Lodsys Speaks Out About iOS In-App Purchase Threats

in-app purchases

Lodsys, the company behind the in-app purchase legal threats that went out late last week, has created a blog in response to the apparently large volume of feedback it received regarding the action. Lodsys was widely accused of patent trolling when it issued the threats, which asked app developers to pay licensing fees directly to Lodsys for use of Apple’s in-app purchasing system.

Lodsys is a patent holding firm, which means it does nothing with the patents it owns the rights to besides sit on them and charge licensing fees to companies looking to use its tech. The company, run by Mark Small, purchased its patents from inventor Dan Abelow in 2004. It owns U.S. patent No. 7222078, the broad definition of which is as follows:

In an exemplary system, information is received at a central location from different units of a commodity. The information is generated from two-way local interactions between users of the different units of the commodity and a user interface in the different units of the commodity. The interactions elicit from respective users their perceptions of the commodity.

The definition of this patent has to be fairly broadly applied to arrive at the conclusion that it covers in-app purchasing, but according to Lodsys, Apple, Google and Microsoft have all taken licenses from Lodsys for use of the patent. If Apple is already licensed, then why is Lodys going after iOS developers? Because, according to the holding company, Apple’s use rights don’t cover those of individual devs:

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.  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).

In other words, for every app maker our there that gets a payday on in-app purchases, Lodsys wants a payday too, because the software developer is profiting from Lodsys’ patented technology.

Lodsys also expanded on the details of the licenses its seeking from developers. The company wants 0.575 percent of revenue from U.S. sales, due from receipt of the notice letter until the expiration of the patent. That means that on $1 million dollars worth of sales, a developer would have to pay out $5,750.

Throughout the course of reading the Q&A blog posts, it becomes clear that Lodsys is a well-versed and well-practiced legal negotiator which knows the U.S. patent system inside and out. It no doubt managed to secure licenses from Apple, Google and Microsoft by being persistent, but also by knowing not to ask for so much that the companies in question would bother risking becoming involved in expensive legal action. But this is a different matter, and for all its well-reasoned arguments, Lodsys will still have a very hard time convincing anyone in the general public that it is anything but a patent troll. Of course, the legal system doesn’t care what the general public thinks, and Lodsys is pretty confident it is in the right, so short of a lawsuit, developers may not have much choice.

Apple provides developers with access to the in-app purchasing API as a part of its iOS software development kit, and ostensibly, developers pay for that access by virtue of the 30 percent they hand over for all revenue gathered through App Store-based sales. Apple has yet to make any official statement regarding this move by Lodsys, but even if Apple itself has been willing to agree to the patent holder’s terms and play nice until now, there’s no way it will allow Lodsys to set a precedent by going after iOS developers. It would open the door for other patent holders that have existing licenses with Apple to do the same, and it would ultimately undermine Apple’s ability to sell iOS as an attractive development platform.

Apple hasn’t said anything because it wants this to go away quietly, and it’s no doubt working behind the scenes to make that happen. But this is a matter ultimately worth its legal attention, and Apple will most likely be more than willing to bring that to bear if pressed.

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