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Lodsys - Apple Responds to the Lodsys Opposition
Saturday, August 13 2011 @ 10:11 AM EDT

You will recall that Apple filed a Motion to Intervene in the Lodsys v. Combay case and Lodsys responded by opposing the Apple motion. The Lodsys opposition was premised along two major lines: (a) the Apple license to the Lodsys patents does not extend to the defendants in the case; and (b) Apple did not satisfy the requirements for intervention.

Apple has now filed its response [PDF] to the Lodsys opposition. And Apple's response? Lodsys is mischaracterizing the Apple license, which, in any case, is irrelevant to the right to intervene, and Apple has met the requirements to intervene. Specifically, Apple argues it filed on time, it has a property interest in the form of the license (not merely an economic interest), the impairment to Apple's interests is real and immediate, and the other defendants lack the knowledge, expertise and incentives to protect Apple's interests. Moreover, Apple argues that the issue of the applicability of the Apple license can only be decided after Apple has been allowed to intervene, not before.

I would be surprised if Apple is not allowed to intervene, but we will see. Of course, we still do not know what is in that Apple license since the references to the license have been redacted from the response.

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

Lodsys v. Combay:

35 - Filed and Entered: 08/08/2011
Reply to Response to Motion
Docket Text: 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)

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

37 - Filed and Entered: 08/09/2011
Statement in Support of Apple's Motion to Intervene
Docket Text: 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)

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

UNITED STATES DISTRICT COURT
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; QUICK OFFICE, INC.;
ROVIO MOBILE LTD.; RICHARD
SHINDERMAN; SQUARE-ENIX LTD.;
TAKE-TWO INTERACTIVE SOFTWARE,
INC.

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

[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 non-conclusory 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

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

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

Dated: August 8, 2011

Respectfully submitted,

By /s/Melissa Richards Smith
Melissa Richards Smith
Texas State Bar No. 24001351
GILLAM & SMITH, L.L.P
[address, phone, fax, email]

George M. Newcombe (admitted pro hac vice)
Jonathan C. Sanders (admitted pro hac vice)
SIMPSON THACHER & BARTLETT, LLP
[address, phone, fax, email]

Counsel for Intervenor Defendant and
Counterclaim Plaintiff Apple Inc.

CERTIFICATE OF SERVICE

I hereby certify that all counsel of record who have consented to electronic service are being served with a copy of this document via the Court’s CM/ECF system per Local Rule CV-5(a)(3) on this the 8th of August, 2011.

/s/ Melissa Richards
Smith Melissa Richards Smith

___________

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

2Lodsys’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.

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).

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).

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

UNITED STATES DISTRICT COURT
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; QUICK OFFICE, INC.;
ROVIO MOBILE LTD.; RICHARD
SHINDERMAN; SQUARE-ENIX LTD.;
TAKE-TWO INTERACTIVE SOFTWARE,
INC.

Defendants.

______________________

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

_____________________

STATEMENT IN SUPPORT OF APPLE’S MOTION TO INTERVENE

Defendants Atari Interactive, Inc., Electronic Arts Inc., Quickoffice, Inc., and Square- Enix Ltd. (collectively, the “Supporting Defendants”) respectfully submit this statement in support of the motion to intervene filed by Apple Inc. (“Apple”) in this matter.

I.

INTRODUCTION

All but one of the undersigned Supporting Defendants were first named as a defendant in this action in an Amended Complaint filed by plaintiff Lodsys, LLC (“Lodsys”) on July 21,

2011, after the filing of Apple’s motion to intervene.1 And with only one exception, the Supporting Defendants have not yet been served with process in this action. Given the long period of time within which a complaint and summons may be served under the Federal Rules of Civil Procedure, the Supporting Defendants are filing this statement now to ensure that their voices are heard in connection with the pending motion to intervene.2

The Amended Complaint alleges that certain mobile games made or published by the Supporting Defendants for the Apple iPhone and iPad platforms infringe U.S. Patent Nos. 7,222,078 and 7,620,565 (collectively, the “Asserted Patents”).

II.

APPLE’S INTERVENTION AS A PARTY IN THIS ACTION IS CRITICAL TO THE
SUPPORTING DEFENDANTS’ ABILITY TO DEFEND THEMSELVES AGAINST THE
CHARGES OF INFRINGEMENT

Apple’s motion to intervene states that Apple has a license to the Asserted Patents, and that the terms of this license operate to immunize application developers (such as the Supporting Defendants) from any infringement of the Asserted Patents on account of iPhone or iPad games such as those made or published by the Supporting Defendants.

If this were proven to be correct (the Supporting Defendants do not yet have access to the confidential license at issue), the Supporting Defendants would each have a complete defense to the claims of Lodsys in this matter, regardless of whether the Asserted Patents are valid, enforceable and infringed (all of which the Supporting Defendants dispute).

2

The Supporting Defendants strongly support Apple’s motion to intervene because the participation of Apple as a party in this lawsuit is critical to the development of the very evidence needed to establish what may prove to be a complete defense to the infringement claims in this action. Apple has the very best information available to anyone on the subject of the nature and operation of its own licensed technology. Similarly, as one of the two contracting parties, Apple will have vital information regarding the negotiation, nature and scope of its license.

Moreover, Apple is uniquely positioned to respond to any claim made by Lodsys that the scope of its license does not operate to the benefit of Apple’s application developers. To do so, however, Apple must be a party to this action, not a third-party.

For example, as a party in this action, Apple and its counsel would have access under this Court’s protective order to all written discovery and testimony on the subject of the background and scope of its license, as well as the nature and operation of its own, licensed technology. Were Apple’s participation in this action limited to that of a third-party, Lodsys would be able to insulate the testimony of Lodsys’s documents and witnesses—as well as the reports of Lodsys’s experts—from review, critique and response by Apple. This would give Lodsys an unfair advantage, and substantially prejudice the Supporting Defendants’ ability to develop a full and fair record in this action because of Apple’s unique knowledge regarding its license and its licensed technology.

It is for this reason that Apple’s full participation as a party in this action, rather than as a third-party, is vital to the Supporting Defendants’ ability to defend themselves against the infringement claims asserted by Lodsys.

In view of the Supporting Defendants’ critical need to rely upon Apple’s assistance in developing the evidence in this matter, Apple’s willingness to participate as a party in this action,

3

and the lack of any cognizable prejudice to Lodsys, the Supporting Defendants respectfully urge this Court to grant the pending motion to intervene.

Dated: August 9, 2011

Respectfully submitted,

/s/ Wayne M. Barsky
Wayne M. Barsky
California Bar No. 116731
GIBSON, DUNN & CRUTCHER LLP
[address, phone, fax, email]

Mark N. Reiter
Texas Bar No. 16759900
GIBSON, DUNN & CRUTCHER LLP
[address, phone, fax, email]

ATTORNEYS FOR DEFENDANTS ATARI
INTERACTIVE, INC., ELECTRONIC ARTS
INC., QUICKOFFICE, INC. AND SQUARE
ENIX LTD.

4

_________________

1Of the Supporting Defendants, only Quickoffice was named as a defendant in the initial complaint in this action.

2By filing this statement, none of the Supporting Defendants is making a general appearance in this action, nor are they waiving or compromising in any way any right, claim, position, or defense they may have in response to the Amended Complaint if and when it is served, including, but not limited, to any defenses based on deficiencies in service, venue or jurisdiction.


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