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More On Legal Threats To Apple Developers: Lodsys Explains Itself

Lodsys, the company that has made legal threats against a number of independent iOS developers around their implementation of payments services for their apps, has now published some questions and answers with more info for those interested. Meanwhile, Apple (NSDQ: AAPL) has still not made any public statements related to the matter.

In a blog on the Lodsys web site, the company says its answers relate to the most-asked questions it has had over the weekend, plus a couple of “bonus” answers to questions no-one had asked. A rundown of the main points:

Why suing developers? Lodsys is going after developers and not platform owners because in this case, the platform owner has already paid up: Apple is a licensee “for its nameplate products and services” as they relate to Lodsys’ patents, says the company. That puts Apple in the legal clear, so now the question is whether it would get involved in cases where it is not directly responsible.

Other operating systems? It’s entirely possible we will see further action, with these Apple developer letters an initial test and to set a precedent. We don’t get a real answer here. “It’s a logical question for a business that has created applications on multiple platforms,” writes Lodsys. Google (NSDQ: GOOG) and Microsoft (NSDQ: MSFT) are also licensees for “nameplates produces and services,” it notes.

The fact that the Lodsys patents are already licensed to Google, Microsoft, and Apple strongly suggests that those license deals were struck when Intellectual Ventures held the patents. Lodsys has no record of litigating against any of those three companies, and Google in particular does not roll over and take patent licenses from holding companies without a fight.

Why can’t Apple take care of this issue? Lodsys says the license Apple has doesn’t cover third-party applications. It makes the honest if frustrating (for developers) statement too that the “best return” for Lodsys is to license for each developer rather than a blanket deal with Apple covering all apps.

Why is Lodsys getting all legal on the little guys? For the same reasons that “patent vendors” files suits against bigger companies: it’s the only way to get them to pay. Looks, too, like this might affect all apps that violate the relevant patents: “From a fairness perspective, we have decided that Lodsys should attempt to license all users of the patent rights, on proportional terms, rather than let many “free riders” not pay while only selected companies pay.”

What is the license fee for vendors? These vary, it says, according to how the app developer uses the IP. Lodsys notes that for apps that offer in-app upgrades, the fee is 0.575% of U.S. revenue “over for the period of the notice letter to the expiration of the patent, plus applicable past usage.” One developer served a notice for an app tells mocoNews that this is the same percentage being requested for in-app payments. “An application that sells $1 million worth of sales in a year, the licensee would have an economic exposure of $5,750 per year,” notes Lodsys. For many, the sums may be significantly smaller (but proportionately more painful to bear).

Lodsys notes that the fees it is requesting from developers are proportionate to those it requested from large tech companies back in February. That patent suit, filed in a U.S. District court in Texas, was against a number of companies including Samsung, Motorola (NYSE: MMI), Hulu and HP (NYSE: HPQ), and appears to still be progressing.

Essentially, Lodsys is asking for a half-percent tax on the entire economy of in-app sales-to be paid to a Texas patent-holding company and its anonymous investors. There’s no allegation that any app developer copied Lodsys technology or patents, or benefitted from its “inventions” in any way. And there’s nothing to stop someone else with a similar patent from coming along and asking for a similar sum.

Intellectual Ventures: The giant patent-holding company Intellectual Ventures does not have any connection to Lodsys today, although it had at one point owned the patents that Lodsys now enforces, says the company.

We’re not ‘patent trolls’: “Lodsys is just trying to get value for assets that it owns, just like each and every company selling products or services is, trying to do business and make a profit,” it writes.

What is Apple’s response? Apple so far has declined to comment.

Corporate documents from the Texas Secretary of State show that Lodsys was formed on January 21, 2010. The company’s only listed “member” is a Delaware LLC, which is a kind of “shell-inside-a-shell” system used by some Texas patent holders to hide the identity of those who invest in patent litigation.

We have also asked Lodsys to comment on their demands, and will update with any response that we get.

4 Responses to “More On Legal Threats To Apple Developers: Lodsys Explains Itself”

  1. Frank

    “—We’re not ‘patent trolls’: “Lodsys is just trying to
    get value for assets that it owns, just like each and every company
    selling products or services is, trying to do business and make a
    profit,” it writes.  ”

    So they are not a patent troll that buys patents specifically to sue people… ok.. so when can we expect an actual product from them directly that uses any of their patents?  never?  ok, then you are a patent troll….    what did they think the definition was?   If we needed more proof that software patents are idiotic.. we now have it.

    I should patent closing an app by dragging it off the screen.. someone is about to make something that does that sooner or later and I can sue them…   that would make me a patent troll too.

  2. Joe Mullin

    Dan, you’re right—that was a typo. It should have read that the company was formed on Jan. 21, 2010. It’s been corrected.  Thanks.

  3. There is a problem with what you’ve said above – specifically:
    Corporate documents from the Texas Secretary of State show that Lodsys was formed on January 21, 2011

    Now, the USPTO is showing that on Nov 10, 2010, the patents were assigned to Lodsys.  How could they be assigned to a company that didn’t exist until 2 months later?