Apple to Lodsys: In-app purchase patent license covers iOS developers, too

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More than a week after patent holding company Lodsys first threatened a number of iOS developers with legal action for implementing in-app purchase options within their iPhone and iPad solutions, Apple (NASDAQ:AAPL) has finally issued a formal response to the charges, stating that its existing patent license applies to its developer partners as well. "Apple is undisputedly licensed to these patents and the Apple App Makers are protected by that license," writes Apple senior vice president and general counsel Bruce Sewell in a letter addressed to Lodsys CEO Mark Small. "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."

Approximately a dozen iOS developers received letters contending they are infringing on Patent 10/732,102, which Lodsys acquired in 2004 from inventor Dan Abelow and which covers "methods and systems for gathering information from units of a commodity across a network"--e.g., in-app purchases like upgrades from lite to premium versions. In a series of Q&A entries posted to its blog, Lodsys says that in cases where iOS applications are offering in-app upgrades, it is seeking 0.575 percent of U.S. revenues over the period of the notice letter to the expiration of the patent, plus applicable past usage. "So on an application that sells U.S. $1m worth of sales in a year, the licensee would have an economic exposure of $5,750 per year," Lodsys states.

Lodsys previously confirmed Apple, Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) have all licensed its nameplate products and services, but contends that "The scope of their current licenses does NOT enable them to provide 'pixie dust' to bless another (3rd party) business applications. The value of the customer relationship is between the application vendor of record and the paying customer, the OS (is acting as an enabler) and the retailers (are acting as a conduit to connect that value), and taking their percent for that middleman role." 

Apple says otherwise. "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," Sewell writes. "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."

Apple's letter concludes by requesting that Lodsys immediately withdraw all notice letters and cease asserting that iOS developers are in any way infringing on its intellectual rights. "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," Sewell states. "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.'"

Lodsys has not yet responded to Apple's letter as of press time. But developers were quick to endorse Apple's actions: TLA Systems' James Thomson, one of the first developers targeted by Lodsys, told Macworld "I am extremely relieved that Apple has stood up for its developers against these patently unfair claims by Lodsys. I always believed they would, but it's a huge weight off my shoulders to see it written in black and white. The last 10 days have been some of the most stressful of my professional career, and I'd just like to say thanks to Apple and all our customers and friends who have been highly supportive of us during this time." Red Sweater Software's Daniel Jaikut tweeted "I've never seen iOS developers so excited about the walled garden."

For more:
- read this Macworld article

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