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Patent pirates and the duel with Android

Mon, 08/15/2011 - 8:15am
Maisie Ramsay, Wireless Week

By some counts, there are nearly 50 Android-related patent lawsuits circulating in the United States alone. Oracle is suing Google, Microsoft is suing Motorola Mobility and Apple is suing a whole slate of companies, including HTC and Samsung – and that's just the tip of the iceberg.

Much of this is just par for the course – litigation tends to run high in growing new sectors like the wireless industry, and Android is at the forefront. Large corporations have massive legal departments whose sole task is to deal with the litigious tangle of the court system.

For companies on the scale of Apple and Google, patent lawsuits are an expensive, inconvenient part of doing business in the ever-expanding wireless industry, but they're not debilitating.

For small app developers, however, they're overwhelming. And they're on the rise in the form of spurious lawsuits from so-called patent trolls – companies whose sole existence is to sue other companies for patent infringement, often using broad, dubious claims.  Like trolls, they wait under a metaphorical bridge, waiting for a new product to pass, and then, they hit it with a lawsuit.

These lawsuits are different from those filed by inventors legitimately trying to enforce a patent on a new, innovative technology. Lawsuits filed by patent trolls are more akin to a mafia-style shakedown – "we'd hate to see your restaurant burn down" – and small developers have few resources to deal with them. It's easier and cheaper to settle than to launch a defense in court, even if the developer believes they stand on solid legal ground.

In late May, Lodsys – a non-practicing entity that has become notorious for its mafia-style shakedowns – sued seven relatively small iPhone developers. Less than two months later, the company added a few big-name development shops to a separate lawsuit that also named six of the defendants in its earlier complaint. Among the companies to land in Lodsys' sights: Atari Interactive, Electronic Arts, Take 2 Interactive and Angry Birds developer Rovio.

Julie Samuels, a staff attorney at the Electronic Frontier Foundation, estimates that Lodsys alone has sent "hundreds" of cease and desist letters to developers who used in-app purchasing, asking them to pay out 0.575 percent of their revenue or get taken to court. Lodsys has not said how many companies it is pursuing for licensing fees, but Samuels' estimate is widely shared among patent experts following the issue.

Samuels has spent a lot of time talking to developers who have received cease and desist letters claiming their apps infringe on patents owned by companies like Lodsys. She says many small developers can't afford legal advice and are left confused and demoralized by the letters.

"A lot of them are scared, they're worried, they don't know what to do. An average patent lawsuit, when taken through to trial, costs $2 million to $5 million. Tell that to someone who's got a day job and codes at night because they like it and are just trying to make a couple extra bucks on the side," Samuels says. "Are those people going to end up in $5 million patent lawsuits? Probably not, but it still hangs over their heads."

The Electronic Frontier Foundation is working to recruit lawyers to defend developers on a pro-bono basis.

Lodsys is the most high-profile litigant against app developers, but there have been other cases as well. 

In May, U.S.-based MacroSolve filed suit against 10 app development companies, claiming they were violating a broad patent on electronic forms posted to the Internet or wireless devices. One month later, the company expanded the suit to 20 additional companies.

Around the same time, India-based Kootol Software announced plans to sue more than 50 tech companies over a pending patent on messaging, publication and real-time search functions. Defendants included both large corporations and small developers, with complaints filed against companies ranging from Microsoft and Google to app developer Iconfactory, the maker of Twitterrific.

Some debate whether MacroSolve and Kootol are truly trolls, or merely trying to recoup their investment on a legitimate patent. Others see the lawsuits as a sign of systemic dysfunction within the U.S Patent Office and question whether the patents being used to bring companies to court should have even been granted in the first place.

No matter their motives, no matter the state of the U.S. patent system, it's clear that app developers are being dragged into the patent wars.

Unlike corporate behemoths with hundreds of thousands of dollars to throw at a legal defense, many smaller developers don't even have the financial resources to consult an attorney about the best course of action.

Mike Lee, Tapulous co-founder and head of volunteer app development organization Appsterdam, recently started a legal defense fund for developers being targeted for patent infringement.

"Unless this patent issue gets resolved, the business of development shops for smartphones is just not going to be practical," Lee says. "This is a very big problem because it threatens our very way of life."

Lee compares the recent series of patent suits and cease and desist letters filed against app developers to a corrupt bureaucracy. "They're like a fire department who hires arsonists to justify their funding," he says, referring to Lodsys. "One company comes along and demands 0.575 percent of your revenue, and it sets a precedent for any joker who comes along, and next thing you know, a large portion of your revenue is going out the door."

Lee says the lawsuits have created a culture of fear among app developers. "People are expressing hopelessness and despair who you'd never expect to express hopelessness and despair," he says.

The problems have reportedly alarmed some U.K. development shops to the point where they decided to pull their apps from the U.S. market to reduce the risk of being sued – a dramatic move, given the amount of revenue they stand to lose from the country's lucrative base of iPhone and Android users.

Where are Apple and Google?
With meaningful patent reform nowhere in sight and no sign that the flood of lawsuits is abating, some are beginning to question how litigation will affect mobile operating systems over the long term.

