those products are marketed to consumers, and the reason why consumers make their practical purchasing decisions. As Google reads the Court’s Order and understands the legal standard, those are the critical questions with respect to evaluating the basis of demand. A technical expert, by contrast, might be limited to offering objective data regarding how any patented features in the Android software improved the performance of that software, but may not have a basis for evaluating the extent to which any of those performance improvements actually mattered to consumers, relative to the other features of the software."

A joint letter by the two parties to the court also shows that one of eight candidates they analyzed together fell through because Google objected to a computer scientist:

"Google objects to one additional potential expert proposed by Oracle, Candidate H, on the ground that he is a technical (computer science) rather than a marketing expert."

This is Oracle's take:

"Oracle is not submitting a declaration, but notes that it disagrees with Google's position as to the advisability of a marketing expert as compared to a technical expert on the issue of whether the claims to be tried to the jury constitute the basis for demand for Android."

Usually one would expect these preferences to be just the other way round:

  • Google always likes to present itself as a company with a markedly "geeky" culture. Its CEO Larry Page just started his second term by promoting a number of executives with a technical background at the expense of other professional groups. And Google used to take great pride in not spending much (if any) money on marketing.

  • By contrast, Oracle's leadership is -- except for its CEO Larry Ellison -- more like a group of marketeers and investment bankers: business-oriented as opposed to "geeky".

Having both a technical background and conducted marketing campaigns, I believe I have an explanation for these counterintuitive preferences. Google obviously wants to downplay the role Oracle's Java IPRs play, claiming that anything those patents (and copyrights) cover is just a small part of Android as a whole. Oracle wants the opposite. Programmers are, on average, more inclined to attach substantial value to certain functionalities, and in this case we're talking about rights that allegedly cover essential aspects of Android's app platform. A programmer's perspective is likely to be that Android would be fundamentally less valuable without the technologies to which Oracle claims exclusive rights. For a programmer, Android without access to all those Dalvik-based apps is a rather unattractive platform. We're talking about 200,000+ apps and counting, and a programmer would probably also figure that the amount of code those apps collectivly represent already dwarfs that of Android itself -- a gap that is only going to widen in the future.

In discussions between programmers and marketing people on how many features to build into a product, programmers are often "feature-crazy" while marketing professionals often think that a lot of functionality can be removed without losing too much of the sales opportunity, or that advertising, branding, in-store promotions and pricing strategies can offset any technical shortcomings. Therefore, Google is probably more comfortable with the conclusions at which a marketing expert would arrive.

Google failed to downgrade the role of an independent expert

Regardless of whether the court chooses a marketing or a technical expert, Google attempted to generally downgrade the expert's role and reduce the potential impact of whatever court-apppointed expert as compared to the court's tentative plan.

A July 5 court order stated that "[d]ue to the large damages at issue, the Court tentatively plans to use the selected expert to testify before the jury at trial under FRE 706 and not [merely] as a confidential advisor to the judge." Google's lawyers view this very differently and tried to persuade the court of an alternative approach:

"Fourth, Google believes it would be more appropriate if the Court would limit the role of any Court-appointed expert to confidentially advising the Court, rather than testifying before the jury. Both Oracle and Google have retained damages experts and plan to have those experts testify, including about the basis of demand for the Android software. If the jury also hears testimony from a third, neutral expert, that will further complicate the jury's decision on damages, which decision will already be a complex task. Moreover, if the jury is aware that the Court's expert was appointed by the Court and is not a representative of the parties, that expert will have a powerful stamp of Court approval and objectivity that will lend a disproportionate weight to that expert's opinions and testimony. In addition, only three months remain until trial, and it is still unclear which patent claims Oracle plans to rely on at trial. The expert will need a significant amount of time to gather materials from the parties and get up to speed on the facts of the case. Once the expert does get up to speed, there would be a greater need for both Oracle and Google to take comprehensive discovery of that expert if the expert will testify. Accordingly, it would be logistically simpler and impose less pressure on the parties, the Court, and the expert if the Court gave the expert the more streamlined role of a confidential advisor, rather than the more complex role of a testifying witness."

Oracle didn't formally contradict that view. I guess Oracle's lawyers figured that the judge was going to stick to his original plan, and this isn't worth a fight, so they effectively deferred to him.

There are various possible reasons for which Google wanted to limit the impact of a future court-appointed expert. Google's lawyers appear to be generally uneasy with the conclusions at which an independent expert could arrive. They may also believe that their own damages expert will be more convincing than Oracle's expert, so they'd rather have bet on that particular showdown without a third expert (whose credibility would, by virtue of his independence, eclipse that of the two experts hired by the parties).

