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Lodsys - Lodsys in a Panic to Keep Apple Out of Suit
Monday, August 29 2011 @ 09:00 AM EDT

Oh what a tangled web we weave,
When first we practise to deceive!

Sir Walter Scott, Marmion, Canto vi. Stanza 17.
Scottish author & novelist (1771 - 1832)

In the latest filing by Lodsys [PDF] in response to the Apple motion to intervene in the Lodsys v. Combay case, Lodsys gives every indication it is in a panic to keep Apple from intervening. Much of the document is redacted, but despite that fact we can glean the sense that Apple's entry into the lawsuit spoils Lodsys's entire theory of the litigation, at least with respect to the Apple (and likely Google) developers.

To try and make sense out of Lodsys's reply we need to go back to Apple's original motion [PDF] and working our way through the Lodsys response [PDF], Apple reply [PDF], and Lodsys sur-reply [PDF].

What are Apple's arguments for why it should be allowed to intervene?

  • Apple is licensed to the asserted patents, has embodied the technology covered by those patents in Apple's products and services it provides to the defendant developers, and the protection of that license extends to those developers.
  • Apple satisfies the requirements for intervention as of right under Fed R. Civ. P Rule 24(a). Apple has an interest in the property that is the subject of this action, namely, the patents in suit. Apple has a license to those very same patents. The value of this license to Apple here lies in Apple’s ability, pursuant to the express terms of the license, to offer products and services embodying the patents in suit to the Developers, in return for the Developers’ agreement to pay Apple a percentage of their sales made using Apple’s products and services.
  • [E]ven if Apple could not intervene as of right, the motion should still be granted for the separate reason that Apple satisfies the requirements for permissive intervention under Fed. R. Civ. P. Rule 24(b). It is black-letter law that permissive intervention is appropriate to protect the interests of a non-party whose technology has been accused of patent infringement.

Apple supports each of the last two contentions above with extensive legal citations.

In essence, Apple is arguing that the Lodsys patented technologies are embedded in the Apple offerings and merely utilized for their intended purpose by developers in building their applications, not independently infringed by the developer applications themselves. Importantly, Lodsys has publicly acknowledged that Apple is, in fact, licensed to the patents. Moreover, the claim charts that Lodsys sent to defendants specifically identify Apple technology as the basis for the infringement, not the developers' separate technology.

In its initial response Lodsys tries sleight of hand, focusing on the trivial and non-responsive while ignoring the bigger picture presented by Apple. For example, ignoring Apple's contentions under the license, Lodsys tries to contend that it is not the license that is important but the fact that Apple's interest is purely economic (because Apple will lose revenue). While the impact on Apple will certainly have an economic element, Lodsys disregards Apple's property interest in the patents in the form of the license.

Lodsys then attacks Apple's position on the grounds that Apple lacks standing, i.e., Apple lacks a sufficiently substantial interest in the patents to bring a counterclaim. But Lodsys is confused on the law. Were Apple trying to assert its non-exclusive license against a third-party, Lodsys would be correct. But Apple is asserting its rights under the license against the patent holder, the party ultimately responsible for having granted those rights. Apple does not require an exclusive license to do so. The mere existence of a non-exclusive license in that context is sufficient for standing to bring the counterclaim.

Lodsys next argues that it should be granted the right to conduct discovery on the Apple license in order to establish that the license doesn't grant whatever rights Apple claims. This is an interesting argument from the standpoint that Lodsys goes on and on about Apple's (legitimate) right to maintain the terms of the license agreement as confidential. How is it that the present patent holder (Lodsys) in acquiring the rights to the patents did not acquire from its predecessor in interest in the patents (Webvention) a copy of all licenses that encumber those patents? Maybe Lodsys should be crying to Webvention instead of to the court.

Finally, Lodsys argues that Apple is under no obligation to indemnify the app developers and, for that reason, should not be permitted to intervene. For that proposition Lodsys fails to cite a single relevant case.

This failure by Lodsys to properly address any of the key Apple assertions is what Apple focuses on in its reply to Lodsys's response. For example, Apple points out that Lodsys never addresses the issue of where the infringement lies - in the Apple technology as Apple contends or in the developer technology.

Apple points out that Lodsys's arguments for discovery on the license prior to an order permitting Apple's intervention is not the law; such discovery may only occur after the grant of intervention. Apple further notes that Lodsys's arguments that Apple's motion is premature are also not supported by the law (and, of course, if Apple were to wait to intervene, Lodsys would argue that they are too late).

By the time we get to the Lodsys sur-reply, it comes across as legal gibberish. For example, Apple shouldn't be allowed to protect its property interest in the license and intervene because one of the current defendants is certain to challenge the validity of the patents. Say what?!!!

Lodsys then appears to argue that it is not a licensor under the license to Apple and therefore has no privity of contract with Apple justifying Apple's intervention. Again, that position flies in the face of the law. Lodsys took the patents subject to Apple's license and, for that reason, is bound by the license regardless of whether Lodsys's name actually appears on the face of the license.

I don't usually like to predict outcomes on motions, but I will go out on a limb here and predict that Apple is granted the right to intervene if for no other reason than Lodsys appears to be clueless with respect to the law.


****************

Docket - Lodsys v. Combay

06/17/2011 - 9 - APPLICATION to Appear Pro Hac Vice by Attorney George M Newcombe for Apple, Inc. (APPROVED FEE PAID) 6-3600. (ch, ) (Entered: 06/17/2011)

06/17/2011 - 10 - APPLICATION to Appear Pro Hac Vice by Attorney Jonathan C Sanders for Apple, Inc. (APPROVED FEE PAID) 6-3599. (ch, ) (Entered: 06/17/2011)

06/17/2011 - 11 - E-GOV SEALED SUMMONS Issued as to Combay, Inc., Iconfactory, Inc., Illusion Labs AB, Michael G. Karr d/b/a Shovelmate, Quickoffice, Inc., Richard Shinderman, Wulven Game Studios. (Attachments: # 1 Iconfactory, # 2 Illusion Labs, # 3 Michael Karr, # 4 Quickoffice, # 5 Shindermann, # 6 Combay)(ehs, ) (Entered: 06/17/2011)

06/21/2011 - 12 - ORDER granting 5 Motion to Seal Document Exhibit A to the Declaration of Jonathan C. Sanders in Support of Apple's Motion to Intervene shall be maintained under seal. Signed by Judge T. John Ward on 6/21/2011. (ch, ) (Entered: 06/21/2011)

06/21/2011 - 13 -  ***FILED IN ERROR. PER ATTORNEY. PLEASE IGNORE.*** MOTION for Extension of Time to File Response/Reply to Apple Inc's Motion to Intervene by Lodsys, LLC. (Attachments: # 1 Text of Proposed Order)(Huck, Christopher) Modified on 6/22/2011 (ch, ). (Entered: 06/21/2011)

06/22/2011  ***FILED IN ERROR. PER ATTORNEY Document # 13, Motion for Extension of Time. PLEASE IGNORE.*** (ch, ) (Entered: 06/22/2011)

06/22/2011 - 14 -  MOTION for Extension of Time to File Response/Reply to Apple Inc.'s Motion to Intervene by Lodsys, LLC. (Attachments: # 1 Text of Proposed Order)(Huck, Christopher) (Entered: 06/22/2011)

06/27/2011 - 15 - ORDER granting 14 Motion for Extension of Time to File Response/Reply re 4 MOTION to Intervene Responses due by 7/27/2011. Signed by Judge T. John Ward on 6/27/2011. (ch, ) (Entered: 06/27/2011)

07/08/2011 - 16 - E-GOV SEALED SUMMONS Returned Executed by Lodsys, LLC. Michael G. Karr d/b/a Shovelmate served by CM RRR on 6/30/2011, answer due 7/21/2011; Quickoffice, Inc. served on 6/30/2011, answer due 7/21/2011. (Attachments: # 1 Quickoffice)(ehs, ) (Entered: 07/08/2011)

07/11/2011 - 17 - E-GOV SEALED SUMMONS Returned Executed by Lodsys, LLC. Iconfactory, Inc. served on 7/5/2011 by CM RRR on Registered Agent, answer due 7/26/2011. (ehs, ) (Entered: 07/11/2011)

07/12/2011 - 18 - Defendant's Unopposed First Application for Extension of Time to Answer Complaint re Iconfactory, Inc.(Findlay, Eric). (Entered: 07/12/2011) 07/12/2011  Defendant's Unopposed First Application for Extension of Time to Answer Complaint is GRANTED pursuant to Local Rule CV-12 for Iconfactory, Inc. to 8/25/2011. 30 Days Granted for Deadline Extension.( sm, ) (Entered: 07/12/2011)

07/14/2011 - 19 - E-GOV SEALED SUMMONS Issued as to Illusion Labs AB. (ch, ) (Entered: 07/14/2011)

07/15/2011 - 20 - NOTICE of Attorney Appearance by Melissa Richards Smith on behalf of Apple, Inc. (Smith, Melissa) (Entered: 07/15/2011)

07/15/2011 - 21 - NOTICE of Attorney Appearance by Charles Craig Tadlock on behalf of Quickoffice, Inc. (Tadlock, Charles) (Entered: 07/15/2011)

07/15/2011 - 22 - Defendant's Unopposed First Application for Extension of Time to Answer Complaint re Quickoffice, Inc. (to 8/20/2011).(Tadlock, Charles) (Entered: 07/15/2011) 07/15/2011  Defendant's Unopposed First Application for Extension of Time to Answer Complaint is GRANTED pursuant to Local Rule CV-12 for Quickoffice, Inc. to 8/20/2011. 30 Days Granted for Deadline Extension.( sm, ) (Entered: 07/15/2011)

07/18/2011 - 23 - Defendant's Unopposed First Application for Extension of Time to Answer Complaint re Michael G. Karr d/b/a Shovelmate.(Findlay, Eric). (Entered: 07/18/2011)

07/18/2011  Defendant's Unopposed First Application for Extension of Time to Answer Complaint is GRANTED pursuant to Local Rule CV-12 for Michael G. Karr d/b/a Shovelmate to 8/20/2011. 30 Days Granted for Deadline Extension.( sm, ) (Entered: 07/18/2011)

07/18/2011 - 24 - ***FILED IN ERROR. PLEASE IGNORE.*** E-GOV SEALED SUMMONS Returned Executed by Lodsys, LLC. Richard Shinderman served on 6/7/2011 by CM RRR, answer due 6/28/2011. (ehs, ) Modified on 7/18/2011 (ch, ). (Entered: 07/18/2011) 07/18/2011

   Answer Due Deadline Updated for Richard Shinderman.(ch, ) (Entered: 07/18/2011)

07/18/2011 - 25 E-GOV SEALED SUMMONS Returned Executed by Lodsys, LLC. Richard Shinderman served on 7/7/2011, answer due 7/28/2011. (ch, ) (Entered: 07/18/2011) 07/18/2011  ***FILED IN ERROR. WRONG DATE ADDED Document # 24, Sealed Summons. PLEASE IGNORE.*** (ch, ) (Entered: 07/18/2011)

07/21/2011 - 26 -   AMENDED COMPLAINT For Patent Infringement against Combay, Inc., Iconfactory, Inc., Illusion Labs AB, Michael G. Karr d/b/a Shovelmate, Quickoffice, Inc., Richard Shinderman, Wulven Game Studios, filed by Lodsys, LLC. (Attachments: # 1 Exhibit, # 2 Exhibit)(Huck, Christopher) (Entered: 07/21/2011)

07/26/2011 - 27 - NOTICE by Apple, Inc. re 4 MOTION to Intervene - Supplemental Declaration of Jonathan C. Sanders in Further Support of Apple Inc.'s Motion to Intervene - (Attachments: # 1 Affidavit - Declaration of Jonathan C. Sanders, # 2 Exhibit A to Declaration of Jonathan C. Sanders, # 3 Exhibit B to Declaration of Jonathan C. Sanders)(Smith, Melissa) (Entered: 07/26/2011)

07/27/2011 - 28 - ***FILED IN ERROR PER ATTORNEY. SEE CORRECTED DOCUMENT # 29 *** RESPONSE in Opposition re 4 MOTION to Intervene filed by Lodsys, LLC. (Attachments: # 1 Text of Proposed Order)(Huck, Christopher) Modified on 7/27/2011 (ehs, ). (Entered: 07/27/2011)

07/27/2011 - 29 - ***REPLACES DOCUMENT # 28 WHICH WAS FILED IN ERROR*** REDACTED RESPONSE in Opposition re 4 MOTION to Intervene filed by Lodsys, LLC. (Attachments: # 1 Declaration in Support of Opposition, # 2 Text of Proposed Order)(Huck, Christopher) Modified on 7/27/2011 (ehs, ). Modified on 7/28/2011 (sm, ). (Entered: 07/27/2011)

07/27/2011  ***FILED IN ERROR PER ATTORNEY. Document # 28, response. PLEASE IGNORE.*** (ehs, ) (Entered: 07/27/2011)

07/27/2011 - 30 - SEALED RESPONSE to Motion re 4 MOTION to Intervene filed by Lodsys, LLC. (Huck, Christopher) (Entered: 07/27/2011)

07/28/2011  NOTICE FROM CLERK re 29 Response in Opposition to Motion. Clerk has modified entry to reflect that this document (response) is a REDACTED version. (Complete version filed separately under seal) (sm, ) (Entered: 07/28/2011)

07/28/2011 - 31 - Additional Attachments to Main Document: 30 Sealed Response to Motion.. (Attachments: # 1 Declaration in Support of Opposition, # 2 Text of Proposed Order)(Huck, Christopher) (Entered: 07/28/2011)

07/29/2011 - 32 - NOTICE by Lodsys, LLC of Dismissal of Defendant Richard Shinderman without Prejudice (Huck, Christopher) (Entered: 07/29/2011)

08/01/2011 - 33 - E-GOV SEALED SUMMONS Issued as to Combay, Inc.. (ch, ) (Entered: 08/01/2011)

08/03/2011 - 34 - Summons Returned Unexecuted by Lodsys, LLC as to Combay, Inc.. Summons returned unclaimed and returned to sender on 7/21/11 (ehs, ) (Entered: 08/03/2011)

08/08/2011 - 35 - REPLY to Response to Motion re 4 MOTION to Intervene - Apple Inc.'s Redacted Reply In Support of Motion to Intervene - filed by Apple, Inc.. (Smith, Melissa) (Entered: 08/08/2011)

08/08/2011 - 36 - SEALED REPLY to Response to Motion re 4 MOTION to Intervene filed by Apple, Inc.. (Smith, Melissa) (Entered: 08/08/2011)

