Apple Responds to Lodsys Threats, Says Developers Are Protected

Apple looks like it may step up and defend third-party developers who received notices from a small firm claiming they are infringing upon patents through use of in-app upgrades.

Bruce Sewell, a senior vice president and general counsel at the company, wrote a letter to Lodsys, a firm that had sent notices to a handful of developers earlier this month asking them to pay 0.575 percent of their U.S. revenue. Lodsys said that developers were infringing upon patents, some filed as long ago as 19 years ago, surrounding in-app upgrades where users pay to access additional content or get a full version of a game.

Sewell said that Apple had licensed all four of the patents in Lodsys’ portfolio and that third-party developers are protected under its developer agreement. While Apple hasn’t seen the exact letters Lodsys has sent to developers, Lodsys’ allegations of infringement surround the use of Apple’s in-app purchases system — not any technology third-party developers have created independently. Apple asked Lodsys to withdraw notice letters.

Florian Mueller, an intellectual property lawyer who has been closely following the case, said that while Apple’s letter provides some implicit protection, it is no substitute for a hard agreement where Apple agrees to hold developers harmless regardless of the outcome of a legal dispute with Lodsys.

While Apple, a notoriously litigious company in Silicon Valley, has the resources and wherewithal to defend itself, the legal costs for any individual developer to protect themselves would be material compared to the amount of revenue they likely derive from their apps. Since third-party apps drive demand for Apple’s hardware products, it would be difficult to imagine that the hardware maker wouldn’t act to defend the health of its ecosystem.

The full text of Sewell’s e-mail was first published on Macworld:

BY EMAIL AND FIRST-CLASS MAIL

May 23, 2011

Mark Small
Chief Executive Officer
Lodsys, LLC
[Address information removed]

Dear Mr. Small:

I write to you on behalf of Apple Inc. (“Apple”) regarding your recent notice letters to application developers (“App Makers”) alleging infringement of certain patents through the App Makers’ use of Apple products and services for the marketing, sale, and delivery of applications (or “Apps”). Apple is undisputedly licensed to these patent and the Apple App Makers are protected by that license. There is no basis for Lodsys’ infringement allegations against Apple’s App Makers. Apple intends to share this letter and the information set out herein with its App Makers and is fully prepared to defend Apple’s license rights.

Because I believe that your letters are based on a fundamental misapprehension regarding Apple’s license and the way Apple’s products work, I expect that the additional information set out below will be sufficient for you to withdraw your outstanding threats to the App Makers and cease and desist from any further threats to Apple’s customers and partners.

First, Apple is licensed to all four of the patents in the Lodsys portfolio. As Lodsys itself advertises on its website, “Apple is licensed for its nameplate products and services.” See http://www.lodsys.com/blog.html (emphasis in original). Under its license, Apple is entitled to offer these licensed products and services to its customers and business partners, who, in turn, have the right to use them.

Second, while we are not privy to all of Lodsys’s infringement contentions because you have chosen to send letters to Apple’s App Makers rather than to Apple itself, our understanding based on the letters we have reviewed is that Lodsys’s infringement allegations against Apple’s App Makers rest on Apple products and services covered by the license. These Apple products and services are offered by Apple to the App Makers to enable them to interact with the users of Apple products—such as the iPad, iPhone, iPod touch and the Apple iOS operating system—through the use or Apple’s App Store, Apple Software Development Kits, and Apple Application Program Interfaces (“APIs”) and Apple servers and other hardware.

The illustrative infringement theory articulated by Lodsys in the letters we have reviewed under Claim 1 of U.S. Patent No. 7,222,078 is based on App Makers’ use of such licensed Apple products and services. Claim 1 claims a user interface that allows two-way local interaction with the user and elicits user feedback. Under your reading of the claim as set out in your letters, the allegedly infringing acts require the use of Apple APIs to provide two-way communication, the transmission of an Apple ID and other services to permit access for the user to the App store, and the use of Apple’s hardware, iOS, and servers.

Claim 1 also claims a memory that stores the results of the user interaction and a communication element to carry those results to a central location. Once again, Apple provides, under the infringement theories set out in your letters, the physical memory in which user feedback is stored and, just as importantly, the APIs that allow transmission of that user feedback to and from the App Store, over an Apple server, using Apple hardware and software. Indeed, in the notice letters to App Makers that we have been privy to, Lodsys itself relies on screenshots of the App Store to purportedly meet this claim element.

Finally, claim 1 claims a component that manages the results from different users and collects those results at the central location. As above, in the notice letters we have seen, Lodsys uses screenshots that expressly identify the App Store as the entity that purportedly collects and manages the results of these user interactions at a central location.

Thus, the technology that is targeted in your notice letters is technology that Apple is expressly licensed under the Lodsys patents to offer to Apple’s App Makers. These licensed products and services enable Apple’s App Makers to communicate with end users through the use of Apple’s own licensed hardware, software, APIs, memory, servers, and interfaces, including Apple’s App Store. Because Apple is licensed under Lodsys’ patents to offer such technology to its App Makers, the App Makers are entitled to use this technology free from any infringement claims by Lodsys.

Through its threatened infringement claims against users of Apple’s licensed technology, Lodsys is invoking patent law to control the post-sale use of these licensed products and methods. Because Lodsys’s threats are based on the purchase or use of Apple products and services licensed under the Agreement, and because those Apple products and services, under the reading articulated in your letters, entirely or substantially embody each of Lodsys’s patents, Lodsys’s threatened claims are barred by the doctrines of patent exhaustion and first sale. As the Supreme Court has made clear, “[t]he authorized sale of an article that substantially embodies a patent exhausts the patent holder’s rights and prevents the patent holder from invoking patent law to control postsale use of the article.” Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008).

Therefore, Apple requests that Lodsys immediately withdraw all notice letters sent to Apple App Makers and cease its false assertions that the App Makers’ use of licensed Apple products and services in any way constitute infringement of any Lodsys patent.

Very truly yours,

Bruce Sewell
Senior Vice President & General Counsel
Apple Inc.