When I saw Google's proposal, I wrote in an earlier version of this blog post that "in the interest of justice, I believe the court-appointed independent expert should appear as a witness before the jury, as envisioned by the judge". And that's also the position taken by the judge, who didn't adopt Google's suggestion:

"Regarding the declaration filed by Google Inc., the suggestion that the role of any Rule 706 expert be limited 'to confidentially advising the Court, rather than testifying before the jury' will not be taken [...]. As stated in the July 5 order, the search is for an expert 'to testify before the jury at trial under FRE 706 and not [to serve] as a confidential advisor to the judge' [...]. Far from complicating the jury's decision on damages, as Google argues, the testimony of a Rule 706 expert would assist the jury by providing a neutral explanation and viewpoint. [...]. This assistance will be particularly useful because both sides have taken such extreme and unreasonable positions regarding damages in this action."

That last sentence is consistent with the judge's previous criticism of the parties. At a hearing he said that they were "both asking for the moon".

Procedural context

Let's do a quick recap of the situation in this lawsuit so everyone has the context:

On Friday, Judge William Alsup largely agreed with Google and ordered a thorough overhaul of Oracle's damages report, but at the same time expressed strong suspicions of Google having willfully infringed Oracle's intellectual property rights. Also, Google couldn't get its advertising revenues excluded from consideration in connection with damages. For the most part, such damages claims will relate to Google's Android-related mobile advertising revenues, but Magistrate Judge Donna Ryu, who helps Judge Alsup out in connection with discovery disputes, also issued an order on Friday and allowed Oracle some reasonable discovery of Google's non-mobile revenues in view of network effects (meaning that Android serves to further cement Google's dominant position in the search market).

A joint letter of the agree-to-disagree kind

At 11 PM local (San Francisco) time on Tuesday, Oracle and Google filed their joint response to a July 5 order by Judge Alsup. That order gave the parties three weeks to "agree on two qualified candidates [for the role of an independent expert according to Federal Rule of Evidence 706] in this district and jointly call them to make sure they would be available and have no conflicts". The court was then going to "tentatively pick one of the two". In addition, the court ordered "both sides [to] recommend two qualified economists or other experts to testify under FRE 706 concerning whether or not the claims tried to the jury, if infringed, constitute the basis for demand for Android".

An unreliable blog tried to spin that order as underscoring how controversial Oracle's original damages report was. While that report was without a doubt controversial (as you can see in my post on the overhaul order, I already expressed doubts about some the theories in early June), a court invoking FRE 706 cannot be reasonably understood to dismiss the theories of one particular party. In fact, the judge also considered Google's zero damages theory "ridiculous" at a recent hearing. The reason FRE 706 (you can find its text here) came into play is simply that there's a whole lot of money at stake in this case, which justifies the cost and effort of having a court-appointed expert.

Even though the court appoints such an independent expert (or in this case, possibly two of them, with one focusing on damages and the other on the relevance of Oracle's patented technologies to consumer demand for Android), the parties were given a chance to reach a consensus on candidates. They agreed to disagree (as they did on various other issues):

"First, both parties sifted through a large number of experts that they thought might be good candidates. Each party independently found that many experts had to be excluded for reasons of conflicts, as a result of which both parties expanded their searches outside the Northern District of California. Second, the parties exchanged names of several experts who survived this process, after which they jointly reached out to those experts to assess availability and conflicts.

Having now concluded the vetting process, the parties regret to inform the Court that they do not yet have agreed experts who fulfill the Court's criteria."

Next step: the court will make its own choice if necessary

The parties told the court that they can keep trying, but that appeared to be merely a way to show respect for the original order. Between the lines they indicated pretty clearly (in my interpretation) that even more time won't necessarily put them closer to a solution:

"The parties are willing to continue working together in an effort to satisfy the Court's request for recommendations, but would need more time to do so. In light of the results to date and the Court's July 22, 2011 Order on the Daubert motion, however, the parties would appreciate further direction from the Court as to whether it wishes the parties to attempt further efforts to agree on candidates who meet the Court's criteria."

This left the court with three choices:

  1. Give the parties more time.

  2. Having given the parties a chance to agree on proposals, simply appoint an expert without asking them. FRE 706 says that "[t]he court may appoint any expert witnesses agreed upon by the parties, and may appoint expert witnesses of its own selection." (emphasis mine) The latter will be the only viable option left if they can't agree. But even if the judge may have to choose the experts, he would at least like the parties to make proposals for him to select from instead of having to conduct his own search for experts.

  3. Abandon the idea of having a court-appointed expert.

I guess the judge knew beforehand that Oracle and Google weren't too likely to agree but he gave them a chance, and he gives them another one until August 3. If this doesn't work out, Judge Alsup will feel better about picking an expert of his choosing (provided that he or she meets the applicable criteria), but at least he wants the parties to submit proposals, even if they don't agree on those.