08/09/2011 - 37 - NOTICE by Atari Interactive, Inc., Electronic Arts Inc., Quickoffice, Inc., Square Enix Ltd. re 4 MOTION to Intervene (Statement in Support of Apple's Motion to Intervene) (Barsky, Wayne) (Entered: 08/09/2011)

08/16/2011 - 38 - Second MOTION for Extension of Time to File Answer by Quickoffice, Inc.. (Attachments: # 1 Text of Proposed Order)(Tadlock, Charles) (Entered: 08/16/2011)

08/18/2011 - 39 - SEALED SURREPLY TO REPLY TO RESPONSE to Motion re 4 MOTION to Intervene filed by Lodsys, LLC. (Huck, Christopher) (Entered: 08/18/2011)

08/18/2011 - 40 - SUR-REPLY to Reply to Response to Motion re 4 MOTION to Intervene filed by Lodsys, LLC. (Huck, Christopher) (Entered: 08/18/2011)

08/19/2011 - 41 - Unopposed MOTION for Extension of Time to File Answer re 26 Amended Complaint, or Otherwise Respond by Michael G. Karr d/b/a Shovelmate. (Attachments: # 1 Text of Proposed Order)(Findlay, Eric) (Entered: 08/19/2011)

08/22/2011 - 42 - E-GOV SEALED SUMMONS Issued as to Atari Interactive, Inc., (Attachments: # 1 Electronics Arts Inc, # 2 Take-Two Interactive Software Inc)(ch, ) (Entered: 08/22/2011)

08/23/2011 - 43 - ORDER granting 41 Motion for Extension of Time to Answer. Michael G. Karr d/b/a Shovelmate be given to and including September 21, 2011 to answer. Signed by Judge T. John Ward on 8/23/11. (ehs, ) (Entered: 08/23/2011)

08/23/2011 - 44 - Answer Due Deadline Updated for Michael G. Karr d/b/a Shovelmate to 9/21/2011. (ehs, ) (Entered: 08/23/2011)

08/23/2011 - 45 - ORDER granting 38 Motion for Extension of Time to Answer. Quickoffice, Inc. has until August 29, 2011 in which to answer. Signed by Judge T. John Ward on 8/23/11. (ehs, ) (Entered: 08/23/2011) 08/23/2011  Answer Due Deadline Updated for Quickoffice, Inc. to 8/29/2011. (ehs, ) (Entered: 08/23/2011)

08/24/2011 - 46 - Unopposed MOTION for Extension of Time to File Answer re 26 Amended Complaint, or Otherwise Respond by Iconfactory, Inc.. (Attachments: # 1 Text of Proposed Order)(Findlay, Eric) (Entered: 08/24/2011)

08/24/2011 - 47 - ORDER granting 46 Motion for Extension of Time to Answer. Dft Iconfactory Inc deadline is extended to 9/26/2011. Signed by Judge T. John Ward on 8/24/2011. (ch, ) (Entered: 08/24/2011) 08/24/2011  Answer Due Deadline Updated for Iconfactory, Inc. to 9/26/2011. (ch, ) (Entered: 08/24/2011)


****************

Document 4 - Apple's Motion to Intervene with Attachments

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

LODSYS, LLC,
Plaintiff,
v.
COMBAY, INC.;
ICONFACTORY, INC.;
ILLUSION LABS AB;
MICHAEL G. KARR D/B/A SHOVELMATE;
QUICKOFFICE, INC.;
RICHARD SHINDERMAN;
WULVEN GAME STUDIOS,
Defendants.

CIVIL ACTION NO. 2:11-cv-272-TJW

HEARING REQUESTED

APPLE INC.’S MOTION TO INTERVENE

TABLE OF CONTENTS

INTRODUCTION .................................................. 1

FACTS AND PROCEDURAL BACKGROUND.......................... 3

I. The Licensed Technology ............................................. 3

II. Lodsys’s Infringement Claims .................................... 4

III. Early Stage of the Proceedings and Apple’s Proposed Answer and Counterclaim .......................................... 6

ARGUMENT ...................................................... 7

I. Legal Standard ................................................... 7

II. Apple is Entitled to Intervene As a Matter of Right Under Rule 24(a)(2) ............. 8

A. Apple’s Motion to Intervene is Timely ....................................................... 9

B. Apple Has a Significant Interest in the Property and Transactions That Are at Issue in this Lawsuit ..................................................... 10

C. Apple’s Ability to Protect its Interests Will Be Impaired if it is Not Permitted to Intervene Here ............................................ 11

D. The Developers May Not Adequately Represent Apple’s Interest in Demonstrating That Lodsys’s Infringement Claims Are Exhausted ........ 12

III. In The Alternative, Permissive Intervention is Appropriate Here Under Rule 24(b) ..................................................... 14
CONCLUSION ..................................................... 15

i

TABLE OF AUTHORITIES

FEDERAL CASES

Bush v. Viterna,
740 F.2d 350 (5th Cir. 1984) ............................................................ 13

Chandler & Price Co. v. Brandtjen & Kluge, Inc.,
296 U.S. 53 (1935) ............................................... 11

Codex Corp. v. Milgo Elec. Corp.,
553 F.2d 735 (1st Cir. 1977) ............................................................... 12

Edwards v. City of Houston,
78 F.3d 983 (5th Cir. 1996) ............................................................ 7, 9, 10

GE Co. v. Wilkins,
2011 WL 533549 (E.D. Cal. Feb. 11, 2011) ................................................. 10

Heaton v. Monogram Credit Card Bank,
297 F.3d 416 (5th Cir. 2002) ...................................................... 9, 12, 13

Honeywell Int’l v. Audiovox Commc’ns Corp.,
2005 WL 2465898 (D. Del. May 18, 2005) .................................. 11, 12, 14

IBM Corp. v. Conner Periphs., Inc.,
1994 WL 706208 (N.D. Cal. Dec. 13, 1994) ........................................ 11

John Doe No. 1 v. Glickman,
256 F.3d 371 (5th Cir. 2001) ....................................................... 12, 13

LG Elecs. Inc. v. Q-Lity Comp. Inc.,
211 F.R.D. 360 (N.D. Cal. 2002) ......................................................... 14
Mendenhall v. M/V Toyota Maru No. 11 v. Panama Canal Co.,
551 F.2d 55 (5th Cir. 1977) ........................................................ 8

Negotiated Data Solutions, LLC v. Dell, Inc.,
No. 2:06-cv-528 (E.D. Tex. 2008) .................................................. 8–9

Ozee v. Am. Council on Gift Annuities, Inc.,
110 F.3d 1082 (5th Cir. 1997) ...................................................... 10

Reid v. GM Corp.,
240 F.R.D. 257 (E.D. Tex. 2006) .......................................... 7, 14–15

Sierra Club v. Espy,
18 F.3d 1202 (5th Cir. 1994) ..................................................... 7, 10

ii

Sierra Club v. Glickman,
82 F.3d 106 (5th Cir. 1996) ............................................... 9

Stallworth v. Monsanto Co.,
558 F.2d 257 (5th Cir. 1977) .......................................................... 7–8

State Farm Fire and Cas. Co. v. Black & Decker, Inc.,
Civ. A. 02-1154, 2003 WL 22966373 (E.D. La. Dec. 11, 2003) ....................................... 8

Teague v. Bakker,
931 F.2d 259 (4th Cir. 1991) .................................................... 13

Tegic Commc’ns Corp. v. Bd. Of Regents of the Univ. of Tex. Sys.,
458 F.3d 1335 (Fed. Cir. 2006).................................................. 11

The Aransas Project v. Shaw,
2010 WL 2522415 (S.D. Tex. June 17, 2010) ............................................ 9

TiVo Inc. v. AT&T Inc.,
No. 2-09-cv-259 (E.D. Tex. March 31, 2010) ............................................ 15

Trbovich v. United Mine Workers of Am.,
404 U.S. 528 (1972) ................................................................. 12

U.S. Ethernet Innovations, LLC v. Acer, Inc. et al,
No. 6:09-cv-448 (E.D. Tex. May 10, 2010) ........................................... 11, 15

FEDERAL RULES

Fed. R. Civ. P. 24 .................................................... 7

OTHER AUTHORITIES

Wright & Miller, FEDERAL PRACTICE AND PROCEDURE § 1914 (2d ed. 1986) ............................... 8

iii

Apple Inc. (“Apple”) hereby respectfully moves to intervene as a defendant and counterclaim plaintiff in the above-captioned action brought by plaintiff Lodsys, LLC (“Lodsys”) against seven software application developers (collectively, “Developers”), for allegedly infringing U.S. Patent Nos. 7,222,078 (the “’078 patent”) and 7,620,565 (the “’565 patent” and, collectively, the “patents in suit”). Apple seeks to intervene because it is expressly licensed to provide to the Developers products and services that embody the patents in suit, free from claims of infringement of those patents.

INTRODUCTION

In its Complaint, Lodsys alleges that the Developers infringe the patents in suit. Lodsys’s claims are based on the Developers’ use of products and services provided to the Developers by Apple, for which the Developers pay Apple a percentage of their sales. Apple has an interest in property that is at the center of this dispute, namely, its license to the patents in suit and its business with the Developers, which depends on their use of products and services that Apple is expressly licensed under the patents in suit to offer them. Both Lodsys’s Complaint and its threats to other Apple developers adversely affect the value of Apple’s license and its business with the Developers.

Apple should be permitted to intervene here, for at least two separate and independent reasons. First, Apple satisfies the requirements for intervention as of right under Fed R. Civ. P Rule 24(a). Apple has an interest in the property that is the subject of this action, namely, the patents in suit. Apple has a license to those very same patents. The value of this license to Apple here lies in Apple’s ability, pursuant to the express terms of the license, to offer products and services embodying the patents in suit to the Developers, in return for the Developers’ agreement to pay Apple a percentage of their sales made using Apple’s products and services. The Developers, in turn, are able to use the products and services Apple provides to

them free from claims of infringement of the patents in suit under the doctrines of exhaustion and first sale. Apple has a direct and substantial interest in preserving the value of its license, as well as in protecting the value of its technology, services, and relationships with the Developers. Those interests will be prejudiced absent intervention here. A determination that the Developers are not permitted to use Apple’s licensed products and services will significantly diminish the value of Apple’s license rights, impair its relationships with the Developers, and lead to loss of significant revenue from all developers. In fact, the mere allegation of the same significantly threatens to diminish Apple’s rights and those relationships. Moreover, Apple’s rights will not be adequately protected by the current defendants in this case, because Lodsys has chosen to assert these claims against Developers who are individuals or small entities with far fewer resources than Apple and who lack the technical information, ability, and incentive to adequately protect Apple’s rights under its license agreement.

Second, even if Apple could not intervene as of right, the motion should still be granted for the separate reason that Apple satisfies the requirements for permissive intervention under Fed. R. Civ. P. Rule 24(b). It is black-letter law that permissive intervention is appropriate to protect the interests of a non-party whose technology has been accused of patent infringement. Apple’s proposed defense and counterclaim are based on the doctrines of exhaustion and first sale deriving from Apple’s license to the patents in suit. Apple’s defense and claim present numerous issues of law and fact that will be common to the main action, regardless of whether Apple is permitted to intervene. Finally, intervention will not delay these proceedings or prejudice any current party. The Court should grant this motion and allow Apple to file the proposed Answer and Counterclaim submitted herewith.1

___________________

1 Apple’s proposed Answer and Counterclaim is attached as Exhibit A hereto.

2

FACTS AND PROCEDURAL BACKGROUND

I. The Licensed Technology

Apple designs and offers a comprehensive ecosystem of technologies and services that enable the delivery of software applications (or “Apps”) such as games, tools, and educational services on Apple devices such as the Mac, iPhone, iPad, and iPod Touch. See, e.g., Answer-in-Intervention (“Answer”) ¶ 1. In order to access Apple hardware and software, the Developers use Apple application program interfaces (“APIs”), Apple software development kits (“SDKs”), and Apple’s operating system (“iOS”). Id. ¶ 5. Together, these Apple products and services permit the Developers to interact with Apple end users through the App Store, where Developer Apps can be purchased or upgraded. Id. Apple also provides a comprehensive set of Apple hosting, marketing, sales, agency and delivery services that allow Developers to provide Apps to millions of Apple end users. See generally id.2 In return for Apple’s provision of these products and services to the Developers, the Developers agree to pay Apple a percentage of their sales made using Apple’s products and services. See, e.g., id. ¶ 6. Apple’s innovative products and services have enjoyed great success: fourteen billion Apps have been downloaded from the App store, and the App Store’s offerings grow daily, with 425,000 Apps available from tens of thousands of unique app developers. Id.

To protect its enormous investment in its App Store and related hardware, software, and APIs, Apple periodically enters into licenses for patents that allegedly cover Apple technology, including one such license agreement (the “License”) that covers the patents-in-suit. See generally Declaration of Jonathan C. Sanders (“Sanders Decl.”) ¶ 2, Ex. A. The License

____________________

2 The “App Store” is a virtual store from which users may buy and upgrade applications such as games and tools. The developers, not Apple, set the prices at which their Apps are sold. Apple acts as an agent of the Developers in effectuating the sale of the Apps to Apple end users.

3

provides Apple with, among other things, the right to offer products and services that embody the Lodsys patents. See generally id. Lodsys has acknowledged that Apple is licensed to these patents. http://www.lodsys.com/blog.html (“Apple is licensed . . . .”) (emphasis in original).

II. Lodsys’s Infringement Claims

Although Lodsys’s Complaint lacks any detailed allegations as to what aspects of the accused Apps infringe the patents in suit, notice letters Lodsys sent to each of the Developers establish clearly that Lodsys’s claims target Apple technology. Specifically, the infringement analysis in the notice letters focuses on the Developers’ use of Apple products and services covered by the License.

For example, Lodsys appended to its notice letters representative claim charts purporting to show how Claim 1 of the ’078 patent (asserted here) reads on the accused products. Sanders Decl. ¶ 3, Ex. B (Illusion Labs) at 4-9. Claim 1 of the ’078 patent claims, among other things, (1) “[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 units of the commodity, and further configured to elicit, from a user, information about the user’s perception of the commodity”; (2) “[a] memory within each of the units of the commodity capable of storing results of the two-way local interaction from each of the units of the commodity to a central location” and “[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 (3) “[a] component capable of managing the interactions of the users in different locations and collecting the results of the interaction at the central location.” Docket No. 1, Ex. B at Claim 1. Each of these elements requires, under Lodsys’s apparent theories, the use of licensed Apple APIs, software, and/or hardware.

