Patent Troll Lodsys: All We Want Is 0.575% Of The Entire Mobile In-App Payment Ecosystem, Is That So Wrong?

from the if-i-just-had-0.5%... dept

Tue, May 17th 2011 1:58pm — Mike Masnick

Following last week's news of patent troll Lodsys going after a bunch of independent or individual iOS (iPhone/iPad) developers who were making use of Apple's in-app payment offerings (as required by Apple if you want to sell within an app), the company has put up a blog FAQ where it seeks to answer a bunch of questions that people have been asking.

It's basically a compendium of ridiculous, silly and debunked arguments for why patent trolling is awesome (while also denying that Lodsys is a patent troll). There were some weakly-sourced rumors over the weekend that Lodsys was a front company for Intellectual Ventures, but there wasn't much significant evidence to support that, and Lodsys denies it. It is true that the patents in question were once owned by IV, who sold them (and it's not clear if IV still has an economic interest in the patents -- something it allegedly keeps with some of its patent sales, though it's notoriously secretive in such deals). However, Lodsys insists that IV sold all of its rights to Lodsys.

Of course, the key question is what does Lodsys want. There was some speculation that it was pushing for a license from Apple, but it notes that Apple already has a license (though, it's almost certainly from when the patents were held by IV). It also notes that Microsoft and Google hold licenses (again, potentially via IV), so it may be going after developers on other devices soon too. Of course, Lodsys pretends that the licenses from Apple, Google and Microsoft show that the patents are legit, but that's being deceptive yet again. From the details, it's almost entirely certain that all three companies got the license as a part of a blanket license from IV, and had no idea about this specific patent, nor took any interest in the details of this particular patent. For Lodsys to pretend this legitimizes their patent is yet another example of patent trolls being misleading. This patent was not considered important by Apple, Google or Microsoft. It was almost certainly included in a bulk licensing deal.

Finally, Lodsys points out that it has no interest in receiving a single lump sum from big companies, claiming that it's likely to get "the best return" by shaking down developers one-by-one-by-one. So, what does Lodsys want? Well, it appears to want at least 0.575% of the entire in-app payment market:

In the case of an Application doing an in-application upgrade (and only this scenario), Lodsys is seeking 0.575% of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage.

Of course, since the power of in-app payments is that it lets you do a lot more than just app upgrades, you have to imagine Lodsys is asking for a lot more in those other cases.

And for what? For coming up with an insanely abstract idea that was a natural and obvious evolution of such apps. No one -- no one -- came up with the concept or implementation of in-app payments for mobile device apps because of this patent. And, of course, this assumes (incorrectly, of course) that this will be the only patent that someone digs up that appears to (broadly defined) cover things like in-app payments. If all such patent holders start demanding 0.575% (or more) this will put a huge burden on developers.

Lodsys talks high and mighty about "property rights" and paying those who are owed money in its blog, but those claims are laughable. First, it claims that it's Lodsys patents that are responsible for in-app payments:

The economic gains provided by the Lodsys inventions (increase in revenue through additional sales, or decrease in costs to service the customer) are being enjoyed by the business that provides the product or service that interacts with the user. Since Lodsys patent rights are of value to that overall solution, it is only fair to get paid by the party that is accountable for the entire solution and which captures the value (rather than a technology supplier or a retailer).

But that assumes, totally incorrectly, that Lodsys or even the original patent was instrumental in making this happen. It was not. This is the natural evolution of app development. But Lodsys can't let up and gets ridiculous:

As a comparative example, it is the owner of the hotel who is responsible for the overall service (value proposition) that guests pay for, not the owner of the land that the hotel may be leasing, not the travel agent that sold the reservation, not the manufacturer of tools such as hammers, nor the provider of materials such as nails or steel beams, which may be used in building the hotel; nor is it the outsourced linen washing service or the architect of the building who is responsible. Lodsys� patent portfolio is being used as a part of an overall solution and we are seeking to be paid for the use of patent rights by the accountable party.