"Targeting individual developers is really bad for the industry and really bad for innovation," says Yankee Group analyst Carl Howe, citing the potential impact of litigation on investment. "No venture capitalist will be enthused about funding your startup if they have to spend money on lawyers. They'd rather be spending it on engineers."

Howe says developers may stop making apps for platforms feared to make them vulnerable to patent suits. If Android app developers become too exposed to litigation, for instance, they may just close up shop and move to iOS, Windows Phone 7 or BlackBerry.

"In some sense, the amount of apps available determines how viable a platform is," Howe says. "If the app developers are running scared from the patent mafia, you're going to have a really hard time building critical mass with apps, and that's going to really hurt market share."

Lawsuits could be particularly damaging for platforms struggling to compete with dominant players iOS and Android, such as Microsoft's Windows Phone 7.

As fallout from the patent battles spreads from large corporations to small developers ill-equipped to deal with litigation, some have begun asking what Apple and Google are doing to defend the people who have played such a crucial role in the success of their respective iOS and Android platforms.

Apple, which did not respond to repeated requests for comment on the issue, has attempted to defend its developers in court by filing a motion to intervene in Lodsys' suit against iOS app makers.

Apple claims its pre-existing licensing agreement on the patents with their previous owner, Intellectual Ventures, precludes Lodsys from suing iOS developers, arguing the developers are covered by the agreement.  Lodsys, for its part, says the agreement does not cover third-party developers. A judge has yet to rule on Apple's motion.

Google, which also did not reply to repeated requests for comment, has taken no direct legal action for its developers but if a recent vitriolic post on its official blog is any indication, the company is aware of the legal troubles plaguing the smartphone manufacturers and application developers who use the Android platform.

One of Google's problems may be that it has a significantly weaker patent portfolio than its competitors, making it harder to defend Android in court. A quick search of the U.S. Patent Office's database shows that Google's patent holdings are significantly smaller than its competitors in terms of sheer numbers – though that will change once the company's $12.5 billion purchase of Motorola Mobility goes through.

Google has 754 patents and patent applications listed with the U.S Patent Office, whereas Apple has 4,082 and Microsoft has a whopping 18,276. Motorola, whose CEO recently bragged about the strength of its intellectual property at an investor conference, has 20,727 patents listed with the office.

Google's acquisition of Motorola Mobility will substantially strengthen its legal footing when it comes to patents and is expected to bode well for manufacturers of Android devices.

Google has made attempts to strengthen its patent holdings with bids on portfolios held by Novell and Nortel, but was outbid by its competitors in what Google called a "hostile, organized campaign against Android."

Patent attorney and blogger Dale Halling says some of the blame for the legal mess around Android can be placed on Google. If the company had done a better job patenting its technology and making sure it didn't violate other companies' patents, there may be fewer lawsuits over Android, Halling argues.

"One question that never gets asked is, Did the people who are alleged to have infringed, have they done basic due diligence? I can tell you, most large tech companies don't do this. They follow this policy of purposeful ignorance," Halling says, comparing it to a culture of shoot first, ask questions later – but in this case, it's develop first, deal with lawsuits later.

By being purposefully ignorant, Halling says, companies reduce their liability for "willful infringement" of a patent, which can result in a three-fold increase in damages awarded if a case is successful.

"What we need is a clearinghouse for these things where people can get paid for being inventors without having to go to court, and where people can also get a reasonable opinion as to whether they're infringing on a patent," Halling says.

However, some of the patent clearinghouses that have been created for the tech industry have been linked to patent trolls. A recent expose' by This American Life titled “When Patents Attack” found that Intellectual Ventures, a top patent aggregator, had close ties to Lodsys. Essentially, Intellectual Ventures may be funding shell companies to act as patent trolls, filing blanket lawsuits against dozens of companies in an attempt to make more money off its intellectual property holdings.

Halling disagrees with how This American Life characterized the state of U.S. patents, saying the stories of investors whose ideas get stolen have been ignored by the press.

Some developers are already viewing lawsuits as a part of doing business.

Scott Michaels, who heads client services at Canadian development shop Atimi Software, says some amount of legal action is to be expected due to the growing nature of the wireless industry.

"Any industry that shows promise of revenue is going to see this type of action, it is par for the course," Michaels said in an e-mail.

Atimi, which has developed high-profile apps for clients including The New York Times, the National Hockey League and the Chicago Blackhawks, is embroiled in a few patent fights of its own, though the company declined to provide specifics about the cases.

Michaels says the U.S. patent system is "quite broken." It grants overly broad patents used to file overly broad lawsuits.

"The suits are in some cases frivolous, but still eat up time from companies whom really need to have a focus on running the business and working on applications rather than dedicating time to legal actions that may affect an end product," Michaels says. "Far too many patents are being granted for common everyday practices in development."

Patent suits against developers could have a chilling effect on the small shops that haven't yet reached the scale to fend off litigation. The long-term effect of frivolous lawsuits is not clear, but one thing is for certain: developers better watch their backs.

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