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What to Do If You Receive a Lodsys Letter - by Patrick T. Igoe, Esq.
Tuesday, June 14 2011 @ 07:34 PM EDT

What to Do If You Receive a Lodsys Letter
~ by Patrick T. Igoe, Esq.

If you are a developer and you receive a letter from Lodsys alleging patent infringement, my primary advice, of course, must be, "see an attorney." However, the more you know, the better, faster, and more efficiently an attorney can help you.

Background

On May 13, 2011, developers of iOS apps began reporting receipt of letters from Lodsys, LLC. In the letters, Lodsys CEO Mark Small asserted that the developers were making use of technology covered by patents now owned by Lodsys. We have since learned that The New York Times and customers of ForSee Results and OpinonLab were also receiving Lodsys letters in that timeframe.

According to Lodsys, Dan Abelow, the inventor listed on the asserted patents, began his patenting efforts in 1988. He sold the resulting portfolio to Intellectual Ventures, which assigned them to a holding company, in 2004. Intellectual Ventures licensed them to certain of its customers, then sold off the remaining rights, which ended up with Lodsys, LLC, which is now asserting the patents.

In the case of at least some of the iOS developers, Lodsys set a twenty-one day deadline from the May 11 letter date for developers to respond. Lodsys indicated separately that its licensing terms were "0.575% of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage." Lodsys did not wait the full twenty-one days, instead filing suit in the Eastern District of Texas on May 31.

The stated goal of Lodsys is to "make relatively small amounts per licensee, but to have the large volume of licensees aggregate to be a worthwhile business." Given that business plan, Lodsys can be expected send letters to many more developers. If you receive a letter from Lodsys, my primary advice, of course, must be, "see an attorney." However, the more you know, the better, faster, and more efficiently an attorney can help you.

Read the Patent, Not the Blogs.

It should go without saying, but do not believe everything you read on the Internet, especially about patent cases. It appears, especially with patent coverage, that the desire to post quickly or mold the story to fit an agenda often trump factual analysis.

For instance, early articles and posts about Lodsys repeatedly parroted Lodsys' own broad characterization of the patent claims, using phrases like "a patent on Apple's in-app purchase system." One commentator, based on just an abstract, went even further than Lodsys, saying a patent seemed to cover "any kind of communication over a network."

Even worse, nearly all Lodsys coverage overlooked two very fundamental questions:

  • Do the patent claims cover anything similar to Apple's in-app purchase system?

  • Do the patent claims cover developers' use of such a system?
Those questions can only be answered with consideration of the patent and its claims.

Focus on the Patent Claims.

Infringement of a patent is defined in 35 U.S.C 271. Generally speaking, to be liable for infringement, an accused direct infringer must make, use, sell, or import the patented invention, or perform all of the steps of the patented process. A party may also be liable for inducing infringement or providing a component specifically for use in infringement.

Patents end with claims. Those claims define the bounds of the legal monopoly granted by the patent. The patent claims are used to determine whether or not there is infringement. That makes the patent claims extremely important. (Despite their importance, you will find massive blog posts on some sites giving advice about Lodsys that fail to even mention the patent claims or hint that they have been read.)

Here is a claim that is being asserted against iOS developers by Lodsys, claim 1 of US7,222,078:

1. A system comprising:
  • units of a commodity that can be used by respective users in different locations,

  • a user interface, which is part of each of the units of the commodity, configured to provide a medium for two-way local interaction between one of the users and the corresponding unit of the commodity, and further configured to elicit, from a user, information about the user's perception of the commodity,

  • a memory within each of the units of the commodity capable of storing results of the two-way local interaction, the results including elicited information about user perception of the commodity,

  • a communication element associated with each of the units of the commodity capable of carrying results of the two-way local interaction from each of the units of the commodity to a central location, and

  • a component capable of managing the interactions of the users in different locations and collecting the results of the interactions at the central location.
Regardless of your level of familiarity with patents, "in-app purchase" is not the phrase that will come to mind. You also do not need to be a patent expert to find some more specific problems with Lodsys' infringement assertions.

First, this is a system claim requiring multiple units of a hardware device, but the claim is being asserted against iOS application developers and companies using server-based solutions from other companies, like ForSee Results. In the case of the iOS developers, the "units of a commodity" under any reasonable claim mapping would seem to be the iPhone, iPod Touch, or iPad. The accused developers do not make or sell iOS hardware. Second, the "component capable of managing the interactions" sounds much more like Apple's iTunes Store servers than anything produced by an iOS developer.

Thus, I argued it would be Apple, if anyone, not the iOS developer, who would be making, using, or selling most of such a system. Apple seemed to agree and sent Lodsys a letter saying as much. Apple has since filed a motion to intervene in the case, asserting that Apple itself is licensed to the Lodsys patent and that developers' use of Apple's systems and APIs would be covered under the license if the patented technology was used.