Conflicts of interest rendered various candidates ineligible

The letter doesn't name the candidates Oracle and Google considered but instead refers to them by letters (A-H). If you're curious about what kinds of reasons might have made some of the proposed persons ineligible, here's a summary.

Besides logistical issues (availability and location), some candidates "have actual or apparent conflicts that one party or the other believes would prevent them from being an apporpriate court-appointed expert". Here are some examples:

  • Candidate B: "recently adverse to Oracle, and employment issue with consulting firm retained by Oracle in this case"

  • Candidate C: "previously approached Oracle in connection with this litigation"

  • Candidate D: "investor in Google, has written on Android, and has stated positions on software patents generally" (since this is apparently an expert distrusted by Oracle, his general "positions on software patents" are presumably critical, which is increasingly en vogue)

  • Candidate E: "contacts with Google and past payment by Google"

  • Candidate F: "contacts with Sun Microsystems"

  • Candidate G: "represented Google in two previous cases"

And as I mentioned further above, there was a Candidate H whom Google didn't want to accept because he's a computer science (not marketing) professional.

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Tuesday, July 26, 2011

InterDigital sues Huawei, ZTE and Nokia over 3G patents

One week after putting itself formally on the selling block in the current mobile patent buying frenzy, mobile patent holding and research company InterDigital LLC (NASDAQ:IDCC) today announced an ITC complaint and a companion (mirror) federal lawsuit in the District of Delaware against Nokia (with which InterDigital is still embroiled in litigation that started years ago) as well as Chinese device makers Huawei and ZTE.

I have not yet seen the ITC complaint, but I have obtained a copy of the Delaware lawsuit. InterDigital's press release already listed the seven asserted patents, so I'm sure that I've seen the companion lawsuit to the ITC complaint. Patent holders often file federal lawsuits in addition to ITC complaints since the ITC cannot award damages.

InterDigital regularly sues mobile device makers in order to collect patent royalties. It's the normal course of business for a patent licensing company. However, it may not be purely coincidental that this latest lawsuit is filed only a week after InterDigital's announcement to entertain M&A proposals. The first potential acquirer to be mentioned in the media was Google. Asked by Reuters about this, I said that "Google must keep buying strategic patent assets", and I reiterated that position in a blog post earlier today on Google's General Counsel's criticism of the patent system. More recent reports also mention Apple. The bidding contest between those two rivals could bring about similar dynamics as the ones that drove up the price of Nortel's patent portfolio in a recent auction, but there are also important differences between a possible acquisition of InterDigital and the sale of the patent asserts in Nortel's bankruptcy estate.

Having looked at the complaint, I believe that InterDigital wants to demonstrate that it holds patents that it declares essential to a host of 3G-related standards. This approach would make sense for InterDigital with a view to the objective of signing license deals with the defendants, but in the current situation the complaint may also be a statement directed at potential acquirers.

Let's look at the asserted patents and accused products, and at the standards to which the patents-in-suit are allegedly essential.

The seven patents-in-suit

InterDigital asserts the following seven patents:

  • U.S. Patent No. 7,349,540 on "generation of user equipment identification specific scrambling code for high speed shared control channel" (application filed in 2004)

  • U.S. Patent No. 7,502,406 on an "automatic power control system for a code division multiple access (CDMA) communications system" (application filed in 2002)

  • U.S. Patent No. 7,536,013 on "user equipment identification specific scrambling" (application filed in 2007)

  • U.S. Patent No. 7,616,970 on a "dual mode unit for short range, high rate and long range, lower rate data communications" (application filed in 2006)

  • U.S. Patent No. 7,706,332 on a "method and subscriber unit for performing power control" (application filed in 2005)

  • U.S. Patent No. 7,706,830 on a "method and subscriber unit for performing an access procedure" (application filed in 2008)

  • U.S. Patent No. 7,970,127 on "user equipment identification specific scrambling (application filed in 2009)

The accused products

The first patent (the '540 patent) is asserted against Huawei and ZTE, but not against Nokia. The other six patents are asserted against all three defendants. Also, there are differences in the lists of accused products of a given vendor between the allegations for each patent.

Accused Huawei products:

  • USB Connect 900 (a 3G laptop modem sold by AT&T)

  • Comet U8150 (an Android smartphone marketed by T-Mobile)

  • Tap U7519 (a mobile phone running a Huawei operating system, with a Java engine)

  • Jet 2.0 (a 4G laptop stick)

  • S7 (an Android tablet)

  • Ascend M860 (an Android smartphone)

  • Ascend II (M865) (listed only for the '970 patent but might also infringe others)

  • M735 (a mobile phone with a touch screen, running on the Brew Mobile Platform)

  • M228 (a feature phone running a proprietary operating system)

  • M750 (a feature phone running a proprietary operating system)

  • Tap (a feature phone running a proprietary operating system)

Accused ZTE products:

  • WebConnect Rocket 2.0 MF691 (an HSPA+ laptop modem)

