The following is a guest post by Michael Wokasch, a registered patent attorney with the law firm Quarles & Brady LLP. Wokasch is a former software developer, and experienced in IP Licensing, Litigation and Patent Prosecution.
To many, including us hardened, cynical, knee-deep-in-patent folks, Lodsys’ targeting individual app developers seems crazy/insane/stupid/desperate/insert-other-adjective. A great many have called Lodsys’ actions as “unfair.” And while I don’t disagree that Lodsys seems crazy/insane/stupid/desperate, calling it “unfair” misses the mark. In reality, it only seems unfair for two unexpected reasons.
1. It’s Apple’s Fault
The first reason the Lodsys affair seems “unfair” is because of Apple. Apple’s contract with its developers does not have an obligation to defend the developers. In fact, the developer agreement puts the obligation on the developers to defend Apple. No matter how despicable you believe Lodsys is for targeting app developers, Apple’s contract [and likely Google’s and others’ contracts] have essentially left the developer’s out to dry.
True, Apple did draft a nice nasty-gram to Lodsys. But this was not a public statement by Apple to fully fund the defense of any app developers targeted by Lodsys. Whether Apple agreed to do so in private is still unknown. Yet, Apple’s letter likely caused even more heart burn for the app developers because, in a totally expected response Apple’s letter, Lodsys filed suit. Lodsys obviously felt the need to preserve its venue of choice: the Eastern District of Texas.
This is largely contrary to what usually happens when small players, like app developers, are targeted by patent litigation. Small players do get sued, and there’s no reason why they can’t be. The fact is, patent law gives a patent owner the right to exclude others from making, using, and selling a patented invention. So a defendant can be anyone in the chain: suppliers, resellers, distributors, developers, and even customers. For obvious reasons, patent owners don’t usually do it to collect a pittance. Rather, these targets usually fall by the wayside as the real target is usually someone with deeper pockets further upstream, like Apple.
In the usual situation, that deeper pocket simply “indemnifies” (pays for the defense of) the other party. They do this because no one likes angry customers, they fear letting some party control a litigation that might impact their business, they have legal obligations to do so, they have contractual obligations to do so, etc. When this happens, the targeted small player goes about his or her day without so much as a peep.
By contrast, the Lodsys situation seems unfair because Apple’s contract doesn’t protect the app developers, and Apple hasn’t said it will defend its developers publicly.
2. Settlement is Too Cheap.
The second reason it seems “unfair” is because Lodsys is asking for literally half pennies on the dollar of each infringing sale. This may be counter-intuitive. However, when so little money is at stake, it essentially takes away most leverage-building strategies off-the-table: obtaining non-infringement or invalidity opinions, filing for reexamination, filing for a declaratory judgment, joint defense groups, etc. By making defending yourself the economically irrational choice, it makes the situation seem unfair.
Contrary to some other opinions, seeking that kind of leverage is going to be more expensive than the license itself. Under Lodsys’ original offer, a developer making $100,000 in sales will pay just $575. This does not buy much time of even a moderately priced junior lawyer. A lone developer, even a group of developers, cannot ask for reexamination of the patent or even answer a complaint for patent infringement for $575. So, the only choice to avoid litigation is to pay the demand.
Moreover, even if you do “buy” some leverage, what good is that leverage? Defendants typically use the leverage to lower the settlement offer. Using the leverage in that way is nonsensical: the app developer may end up paying a lower amount (say $300) but will have paid out a few thousand dollars extra in expenses.
Of course, since there are so may potential targets, it is possible that having some leverage like a non-infringement opinion or a filed declaratory judgment action in a favorable venue may dissuade Lodsys from pursuing the app developer with that leverage. In essence, Lodsys may decide to target only the low-hanging fruit and, by taking such posture, they will just move on to some else. Even applied this way, your “get out of court FREE” card isn’t really free.
This disarming of the letter recipient just seems unfair.
Still get a lawyer
All of this said, I still recommend that any letter recipient at least consult with a lawyer to assist in understanding the actual exposure. Patent litigation and the scope of the license and settlement letter are still very complex issues. Any particular developer may be better served pursuing one or more other strategies. In addition, I make a strong assumption that any particular app developer does not have significant damages at stake. Yet, as of the writing of this, there is some indication that not all targets are alike. Yesterday, an app development company, ForeSee Results, filed for declaratory judgment against Lodsys asking the court to declare the patents invalid or their apps non-infringing. It is interesting to note, ForeSee Results cites letters from Lodsys to two big customers: Best Buy and Adidas. ForeSee is either being forced by its customers to indemnify them or sees more at stake for its business than a few hundred dollars.