4

For example, the screenshot Lodsys used purportedly to establish the first claim element above with respect to Illusion Labs shows an interface with an “App Store” button that uses an Apple API and other Apple technology to allow interaction between the App, the user, and the App Store:

Sanders Decl. ¶ 3, Ex. B at 7. Similarly, Lodsys relied on screenshots depicting the use of Apple’s APIs and memory and the App Store purportedly to meet the second claim element, storing user feedback to the App Store itself:

Id. at 8. Finally, Lodsys likewise pointed to a screenshot of the App Store itself to allegedly meet the final claim element, collecting and storing the user results in that central location:

5

Id. at 9. Thus, in each case, even under Lodsys’s own infringement theories, Lodsys’s allegations rest substantially or entirely on Apple products and services licensed under Apple’s License, not on algorithms or content provided by the Developers themselves.

Moreover, even a cursory review of the diverse Apps accused of infringing the patents in suit reveals that their only similarity is their use of Apple products and services. The accused products range from business software that permits the user to work on Microsoft Office documents (Quickoffice), to a fantasy game (Shadow Era), to a game in which the user guides a silver ball through a labyrinth (Labyrinth), to a game requiring the user to strategically eliminate hearts that shoot daggers (Hearts and Daggers), to a program that facilitates the composition of “Tweets” for Twitter (Twitterrific), to a poker game (Mega Poker). See generally Docket No. 1 (Complaint). The only thing these Apps have in common is their use of the Apple technology that permits the Developers to interact with Apple end users through the App Store and other Apple technology. In other words, what is at issue in this case is not the substantive code in these varied programs, but rather each individual App’s use of Apple products and services, all of which are licensed.

III. Early Stage of the Proceedings and Apple’s Proposed Answer and Counterclaim

On June 1, 2011, this case was assigned to Judge T. John Ward. Sanders Decl. ¶ 4. An initial case management conference has not yet been scheduled, no defendant has responded to the Complaint, no discovery has been conducted, and, indeed, nothing of

6

significance has happened in the lawsuit beyond Lodsys’s simple filing of the Complaint. Sanders Decl. ¶ 5. Because Lodsys’s infringement allegations are based on Apple products and services that are indisputably licensed, Apple moves to intervene in this lawsuit to protect its interest in its License by asserting a defense and counterclaim that Lodsys’s claims against the Developers are barred under the doctrines of exhaustion and first sale.

ARGUMENT

I. Legal Standard

Rule 24(a) of the Federal Rules of Civil Procedure governs intervention as a matter of right, while Rule 24(b) governs permissive intervention. Fed. R. Civ. P. 24. Pursuant to Rule 24(a), a movant may intervene as a matter of right whenever four requirements are met: (1) the motion is timely; (2) the movant has an interest relating to the property or transaction that is the subject of the action; (3) the movant is situated such that the disposition of the action may, as a practical matter, impair or impede its ability to protect its interest; and (4) the movant’s interests are inadequately represented by the existing parties to the suit. Fed. R. Civ. P. 24(a)(2); Reid v. GM Corp., 240 F.R.D. 257, 259 (E.D. Tex. 2006). Although all four requirements must be met, the inquiry is a “flexible one” that “focuses on the particular facts and circumstances surrounding each application.” Edwards v. City of Houston, 78 F.3d 983, 999 (5th Cir. 1996); see, e.g., Sierra Club v. Espy, 18 F.3d 1202, 1205 (5th Cir. 1994) (encouraging courts to allow intervention “where no one would be hurt and the greater justice could be attained”) (citations omitted).

Even where intervention as of right is not available, Rule 24(b) provides separately and independently for permissive intervention whenever an applicant “has a claim or defense that shares with the main action a common question of law or fact.” Fed. R. Civ. P. 24(b)(1)(B); see, e.g., Stallworth v. Monsanto Co., 558 F.2d 257, 269 (5th Cir. 1977) (explaining

7

permissive intervention). Where the applicant’s claim or defense is timely, shares a question of law or fact with the main action, and will not prejudice any party, courts freely grant permissive intervention. Id. (noting “liberal construction” of Rule 24(b)).

Finally, in evaluating a motion to intervene, the court must accept as true any well-pleaded, non-conclusory allegations presented in the motion papers and proposed pleading. Mendenhall v. M/V Toyota Maru No. 11 v. Panama Canal Co., 551 F.2d 55, 56 n.2 (5th Cir. 1977); see, e.g., State Farm Fire and Cas. Co. v. Black & Decker, Inc., Civ. A. 02-1154, 2003 WL 22966373, at *3 (E.D. La. Dec. 11, 2003) (“‘The pleading is construed liberally in favor of the pleader and the court will accept as true the well pleaded allegations in the pleading.’”) (quoting Wright & Miller, FEDERAL PRACTICE AND PROCEDURE § 1914 at 418 (2d ed. 1986)).

II. Apple is Entitled to Intervene As a Matter of Right Under Rule 24(a)(2) The first reason this motion should be granted is that Apple is entitled to intervene as of right. As set out further below, Apple’s motion is timely, Apple has a significant interest in its License and in the licensed products and services that are the subject of this action, Apple’s interests in that property may be substantially diminished if it is not permitted to intervene, and the current defendants may not effectively represent Apple’s interests in this case.

Negotiated Data Solutions, LLC v. Dell, Inc., No. 2:06-cv-528 (E.D. Tex. 2008), Intel filed a motion to intervene based on its license to the patents in suit.3 The patents in suit had been assigned to plaintiff NDS, which had later filed an infringement action against Intel customer Dell based on Intel components incorporated into Dell systems. Id. Intel

______________________

3 See generally Intel’s Complaint in Intervention, Negotiated Data Solutions, LLC v. Dell, Inc., No. 2:06-cv-528 (E.D. Tex. 2008) (attached as Exhibit C to the Sanders Decl.).

8

sought to intervene and assert claims for a declaratory judgment that, among other things, the plaintiff’s allegations were barred by the doctrine of patent exhaustion, id. at *6-*9, arguing that, without declaratory relief, the plaintiff would “continue to wrongfully assert the Patents-in-Suit against Dell and threaten Intel and its customers, thereby causing Intel irreparable injury and damage.” Id. at *5-*7. The court found that Intel was entitled to intervene as a matter of right on “the issues of patent exhaustion and licensing.” Order, Negotiated Data Solutions, LLC v. Dell, Inc., No. 2:06-cv-528, at *1 (E.D. Tex. Oct. 23, 2008) (Everingham, J.) (attached as Ex. D to the Sanders Decl.). As in Dell, Apple can easily satisfy each of the four requirements for intervention as of right here.

A. Apple’s Motion to Intervene is Timely

A motion to intervene is timely where the intervenor promptly moves upon learning of its interest in the litigation, where the current parties would not suffer prejudice from allowing the intervention, and where no other special or unusual circumstances render the motion untimely. See, e.g., Edwards, 78 F.3d at 1000; Heaton v. Monogram Credit Card Bank, 297 F.3d 416, 422-23 (5th Cir. 2002). Here, all requirements are readily satisfied. Indeed, Apple moved while the case was still in its infancy: the lawsuit was filed just over a week ago, the defendants have not yet answered Lodsys’s Complaint (indeed, upon information and belief, they have not yet even been served with the summons and Complaint), and no other significant developments have taken place. Apple’s motion is indisputably timely. See, e.g., Edwards, 78 F.3d at 1000-01 (noting that the Fifth Circuit has found motions filed several months into the litigation timely as long as case is still in its early stages); The Aransas Project v. Shaw, 2010 WL 2522415, at *3 (S.D. Tex. June 17, 2010) (same); see also Sierra Club v. Glickman, 82 F.3d 106, 109 n.1 (5th Cir. 1996) (“The timeliness requirement only bars intervention applications made too late.”).

9

Similarly, Apple’s motion will not result in prejudice to any existing party to this action. Apple’s proposed Answer in Intervention asserts a single defense and declaratory counterclaim, both based on the patent law doctrines of exhaustion and first sale. Based on Lodsys’s infringement allegations, these very same issues will likely be raised by every defendant. Therefore, allowing Apple to intervene will not cause any delay in the schedule, add any new issues to the case, or otherwise affect the rights of the parties in any respect. Finally, there are no special or unusual factors present that would render Apple’s motion untimely or improper. See Edwards, 78 F.3d at 1000. Apple has thus satisfied this threshold requirement.

B. Apple Has a Significant Interest in the Property and Transactions That Are at Issue in this Lawsuit

Apple has also met the second requirement for intervention as a matter of right under Rule 24(a): an interest in the subject matter of the litigation that is “direct, substantial, [and] legally protectable.” Ozee v. Am. Council on Gift Annuities, Inc., 110 F.3d 1082, 1096 (5th Cir. 1997); Espy, 18 F.3d at 1207 (“[T]he ‘interest test’ is primarily a practical guide to disposing of lawsuits by involving as many apparently concerned persons as is compatible with efficiency and due process.”) (citations omitted). As set out above, Apple holds a license to the patents in suit, the value of which depends on Apple’s ability to offer its licensed products and services to the Developers in return for the Developers’ agreement to pay Apple. License rights such as these are “protectable under the law” and provide a sufficiently close relationship to the litigation to satisfy this requirement. See, e.g., GE Co. v. Wilkins, 2011 WL 533549, at *2 (E.D. Cal. Feb. 11, 2011) (“[Intervenor] has properly alleged that it has a license in the technology underlying the ’985 Patent, and it is clear that such a license is protectable under the law.”).

Second, Lodsys’s infringement allegations target Apple’s own products and services and their facilitation of communication between the end users, the Apps, the App Store,

10

and other Apple technology. Courts have consistently held that a legally sufficient interest is implicated where infringement allegations rest on an intervenor’s own products or services. See, e.g., Chandler & Price Co. v. Brandtjen & Kluge, Inc., 296 U.S. 53, 55 (1935) (holding that manufacturer’s intervention in infringement action against its customers is “necessary for the protection of its interest”); Tegic Commc’ns Corp. v. Bd. Of Regents of the Univ. of Tex. Sys., 458 F.3d 1335, 1344 (Fed. Cir. 2006) (“[T]o the extent that [interest of the manufacturer] may be impaired by the Texas litigation, [manufacturer] may seek to intervene in that litigation.”); Honeywell Int’l v. Audiovox Commc’ns Corp., 2005 WL 2465898, at *4 (D. Del. May 18, 2005) (sufficient interest where intervenor made parts “at the heart” of infringement claims); IBM Corp. v. Conner Periphs., Inc., 1994 WL 706208, at *5 (N.D. Cal. Dec. 13, 1994) (same).4

Finally, this litigation has fundamentally disrupted Apple’s relationships with the Developers and with other developers, and places in jeopardy the revenue that Apple derives from those relationships. The potential loss of revenue, developers, or goodwill provides yet another independent basis upon which to find that Apple has a legally sufficient interest in the property at issue. Cf., e.g., U.S. Ethernet Innovations, LLC v. Acer, Inc. et al., No. 6:09-cv-448, at *4 (E.D. Tex. May 10, 2010) (Love, J.) (acknowledging significant interest in litigation based on, inter alia, potential loss of customers and goodwill, but ultimately granting permissive intervention without reaching question of intervention as of right) (Ex. E to the Sanders Decl.).

C. Apple’s Ability to Protect its Interests Will Be Impaired if it is Not Permitted to Intervene Here

As set out above, Apple has demonstrated that its interests in the licensed technology at issue will be impaired if it is not allowed to intervene. A finding that Lodsys is

_____________________

4 While indemnification obligations are sometimes at issue in cases under Rule 24(a), the cases do not require or place any dispositive weight on any such obligation, as set out above. And any such obligation is of course unnecessary for permissive intervention.

11

permitted to assert infringement claims against the Developers based on their use of licensed Apple technology would effectively negate Apple’s license rights, as well as harm Apple’s ability to preserve its substantial economic interest in its Developer relationships and sales of its licensed products and services. See, e.g., Codex Corp. v. Milgo Elec. Corp., 553 F.2d 735, 738 (1st Cir. 1977) (explaining that a “manufacturer must protect its customers . . . in order to avoid the damaging impact of an adverse ruling against its products”); Honeywell, 2005 WL 2465898, at *4 (holding that intervenor can “rightly claim . . . its interests will be impaired” where product is “at the heart” of the case). Moreover, an adverse outcome may harm Apple’s ability to protect its license rights in future litigation involving Lodsys and any number of other App developers, providing an independent basis on which to find Apple has satisfied this prong. See, e.g., Heaton, 297 F.3d at 424 (holding that potential negative stare decisis effect is also sufficient).

D. The Developers May Not Adequately Represent Apple’s Interest in Demonstrating That Lodsys’s Infringement Claims Are Exhausted

Finally, it is hornbook law that Apple’s burden in demonstrating that the existing defendants will not adequately represent its interests is “minimal,” and requires no more than a showing that the representation by those parties “may be” insufficient. Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n.10 (1972); accord, e.g., John Doe No. 1 v. Glickman, 256 F.3d 371, 380 (5th Cir. 2001) (“The potential intervener need only show that the representation may be inadequate.”) (emphasis in original) (citations omitted).

Apple has met this requirement for several separate and independent reasons. First, the Developers lack the resources to fully and fairly litigate the issue of whether Lodsys’s claims are exhausted. The Developers are largely individuals, see, e.g., Docket No. 1 ¶¶ 5, 7 (identifying two of seven defendants as individuals), or small entities with limited resources. See, e.g., http://www.manta.com/c/mmj0mt2/the-iconfactory-inc (defendant Iconfactory has

12

about six employees); http://www.manta.com/c/mmlhs8p/combay-inc (approximately two employees for defendant Combay). Apple’s far superior resources alone constitute a ground on which to find its interests may not be adequately represented. See, e.g., Bush v. Viterna, 740 F.2d 350, 357 (5th Cir. 1984) (this prong is met when “it is clear that the applicant will make a more vigorous presentation of arguments than existing parties”); Teague v. Bakker, 931 F.2d 259, 262 (4th Cir. 1991) (“Given the financial constraints on the insureds’ ability to defend the present action, there is a significant chance that they might be less vigorous than the Teague Intervenors in defending their claim to be insureds under the ERC policy.”).