Question the Claim Chart.

The burden is on the patent-holder to show that you are infringing the patent. Many times, the demand letter or "offer of a license" will come with a claim chart. Claim charts are supposed to show how each element of a patent claim is or is not embodied in a product or process. Expect an NPE like Lodsys, however, to point out only the strengths of such a mapping, not the weaknesses.

In every Lodsys claim chart I have seen, Lodsys has cherry-picked a few words from each claim element, put them in a yellow bubble, and pointed to a portion of a screen shot of the targeted company's application or a browser showing the third-party web pages. Patent infringement, however, involves all of the words in every element of the patent claim.

When evaluating the claim chart, focus on the claim language that was left out. Ask why it was left out. The answer may very well be that the language was left out because you do not infringe the claims as they are written.

Don't Listen to the Doomsayers. Consider an Active Defense.

Not only did most commentators fail to ask the important questions about the patent claims, but some even asserted that the answers to those questions did not matter. The basic argument was: The patent system is broken. The developers have no reasonable choice but to pay. It costs too much to fight. A license is cheaper than talking to an attorney.

The success of a Lodsys-like business model, collecting small amounts from a large number of companies based on questionable claims of infringement, requires a low transaction cost for each collection. Targets that roll over without a fight, even when they are not infringing, keep transaction costs low and enable the business model.

However, if transaction costs rise through legitimate defenses or declaratory judgment actions, the business model is strained. Lodsys needs developers to think it is cheaper to settle than it is to fight. Developers should consider, however, whether filing a declaratory judgment action in their own district might have the possibility of creating a less costly and more satisfying resolution. With a declaratory judgment action, it is Lodsys that is faced with a dilemma. For a small or medium sized target, it may be more economically sensible for Lodsys to drop the demand for the small licensing fee even if they somehow feel they could win. It may be especially compelling if major weaknesses are identified in the infringement case, as I believe they could be here.

While the first targeted iOS developers did not follow the declaratory judgment path, larger Lodsys targets now have. ForSee Results, OpinionLab, ESET, and The New York Times have all filed such actions, asserting non-infringement and invalidity of the Lodsys patents. Lodsys now must deal with cases in at least three jurisdictions. Lodsys may try to consolidate the cases, but things have already gotten more expensive.

Finally, Again, Talk to an Attorney.

Developers should not take legal advice from the Internet, and especially not from a non-attorney blog or a software development podcast. Every legal situation is different, which is why it is important to see an attorney. Show the attorney the claim chart you received. Analyze the claim language that was left out of the claim chart. Assess whether you could even be capable of infringing the patent. Then, discuss with your attorney whether to fight or just settle based on cost concerns. Be informed when you make the decision.

For much more detail on these points, see my Lodsys posts at applepatent.com.

_____________
Patrick T. Igoe, Esq. is the founder of Igoe Intellectual Property, LLC in Philadelphia, PA. He is a registered Patent Attorney with over a decade of prior experience in the architecture, design, implementation, and management of large-scale embedded-systems software. Mr. Igoe holds a B.S. in Computer Science, an M.S. in Software Development, and an M.S. in Imaging Science from RIT, an M.B.A. from Duke, and a J.D. from Temple. He is an inventor on ten issued U.S. patents in the digital print, social networking, and digital home entertainment spaces.


  


What to Do If You Receive a Lodsys Letter - by Patrick T. Igoe, Esq. | 118 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Corrections thread
Authored by: nsomos on Tuesday, June 14 2011 @ 07:38 PM EDT
Please post any corrections in this thread.
It may be helpful to summarize in the posts title.

[ Reply to This | # ]

Off Topic posts here
Authored by: nsomos on Tuesday, June 14 2011 @ 07:42 PM EDT
Please place those posts which while off-topic to this article
are still on-topic to Groklaw in general. Do your best to
follow the "Important Stuff", even if it pains you.
Preview can be your friend and help you to avoid seeming
foolish if you remember to profit from its use. Thanks.

[ Reply to This | # ]

News Picks Posts here please
Authored by: nsomos on Tuesday, June 14 2011 @ 07:49 PM EDT
Please place here your posts on various News Picks.
Don't make us guess which article you are writing about.
Since there are times when the News Picks update rapidly,
it is often quite helpful for at least the first post in
a thread to give a link to the article itself. Just remember
to post in HTML mode, and follow the tiny red instructions.
As always follow the "Important Stuff" and profit from
the use of Preview. Thanks.

[ Reply to This | # ]

Cones Here, Please!
Authored by: joef on Tuesday, June 14 2011 @ 07:49 PM EDT
Any aid for the project? Post it here

[ Reply to This | # ]

Thanks to Patrick for contributing to Groklaw
Authored by: nsomos on Tuesday, June 14 2011 @ 07:54 PM EDT
Thanks to both Patrick and Mark.

