Patents and the mobile/games industry

This post represents my personal views – not those of my employer.

Patents are suddenly causing problems in the mobile games industry – this is what you need to know about it.

What’s been happening: Lodsys vs the app developers

This year has seen a sudden spike in patent lawsuits/threats against businesses in the mobile sector, affecting both developers and platforms. Until very recently, patent infringement issues were confined to actions between the big beasts in the mobile world (like the ongoing battle between Samsung and Apple, for example).

However, last week patent issues suddenly became a real problem for app developers, when news broke that a US entity called Lodsys has been issuing warning letters to a number of app developers over patents which Lodsys claims it holds over in-app purchase technology. Specifically (as Wired reports):

“Lodsys is accusing the developers of infringing a patent related to the usage of an “upgrade” button that customers can use to upgrade from a free version of an app to a paid version, or to make purchases from within an app.”

We don’t know how many developers Lodsys is threatening to take action against. Lodsys has confirmed however that it 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“. Lodsys claims that its patents have already been licensed by Apple, Microsoft and Google, but that this does not protect developers who then create apps in their ecosystems.

What is a patent?

Basically, a patent is a type of intellectual property right which “protects new inventions and covers how things work, what they do, how they do it, what they are made of and how they are made. It gives the owner the right to prevent others from making, using, importing or selling the invention without permission” (says the IPO).

Patents typically protect inventions like new medicines or industrial machinery. They allow you to stop others from exploiting your invention and can themselves be sold/assigned/licensed to a third party – which makes them valuable. However, they are limited in duration – they last up to 20 years and then the invention typically enters the public domain.

The rationale behind patents is essentially that, if society grants inventors the exclusive right to exploit their invention for profit for a limited period, then inventors will be incentivised to keep inventing and society will benefit both from new inventions and from access to existing inventions which enter the public domain after their patent expires.

Patent law

Patent law is very complex and each country’s laws differ, so I’m not going to try to explain everything here – as always, if you have queries then you should seek specialist legal advice (or contact me). That said, for current purposes here’s the key points (based on UK law as a model) which you need to understand about patents:

• To be patentable, basically an invention has to be new, has to involve an inventive step that isn’t obvious, has to be capable of being made or used and can’t fall into certain excluded categories (e.g. it can’t be a scientific/mathematical theory, or a musical work).
• The process of obtaining patents is long and complicated and territorial: a patent only protects you in the country in which it is granted, so often you have to obtain patents in each country where you operate.
• Broadly speaking, in some countries (above all the USA), you can obtain patents over software inventions, whereas in many other countries (especially Europe) it is possible but much harder/uncertain. Software patents are often pretty contentious in the tech industry (more on that later)
• Once you have a patent, in principle you could sue anyone who makes a product that you consider infringes your patent, whether they knew about your patent or not.  In other words, if the other guy infringes your invention knowingly or unknowingly, you could in principle sue him – you do not generally need to prove that he knew about your prior patented invention.  The test for patent infringement focuses much more on a close analysis of the two products and an examination as to whether the allegedly infringing product does actually infringe the patent.
• There are four main responses to a patent infringement suit:
  (1) Agree to pay a licence fee to the patent holder (this can range from a one-off fee to a profit sharing agreement) — avoids litigation but means an extra business cost
  (2) Fight the claim on the basis that your invention does not infringe the patent — leads to potentially expensive litigation
  (3) Fight the claim on the basis that the patent is invalid or expired or otherwise doesn’t bind you — leads to potentially expensive litigation
  (4) Do nothing and hope for the best — ultimately just leads to (1), (2) or (3) happening.

What can you do if you have patent infringement concerns?

There’s no wonder cure here I’m afraid, but if you’re concerned about patent infringement claims against you (or if you’re concerned that someone else is infringing your patents), then here are some tips to think about:

• Take legal advice early – patent infringement claims are complicated and can ruin your business, so take them seriously. As I say to my clients, a little legal advice early on usually saves you a lot of time and money down the line.
• Reach out to the patent holder. Find out what it wants, early on. And then work out what you can live with.
• Contact business partners who could help you, or other entities which might be affected (in the present case, the app platforms and other app developers)
• Check your insurance policy regarding its legal disputes insurance cover (it *could* help)
• Get vocal or keep quiet. In other words, either get everyone you know on board to try to put pressure on the patent holder to drop the claim or, if that won’t work or public knowledge of the claim would hurt you, lock down. If need be, get PR advisors involved.
• Make sure your business is a limited liability company. Actually this is really something you need to do before you face a claim, but it’s still important – a successful lawsuit against you, or a failed lawsuit by you against another guy, could bankrupt the business – which you can walk away from in the worst case scenario if the business is held in a company. You can’t walk away from being made bankrupt personally.