Moreover, even if the financial disparity between the parties were not in and of itself sufficient to meet this prong, the interests of Apple and the Developers in this litigation may ultimately diverge. While the Developers will likely be interested in resolving this case as quickly and inexpensively as possible, Apple’s interest is in protecting its broader license rights with respect to thousands of App developers for Apple products who may be the subject of future Lodsys lawsuits or threats. This constitutes an independent basis upon which to find that Apple’s interests may not be adequately represented absent intervention. See, e.g., Doe, 256 F.3d at 380-81 (noting that disparity of incentives between party with “broad” interest in resolving issue and more narrow interest of intervening entity supported granting motion to intervene); Heaton, 297 F.3d at 425 (“That the FDIC’s interests and Monogram’s may diverge in the future, even though, at this moment, they appear to share common ground, is enough to meet the FDIC's burden on this issue.”) (intervention appropriate where existing party possessed broad public interest and party seeking to intervene possessed narrower economic interest).

Finally, the Developers may lack sufficient information and expertise regarding Apple’s license rights and the nature and operation of Apple’s licensed technology to adequately

13

represent Apple’s interests. Apple’s superior information constitutes a third separate reason to find that the Developers’ defense may not be adequate to protect Apple’s license rights. Honeywell, 2005 WL 2465898, at *4 (“[B]ecause [intervenor] is uniquely situated to understand and defend its own product, its interests are not adequately represented by existing parties to the litigation.”); LG Elecs. Inc. v. Q-Lity Comp. Inc., 211 F.R.D. 360, 365-66 (N.D. Cal. 2002).

III. In The Alternative, Permissive Intervention is Appropriate Here Under Rule 24(b)

Even if Apple did not meet the standard for intervention as of right, however, this motion should still be granted because Apple’s proposed defense and counterclaim present numerous questions of fact and law that are common to the existing lawsuit. First, based on the infringement allegations Lodsys has made to date, it is clear that both Apple and the existing defendants will raise issues of patent exhaustion and first sale, requiring the Court to analyze Apple’s rights under its license, the licensed technology that Lodsys has accused of infringement, and the application of the exhaustion and first sale doctrines to Lodsys’s claims.

Second, additional common questions of fact exist with respect to the licensed Apple products and methods that Lodsys appears to be accusing of infringement. Precisely how the Developers use Apple’s SDKs, APIs, memory, software, hardware, and servers, as well as the App Store itself—and precisely how those Apple products and services work—will be factual questions with respect to both Apple’s exhaustion defense and counterclaim and Lodsys’s existing infringement claims against the Developers. Finally, the Court will effectively be required to engage in the same claim construction and infringement analysis with respect to both Lodsys’s existing claims and Apple’s exhaustion defense, including the same analysis of the relevant claim terms, specifications, prosecution histories, and Lodsys infringement allegations.

14

Under these circumstances, courts uniformly find that permissive intervention is appropriate. For example, in Reid, 240 F.R.D. at 260 (Folsom, J.), the court granted permissive intervention to Microsoft where, as here, Microsoft’s software was claimed to be a substantial part of the allegedly infringing system. In doing so, the court noted that “Microsoft’s claims and defenses share common questions of law and fact with the action by Plaintiffs against Defendants . . . . Microsoft’s claims of invalidity and unenforceability raise the same questions of law and fact as similar claims by Defendants because they are all asserted against the ’120 patent.” Id.; accord, e.g., TiVo Inc. v. AT&T Inc., No. 2-09-cv-259 (E.D. Tex. March 31, 2010) (Folsom, J.) (permissive intervention where infringement claims rested on software provided by Microsoft) (Ex. F to Sanders Decl.); Acer, No. 6:09-cv-448 (Love, J.) (permissive intervention where patents were asserted against Intel technology incorporated in customer devices).

As in each of these cases, Apple’s proposed pleading relates to the same patents, claims, products, and defenses that will be litigated here regardless of whether Apple is allowed to intervene. Similarly, as set out above, this motion is timely and will result in no prejudice to the existing parties. Permissive intervention is thus appropriate.

CONCLUSION

For each of the foregoing reasons, Apple respectfully requests that the Court grant Apple’s motion and permit the filing of Apple’s proposed Answer and Counterclaim.

15

Dated: June 9, 2011

Respectfully submitted,

By /s/ Eric H. Findlay
Eric H. Findlay
State Bar No. 00789886
FINDLAY CRAFT, LLP
6760 Old Jacksonville Hwy
Suite 101
Tyler, TX 75703

George M. Newcombe (pro hac pending)
Jonathan C. Sanders (pro hac pending)
SIMPSON THACHER & BARTLETT, LLP
2550 Hanover Street
Palo Alto, CA 94304

Counsel for Intervenor Defendant and
Counterclaim Plaintiff Apple Inc.


Document 29 - Lodsys Opposition to Apple's Motion to Intervene

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS

LODSYS, LLC,
Plaintiff,

ATARI INTERACTIVE, INC.;
COMBAY, INC.;
ELECTRONIC ARTS INC.;
ICONFACTORY, INC.;
ILLUSION LABS AB;
MICHAEL G. KARR D/B/A SHOVELMATE;
QUICKOFFICE, INC.;
ROVIO MOBILE LTD.;
RICHARD SHINDERMAN;
SQUARE ENIX LTD.;
TAKE-TWO INTERACTIVE SOFTWARE, INC.,
Defendants.

CIVIL ACTION NO. 2:1 l-cv-272

PLAINTIFF LODSYS, LLC'S RESPONSE IN OPPOSITION TO
APPLE INC.'S MOTION TO INTERVENE

REDACTED VERSION

TABLE OF CONTENTS

I. INTRODUCTION
II. ARGUMENT
A. Threshold Matter:
1. As a Matter of Law,
2. At the Very Least, Apple's Motion Should Be Stayed Pending Discovery
B. Additional Threshold Matter: Apple's Motion is Premature
C. Apple is Not Entitled to Intervention as a Matter of Right Under Rule 24(a)
3. Apple's Motion is Untimely
4. Apple Lacks Any Direct, Substantial and Legally Protectable Interest
5. Apple's Purported Interest Will Not Be Impaired Absent Intervention
6. Apple's Purported Interest is More Than Adequately Represented
D. Apple is Not Entitled to Permissive Intervention Under Rule 24(b)
III. CONCLUSION

TABLE OF AUTHORITIES

Ace Capital v. Varadam Found.,
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Adams v. Consol. Wood Products Employee Ben. Plan,
No. 2:10-CV-310-TJW, 2011 WL 665821 (E.D. Tex. Feb. 14, 2011)

Bouchard v. Union Pac. R. Co.,
No. CIV .A.H-08-1156, 2009 WL 1506677 (S.D. Tex. May 28, 2009)

Bush v. Viterna,
740 F.2d 350 (5th Cir. 1984)

Butler, Fitzgerald & Potter v. Sequa Corp.,
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Dial v. P 'ship for Response & Recovery,
No. L09-CV-218, 2010 WL 1054884 (E.D. Tex. Feb. 23, 2010)

Edwards v. City of Houston,
78 F.3d 983 (5th Cir. 1996)

Fair child Semiconductor Corp. v. Power Integrations, Inc.,
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Flynn v. Hubbard,
782 F.2d 1084 (1st Cir. 1986)

Frazier v. Map Oil Tools, Inc.,
No. CIV .A.C-10-4, 2010 WL 2352056 (S.D. Tex. June 10, 2010)

Heaton v. Monogram Credit Card Bank of Georgia,
297 F.3d 416 (5th Cir. 2002)

Hopwood v. State,
No. CIV. A-92-CA-563-SS, 1994 WL 242362 (W.D. Tex. Jan. 20, 1994)

In re Babcock & Wilcox Co.,
No. CIV.A. 01-912, 2001 WL 1095031 (E.D. La. Sept. 18, 2001)

Ingebretsen on Behalf Ingebretsen v. Jackson Pub. Sch. Dist.,
88 F.3d 274 (5th Cir. 1996)

Int'l Tank Terminals, Ltd. v. M/V Acadia Forest,
579 F.2d 964 (5th Cir. 1978)

Intel Corp. v. Broadcom Corp.,
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248 F.3d 1333 (Fed. Cir. 2011)

IP Innovation L.L.C. v. Google, Inc.,
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James v. Harris County Sheriff's Dept,
No. CIV.A. H-04-3576, 2005 WL 1878204 (S.D. Tex. Aug. 9, 2005)

John Doe No. I v. Glickman,
256 F.3d 371 (5th Cir. 2001)

Kneeland v. Nat 7 Collegiate Athlectic Ass 'n,
806 F.2d 1285 (5th Cir. 1987)

League of United Latin Am. Citizens, Council No. 4434 v. Clements,
884 F.2d 185 (5th Cir. 1989)

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No. CIV .A. 3:04-CV-0063B, 2004 WL 2533575 (N.D. Tex. Nov. 9, 2004)
Morrow v. Microsoft Corp.,
499 F.3d 1332 (Fed. Cir. 2007)

Negotiated Data Solutions, LLC v. Dell, Inc.,
No. 2:06-cv 528 (E.D. Tex. Oct. 23, 2008)

New Orleans Pub. Serv., Inc., v. United Gas Pipe Line Co.,
732 F.2d 452 (5th Cir. 1984)

Ortho Pharm. Corp. v. Genetics Inst., Inc.,
52 F.3D 1026 (Fed. Cir. 1995)

Ouch v. Sharpless,
237 F.R.D. 163 (E.D. Tex. 2006)

Ramirez v. Texas Low-Level Radioactive Waste Disposal Auth.,
28 F. Supp. 2d 1019 (W.D.Tex. 1998)

Rigco, Inc. v. Rauscher Pierce Refsnes, Inc.,
110 F.R.D. 180 (N.D. Tex. 1986)

Saldano v. Roach,
363 F.3d 545 (5th Cir. 2004)

S.E.C. v. Provident Royalties, LLC,
No. CIV. 3:09-CV-1238-L, 2010 WL 27185 (N.D. Tex. Jan. 5, 2010)

Shaunfield v. Citicorp Diners Club, Inc.,
No. 3:04-CV-1087-G, 2005 U.S. Dist. LEXIS 11244 (N.D. Tex. June 8, 2005)

Shea v. Angulo,
19 F.3d 343 (7th Cir. 1994)

Sierra Club v. Epsy,
18 F.3d 1202 (5th Cir. 1994)

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No. 5-98CV-270, 1999 WL 1022129 (E.D. Tex. Nov. 5, 1999)

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931 F.2d 259 (4th Cir. 1991)

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2:09-cv-259 (E.D. Tex. Mar. 31, 2010)

U.S. Ethernet Innovations, LLC v. Acer, Inc. et al,
No. 6:09-cv-448 (E.D. Tex. May 10, 2010)

United States v. Microsoft Corp.,
No. CIV.A.98-1232(CKK), 2002 WL 319784 (D.D.C. Jan. 28, 2002)

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138 F.R.D. 503 (N.D. Tex. 1991)

Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA,
944 F.2d 870 (Fed. Cir. 1991)

Villas at Parkside Partners v. City of Farmers Branch,
245 F.R.D. 551 (N.D. Tex. 2007)

Washington Elec. Co-op., Inc. v. Massachusetts Mun. Wholesale Elec. Co.,
922 F.2d 92 (2d Cir. 1990)

Plaintiff Lodsys, LLC ("Lodsys") respectfully submits this response in opposition to Apple Inc.'s Motion To Intervene [dkt. no. 4] (the "Motion").1

I. INTRODUCTION

Apple asserts that it is entitled to intervene based on the License. Apple also asserts that it might lose revenues absent intervention. And Apple asserts that the defendants are allegedly too small and without financial resources to adequately represent Apple's purported interest. But all of Apple's assertions are legally and factually without merit for several reasons.

First, although Apple's Motion is based on the License, Apple ignores [redacted]

Second, Apple's own Motion demonstrates that its purported interest is, at best, purely economic. For example, Apple repeatedly speculates that this action could "lead to loss of significant revenues from all developers." Motion at 2. But courts have consistently held that economic interests do not satisfy the requirements for intervention. Apple's prediction that this lawsuit may hurt its relationship with Developers and may diminish revenues is also too speculative and contingent to satisfy the requirements for intervention.

Third, Apple repeatedly asserts that the defendants are allegedly individuals or "small entities with limited resources." Motion at 12. But Apple prematurely filed its Motion before Lodsys filed its Amended Complaint [dkt. no. 26] against several large companies with substantial financial and technical resources, including Atari Interactive, Inc., Electronic Arts Inc. ("Electronic Arts"), Rovio Mobile Ltd. ("Rovio"), Square Enix, Ltd., and Take-Two

1Apple Inc. ("Apple") "seeks to intervene because it is expressly licensed." Motion at 1. Because Apple filed [redacted] (the "License") under seal, the portions of this response that quote or reference the License have been redacted. An un-redacted version of this response has also been filed under seal. A copy of the License filed under seal is attached as Exhibit A to the Declaration of Jonathan C. Sanders [dkt. no. 4-3] ("Sanders Decl.").

1

Interactive Software, Inc. Accordingly, there can be no serious dispute that the defendants will more than adequately represent Apple's purported interest.

In short, the Court has myriad bases for denying Apple's Motion, and the Court should do so now before any additional needless expense and judicial resources are wasted concerning a purported interest that [redacted]

II. ARGUMENT

"The movant bears the burden of establishing its right to intervene." Adams v. Consol. Wood Products Employee Ben. Plan, No. 2:10-CV-310-TJW, 2011 WL 665821, *4 (E.D. Tex. Feb. 14, 2011). As discussed in detail below, Apple fails to satisfy its heavy burden because (a) as a threshold matter, [redacted] (b) as an additional threshold matter, Apple's Motion is premature; (c) Apple is not in entitled to intervention as a matter of right under Rule 24(a); and (d) Apple is not in entitled to permission intervention under Rule 24(b).

A. Threshold Matter:

[redacted] As a threshold matter, therefore, Apple's Motion should be denied. But even assuming arguendo that [redacted], at the very least, Apple's Motion should be stayed pending discovery concerning whether [redacted]2

1. As a Matter of Law, [redacted]

Apple asserts that its legally protectable interest — and the underlying basis for its request to intervene — derives from the License. See Motion at 1 ("Apple has an interest in the

2Apple alleges that, "[b]ecause Apple is licensed to offer products and services that embody the patents in suit to its Developers, under the patent law doctrines of exhaustion and first sale, Developers are entitled to use, free from claims of infringement of the patents in suit." Proposed Answer at |8. Accepting Apple's allegations as true for purposes of Apple's Motion only, Lodsys does not challenge here Apple's assertions regarding the scope of the license grant {i.e., [redacted]); rather, this response focuses only on whether [redacted] Lodsys reserves all rights to challenge all of Apple's assertions, if Apple is permitted to intervene.