[ Reply to This | # ]

Advice
Authored by: tknarr on Tuesday, June 14 2011 @ 08:05 PM EDT

When faced with a letter like this, advice:

  1. Find an attorney who specialized in patent issues. You want advice from someone who knows the law and you want them to be working for you and looking after your interests, not someone else's.
  2. If you aren't the developer yourself, eg. you're the owner of the company and hired some programmers to do the work, drag the techies to the meetings with the lawyer. Remember that the lawyer's a techie too, just in a different field, and the most efficient way to deal with a problem is to put the techies together and then get out of their way.
  3. Don't give too much weight to what other people, even attorneys, are saying if they're not being paid by you to give you advice. Even if they know what they're talking about, they're not working for you and what they say may be in the best interest of whoever's signing their paycheck, not you. See #1.

[ Reply to This | # ]

RIT - Any other tigers around?
Authored by: Anonymous on Tuesday, June 14 2011 @ 08:45 PM EDT
Interesting ... I attended RIT through spring 1992 on my
CS undergrad, completed my masters there in 2000.

Now I've got to look up Patrick Igoe.

jcjodoin
- not logged in

[ Reply to This | # ]

What to Do If You Receive a Lodsys Letter - by Patrick T. Igoe, Esq.
Authored by: Anonymous on Tuesday, June 14 2011 @ 09:39 PM EDT
the claim sounds applicable to (say) iphone + facebook, or
more generally, (any smart phone) + (any social network)

[ Reply to This | # ]

If those are really the claims...
Authored by: cbc on Tuesday, June 14 2011 @ 10:02 PM EDT
My dad is in big trouble. When he turns on the tap to wash his face, the
interaction between the hot water heater and the electric company does all of
that... so what is new and non-obvious?

[ Reply to This | # ]

Humor... or Maybe NOT
Authored by: Anonymous on Tuesday, June 14 2011 @ 10:22 PM EDT
As I read this "patent" My Wicked Sense of Humor whispered in my ear:

" 1. A system comprising:

* units of a commodity that can be used by respective users in different

locations,"

Could that "commodity" be Money, and Coinage? A Dollar bill can be
used "...respective users in different locations,"

"* a user interface, which is part of each of the units of the
commodity,
configured to provide a medium for two-way local interaction between one

of the users and the corresponding unit of the commodity, and further
configured to elicit, from a user, information about the user's
perception of
the commodity,"

"Hummmm . "A user interface" hummm. I walk into the store with my
"commodity" called "Money". I speak to the purveyor of the
goods (hence "two w way interaction") and "configured to elicit,
from a user, information about the user's perception of the commodity,"
("If you like my product pay me in some of your "commodity"; if
not, you can't have any of my products").

"* a memory within each of the units of the commodity capable of
storing
results of the two-way local interaction, the results including
elicited
information about user perception of the commodity,"

A little trickier but let's try: The "commodity" called
"Money" has a printed value on it ie. the value of "Money"
is its "memory". "...results of the two-way local interaction,
the results including elicited information about user perception of the
commodity," (You have something I want, I give you my
"commodity" called "Money", you hand me a
"receipt" and I walk away with the product,
and you walk away with my "commodity" called "Money".


"* a communication element associated with each of the units of the
commodity capable of carrying results of the two-way local interaction

from each of the units of the commodity to a central location,
and"

Now this is EASY: This would be the Federal Reserve, and "Central
Bankers".

"* a component capable of managing the interactions of the users in
different
locations and collecting the results of the interactions at the central

location."

Harder. But let's try: How about a "Telephone", or "the U.S.
Postal Service"?
"... collecting the results of the interactions at the central
location." The Fed adjusts the amount the liquidity in the
"market" buy printing more of the "commodity"
"Money", or soaking it up to control the rate of inflation, based
upon this they can figure out the (Really) "Gross domestic Product".

Hummmm I wonder if this is qualifies as "Prior Art" ????Hehehehehe.
Maybe we should send them a congratulatory message and tell them they have just
reinvented the monetary system. ... OR.... How about a REALLY stripped down
version: Pen, Paper, and, and "the Postal Service."

Nope, there really is NOT anything "NEW" under the sun. Not even the
following: " They are trying to coerce you to part with some of your
"commodity" called "Money" by threatening to sue you. But
even this is not NEW, that too has been going on since the dawn of time. Ask
any Bank Robber.

[ Reply to This | # ]

In theory good advice, but is it actionable?
Authored by: dwheeler on Tuesday, June 14 2011 @ 10:30 PM EDT

Sigh. Yes, yes, "see an attorney". In theory, this is exactly right. In particular, this is great advice for large companies.

But what if you are not a large company? I don't know many attorneys that take on individuals' patent cases pro bono. The same is true for small businesses. Most of us can't afford the money an attorney costs, especially for patent cases and especially in a down economy. For many of us, it's eat or pay a lawyer. Eating is higher on the list.

