Lodsys Speaks Out on iOS Developer Patent Threats

Legal scalesPatent holding company Lodsys went on the offensive last week when it delivered letters to independent iPhone and iPad app developers claiming that they were infringing on patents it owns and controls. Now the company is going defensive to explain why it sees smaller developers as a legitimate target.

“The economic gains provided by the Lodsys inventions (increase in revenue through additional sales, or decrease in costs to service the customer) are being enjoyed by the business that provides the product or service that interacts with the user,” the company said. “Since Lodsys patent rights are of value to that overall solution, it is only fair to get paid by the party that is accountable for the entire solution and which captures the value (rather than a technology supplier or a retailer).”

PCalc developer James Thomson and Shanghai Mahjong developer Patrick McCarron, along with other iOS app developers, received letters late last week from Lodsys demanding they pay patent licensing fees or face legal action for using the in-app purchase system Apple offers as part of its developer kit. In some cases, the feature is being used to upgrade apps and unlock new features, and in others to add new themes or other enhancements.

The patent in question, 7222078, describes “methods and systems for gathering information from units of a commodity across a network.” The patent was originally filed by Dan Abelow, then sold to Intellectual Ventures in 2004, according to Lodsys.

The patent was later sold to Lodsys, and the company claims “neither Dan Abelow nor Intellectual Ventures has any investment, control, or knowledge of the specific licensing activities.”

Lodsys is defending its decision to go after smaller app developers instead of Apple by claiming that whatever licensing deal Apple may have, it “does NOT enable them to provide ‘pixie dust’ to bless another (3rd party) business applications.”

For its part, Lodsys expects iOS app developers to pony up 0.575 percent of the revenue they generate from in-app purchases. While the figure seems low on a per-developer basis, the cash would likely add up quickly if every developer that offered in-app upgrade purchases agreed to the company’s terms.

Several developers that received letters from Lodsys passed the information on to Apple’s legal team looking for some guidance on how to proceed. Apple hasn’t replied yet, but the company is generally expected to offer some kind of response in the coming days.

Targeting independent developers has raised liability concerns along with worries that some smaller companies may choose to abandon their products since they most likely wouldn’t be able to fund an effective defense in a court room patent battle.

While the little guys may not be able to mount a defense against Lodsys, big players, like Apple, might. Mr. Abelow’s patent is already being called overly broad, and a little bit of sleuthing on the part of trollbusters revealed a similar patent that pre-dates the ‘078 patent by several years.

Patent 4355372, filed in December 1980 and issued in October 1982, protects a very similar service to the patent Lodsys is using to go after iOS developers. On the ‘372 patent, however, researchers used the technology over phone lines instead of Internet connections since the networked world we live in today didn’t exist yet.

Assuming a well funded legal team could show that the ‘078 patent actually is overly broad, and the concept was already sufficiently protected by the much earlier patent, there’s a chance Lodsys wouldn’t be able adequately to defend itself.

Should Lodsys end up in court over the ‘078 patent, the company could be dealing with even more legal headaches. “The patent examiners who allowed the Abelow patents do not appear to have been aware of the ‘372 patent and other easily identifiable patents that have come to our attention,” trollbusters said.

Lodsys, however, seems to think it’s in a strong enough position to at least strike deals with independent developers, and to “get value for the assets that it owns.”