2

property that is at the center of this dispute, namely, its license to the patents in suit...."). A patent, however, is "a bundle of rights which may be divided and assigned, or retained in whole or part." Vaupel Textilmaschinen KG v. Meccanica Euro Italia SPA, 944 F.2d 870, 875 (Fed. Cir. 1991). "[P]arties are free to assign some or all patent rights as they see fit based on their interests and objectives." Fairchild Semiconductor Corp. v. Power Integrations, Inc., 630 F. Supp. 2d 365, 372 (D. Del. 2007) (citing Morrow v. Microsoft Corp., 499 F.3d 1332, 1348 n.8 (Fed. Cir. 2007).

"To determine whether a patent transfer agreement conveys all substantial rights under a patent to a transferee or fewer than all of those rights, a court must assess the substance of the rights transferred and the intention of the parties involved." Intellectual Prop. Dev., Inc. v. TCI Cablevision of California, Inc., 248 F.3d 1333, 1342 (Fed. Cir. 2001). "In making such a determination, it is helpful to focus on each party's collection of sticks within the bundle of patent rights as a result of the agreement." IP Innovation LLC v. Google, Inc., 661 F. Supp. 2d 659, 663 (E.D. Tex. 2009) (emphasis added).

Here, [redacted] See, e.g., Frazier v. Map Oil Tools, Inc., No. CIV.A.C-10-4, 2010 WL 2352056, at *2 (S.D. Tex. June 10, 2010) ("Movant's standing to sue and thus its ability to intervene depends in large part on whether it is an exclusive or non-exclusive licensee, and more particularly whether it has the right to prevent others from using and selling the patented product.").

3

Put simply, [redacted] See, e.g., Ortho Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1031 (Fed. Cir. 1995) (holding that licensee did not acquire required "proprietary sticks from the bundle of patent rights"). Accordingly, Apple's Motion should be denied as a matter of law. See Intel Corp. v. Broadcom Corp., 173 F. Supp. 2d 201, 220 (D. Del. 2001) ("Under Delaware law, the interpretation of a patent license agreement is a question of law.").3

2. At the Very Least, Apple's Motion Should Be Stayed Pending Discovery.

"[W]here the provisions of a contract are plain and unambiguous, 'evidence outside the four corners of the document as to what was actually intended is generally inadmissible." Ace Capital v. Varadam Found, 392 F. Supp. 2d 671, 674 (D. Del. 2005). Here, [redacted] Assuming arguendo [redacted] then Apple's Motion should be stayed and Lodsys should be allowed to conduct discovery concerning [redacted] For example, [redacted] But Apple failed to provide this court with [redacted]

3[redacted]

4

[redacted] Discovery concerning [redacted] See Declaration of Christopher M. Huck (the "Huck Decl."), Ex. 1 ("Patentees may also consider including a provision in the license that make validity challenges to a licensed patent a material breach allowing termination.").

Moreover, Apple has repeatedly refused to provide information relevant to its request for intervention. For example, Apple previously refused to provide even Lodsys's counsel with a complete copy of the License and, instead, redacted all but two paragraphs of the License. Tellingly, the two (and only two) paragraphs that Apple disclosed did not include [redacted] Subsequently, Apple filed the License under seal for attorneys' eyes only, so that Lodsys could not review the actual terms of License, [redacted] Apple's disingenuous conduct and repeated attempts to hide the ball should not be rewarded. Accordingly, if [redacted] then Apple's Motion should be stayed and Lodsys should be allowed (among other issues)[redacted]

B. Additional Threshold Matter: Apple's Motion is Premature.

"Courts should discourage premature intervention that wastes judicial resources." Sierra Club v. Espy, 18 F.3d 1202, 1206 (5th Cir. 1994). Indeed, Rule 24 "does not require the Court to permit intervention based upon speculation that intervention may be useful for protecting one's rights, if the need for such protection should arise at some point in the proceeding." United States v. Microsoft Corp., No. CIV.A.98-1232(CKK), 2002 WL 319784, *2 (D.D.C. Jan. 28, 2002); see also Ramirez v. Texas Low-Level Radioactive Waste Disposal Auth., 28 F. Supp. 2d 1019, 1020-21 (W.D. Tex. 1998) ("The '[rjipeness doctrine reflects the determination that courts should decide only a 'real, substantial controversy,' not mere hypothetical questions.'").

Intervention is premature where (as here) the defendants have not yet answered the complaint and, thus, the movant (and the Court) can only speculate concerning whether the

5

requirements of Rule 24 are satisfied. See Flynn v. Hubbard, 782 F.2d 1084, 1089 (1st Cir. 1986) ("It would be premature to decide now whether the interests asserted by [movants] meet the requirements of Rule 24."); see also Espy, 18 F.3d at 1206 ("A better gauge of promptness is the speed with which the would-be intervenor acted when it became aware that its interests would no longer be protected by the original parties.") (emphasis added).

Here, Apple moved to intervene only nine days after Lodsys filed its original Complaint. No defendant has answered the original Complaint or Lodsys's Amended Complaint. And there is not even the slightest hint yet that the defendants will inadequately represent Apple's purported interest. In fact, Apple trumpets the "early stage" of this proceeding:

Apple moved while the case was still in its infancy: the lawsuit was filed just over a week ago, the defendants have not yet answered Lodsys's Complaint (indeed, upon information and belief, they have not yet even been served with the summons and Complaint), and no other significant developments have taken place.

Motion at 9 (emphasis added). Apple also admits (several times) in its Motion that the defense and declaratory counterclaim raised in its Proposed Answer "will likely be raised by every defendant." Motion at 10 (emphasis added). Thus, at this "early stage" in the proceedings, Apple's assertion that its purported interests will not be protected by the defendants is pure speculation. See Shaunfieldv. Citicorp Diners Club, Inc., No. 3:04-CV-1087-G, 2005 U.S. Dist. LEXIS 11244, *8-9 (N.D. Tex. June 8, 2005) ("Timeliness for purposes of intervention is determined from the point that the intervenor learns that its interest in the lawsuit would not be adequately protected by the other parties, not from inception of the case or the date the intervenor learned of the litigation.") (emphasis added).

Moreover, Apple repeatedly postulates that its "rights will not be adequately protected by the current defendants in this case, because Lodsys has chosen to assert these claims against Developers who are individuals or small entities with far fewer resources." Motion at 2 (emphasis added). But the premature nature of Apple's Motion is illuminated by the fact that Lodsys's Amended Complaint names as defendants several large Developers with substantial financial and technical resources, including Electronic Arts (see Huck Decl., Ex. 2 (net revenues

6

of $3,589 billion)) and Rovio. See Huck Decl., Ex. 3 (three of five "Top Paid iPad Apps"). Even assuming arguendo that Apple's characterization of the original defendants is accurate (which it is not), Apple cannot seriously dispute that the additional defendants will more than adequately represent Apple's purported interests. "Accordingly, inasmuch as [Apple] seek[s] to intervene in anticipation of an actual need for intervention, the Court shall deny the motion as premature." Microsoft, 2002 WL 319784 at *2.

C. Apple is Not Entitled to Intervention as a Matter of Right Under Rule 24(a).

A movant seeking to intervene as of right under Rule 24(a) must satisfy four requirements:

(1) the movant must timely file a motion; (2) the movant must claim an interest in the property or transaction that is the subject of the action; and (3) the movant must show that disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest; and (4) the movant's interest must not be adequately represented by existing parties to the litigation

S.E.C. v. Provident Royalties, LLC, CIV. 3:09-CV-1238-L, 2010 WL 27185, *1 (N.D. Tex. Jan. 5, 2010). If the movant "fails to meet any one of those requirements then it cannot intervene as of right." Bush v. Viterna, 740 F.2d 350, 354 (5th Cir. 1984) (emphasis added). As discussed below, here Apple does not (and cannot) satisfy any of the four requirements.

1. Apple's Motion is Untimely.

"The timeliness clock does not run from the date the potential intervener knew or reasonably should have known of the existence of the case into which she seeks to intervene." John Doe No. 1 v. Glickman, 256 F.3d 371, 377 (5th Cir. 2001) (emphasis added). Rather, "[t]he timeliness clock runs either from the time the applicant knew or reasonably should have known of his interest,...or from the time he became aware that his interest would no longer be protected by the existing parties to the lawsuit." Edwards v. City of Houston, 78 F.3d 983, 1000 (5th Cir. 1996) (emphasis added).

Here, Apple's Motion is untimely because it is premature. Indeed, as discussed above, the underlying theme of Apple's Motion — i.e., that the defendants were supposedly too small and without adequate resources — has already been proved false by Lodsys's Amended

7

Complaint. No additional judicial resources should be wasted speculating about whether Apple's request for intervention may some day in the future be ripe. See Dial v. P"ship for Response & Recovery, No. 1:09-CV-218, 2010 WL 1054884, *2 (E.D. Tex. Feb. 23, 2010) ("Essentially, ripeness is 'peculiarly a question of timing.'"). Accordingly, Apple's Motion should be denied as moot or, at the very least, stayed until the defendants have answered Lodsys's Amended Complaint.

2. Apple Lacks Any Direct, Substantial and Legally Protectable Interest.

"To meet the second requirement for Rule 24(a)(2) intervention, a potential intervenor must demonstrate that he has an interest that is related to the property or transaction that forms the basis of the controversy." James v. Harris County Sheriffs Dept., No. CIV.A. H-04-3576, 2005 WL 1878204, *2 (S.D. Tex. Aug. 9, 2005). "Not any interest, however, is sufficient; the interest must be "direct, substantial, [and] legally protectable." Saldano v. Roach, 363 F.3d 545, 551 (5th Cir. 2004) (emphasis added). "Economic interest alone is insufficient, as a legally protectable interest is required for intervention under Rule 24(a)(2)." New Orleans Pub. Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 463 (5th Cir. 1984). "Further, the interest must be 'one which the substantive law recognizes as belonging to or being owned by the applicant.'" Ouch v. Sharpless, 237 F.R.D. 163, 166 (E.D. Tex. 2006).

First, Apple asserts that its "[ljicense rights" are "protectable under the law." Motion at 10. But, as discussed above, [redacted]

8

See Adams, 2011 WL 665821 at *4 ("intervention is improper where the intervenor does not itself possess the only substantive legal right it seeks to assert in the action").

Second, relying on cases involving the relationship between manufacturers and customers, Apple asserts that "Courts have consistently held that a legally sufficient interest is implicated." Motion at 11. But the authority on which Apple relies is inapposite, because the defendants (and other Developers) are not Apple's customers. In fact, based on a review of publically available information, it appears that (at Apple's insistence) Apple and the Developers expressly "acknowledge and agree that their relationship under this Schedule 1 is, and shall be, that of principal and agent, and that [Developers], as principal, are, and shall be, solely responsible for any and all claims and liabilities involving or relating to, the Licensed Applications..." Huck Decl., Ex. 4 ("iPhone Developer Program License Agreement") at Schedule 1, TJ1.3.4 And, contrary to Apple's assertions in its Motion, Apple expressly disclaims any relationship between Developers and Apple except for Developers as principals. See id. at fl54 ("Except for the agency appointment as specifically set for in Schedule 1 (if applicable), this Agreement will not be construed as creating any other agency relationship, or partnership, joint venture, fiduciary duty, or any other form of legal association between You and Apple....") (emphasis added). Thus, by Apple's design, the relationship between Apple and the Developers is the complete opposite of the manufacturer and customer relationship.

Third, Apple asserts "this litigation has fundamentally disrupted Apple's relationships with the Developers and with other developers." Motion 11. But Apple does not even attempt to qualify or quantify the alleged "disruption" and, in any event, an interest must be more concrete. See Rigco, Inc. v. Rauscher Pierce Refsnes, Inc., 110 F.R.D. 180, 183 (N.D. Tex. 1986) ("The term 'interest' is narrowly read to mean a direct and substantial interest in the proceedings.").

Fourth, Apple asserts that "[t]he potential loss of revenue, developers, or goodwill provides yet another independent basis" for intervention. Motion at 11. But "something more

4This Court may review matters of public record and documents referenced in, but not attached to, Apple's Proposed Answer. See Funk v. Stryker Corp., 631 F.3d 777, 783 (5th Cir. 2011).

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than an economic interest is necessary." Adams, 2011 WL 665821 at *4 (emphasis added). Indeed, "courts in this circuit have found interests to be purely economic and insufficient under Rule 24(a)(2) when the party seeking to intervene fails to assert a claim for which it is the real party in interest." In re Babcock & Wilcox Co., No. CIV. A. 01-912, 2001 WL 1095031, *4 (E.D. La. Sept. 18, 2001); see also Bouchard v. Union Pac. R. Co., No. CIV.A.H-08-1156, 2009 WL 1506677, *2 (S.D. Tex. May 28, 2009) ("This requires a showing of something more than a mere economic interest; rather, the interest must be 'one which the substantive law recognizes as belonging to or being owned by the applicant.'").

Fifth, relying on Negotiated Data Solutions, LLC v. Dell, Inc., No. 2:06-cv 528 (E.D. Tex. Oct. 23, 2008), and U.S. Ethernet Innovations, LLC v. Acer, Inc. et al, No. 6:09-cv-448 (E.D. Tex. May 10, 2010), Apple asserts that, "under these exact circumstances, courts in this district have concluded that intervention as a matter of right is appropriate." Motion at 8. But Apple seriously overstates the application of both cases. For example, the motion to intervene in Negotiated Data Solutions was partially unopposed, the Order itself (Sanders Decl., Ex. D) is one paragraph and does not contain the Court's analysis, and the underlying briefing is under seal, so there is no way to glean any further information. Similarly, in U.S. Ethernet Innovations, the Court's Order (Sanders Decl., Ex. E) focused on Intel's (the proposed intervenor) indemnification obligations with the defendants as establishing a legal relationship and Intel was apparently not licensed by the plaintiff, so a finding of infringement could implicate Intel's products. Neither factor is applicable here, because Apple does not assert any indemnification obligations and Apple is licensed.5

Because Apple lacks any direct, substantial and legally protectable interest, Apple's Motion should be denied.

5Apple admits that "indemnification obligations are sometimes at issue in cases under Rule 24(a)." Tellingly, however, Apple does not discuss its lack of indemnity obligations to the Developers. Indeed, although Apple's Motion hints that it may have obligations to the Developers, the opposite is true because Apple has required the Developers to "agree to indemnify, defend and hold harmless Apple ... from any and all claims, losses, liabilities, damages, expenses and costs ... as a result of... any claims that [Developers'] Applications or the distribution, sale, offer to sale, use or importation of [Developers'] Applications (whether alone or as an essential part of a combination)... infringe any third party intellectual property or proprietary rights...." Huck Dec, Ex. 4 at 1.

