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Apple defends developers; full letter to Lodsys

apple v lodsysPatent holder Lodsys has been attempting to scare iOS developers lately, claiming patent infringement. Lodsys argues that iOS apps that include in-app payments for upgrades or premium versions violate its own patented technology. The company also explains why itโ€™s targeting developers instead of Apple: โ€œIt is the owner of the hotel who is responsible for the overall service (value propostion) that guests pay for, not the owner of the land that the hotel may be leasing, not the travel agent that the reservation, not the manufacturer of tools such as hammers, not 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. Lodsysโ€™ patent portfolio is being used as part of an overall solution and we are seeking to be paid for the use of patent rights by the accountable party,โ€ says its blog.

But Appleโ€™s having none of it, and today responded on behalf of its developers, saying Lodsysโ€™ claims are without merit. This comes as a major relief to the iOS app makers, who have been expressing their thanks via Twitter. And Apple couldnโ€™t have made its message more clear: Its letter in full has been obtained by MacWorld (reprinted below), and in it Appleโ€™s legal team bashes Lodsysโ€™ argument, saying that the Apple companyโ€™s licensing rights to in-app purchases extend to developers.

Lodsys had demanded โ€œ0.575-percent of US revenue over for the period of the notice letter to the expiration of the patent, plus applicable past usage.โ€ The company explained for an app that made $1 million, this would amount to $5,750 a year.

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. (โ€œAppleโ€) regarding your recent notice letters to application developers (โ€œApp Makersโ€) alleging infringement of certain patents through the App Makersโ€™ use of Apple products and services for the marketing, sale, and delivery of applications (or โ€œAppsโ€). Apple is undisputedly licensed to these patents and the Apple App Makers are protected by that license. There is no basis for Lodsysโ€™ infringement allegations against Appleโ€™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 Appleโ€™s license rights.

Because I believe that your letters are based on a fundamental misapprehension regarding Appleโ€™s license and the way Appleโ€™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 Appleโ€™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, โ€œApple is licensed for its nameplate products and services.โ€ย Seehttp://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 Lodsysโ€™s infringement contentions because you have chosen to send letters to Appleโ€™s App Makers rather than to Apple itself, our understanding based on the letters we have reviewed is that Lodsysโ€™s infringement allegations against Appleโ€™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 productsโ€”such as the iPad, iPhone, iPod touch and the Apple iOS operating systemโ€”through the use or Appleโ€™s App Store, Apple Software Development Kits, and Apple Application Program Interfaces (โ€œAPIsโ€) 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 Makersโ€™ 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 Appleโ€™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 Appleโ€™s App Makers. These licensed products and services enable Appleโ€™s App Makers to communicate with end users through the use of Appleโ€™s own licensed hardware, software, APIs, memory, servers, and interfaces, including Appleโ€™s App Store. Because Apple is licensed under Lodsysโ€™ 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 Appleโ€™s licensed technology, Lodsys is invoking patent law to control the post-sale use of these licensed products and methods. Because Lodsysโ€™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 Lodsysโ€™s patents, Lodsysโ€™s threatened claims are barred by the doctrines of patent exhaustion and first sale. As the Supreme Court has made clear, โ€œ[t]he authorized sale of an article that substantially embodies a patent exhausts the patent holderโ€™s rights and prevents the patent holder from invoking patent law to control postsale use of the article.โ€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 Makersโ€™ 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.

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