  • 4G Mobile Hotspot MF61 (a mobile modem/router)

  • V9 (a 7" Android tablet)

  • F160 (a feature phone with a proprietary operating system; marketed by AT&T)

  • Salute (a feature phone with a proprietary operating system, marketed by Verizon)

  • Peel (an iPod Touch accessory that connects Apple's portable music player to Sprint's 3G network)

  • Agent E520 (a feature phone running a proprietary operating system)

  • [Cricket] MSGM8 II (a feature phone running a proprietary operating system)

  • [Cricket] TXTM8 3G (a feature phone focused on messaging with a BlackBerry-like keyboard, running a proprietary operating system)

  • Fivespot AC30 (a mobile hotspot device marketed by Verizon)

  • [Cricket] CAPTR II/A210 (a feature phone running a proprietary operating system)

  • [Cricket] A605 (a USB wireless modem)

  • Essenze C70 (a feature phone running a proprietary operating system)

  • C79 (a feature phone running a proprietary operating system)

Accused Nokia products:

Those are different Symbian phones: Nokia N8, Astound C7, E7, 6350, E73, C6-01, C6, C5-03, C3-01, 6700 Slide, 6790 Slide, 3710, 2730, 5230 Nuron, E5, E71, X6, C2-01, 6790, Slide, and Twist.

Standards to which the asserted patents are claimed to be essential

All of the allegations make reference to 3G. There are differences between the various devices in terms of which standards they implement.

These are the industry standards the complaint makes reference to:

  • UMTS (WDCMA, CDMA2000)



  • HSPA+

  • Release 99

  • Release 4

  • 1xRTT

  • EV-DO

  • IEEE 802.11

The message is clear: InterDigital wants to demonstrate its purported capability to levy a patent tax on a wide range of devices and standards.

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Apple updated its proposed answer to Lodsys's complaint

After Lodsys sued seven app developers (on May 31), Apple filed a motion to intervene (on June 10), on which the court has yet to decide. Meanwhile, Lodsys amended its complaint (on July 22), dropping one app developer from the original complaint but adding five new ones, most notably Rovio (Angry Birds) and EA. Apple has just updated its proposed answer to Lodsys's complaint accordingly. It's a proposed answer only because formally it's not a pleading in this lawsuit until the court admits Apple as an intervenor, which could happen shortly.

Apple provided the court with two versions of the new proposed answer: a clean version and one with colorful mark-ups that highlight the edits Apple made to the proposed pleading. I have uploaded the marked-up version to Scribd.

There isn't any noteworthy change. Apple continues to argue exclusively on the basis of an exhaustion theory: Apple claims that the license it has to Lodsys's patents (which it almost certainly received from Intellectual Ventures, a previous owner of those patents) extends to its app developers. As much as I'd like to see Lodsys defeated, I've previously raised doubts about this theory. I'm not saying Apple is wrong -- just that the court may arrive at a different conclusion.

It's disappointing that Apple still doesn't challenge the validity of Lodsys's patents nor the assertion that there is an infringement. Apple's license agreement with Intellectual Ventures presumably precludes Apple (and Google) from this unless they risk losing their license to those patents and potentially many others (up to more than 30,000). Still, the problem is that app developers are left to their own devices in this respect, and the exhaustion theory is far from certain to defeat Lodsys. Lodsys itself doesn't appear to take it seriously at all as this $1,000 wager shows.

So far I don't see any indication that Apple is funding the developers who have to defend themselves. I still hope (though I'm skeptical) that Apple will be able to do that if it's formally admitted as an intervenor. In my view, only blanket coverage is a basis for little "indie" developers to pick a legal fight with a troll like Lodsys unless they want to pick up huge costs and take incalculable risks.

Apple's proposed answer appears to have a flaw that suggests to me that Apple's legal department didn't put nearly as much thought into that one as it does in its major disputes with the likes of Samsung. If you read Apple's proposed answer, it doesn't make any reference to the fact that two of the accused products in that dispute are actually Android-based. Lodsys accused not only the iOS but also the Android versions of Illusion Lab's "Labyrinth" and Rovio's "Angry Birds". Apple's proposed pleading, however, asks the court to dismiss Lodsys's compaint in its entirety based on the assertion that Apple's license extends to its developers. There's no way that Apple's license can extend to Android apps. Since Apple's proposed defenses and counterclaim don't make that distinction, it's quite possible that Lodsys could convince the court that Apple needs to resubmit its answer. Maybe there are people at Apple who dream of a monopoly, but they don't have one.

Of course, the fact that two Android apps are among the accused products raises the question of why Google isn't involved in any way. In a long post on Google's new anti-patent stance, which I published earlier today, I also mentioned the Lodsys situation as a credibility issue for Google. This link leads directly to the section on Lodsys.

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