Except that whole first part disagrees with the conclusion Lodsys is shooting for. Yes, the owner of a hotel is responsible for its overall service, but if you went to the owner of a hotel and said "hey, I came up with the idea of putting bathrooms in hotel rooms, pay me," the owner of the hotel would laugh at you. Because that's just a basic implementation that's an obvious advance as a result of indoor plumbing. Ditto for in-app payments. That's an obvious advance in the evolution of mobile apps. Again, no one is doing in-app payments because they suddenly discovered this Lodsys patent and its vague and useless descriptions.

There's also the myth of the brilliant inventor shining the light on this concept via this patent for the rest of the world to learn from:

Dan Abelow is an independent inventor who visualized/created metaphors, documented for the world to see (in exchange for exclusivity) and created value for doing so. This ideation, as expressed in the patent, enabled a building block for others to build on and create more value.

That assumes that the people being sued actually built off of this patent. Lodsys presents absolutely no evidence to support such claims, because it almost certainly has none. Of course, Lodsys defends patent trolling and insists that people who don't like this are just freeloaders:

In aggregate, this cycle of patent licensing means that more invention can happen and it means that the economic profit pie is distributed more efficiently to suppliers of building blocks that are incorporated in the products or services.

This is false. And it's been shown false over and over and over again by various economic studies. It's based on the very false assumption that any economic activity is good economic efficiency. When the economic activity involves artificial protectionist barriers to innovation (which is what's happening here), then nearly every serious economist will point out the serious costs involved in hindering economics. To claim that this means more invention can happen is simply not supported by the evidence at all, which suggests more optimal results are found without patents getting in the way.

There are lots of bills in life that it would be preferable to not pay if one didn�t have to. Lodsys is just trying to get value for assets that it owns, just like each and every company selling products or services is, trying to do business and make a profit. Its odd that some of the companies that received notices had such a visceral reaction. Some of these companies have our favorite apps, for which we paid the asking price. We realize you have to get paid for your work and so do we.

It's not that people don't want to pay these bills. It's that they think it's ridiculous that some company that no one's ever heard of, holding some piece of paper that includes nothing of value or relevant to these developers, is suddenly demanding a cut for doing absolutely nothing. That's incredibly different than someone paying for an app that they liked.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: in-app payments, patent trolls, patents
Companies: apple, google, intellectual ventures, lodsys, microsoft

24 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Anonymous Coward, 17 May 2011 @ 2:22pm

I hope Ronald J. Riley chimes in on this one. I always love reading his nonsensical rants.
[ link to this | view in chronology ]
umccullough (profile), 17 May 2011 @ 2:31pm

Haiku syllable count percentage?
.575

How poetic of them.
[ link to this | view in chronology ]
Anonymous Coward, 17 May 2011 @ 2:48pm

i got like this idea where people make phone calls and then you know i get a percentage. Or like people buy stuff on the web and I get a percentage. Maybe you know when people use their credit cards to buy stuff then like I get a percentage.
[ link to this | view in chronology ]
- vinternet, 18 May 2011 @ 3:39pm
  
  Re:
  That's a great idea for a small business! Here's a paper sample.
  [ link to this | view in chronology ]
Anonymous Coward, 17 May 2011 @ 2:55pm

Ironically they have painted a very nice word picture where it is plainly obvious in this case that it is _apple_ that made the building blocks (payment infrastructure) for others to build on and create more value. And apple has reaped handsome rewards by doing so honestly.
[ link to this | view in chronology ]
Gerrit DeWitt, 17 May 2011 @ 2:59pm

Very well written
Excellent job in plainly explaining how the app developers who are "infringing" on this patent did so via their own independent work. The general public may incorrectly assume that patent infringement only happens when the "infringer" "steals" the patent holder's work. But it's not work, code, school assignment, or anything tangible that has been "stolen." The public is generally surprised to learn that patents cover any such implementation of their disclosed core methods. Technically, patents can't cover the ideas behind the methods, but they do effectively block their implementation.

