Patent Troll Forgets Pearl Harbor

Just sitting here, quietly leaching off the genius of others--After the attack on Pearl Harbor, a Japanese admiral famously said that all Japan had done was “awaken a sleeping giant.”

The same may bersaid of a patent holding company named Lodsys, which has triggered a war with Apple and its developers. At stake is a threat to innovation for Apple’s mobile operating system and hugely profitable App Store crashing. Google also has been threatened, and Microsoft could be next.

Lodsys may have made a second mistake: it let lawyers make decisions instead of just giving advice. Now it is a war it cannot afford to lose and the giants stirreth.

Lodsys is the kind of company the technology industry loathes. Labelling them patent trolls. They invent nothing, innovate nothing and make all their profit from license fees for patents royalties or the result of law suits.

On Friday, the 13^th of last month, Lodsys sent Fedex letters to more than a dozen developers for Apple’s IOS, demanding royalties on a patent it owned for what are called APIs, the software that lets you upgrade or pay for software on your iPhone. They demanded 0.575 percent of sales going back to 2009 and future sales to 2023, when the patent expires.

The patent in question, No 7222078, “Methods and systems for gathering information from units of a commodity,” was invented by Massachusetts inventor Daniel H. Abelow in 2003 who sold it a year later to Intellectual Ventures, a Seattle holding company started by former Microsoft executives.

IV promised, when it was formed, it would not sue developers over patents because, after all, that would stifle competition. According to Julie Samuels of the Electronics Frontier Foundation, they have already broken that promise at least once. More intriguingly, they apparently set up “stand-alone” companies that do sue developers. Lodsys is believed to be one.

Apple, Google and Microsoft purchased blanket licenses for the patent with VI, and Apple insisted that all its developers use the API to post applications for the mobile operating system. The patent has since been sold twice, finally to Lodsys. Think mortgages.

Two weeks after hitting Apple developers, several Android developers received similar letters.

The developers screamed at Apple to protect them, even threatening a boycott.

“If Lodsys is successful, a wave of others, smelling blood in the water, will converge in a feeding frenzy of half-point licensing fees,” said developer Mike Lee, who organized the boycott. “Every week developers will have to deal with new players starting ventures on their backs…. Innovation will stagnate, and the whole industry would probably move to Europe, where patent law is not insane.”

 Moreover, there’s the question of what lawyers call burden, which also could discourage companies from working for Apple or Google.

Samuels said responsible developers go to a lawyer and ask them to make sure they weren’t violating someone’s patent, a freedom to operate opinion. That lawyer would probably does not bother to look at technologies Apple supplied assuming Apple did its homework. Now the greater burden and cost is on the developers’ backs.

On May 23, Apple’s prodigious legal staff, given little choice, responded something like the Judean People’s Liberation Front in Monty Python’s “Life of Bryan” --a long letter protesting Lodsys’s actions. It was, to be fair, a cease-and-desist letter to Lodsys, claiming the blanket license covered the developers.

To everyone’s surprise, Lodsys, who seemed genuinely offended at a being called a “troll” and was being drowned in vituperative emails and blog comments (including death threats), found itself in a position were it could not back down. It said in its blog if it did not pursue the matter it would lose all its legal rights, its raison d’être.

So they started suing developers.

(This is not an isolated case. A company called Macrosolve is notorious in the industry for suing first and then writing letters. They have targeted not only Apple but Blackberry and Android apps in a board patent that covers all Internet forms.)

What happened to Lodsys next is different. The little guys fought back, or at least one did. ForeSee Results, a company that sells software for Web surveys went to court in Chicago asking for a declaratory judgement invalidating Lodsys’s four patents.

Mike Wokasch, a patent lawyer in Madison, WI, said invalidating patents is tough but ForeSee’s action has another aspect to it. “What ForeSee Results is doing is essentially entering into patent litigation. It has the same potential costs as you might expect with one huge advantage: it’s not in East Texas.”

East Texas is where law suits against large corporations go to die.

Then Apple jumped back in, this time for real, also asking for a declaratory judgement invalidatiing the patents in Texas.

Lodsys then went ballistic, filing the suits it threatened in the letter, whereapon several other companies, who rely on the developers, including The New York Times Co. also filed suits challenging the patents.

Patent trolls exist because they know fighting them is a lot more expensive then simply paying them off. Most developers are single guys or a small company that really can't afford to fight back. it can cost upwards to $1 million to fight a patent suit.

Now they are up against companies that can take that money out of the petty cash drawer and if they lose, they are toast.

The upshot is that a lot of lawyers will have a lot of billable hours. Remember Pearl Harbor.