10

3. Apple's Purported Interest Will Not Be Impaired Absent Intervention.

Apple asserts that, unless it is allowed to intervene, its interests will be impaired because "[a] finding that Lodsys is permitted to assert infringement claims against the Developers ... would effectively negate Apple's license rights." Regardless of whether Apple is allowed to intervene, however, this Court can (and should) permit Lodsys to assert infringement claims against the defendants. In other words, Apple's presence in this action is not dispositive of that question. Instead, the relevant question for purposes of Apple's Motion is whether the defendants will raise the same issues of patent exhaustion raised in Apple's Proposed Answer. Apple has repeatedly answered that question in the affirmative: "it is clear that both Apple and the existing defendants will raise issues of patent exhaustion and first sale." Motion at 14.

Apple also asserts that without intervention this action will "harm Apple's ability to preserve its substantial economic interest in its Developer relationships and sales of its licensed products and services." Motion at 12. But, as discussed above, economic interests are insufficient. See Lincoln Gen. Ins. Co. v. Aisha's Learning Ctr., No. CIV.A. 3:04-CV-0063B, 2004 WL 2533575, *2 (N.D. Tex. Nov. 9, 2004). Apple's bald prediction that it could possibly lose money, relationships, or sales is also too speculative to satisfy Apple's burden. See Taylor Communications Group, Inc. v. Sw. Bell Tel. Co., 172 F.3d 385, 388-89 (5th Cir. 1999) ("Taylor's interest in the underlying litigation is too speculative and general to support intervention as of right."); Washington Elec. Co-op., Inc. v. Massachusetts Mun. Wholesale Elec. Co., 922 F.2d 92, 96-97 (2d Cir. 1990) ("interest that is remote from the subject matter of the proceeding, or that is contingent upon the occurrence of a sequence of events before it becomes colorable, will not satisfy the rule").

Because Apple's purported interest will not be impaired absent intervention, Apple's Motion should be denied.

4. Apple's Purported Interest is More Than Adequately Represented.

Apple asserts that "its burden in demonstrating that the existing defendants will not adequately represent its interests is 'minimal.'" Motion at 12. But Apple ignores that the Fifth

11

Circuit has cautioned that however "'minimal' this burden may be, it cannot be treated as so minimal as to write the requirement completely out of the rule." Bush v. Viterna, 740 F.2d 350, 355 (5th Cir. 1984). Indeed, "[w]hile the presumption may be rebutted on a relatively minimal showing, [Apple] must 'produce something more than speculation as to the purported inadequacy."' League of United Latin Am. Citizens, Council No. 4434 v. Clements, 884 F.2d 185, 189 (5th Cir. 1989).

Apple also ignores that "[t]he test in the Fifth Circuit is that 'when the party seeking intervention has the same ultimate objective as a party to the suit, a presumption arises that its interests are adequately represented, against which the petitioner must demonstrate adversity of interest, collusion, or nonfeasance." United States v. Texas Educ. Agency (Lubbock Indep. Sch. Dist.), 138 F.R.D. 503, 506 (N.D. Tex. 1991) (emphasis added). And here Apple admits that the defendants share the same ultimate objective: "Apple's proposed Answer in Intervention asserts a single defense and declaratory counterclaim, both based on the patent law doctrines of exhaustion and first sale. Based on Lodsys's infringement allegations, these very same issues will likely be raised by every defendant.'" Motion at 10 (emphasis added).

Apple does not (and cannot) rebut the presumption of adequate representation with any evidence of collusion. See Kneelandv. Nat'l Collegiate Athletic Ass 'n, 806 F.2d 1285, 1288 (5th Cir. 1987) (finding adequate representation based on presumption). Apple's assertions regarding alleged "adversity of interest" and "nonfeasance" also fail for several reasons.

First, Apple asserts that "the Developers lack the resources to fully and fairly litigate the issue of whether Lodsys's claims are exhausted." Motion at 12. Apparently Apple believes it is entitled to intervene simply because it is allegedly larger and has more money than some of the defendants. But that is not the test, and Apple's assertion is far too speculative. See Villas at Parkside Partners v. City of Farmers Branch, 245 F.R.D. 551, 555 (N.D. Tex. 2007) ("While FAIR argues that the city lacks financial resources, without more, the court does not determine that this is enough to overcome the presumption that the city can defend its interests and those of its residents."); Butler, Fitzgerald & Potter v. Sequa Corp., 250 F.3d 171, 181 (2d Cir. 2001)

12

("we do not believe the limited financial outlays provided here by Butler necessarily prove GBJ's inability to litigate this case effectively in the future"); Shea v. Angulo, 19 F.3d 343, 348 (7th Cir. 1994) ("actions thus far have not indicated inability to pursue the litigation").6

Second, although they may not be as large as Apple, even the defendants named in Lodsys's original Complaint are not without significant financial resources. For example, Illusion Labs has publically disclosed that its total revenue for fiscal year-ended June 30, 2010 was (US) $5.1 million, with total assets of (US) $4.6 million. See Huck Decl., Ex. 5. And Quickoffice purports to have "[ijnstalled on over 300 million devices in more than 180 countries." See Huck Decl., Ex. 6. In any event, any assertion that the defendants are "small entities with limited resources" (Motion at 12) is belied by Lodsys's Amended Complaint, which names some of the largest (and financially significant) Developers in the world.

Third, Apple asserts that the "interests of Apple and the Developers in this litigation may ultimately diverge." Motion at 13. But the mere possibility that, in the future, "the interests of the defendants and [proposed intervenor] might clash does not demonstrate the necessary adverse interest." Int'l Tank Terminals, Ltd. v. M/VAcadia Forest, 579 F.2d 964, 968 (5th Cir. 1978).

Fourth, Apple asserts that "[w]hile the Developers will likely be interested in resolving this case as quickly and inexpensively as possible, Apple's interest is in protecting its broader license rights [against] future Lodsys lawsuits or threats." Motion at 13. "However, the mere possibility that a party may at some future time enter into a settlement cannot alone show inadequate representation." Bush, 740 F.2d at 358. And a settlement by any defendant would not create precedent unfavorable to Apple.7

6Apple relies on Teagne v. Bakker, 931 F.2d 259 (4th Cir. 1991). But there, two defendants did not retain counsel, were in federal prison, and "without any income except the minimal income provided federal prisoners of approximately eleven cents per hour." And the other defendant described herself as '"of quite modest means' and as one who 'lives and works in a poor south Bronx neighborhood' as a minister of a small church." 931 F.2d at 262.

7Apple relies on John Doe No. 1 v. Glickman, 256 F.3d 371 (5th Cir. 2001), and Heaton v. Monogram Credit Card Bank of Georgia, 297 F.3d 416 (5th Cir. 2002). But in each of those cases, the "broader" interest was the government agencies' (as opposed to a private party's) obligation to be legally accountable to the public as a whole. In sharp contrast here, Apple's desire to assert the doctrines of patent exhaustion and first sale is (by Apple's own admission) identical to the defendants.

13

Fifth, Apple asserts that it has "superior" technical information and expertise. See Motion at 14. But (again) Apple prematurely filed its Motion before Lodsys's Amended Complaint, which includes large developers with substantial technical resources and expertise. In addition, there is no reason that Apple must be a party to this action to deploy its information and expertise on behalf of the defendants. See Texas Educ. Agency, 138 F.R.D. at 506. Except to the extent [redacted], Apple is free to informally advise the defendants or petition for amicus status where appropriate. See Bush, 740 F.2d at 359 (finding "the position of amicus ... more appropriate").

Because Apple's purported interest is more than adequately represented, Apple's Motion should be denied.

D. Apple is Not Entitled to Permissive Intervention Under Rule 24(b).

A movant seeking permissive intervention under Rule 24(b) must satisfy three requirements: "(1) the movant must show an independent ground for jurisdiction; (2) the motion must be timely; and (3) the movant's claim or defense and the main action must have a question of law and fact in common." Hopwood v. State, No. CIV. A-92-CA-563-SS, 1994 WL 242362, *2 (W.D. Tex. Jan. 20, 1994). "[A]n additional factor to be considered in determining permissive intervention is 'whether the interveners' interests are adequately represented by other parties.'" Texas Educ. Agency, 138 F.R.D. at 508. "The denial of permissive intervention [is] also appropriate [where] the Proposed Intervenors bring no new issues to this action." Ingebretsen on Behalf of Ingebretsen v. Jackson Pub. Sch. Dist., 88 F.3d 274, 281 (5th Cir. 1996). Finally, the Court must consider "whether intervention will unduly delay the proceedings or prejudice existing parties." Kneeland, 806 F.2d at 1289.

Apple asserts that it is entitled to permissive intervention "because Apple's proposed defense and counterclaim present numerous questions of law and fact." Motion at 14. But "[t]he existence of a common question of law or fact does not automatically entitle an applicant to intervene." Texas Educ. Agency, 138 F.R.D. at 507. Rather, "[p]ermissive intervention 'is wholly discretionary with the [district] court ... even though there is a common question of law

14

or fact, or the requirements of Rule 24(b) are otherwise satisfied." New Orleans Pub. Serv., 732 F.2d at 470-71 (emphasis added); see also Adams, 2011 WL 665821 at *5 ("Aside from these requirements, the decision whether to grant intervention under Rule 24(b) depends on the facts of each case and is entirely within the court's discretion.").

Here, several factors preclude permissive intervention. Apple cannot demonstrate an independent ground for jurisdiction because (as discussed above) [redacted] See State Tobacco, 1999 WL 1022129, *2 (E.D. Tex. Nov. 5, 1999) ("courts of this circuit have looked to the standing requirements of Article III"). Apple's Motion is also untimely because it is premature. Apple's purported interest will be more than adequately represented by the defendants. Apple admits that it brings no new issues. See Bush, 740 F.2d at 359 ("Where he presents no new questions, a third party can contribute usually most effectively and always most expeditiously by a brief amicus curiae and not by intervention."). And, although "these very same issues will likely be raised by every defendant" (Motion at 10), Apple's admitted reason for intervention is to use its allegedly "far superior resources" (Motion at 13), apparently for no other reason than to burden Lodsys and this proceeding. See Fed. R. Civ. P. 24 ("In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights."). Accordingly, this Court should exercise its broad discretion and deny Apple's request for permissive intervention.8

III. CONCLUSION

Apple's economic interest is insufficient. And there can be no serious dispute that the defendants will adequately represent Apple's purported interest. For all of the above reasons, Apple's Motion should be denied.

8Apple relies on TiVo Inc. v. AT&T Inc., No. 2:09-cv-259 (E.D. Tex. Mar. 31, 2010). But there "TiVo, through its own admission, d[id] not oppose Microsoft's intervention." See Sanders Decl., Ex. 5 at 6.

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Dated: July 27, 2011.

Respectfully Submitted, By: /s/Christopher M. Huck
Michael A. Goldfarb (admitted pro hac vice)
Christopher M. Huck (admitted pro hac vice)
KELLEY, DONION, GILL,
HUCK & GOLDFARB, PLLC
701 Fifth Avenue, Suite 6800
Seattle, Washington 98104
Phone: (206)452-0260
Fax: (206)397-3062
Email:

William E. "Bo" Davis, III
Texas State Bar No. 24047416
THE DAVIS FIRM, PC
111 West Tyler Street
Longview, Texas 75601
Attorneys for Plaintiff Lodsys, LLC


Document 35 - Apple's Reply to Lodsys's Response

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

LODSYS, LLC,
Plaintiff,
v.
COMBAY, INC.;
ICONFACTORY, INC.;
ILLUSION LABS AB;
MICHAEL G. KARR D/B/A SHOVELMATE;
QUICKOFFICE, INC.;
RICHARD SHINDERMAN;
WULVEN GAME STUDIOS,
Defendants.

CIVIL ACTION NO. 2:11-cv-272-TJW

HEARING REQUESTED

APPLE INC.’S REDACTED REPLY IN SUPPORT OF MOTION TO INTERVENE

Lodsys’s opposition fails to rebut the appropriateness of Apple’s intervention. Lodsys does not contest that Apple’s technology and Apple’s interest in protecting the value of its License lie at the heart of this case, that the present defendants lack the technical information and expertise regarding that technology and the License to fully and fairly develop the exhaustion defense, and that Apple’s proposed defense and counterclaim share numerous common issues of law and fact with the existing suit. Thus, Apple’s motion to intervene should be granted.1

ARGUMENT

I. Lodsys’s License Argument Is Both Baseless and Irrelevant at This Stage

[REDACTED]

_____________________

1 All defined terms in Apple’s opening brief will have the same meaning when used herein.

1

[REDACTED].2

Third, [REDACTED], disputed issues of contractual interpretation or intent cannot be resolved on a motion to intervene. See, e.g., Mendenhall v. M/V Toyota Maru No. 11 v. Panama Canal Co., 551 F.2d 55, 56 n.2 (5th Cir. 1977) (all nonconclusory allegations must be accepted as true when considering intervention). The motion cannot be stayed pending discovery, as Lodsys argues, Opp. at 4-5, because “the factual allegations of the complaint are assumed to be true,” and as a result, “discovery on [the] claims before ruling on the motion to intervene is as irrelevant as it would be if made in the context of a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6).” Pin v. Texaco, Inc., 793 F.2d 1448, 1450 (5th Cir. 1986).3 Factual issues concerning the construction of this provision must be resolved on the merits, not at the pleading stage on a motion to intervene.

II. Apple Has Met the Requirements for Intervention of Right

A. Lodsys Concedes That Apple’s Motion Was Not Filed Too Late

Lodsys’s argument that the Motion is premature is similarly flawed. First, Apple’s interest in the litigation is far from speculative. Indeed, Lodsys does not even dispute Apple’s statements that its technology lies at the heart of this case. See Opp. at 5-7. The circumstances here are, therefore, far different from those described in the cases cited by Lodsys,

_____________________

2 Lodsys’s reliance on case law regarding non-exclusive licensees’ standing to assert the patents is irrelevant. Cf., e.g., Frazier v. Map Oil Tools, 2010 WL 2352056, at *4 (S.D. Tex. June 10, 2010) (finding movant seeking to intervene as plaintiff in infringement action lacked standing due to non-exclusive licensee status). Apple seeks to intervene to protect its rights under the License, not to assert the patents against any third party.

3 Lodsys also contends that Apple has “repeatedly refused to provide information relevant to its request for intervention.” Opp. at 5. But Apple provided a complete copy of the License as Exhibit A to its supporting declaration. See generally Sanders Decl., Ex. A.