What can be done for the millions of people who cannot afford legal counsel in patent cases? There's no public defender in patent cases. In fact, that's the basic problem: the entire patent setup enables a kind of patent extortion against those who don't have a lot of money, because they feel that their only option is to pay, regardless of the merits of the case. The good news is that we have organizations like the EFF, Software Freedom Law Center, and so on. But the bad news is that these organizations can only help a very few cases.

I don't see there being enough lawyers able to provide pro bono help to the massive number of threats like this. There needs to be better alternative approaches, such as self-help, for the millions who can't get pro bono help. Suggestions?

[ Reply to This | # ]

"Commodity" is going to be the linchpin term in any case that goes to trial
Authored by: Anonymous on Wednesday, June 15 2011 @ 02:20 AM EDT
1. A system comprising:

units of a commodity that can be used by respective users in different locations,

a user interface, which is part of each of the units of the commodity, configured to provide a medium for two-way local interaction between one of the users and the corresponding unit of the commodity, and further configured to elicit, from a user, information about the user's perception of the commodity,

a memory within each of the units of the commodity capable of storing results of the two-way local interaction, the results including elicited information about user perception of the commodity,

a communication element associated with each of the units of the commodity capable of carrying results of the two-way local interaction from each of the units of the commodity to a central location, and

a component capable of managing the interactions of the users in different locations and collecting the results of the interactions at the central location.

Reading the claims as presented, it's clear that Lodsys intends to argue that "commodity" refers to the application, not the hardware. If you read it, and substitute 'application' for 'commodity,' you can see it would readily apply to any game or media app that allows in app purchasing.

However, I can't see where it passes the 'non-obvious' requirement for a patent.
That term "commodity" is going to be heavily argued in any claims construction at trial.

bkd

[ Reply to This | # ]

More Companies joining the Party
Authored by: Anonymous on Wednesday, June 15 2011 @ 06:28 AM EDT
Link to www.theregister.co.uk

Now the New York Times is wading in and targetting Lodsys.

Pass the popcorn. This migh be about to get interesting.

[ Reply to This | # ]

Can't this claim read on a telephone network?
Authored by: PolR on Wednesday, June 15 2011 @ 09:28 AM EDT
Talking time is a commodity. Or the telephone handset is one. There is a user
interface for dialing and terminating the communication. The telephone network
record the time spent talking, which number is being dialed, whether it is
long-distance or not. This information is recorded by the telephone network for
billing purposes. Could this be prior art?

I recall there once were services renting time on IBM mainframe computers. I
have a hunch that if we did into this area there may be some prior art to be
found. Or perhaps old services like AOL or Compuserve may be worth looking at.

[ Reply to This | # ]

Apple should have stomped this into the ground
Authored by: Anonymous on Wednesday, June 15 2011 @ 11:30 AM EDT
That they acquiesced is why their developers are now being bothered.

(myNymm, not logged in)

[ Reply to This | # ]

Games?
Authored by: tknarr on Wednesday, June 15 2011 @ 12:22 PM EDT

Hmm. Just thinking, but wouldn't many on-line MMOs fit the bill? Not the entire game, but most of them have the concept of an in-game merchant from which characters can buy things. Usually for in-game coin, not real money, but then I don't see the patent talking about real money either. I know Ultima Online and Everquest had that, and they date from 1997 and 1999 respectively. That puts them several years before the filing date of the patent. In both games the merchants worked by having a UI element in the client to let the user select the goods to be purchased, which would then submit the purchase back to the server which would check whether the character had enough coin, and if they did deduct the cost of the goods from their purse and place the goods in their inventory for use and update the UI to reflect the changes.

[ Reply to This | # ]

Is that really correct patent language?
Authored by: Henning Makholm on Wednesday, June 15 2011 @ 12:42 PM EDT
I was under the impression that you had to do a global search-and-replace such
that every "the" becomes a "said".

[ Reply to This | # ]

What to Do If You Receive a Lodsys Letter - by Patrick T. Igoe, Esq.
Authored by: maroberts on Thursday, June 16 2011 @ 01:14 AM EDT

The i goeIP article was interesting in that the Office issued a (Non-Final?) rejection based on an earlier Kapan patent US 5,237,157.

Whilst the Patent Office accepted that they were different on the grounds stated by the attorney, why didn't the patent office then reject on the grounds that the difference between the 157 patent and what was being applied for was so minor that it would be obvious to someone with ordinary skill in the art?

[ Reply to This | # ]

Suggestions other than "see a lawyer"
Authored by: dwheeler on Thursday, June 16 2011 @ 07:54 PM EDT
Thankfully the next Groklaw article starts to address this! See: Responding to Lodsys - Other Alternatives for Developers

[ Reply to This | # ]

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