So it's refreshing to see a well-written article that breaks apart every troll's logic that their patents were absolutely essential to enabling the work the developer did, and that the developer broke into their house and stole the work!
[ link to this | view in chronology ]
Anonymous Coward, 17 May 2011 @ 3:04pm

I thought you could not patent an idea. Isn't this just a vague idea that might apply and not really an invention, which could be patented.

But then, if it is an invention, then one only need to implement an in app upgrade and purchase method that circumvents this BS patent.

Of course, I am bettng Apple will jump into this before too long as developers are critical to the success of the iTunes store.

Someone is messing with Apple's revenue stream, I am sure that does not sit well with them.
[ link to this | view in chronology ]
- Lawrence D'Oliveiro, 17 May 2011 @ 6:35pm
  
  Re: I thought you could not patent an idea.
  That�s OK. Just put the words �method and system� in front of your idea, and hey presto, suddenly it�s patentable.
  [ link to this | view in chronology ]
Mike42 (profile), 17 May 2011 @ 3:05pm

A call for legislation?
Maybe now enough people will actually understand the absurdity of software patents and call on Congress to ban them. (Which, as I recall, is what the Supreme Court is waiting for.)

Wait, Microsoft and Apple patent everything, and can pay Congress to look the other way. Nevermind...
[ link to this | view in chronology ]
John Smith, 17 May 2011 @ 3:43pm

Didn't someone patent "patent-trolling"?
Didn't someone already patent "patent-trolling"? If not, they should patent the idea and then go around suing patent-trolls.
[ link to this | view in chronology ]
- Anonymous Coward, 17 May 2011 @ 4:08pm
  
  Re: Didn't someone patent "patent-trolling"?
  I already did. Now I demand .757% of income from all sites that have mentioned patent trolling.
  [ link to this | view in chronology ]
Michael Long (profile), 17 May 2011 @ 4:04pm

Valid???
The patent abstract: "In an exemplary system, information is received at a central location from different units of a commodity. The information is generated from two-way local interactions between users of the different units of the commodity and a user interface in the different units of the commodity. The interactions elicit from respective users their perceptions of the commodity."

Now, the patent itself throws in everything it can think of in nearly 70 claims, but the patent itself seems to be primarily about a distributed ratings system, and not about a system of in-application purchases and upgrades.

As such, Apple would seem to have a good chance at getting it tossed out as not being applicable.

Regardless, Apple needs to throw a "pro bono" million-dollar legal defense team at each case and drown the suckers in legal fees, and then hit the "company" with it's own lawsuit. (Notice, however, how the "company" was setup simply to engage in a lawsuit. No assets.)

This kind of thing needs to get slapped down, and hard, or otherwise every Troll, Dick, and Harry with a vague patent is going to attempt the same thing.
[ link to this | view in chronology ]
dwgoldman (profile), 17 May 2011 @ 4:32pm

sadly...
...trolling is what you get when you combine steroidal capitalism with litigation.
[ link to this | view in chronology ]
Anonymous Coward, 17 May 2011 @ 6:26pm

Perfectly Simple Fix
The US constitution says that it is intended to "promote the Progress ... by securing .. to ... Inventors the exclusive Right to their ... Discoveries". First of all, there is the unfortunate confusion in the minds of the founding fathers between invention and discovery, so they were clearly not thinking very straight. Next, there is the question of what "exclusive Right" they were talking about. Notice there is only one "exclusive Right" mentioned, not multiple rights.

How about making it the exclusive Right to be named as the inventor? The patent system becomes a method for inventors to get officially recognized as the inventor of something. That is the only "exclusive Right" they get, with no other rights granted. In particular, they do not get any government-granted monopoly privileges. Scrap the idea of patent infringement. Repeal that part of the law. It was a mistake from the start. Patents should be there to be used freely, not to throw a spanner in the works with lawsuits. They are supposed to be "To promote the Progress", remember?
[ link to this | view in chronology ]
- Capitalist Lion Tamer (profile), 17 May 2011 @ 6:33pm
  
  Re: Perfectly Simple Fix
  The problem is we're stuck with perfectly simple politicians.
  [ link to this | view in chronology ]
  - Anonymous Coward, 18 May 2011 @ 3:37pm
    
    Re: Re: Perfectly Simple Fix
    There is no fix. Patent system was extended by the lawyers for the lawyers, many of who are politicians.
    
