Lodsys: ITC Backs In-app Purchase Patent

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Lodsys ended its months-long silence on Monday with the proclamation that the U.S. International Trade Commission upheld the validity of its in-app purchase patent. The company gained notoriety in 2011 when it targeted iOS and Android app developers with patent infringement lawsuits over their use of in-app purchase systems -- a feature that Apple claimed it already licensed on their behalf.

Lodsys says ITC backs its in-app purchase patent claimLodsys says ITC backs its in-app purchase patent claim

The patent holding company said in a blog post,

As a part of the Inter-Parties Reexamination requested by Google, the USPTO recently issued an Office Action confirming Claim 24 of US Patent 7,222,078. This claim is particularly relevant regarding in-app purchases and free-to-paid application upgrades.

Lodsys went on to say that many app developers chose to pay licensing fees. "As of October 8, 2012, there are greater than 150 companies which obtained the rights to use the Lodsys Group patent portfolio, and more than 4 out of 5 of these companies have entered into licenses outside of the litigation process," the company said.

In other words, developers most likely wanted to avoid legal expenses and saw the licensing fees as a less expensive alternative.

Lodsys first threatened legal action against iOS and Android app developers earlier in 2011 over claims that they needed to pay licensing fees if they wanted to offer in-app purchases. Apple's legal team stepped in sent a letter to Lodsys stating that since it had already paid licensing fees to use the company's in-app purchase patent, and since it was providing the mechanism to make the feature available, that developers didn't need to pay additional licensing fees.

"Apple is undisputedly licensed to these patent and the Apple App Makers are protected by that license. There is no basis for Lodsys' infringement allegations against Apple's App Makers," the iPhone and iPad maker said in its letter.

That wasn't good enough for Lodsys, so the company followed through with its threat and filed patent infringement lawsuits against several developers claiming Apple's licensing deal "does NOT enable them to provide 'pixie dust' to bless another (3rd party) business applications."

Apple moved to intervene on behalf of app developers, telling the court "Apple has an interest in property that is at the center of this dispute, namely, its license to the patents in suit and its business with the developers, which depends on their use of products and services that Apple is expressly licensed under the patents in suit to offer them."

While Apple worked to get its legal team in on the patent battle, Lodsys argued the Cupertino company's involvement was only economic and that there weren't any valid legal reasons why it should be allowed in the court room. The court disagreed and let Apple step into the fight on behalf of developers.

Lodsys filed its lawsuits in U.S. Federal Court the Eastern District of Texas -- which is a popular venue for companies tagged as patent trolls.

With the new ITC ruling in its arsenal, Lodsys will likely push harder on developers to pay licensing fees instead of going to court. With Apple on their side, however, app developers have a strong legal team on their side and may want to wait and see how the drama plays out in the court room.

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Let's say you're a patent troll, and you want to boost your bankroll but you already signed a licensing deal with the deep pocket company. What do you do? Go after the smaller developers, of course.

While Lodsys will no doubt deny that its business model is to litigate -- or at least threaten legal action -- to force companies into patent licensing deals, it sure feels like that's exactly what the company is doing. Assuming the company's statements on the number of developers that ultimately agreed to pay up instead of go to court, that business model seems to be working out pretty well for now.

Apple chose to jump in because it's certain the license deal it has covers developer use, and isn't claiming the patent is invalid. The Lodsys "pixie dust" claims may have a hard time standing up in court because Apple's legal team no doubt made sure that the license covered more than just the mechanism that enables in-app purchases as a feature. Expecting developers to individually license the same technology just doesn't make sense.

Should the court side with Lodsys at trial, expect to see changes in the way developers offer in-app add-ons. And expect to see other patent holding companies (*cough* patent trolls *cough*) line up to start suing developers, too.

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7 Comments Leave Your Own

Terrin

Apple likely wants 1) Lodsys’s patent to be valid, and 2) for Apple’s license to be held to hold to third party developers. If Lodsys’ patent is valid, it puts a hurt on Android developers, whereas if Apple has a license that protects its developers, iOS is immune.

Apple after all has not questioned the validity of the patent.

Jeff Gamet

And what happens if Lodsys wins in court? The patent trolls line up to get developers to re-license what Apple has already paid for. That can’t end well.

jfbiii

I think what would happen in that case, Jeff, and in the case of Google (if they aren’t already similarly situated to Apple) in Terrin’s scenario is that the app store owners pony up for blanket licensing terms from Lodsys just to simplify things. Having all the accounting in one place instead of thousands is better for all parties I would think.

jfbiii

Apple, Google and Amazon should ban together to poison that east Texas well. Just give out enough product to people that jury trials become impossible.

BurmaYank

I’m curious what Florian Muller might have opined about the protectivity of Apple’s claimed blanket of Lodsys-licensing deal ‘pixie dust’ covering other (3rd party) AppStore application developers against patent infringement lawsuits by Lodsys.

Bosco (Brad Hutchings)

When this dropped, before Apple and Google announced their legal responses, Florian urged developers to settle. That alone should earn him a special place in faux analyst paid flack hell. That it was consistent with how he solicited Oracle as a customer should win some journalist a Pulitzer.

Charli

The issue has never been the validity of the patent.

The issue is if the del that Apple signed with the previous patent owners included ‘exhaustion’ of the patent (thus protecting those that use the IAP API) or not. And if it does, does LODSYS have to honor that agreement

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