2

where the intervenor did not even know whether its interests would ultimately be implicated;4 there is no dispute here that Apple’s license and exhaustion defense will be central to this case.

Second, no authority cited by Lodsys holds that a motion to intervene can be “untimely” because it is too early. On the contrary, Lodsys fails to distinguish or rebut Sierra Club v. Glickman, 82 F.3d 106, 109 n.1 (5th Cir. 1996), cited in Apple’s opening brief at page 9, where the court held, “[t]he timeliness requirement only bars intervention applications made too late.” Finally, even if a motion to intervene could ever be filed too early, Lodsys’s argument would still fail because it has not articulated any prejudice resulting from Apple’s Motion.

B. Apple’s Interest Is More Than Economic

Lodsys’s argument that Apple has identified nothing more than an “economic” interest in the case, Opp. at 8-10, simply ignores the authorities cited by Apple in its opening brief, which hold unambiguously that a license is itself a sufficient property interest as a matter of law. See Motion at 10-11 and cases cited therein. Instead, Lodsys relies on cases that are unrelated to license rights and thus irrelevant here. See, e.g., Saldano v. Roach, 363 F.3d 545, 551 (5th Cir. 2004) (prosecutor had insufficient interest in habeas case). Moreover, even if Apple were not licensed, courts have held expressly that intervention to protect a supplier’s customers from infringement claims is itself “necessary for the protection of its interest.” Chandler & Price Co. v. Brandtjen & Kluge, Inc., 296 U.S. 53, 55 (1935).

Lodsys also argues that Apple’s interest is insufficient because there is no indemnification obligation here, and because Apple is formally referred to as the “agent” of the

___________________

4 E.g., U.S. v. Microsoft Corp., 2002 WL 319784, at *2 (D.D.C. Jan. 28, 2002) (motion to intervene related to potential motions in the main action that had not yet even been filed). Lodsys also attempts to rely on cases that do not even relate to intervention and thus have no bearing here. See, e.g., Ramirez v. Tex. Low-Level Radioactive Waste Disposal Auth., 28 F. Supp. 2d 1019, 1020-21 (W.D. Tex. 1998) (on standing generally, not motions to intervene).

3

developers in the context of a separate Developer Agreement. Opp. at 9. But Lodsys cites not a single authority for the proposition that an indemnification clause is required for a sufficient property interest, and, as set out in Apple’s opening brief and uncontested here, none of the cases in this area have found any such requirement. See Motion at 10-11. Similarly, the fact that Apple refers to itself as an “agent” of developer “principals” in other contexts is irrelevant to this motion; Apple provides products and services to the App Makers in exchange for payment, precisely the type of supplier-customer relationship courts have found sufficient to permit intervention. See id. Finally, even if Lodsys’s argument had any merit, the Court cannot at this stage make a factual determination regarding disputed terms of a different contract outside the pleadings. Mendenhall, 551 F.2d at 56 n.2. Those issues must be resolved through discovery.

C. Apple’s Interest Will Inevitably Be Impaired Absent Intervention

Lodsys’ contention that Apple’s interest is too speculative to justify intervention at this stage ignores the pleadings. Opp. at 11. Apple has sufficiently alleged impairment of its interests: Apple’s License lies at the heart of this case, Lodsys has already sued numerous significant Apple customers and threatened dozens of others, and a boycott of some of Apple’s core products by App developers has been proposed. See Supp. Sanders Decl. ¶ 3, Ex. A, ¶ 9; Mendenhall, 551 F.2d at 56 n.2 (allegations must be accepted as true).

D. None of the Defendants Possess Sufficient Knowledge, Expertise, or Incentive To Adequately Protect Apple’s Interests

Lodsys also argues that the present defendants can now adequately represent Apple’s interests, because Lodsys added several larger defendants—after Apple filed its motion—who will argue exhaustion. Opp. at 11-14. On any motion to intervene, the parties will assert common defenses; it is the difference in expertise, objectives, and resources, all of which are present here, that renders intervention proper. Although some of the new defendants may

4

have greater resources than the original defendants, Lodsys does not contest the fact that none of the defendants have the technical information, expertise, and knowledge regarding how Apple’s technology works or the negotiation and intent of the License itself to fully articulate and develop Apple’s exhaustion defense. Motion at 12-14 and cases cited therein. This distinction alone is sufficient. Honeywell Int’l v. Audiovox Commc’ns Corp., 2005 WL 2465898, at *4 (D. Del. May 18, 2005) (“[B]ecause [intervenor] is uniquely situated to understand and defend its own product, its interests are not adequately represented by existing parties to the litigation.”).

III. Apple Has Met The Requirements For Permissive Intervention

Finally, the Court should allow permissive intervention because Lodsys disputes none of the facts or law set out in Apple’s opening brief establishing that permissive intervention is appropriate. To the contrary, Lodsys concedes that Apple’s Motion raises many common issues of law and fact to those likely to be raised by the parties to this action. Opp. at. 14-15. Lodsys does not distinguish any of the cases in this district that have allowed intervention under these precise circumstances, and does not offer a single authority to the contrary. See id.5

In addition, Lodsys offers no legal, factual, or logical explanation for why it would be more efficient to resolve the complex issues surrounding Apple’s License without Apple in this case. The Court should follow the case law of this district and circuit and exercise its discretion to allow intervention under Rule 24(b).

_______________________

5 Lodsys quibbles with Apple’s citations to TiVo Inc. v. AT&T Inc., Negotiated Data Solutions, LLC v. Dell, Inc., and U.S. Ethernet Innovations, LLC v. Acer, Inc. et al. on the grounds that certain aspects of the motions were unopposed, one of the orders was not long enough for Lodsys’s liking, and in one case some—but not all or even most—of the defendants had potential indemnification claims. Opp. at 10, 15. But not one of those cases depended on an indemnification obligation, and Lodsys distinguishes none of them on the merits. Lodsys also misleadingly suggests that the underlying briefing in Negotiated Data was unopposed and under seal, when Intel’s reply is publicly available and clearly sets out the disputed issues. See Negotiated Data Solutions v. Dell, Inc., Civ. A. No. 2:06-CV-528 (CE) (Docket No. 124) (Sept. 17, 2008).

5

Dated: August 8, 2011

Respectfully submitted,

By /s/Melissa Richards Smith
Melissa Richards Smith
Texas State Bar No. 24001351
GILLAM & SMITH, L.L.P
303 South Washington Avenue
Marshall, Texas 75670

George M. Newcombe (admitted pro hac vice)
Jonathan C. Sanders (admitted pro hac vice)
SIMPSON THACHER & BARTLETT, LLP
2550 Hanover Street
Palo Alto, CA 94304

Counsel for Intervenor Defendant and
Counterclaim Plaintiff Apple Inc.


Document 40 - Lodsys's Sur-Reply to Apple's Reply

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION

LODSYS, LLC,
Plaintiff,
v.
ATARI INTERACTIVE, INC.;
COMBAY,INC.;
ELECTRONIC ARTS INC.;
ICONFACTORY, INC.;
ILLUSION LABS AB;
MICHAEL G. KARR D/B/A SHOVELMATE;
QUICKOFFICE, INC.;
ROVIO MOBILE LTD.;
RICHARD SHINDERMAN;
SQUARE ENIX LTD.;
TAKE-TWO INTERACTIVE SOFTWARE, INC.,
Defendants.

CIVIL ACTION NO. 2:11 -cv-272

PLAINTIFF LODSYS, LLC'S REDACTED SURREPLY TO
APPLE INC.'S REPLY IN SUPPORT OF MOTION TO INTERVENE

REDACTED VERSION

A. Apple Ignores the Plain and Unambiguous Terms of the License.

Apple asserts that "Lodsys's License Argument" is supposedly irrelevant "for at least three reasons." Reply In Support Of Motion To Intervene [dkt. no. 35] (the "Reply") at 1. As discussed below, each of Apple's "three reasons" fails as a matter of law.

1. The Defendants and Lodsys are Each a [REDACTED].

Apple asserts that [REDACTED] Reply at 1. But as a threshold matter, Apple does not dispute (nor could it) that each of the defendants is a [REDACTED]. Apple also does not dispute (nor could it) that at least one (if not all) of the defendants [REDACTED]. In fact, several defendants filed a purported statement in support of Apple's motion to intervene expressly stating that they dispute that "the Asserted Patents are valid, enforceable and infringed." See Statement In Support of Apple's Motion To Intervene [dkt. no. 37] ("Supporting Statement") at 2 (emphasis added). Accordingly, because the defendants are each a [REDACTED] under the plain and unambiguous terms of the License, for that reason alone, Apple's Motion should be denied as a matter of law.1

Moreover, Apple's assertion that somehow Lodsys is not a [REDACTED] is legally and factually without merit for several reasons.

First, under the plain and unambiguous terms of the License, the parties to the License are [REDACTED]. Apple cannot transform Lodsys into a [REDACTED] by ignoring (or changing) the plain and unambiguous terms of the License. See, e.g., AES Puerto Rico, L.P. v. Alstom Power, Inc., 429 F. Supp. 2d 713, 717 (D. Del. 2006) ("if the language of a contract is plain and unambiguous, a court should construe the contract according to its terms").

_____________________

1 Defendants have not yet answered the complaint. But there can be no serious dispute that at least one of the defendants (i.e., [REDACTED]) will assert one or more counterclaims (i.e., [REDACTED]) for invalidity. The fact that defendants have not yet answered the complaint only highlights why Apple's Motion is premature. If the Court has any doubt concerning whether at least one of the defendants — [REDACTED] — will file one or more counterclaims [REDACTED], then the Court should deny Apple's Motion as premature or stay a decision on Apple's Motion until each of the defendants has answered the complaint.

1

Second, Apple does not allege that Lodsys is a party to the License or even an assignee of the License. Instead, Apple alleges only that "Lodsys purchased the patents in suit subject to Apple's License." See Apple Inc.'s [Proposed] Answer and Counterclaim [dkt. no. 27-2] at 1(3. If an entity is not a party to the contract, then by definition such an entity is a [REDACTED] In fact, "in the realm of contracts generally, the term 'third party' is commonly understood to mean a nonparty to the contract, that is, a person or entity that was not a party or signatory to the contract." Tribal Consortium, Inc. v. Pierson, No. CIV-06-238-D, 2009 WL 5194374, *9 (W.D. Okla. Dec. 28, 2009) (emphasis added).

Third, Apple bases its entire argument that Lodsys is not a [REDACTED] solely on the assertion: "[REDACTED]." Reply at 1. But Apple does not identify what Lodsys is if not a [REDACTED]. Apple offers no authority for its bald assertion that [REDACTED]. And Apple offers no further explanation for its bizarre and unsupported assertion. Put simply, Apple's size and financial position as the most valuable company in the world does not provide grounds for Apple to ignore, change, or delete the plain and unambiguous terms of the License.

Fourth, if Apple is correct that [REDACTED], then accepting Apple's unsupported assertion would eviscerate the legal doctrine of third party beneficiaries. See, e.g., Rottlund Homes of New Jersey, Inc. v. Saul, Ewing, Remick & Saul, LLP., 243 F. Supp. 2d 145, 153 (D. Del. 2003) ("Under this doctrine, an individual who is not a party to a contract has standing to enforce the contract under certain circumstances.").

Fifth, Apple's unsupported assertion that Lodsys is not a [REDACTED] is belied by the fact that Apple filed the License under seal and then moved to maintain the License under seal for attorneys' eyes only, precluding even Lodsys from reviewing the License. See Apple Inc.'s Motion For Leave To File Under Seal [dkt. no. 5]. If Lodsys is not a [REDACTED] (as Apple now asserts), then Apple has no basis for precluding Lodsys from reviewing the License.

Finally, if the Court accepts Apple's unsupported assertion that Lodsys is something other

2

than a [REDACTED] (e.g., [REDACTED]), then Apple also cannot prevent Lodsys from enforcing the [REDACTED], which Apple does not dispute are triggered by participating in a [REDACTED]. In short, Apple and the developers are relying on a License that is most likely void.

2. The Defendants [REDACTED] the Validity of the Patents, and Lodsys's infringement claims [REDACTED] the Validity of the Patents.

Apple asserts that "[REDACTED]." Reply at 1-2. But again, as a threshold matter, Apple does not dispute (nor could it) that at least one (if not all) of the defendants [REDACTED] the validity of the patents. For example, a declaratory judgment counterclaim for invalidity would plainly be an [REDACTED] the validity of the patents. Accordingly, for that reason alone, Apple's Motion should be denied.2

Moreover, Apple ignores that [REDACTED]. Apple does not dispute (nor could it) that Lodsys's infringement claims against defendants [REDACTED] the validity of the patents. As discussed above, Apple cannot ignore (or delete) the plain and unambiguous terms of the License. See Marino v. Cross Country Bank, 2007 WL 1810485, *2 (D. Del. June 25, 2007).

3. Apple Fails to Satisfy Its Heavy Burden.

Apple asserts that, "[REDACTED]." Reply at 2. Apple, however, "disputes" two (and only two) terms of the License — i.e., "[REDACTED]" and "[REDACTED]." As discussed above, those two terms are unambiguous and Apple's unsupported assertions fail as a

______________________

2 [REDACTED]. See, e.g., In re Combustion Eng'g, Inc., 366 F. Supp. 2d 224, 231 (D. Del. 2005) ("the Court is guided by the principle that it should avoid interpreting contractual language in such a way as to render any term of the contract meaningless or superfluous").

3

matter of law. But even assuming arguendo that [REDACTED] is found to be ambiguous, Apple ignores that it "bears the burden of establishing its right to intervene." Adams v. Consol. Wood Products Employee Ben. Plan, 2:10-CV-310-TJW, 2011 WL 665821, *4 (E.D. Tex. Feb. 14, 2011.

Here, Apple has failed to provide the Court with copies of [REDACTED]. Tellingly, Apple does not dispute that [REDACTED] are triggered by participating in [REDACTED] the validity of the patents. The Court is not required to accept as true Apple's conclusory allegations that are contradicted by documents referenced in, but not attached to, Apple's Proposed Answer. See Associated Builders, Inc. v. Alabama Power Co., 505 F.2d 97, 100 (5th Cir. 1974). Accordingly, if [REDACTED] is found to be ambiguous, then Apple's Motion should be stayed pending discovery. At the very least, Apple should be required to provide this Court with the [REDACTED] before ruling on Apple's Motion.3

B. Apple Ignores the Infringement Claims and the Plain and Unambiguous Terms of Its Own Agreements with Developers.

Apple repeatedly asserts that supposedly "Lodsys does not contest that Apple's technology" lies at the "heart of this case." Reply at 1. But Apple ignores that the applications made, used, and sold by defendants (and not Apple) are "configured to elicit, from a user, information about the user's perception of the commodity.'" See Claim 1 of U.S. Patent No. 7,222,078. The defendants (and not Apple) make, use, and sell the configured applications to end-users. And the "commodity" is the application made, used, and sold by defendants, not Apple's technology. Accordingly, Apple's technology is not the "heart of the case."