    Patent laws are meant to be ambiguous so the lawyers can make a bundle in arguing about the disputes. If every patent dispute were clear cut, there would be no arguing, and there would be one less lucrative revenue stream for lawyers.
    [ link to this | view in chronology ]
    - BearGriz72 (profile), 22 Jul 2011 @ 7:34pm
      
      Re: Re: Re: Perfectly Simple Fix
      Eleven score and fifteen years ago our forefathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all buisnesses are created equal....
      
      It is rather for us to be here dedicated to the great task remaining before us -- that from this honored "intelectual property" we take increased devotion to that cause for which many gave their last full measure of devotion -- that we here highly resolve that these lawsuits shall not have died in vain -- that this nation, under God, shall have a new birth of enforcment -- and that government of the people, by the lawyers, for big buisness, shall not perish from the earth.
      [ link to this | view in chronology ]
Josef Anvil (profile), 18 May 2011 @ 4:53am

Work?
"We realize you have to get paid for your work and so do we."

That just floored me. Since when is paying someone for a patent, WORK?

Lodsys makes it sound as if they spent years in R&D, when in reality all they did was buy someone else's patent.

Damn.... As I was typing this, I realized they were talking about the work their legal team is doing. Epic Fail on my part.
[ link to this | view in chronology ]
Jan Bilek (profile), 18 May 2011 @ 9:15am

Shift?
Dear Americans, it seems to me that with your patent system you have created huge system for transferring money from those who actually do stuff to government granted monopoly holders and their lawyers.

So far it seemed to affect only huge corporations... but now even small guys have to worry. This is huge burden on business, fear of getting sued is not the best environment for creating new and exciting things - are you not afraid that startups start to move out of your jurisdiction?

I know that Silicon Valley is the best place for startups and whatnot... but if this software patents craziness goes on, are pros of being in the Valley going to be enough to outweigh burden of being in the US?

I am not even sure people would actually have to move out of the Valley - in some cases maybe just registering their companies somewhere on Cyprus or in Estonia or some tax paradise island would be enough... which would not be good for your economy, right?
[ link to this | view in chronology ]
Billy T, 18 May 2011 @ 2:39pm

one more step to a future ...
Here's a relevant future scenario... Nanolaw
[ link to this | view in chronology ]
Daniel, 22 May 2011 @ 8:33am

Not just in-app upgrades
We got hit with an infringement suite and our App's don't even use Apple's in-app purchase system.

Lodsys is claiming that our 'Lite' applications infringe because they link back to the App store and allow users to buy the full game. (So we have two separate games and providing a URL from the Lite to Paid App is something they thought of)
[ link to this | view in chronology ]
patent litigation, 23 May 2011 @ 3:07pm

a troubling trend
This is indeed a troubling trend -- the fact that MacroSolve and Lodsys are filing patent enforcement actions against one-person app development shops, rather than against the "deep-pockets" targets like Google and Apple, does not bode well for the future of innovation. Such lawsuits will inevitably discourage some small-scale developers from continuing their work, which will in turn deprive consumers of technological advances. What a shame.
[ link to this | view in chronology ]
Anonymous Coward, 22 Jul 2011 @ 8:46am

Reading the crap that goes on in this country is almost like reading history texts of the American Colonies in the 1750's and 1760's. If I didn't hate the cold so much (my idea of cold is like the mid 40s) I'd probably move to someplace like Iceland or Sweden.
[ link to this | view in chronology ]
Funny Troll Pics, 23 Mar 2013 @ 12:07pm

Interested to read
Very informative post.Great way to plainly explaining how the app developers who are "infringing" on this patent did so via their own independent work.I got like this idea where people make phone calls and then you know i get a percentage. Or like people buy stuff on the web and I get a percentage.Thanks a lot for valuable post.
[ link to this | view in chronology ]