(Note: larger tech companies may well have other defences open to them – in particular, using their own patents portfolio to counter-sue the other guy (that’s one of the reasons that these companies acquire huge numbers of patents – as a shield to patent infringement claim from third parties).)

Lodsys, revisited: thoughts on what’s happening in the mobile world

So far, the Internets seem pretty angry about what Lodsys is doing (its blog even mentions death threats), on the basis that Lodsys is essentially claiming ownership of the patented in-app purchase functionality. I don’t have enough information or specialist patents expertise to comment in detail on the validity of Lodsys’ patents or its likelihood of ultimate success in any claims (though my friend Florian Mueller has expressed some trenchant views on this front at his Fosspatents blog).

Clearly though, this dispute could end up raising some pretty important issues the future of in-app purchase functionality in the mobile world. On that front though, a lot more still needs to happen before this really gets interesting. The app platforms need to make their position public (especially Apple, from which a number of app developer have sought assistance). The app developers and Lodsys also need to clarify their positions as against each other. And, ultimately, Lodsys will need to either put up (i.e. start legal action) or shut up.

If we see lawsuits afoot, it will get very messy, very quickly. Lodsys would need to pursue its claims against the app developers/platforms through legal avenues – potentially even trying to shut them down. As I said earlier on, the app/developers will need either to reach financial agreement with Lodsys, or fight the claim, or just try to play for time. If a big cat in the mobile world gets involved and funds a big legal fight, we could see the validity of Lodsys’ patents being challenged.

Ultimately, if Lodsys succeeds then it can in principle expect to receive substantial royalties from the licence agreements it could demand, while the app platforms may also decide/be forced to change how their technology works in order not to infringe these patents. This would cause a lot of difficulties in the mobile world – for app platforms, developers and customers. On the other hand, if Lodsys’ claims were defeated then it would send a strong message regarding the use of software patents to pursue these kinds of claims in the mobile world.

Of course, even if this claim does go away, I don’t think the idea of software patents being used in games or mobile or other parts of the modern tech industry will go away – look at Zynga’s reported patent applications regarding virtual currency, for example.

Watch this space.

Wider thoughts on Lodsys and software patents

More generally, my view is this debate is really about whether we should have software patents at all, and it just happens on this occasion to arise out of Lodsys’ software patents regarding in-app purchases in the mobile sector. As I said earlier, software patents are often very contentious. The arguments in favour of software patents are the same as arguments in favour of patents generally:

• Patents promote development (especially the increasingly large R&D that expensive new software requires)
• Patents mean that the public will eventually obtain public disclosure and free use of the invention (after the 20 year monopoly has finished)
• Patents represent a great deal of hard work, which deserves protection
• Patents are always subject to legal challenge if the patent holder has gone too far
• Copyright doesn’t go far enough to protect inventions – patent protection is therefore needed

However, opponents of software patents have their own arguments too:

• Software patents are a minefield in the modern software industry, where you can very easily but unknowingly infringe someone’s software patent, or at least open yourself to a speculative lawsuit. Or, to put it another way, how are you supposed to know you have infringed a software patent and what are you supposed to do if you have infringed one?
• Software patents are useless #1: no software innovation will ever retain its value for the 20 years of a patent’s life.
• Software patents are useless #2: a decent software developer could probably engineer a way around the patent anyway, so why bother having them?
• Software patent protection actually stifles innovation by shutting up new inventions and preventing open and free innovation (especially in the Internet age where we are used to free/fast information exchange)
• Permitting software patents just encourages patent trolls to take legal action against legitimate software developers for a quick return
• Other branches of IP law, like copyright or trade mark law, already provide sufficient protection

These are the arguments which underlie the current debate as to whether Lodsys is acting properly or not in threatening patent infringement actions against developers allegedly infringing its patent in-app purchase functionality.

I’ll let you make up your own mind as to which you prefer. However, to some extent these policy arguments for and against software patents are besides the point: like it or not, in some jurisdictions it is just a fact that software patents are permitted and will generally be protected by the courts.