Similarly, Apple's assertion that only it knows "how Apple's technology works" (see Reply at 5) is irrelevant, because the defendants obviously know how they make, sell, and use the infringing applications. And Apple ignores the presumption that its purported interest is adequately

______________________

3 Relying on Pin v. Texaco, Inc., 793 F.2d 1448 (5th Cir. 1986), Apple asserts discovery is improper. See Reply at 2. But in Pin, the proposed plaintiff-intervenor requested discovery concerning the claims he asserted against defenddants [SIC] in his proposed complaint. See 793 F.2d at 1450.

4

represented where (as here) the defendants have identical objectives. See United States v. Texas Educ. Agency (LubbockIndep. Sch. Dist.), 138 F.R.D. 503, 506 (N.D. Tex. 1991).

Apple also asserts that supposedly its interests are more than economic. See Reply at 3. But then, hoping to avoid the plain and unambiguous terms of its agreements with developers, Apple focuses on the "exchange of payment" with developers. See Reply at 4. Apple also ignores that, in its opening Motion, Apple asserted that the "harm" absent intervention is Apple's inability "to preserve its substantial economic interest in its Developer relationships and sales." Motion at 11.

Moreover, Apple again asserts that its purported supplier-customer relationship with developers is sufficient. See Reply at 3-4. But Apple ignores the plain and unambiguous terms of its own agreements with developers that expressly disclaim any such relationship. See Huck Decl., Ex. 4 at ¶15.4. Apple also ignores that its agreements with developers expressly provide that the developers are "solely responsible for any and all claims and liabilities involving or relating to, the Licensed Applications." Id. at Schedule 1,¶1.3.4

C. Apple Ignores that Common Issues are Not Sufficient for Permissive Intervention.

Apple asserts that "Lodsys concedes that Apple's Motion raises many common issues of law and fact." Reply at 5. But Apple ignores that "[t]he existence of a common question of law or fact does not automatically entitle an applicant to intervene." Texas Educ. Agency, 138 F.R.D. at 507. Apple ignores that adequate representation by the defendants is sufficient to deny permissive intervention. See id. at 508. Apple ignores that the denial of permissive intervention is appropriate because Apple brings no new issues. See Ingebretsen on Behalf of Ingebretsen v. Jackson Pub. Sch. Dist., 88 F.3d 274, 281 (5th Cir. 1996). Apple also ignores that it cannot demonstrate an independent ground for jurisdiction because it did not acquire [REDACTED] under the plain and unambiguous terms of the License.

_____________________

4 Apple asserts "the Court cannot at this stage make a factual determination regarding disputed terms of a different contract outside the pleadings." Reply at 4. But the agreements with developers are not "outside" the pleadings, because Apple references and relies on those agreements. Apple also asserts that Lodsys "argues that Apple's interest is insufficient because there is no indemnification obligation here." Reply at 3. Not true. Lodsys simply noted that Apple does not have any indemnity obligations to the developers, which distinguishes Apple's purported interest from several of the cases relied on by Apple. Importantly, Apple does not dispute that it requires the developers to indemnify Apple.

5

Dated: August 18,2011.

Respectfully Submitted,

By: /s/ Christopher M. Huck
Michael A. Goldfarb
(admitted pro hac vice)
Christopher M. Huck
(admitted pro hac vice)
KELLEY, DONION, GILL, HUCK & GOLDFARB, PLLC
701 Fifth Avenue, Suite 6800
Seattle, Washington 98104

William E. "Bo" Davis, III
Texas State Bar No. 24047416
THE DAVIS FIRM, PC
111 West Tyler Street
Longview, Texas 75601

Attorneys for Plaintiff Lodsys, LLC

6


  


Lodsys - Lodsys in a Panic to Keep Apple Out of Suit | 191 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Lodsys - Lodsys in a Panic to Keep Apple Out of Suit
Authored by: Anonymous on Monday, August 29 2011 @ 09:07 AM EDT
Formatting: Most of the article is underlined making it
difficult to read. I suppose there's a missing </ul>
somewhere

[ Reply to This | # ]

Corrections
Authored by: ETian on Monday, August 29 2011 @ 09:38 AM EDT
Korektshunz -> Corrections
Place correction in title (if possible.)

[ Reply to This | # ]

Comes goes here
Authored by: ETian on Monday, August 29 2011 @ 09:41 AM EDT
'Cause PJ said so...

[ Reply to This | # ]

Newspicks
Authored by: ETian on Monday, August 29 2011 @ 09:48 AM EDT
Post a link to the item you are referring to - the news tends to scroll down
fast around here.

[ Reply to This | # ]

Off Topic
Authored by: ETian on Monday, August 29 2011 @ 09:58 AM EDT
Post items of interest to the rest of us here that don't relate to the topic at
hand (translation: at the top of the page.) Check your links via Preview first
before hitting "Submit Comment". Post an on topic comment here, and
face the shame...

[ Reply to This | # ]

Bully rule Number 1
Authored by: mcinsand on Monday, August 29 2011 @ 10:36 AM EDT
What does a bully fear most of all? Why, a bigger, nastier bully, of course. So, it's no wonder Lodsys is in a tizzy!

[ Reply to This | # ]

"Lodsys is confused about the law" - nice phrasing
Authored by: Anonymous on Monday, August 29 2011 @ 10:44 AM EDT

I'm minded of Mr Cartmanez's advice about what to say when caught cheating:" I misinterpreted the rules".

Works in sports, exams, and apparently in the courtroom as well.

[ Reply to This | # ]

I'd say less Panic and more Caught with their Pants down
Authored by: MDT on Monday, August 29 2011 @ 11:05 AM EDT
I think Lodsys never expected Apple to get involved in a costly court case. I'm
sure the bean counters in Lodsys totted up the likely cost of the trial if Apple
got involved, the likelyhood of the small fry fighting, and arrived at a number
that they believed Apple would see as not worth the fight.

I'm sure the argument went something like this :

Ok, look, we can't beat Apple, they have too much money and a license. But, if
we pick on a few dozen small fry developers, we can get them to cave pretty easy
and we'll make a few bucks and we'll get a court case win. Apple won't blow 500
million defending 3 or 4 devs, which is all that might have the stomach to
fight. It'd be insane. Even if it left a bad taste in the mouths of the other
developers, they aren't going to leave the platform over it. So Apple has no
reason to play white knight, and 500 million or so reasons to just let us
collect our cash.

However, now that little fantasy has exploded all over their faces, and they are
scrambling to find something, anything, to get their fairy tale back. They know
they don't have any law on their side, but they can't change that, so all they
can do is play the Wookie card and hope that if they tap dance and spew enough
random wookieness that something will stick. After all, it worked for SCO in
bankruptcy court, right?

It's just very hard to come up with convincing wookieness when the wookie and
his death star happen to have the galactic law on their side.

---
MDT

[ Reply to This | # ]

Lodsys - Lodsys in a Panic to Keep Apple Out of Suit
Authored by: Anonymous on Monday, August 29 2011 @ 11:42 AM EDT
*sleight* of hand

[ Reply to This | # ]

Why?
Authored by: Anonymous on Monday, August 29 2011 @ 11:53 AM EDT
Why, as a society do we allow a farce like this to continue?
Why do the courts seem to think that playing pointless word
games is more important than JUSTICE?

The only answers I ever get: 1) people are too mindless and
ignorant to really understand what is going on. 2) The courts
are corrupt.

[ Reply to This | # ]

Lodsys - paying what their arguments are worth
Authored by: Anonymous on Monday, August 29 2011 @ 12:03 PM EDT
I'd say this shows Lodsys investing an appropriate amount in a pointless
defence. They already know it's wasted money so they're making the absolute
minimum effort short of not trying at all.

If no amount of money thrown at lawyers can make the defence work, throwing
peanuts at monkeys wastes the same amount of court time. No big surprise if they
read like gibberish.

[ Reply to This | # ]

Lodsys in a Panic
Authored by: Anonymous on Monday, August 29 2011 @ 01:30 PM EDT
From the article:

" .. if for no other reason than Lodsys appears to be clueless with respect to the law."

Now that's an astute observation likely to leave a mark!

[ Reply to This | # ]

Wrong Apple aggreement?
Authored by: Anonymous on Monday, August 29 2011 @ 01:35 PM EDT
Lodsys repeatedly cites an Apple-Developer aggreement which
apparently specifies that the developer is the principal and Apple just
some kind of agent or resseller.

Presumably this is the aggreement to get published in their Appstore,
and I find it likely (not certain) that each developer also has a seperate
license aggreement for the use of Apple technology when creating their
apps.

This provides Apple with two potential and quite seperate
counterarguments:

A. Apple is supplying and possibly sublicensing the disputed technology
under a traditional supplier aggreement quite separate from the
aggreement cited by Lodsys in its reply and sur-reply.

B. As a licensee of the disputed technology, Apple is licensed to use said
technology when acting as an agent of the original defendants and to
allow requests by its clients to do so. Furthermore, as an agent Apple is
entitled to assist its clients in their defense even without a court permit
to intervene. Apple is allowed to do these things for its clients even if
Apple is under no obligation to do so, thus the lack of an indemnification
obligation should not prevent Apple from going above and beyond the
minimum required.

[ Reply to This | # ]

Did Lodsys have the permission to use the BRIO Labyrinth game?!
Authored by: IMANAL_TOO on Monday, August 29 2011 @ 01:47 PM EDT
Did Lodsys have the permission to use an unauthorized software copy the original BRIO Labyrinth game?! The original 3D labyrinth game. It is all analogue. No OpenGL or DirectX needed!

---
______
IMANAL


.

[ Reply to This | # ]

"Lodsys appears to be clueless with respect to the law"
Authored by: Yossarian on Monday, August 29 2011 @ 01:50 PM EDT
IMO Lodsys' uses a very old lawyers' technique:

1. If the facts are against you, argue the law.
2. If the law is against you, argue the facts.
3. If the facts and the law are against you, yell like hell.

[ Reply to This | # ]

Lodsys - Lodsys in a Panic
Authored by: kawabago on Monday, August 29 2011 @ 01:59 PM EDT
Playground bullies aren't usually clever.

[ Reply to This | # ]

I don't think Apple has called the patents invalid (yet)
Authored by: Anonymous on Monday, August 29 2011 @ 02:56 PM EDT
In Lodsys' surreply, they seem to say that by denying the validity of the
patent, Apple has lost its license and thus their standing to intervene.

But I don't think I have seen Apple do that. Apple may have (as has
Lodsys) mentioned the possibility that other defendant might make such
claims. Apple itself has been consistently arguing on a presumption of
validity and claiming to have already paid for a license covering at least
some defendants.

[ Reply to This | # ]

Procedural question
Authored by: jpvlsmv on Monday, August 29 2011 @ 04:57 PM EDT
In what circumstances does the non-movant get to issue a Sur-reply?

Does Apple now get to write a Sur-response, followed by a Lodsys SurSur-replay?

--Joe

[ Reply to This | # ]

Confusion....
Authored by: Anonymous on Monday, August 29 2011 @ 05:31 PM EDT

For a moment there, I thought I was reading something from BSF.

First the sur-reply - being unable to accept the normal flow of motion-reply-response and wanting to get the last word in.

Then with that recognition I wondered if:

    How close to overlength is this filing?
and
    Did Lodsys raise a new issue in this sur-reply that they didn't raise in their first reply?
I think I'm actually missing BSF.... nah!

RAS

[ Reply to This | # ]

The size of the patent troll.
Authored by: Anonymous on Monday, August 29 2011 @ 06:54 PM EDT

Tiny patent troll, Lodsys, is panicked by huge patent troll, Apple.

[ Reply to This | # ]

Whose Copy of the Patent License?
Authored by: Anonymous on Monday, August 29 2011 @ 07:53 PM EDT
Lodsys next argues that it should be granted the right to conduct discovery on the Apple license in order to establish that the license doesn't grant whatever rights Apple claims. (...) How is it that the present patent holder (Lodsys) in acquiring the rights to the patents did not acquire from its predecessor in interest in the patents (Webvention) a copy of all licenses that encumber those patents? Maybe Lodsys should be crying to Webvention instead of to the court.

Asking for Apple's copy of the license may be a strategic move to preempt an expected request from Apple to see Lodsys's details of the patent licences, including the transfer from Webvention to Lodsys. Lodsys may have reason want to want to keep Apple's legal nose out of the relationship between Lodsys and Webvention's parent company. This would especially be the case if Lodsys is really just a shell company acting on behalf of Webvention (or its parent company) with no independent existence of its own. If Apple's copy of the license is on record with the court, then Lodsys may then argue that any additional information from Lodsys in that regards would be unnecessary.

What I find particularly amusing is the idea of Apple paying a big whack of money to use this patent in their phones, and then their customers (developers) having to pay even more money to use the patent. What's next? Suing all the people who bought iPhones since they will be "using the patent" as well?

I would like to point out though that however odd this sounds, there is some precedent for this. A few years ago Microsoft bough a license to a database related patent for use with MS SQL Server. The patent holder then went around suing Microsoft's database customers for violating the patent. It turned out that Microsoft's license only covered their own use of the patent, and not their customers. The patent owner offered two types of licenses, and Microsoft chose the cheaper one without really thinking about the consequences. The patent was related to "data warehousing" applications, but I can't recall any more details at this time.

[ Reply to This | # ]

What is, "Black-Letter Law"?
Authored by: Anonymous on Monday, August 29 2011 @ 11:43 PM EDT
What is, "Black-Letter Law"? I get a sense from context, but I don't
trust context for anything legal. Is there a formal definition? Is it a term
of the art?

-- Alma

[ Reply to This | # ]

Oracle-Google trial may be delayed
Authored by: SilverWave on Tuesday, August 30 2011 @ 03:04 AM EDT
Oracle-Google trial may be delayed An upcoming criminal trial could hold off the jury selection process, according to a judge's ruling

---
RMS: The 4 Freedoms
0 run the program for any purpose
1 study the source code and change it
2 make copies and distribute them
3 publish modified versions

[ Reply to This | # ]

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