I’ve been asked by Congress to testify before the Subcommittee on Courts, Intellectual Property, and the Internet. I feel honored to be representing small businesses on the issue of patent trolls. I hope sharing my story will help bring meaningful patent reform so small businesses can spend less time with frivolous lawsuits and more time on innovation. Check out my recent article on Why Congress must ensure ‘game over’ for patent trolls.
Lodsys has dismissed the patent infringement lawsuit it filed against my company TMSOFT. The dismissal is with prejudice which means they can never sue my company again for infringing its patents. I did not have to pay any money to Lodsys or sign a license agreement. I also did not sign a confidentially agreement so I’m free to talk about this matter.
So what did I have to agree to?
- Never to sue Lodsys over its patents (I otherwise would have the right to ask a court to rule their patents invalid if I wanted)
- Dismiss all motions with prejudice (we had filed a motion to dismiss that also sought to recover my attorneys fees, costs and expenses)
- Make a donation to a mutually agreeable charity
I’m in the business of creating apps, so mutually agreeing not to sue each other was fine with me. Dismissing all our motions would terminate this lawsuit which is what I wanted as long as I didn’t pay Lodsys a dime and I could still talk about it. The mutual donation to charity was also fine with me especially if it was to the EFF or PubPat.org. Of course they wouldn’t agree to that, so Make-A-Wish Foundation was selected.
I was a little confused about why Lodsys wanted to make a donation to charity. I asked my lawyer if it was to make them appear more human. He said it is most likely because if we would have said no to this offer, the judge could have said we were not behaving reasonably. That seems a little ridiculous given they were the ones that filed this frivolous lawsuit. But, I get the point that Lodsys could say to the judge they were willing to dismiss it if only I’d make a small donation to a charity. This would be their way of making me look like I was the one wasting the court’s time by continuing to fight the case despite Lodsys being willing to dismiss it without me having to pay them anything.
Although this was a win for my company, it was only a win because I had Dan Ravicher and his associate from the Public Patent Foundation (pubpat.org) representing me pro bono. It is extremely rare to get this kind of assistance (I know of no one else out there offering to defend small businesses like mine pro bono from patent infringement allegations) and I am very fortunate that someone as talented as Dan agreed to fight these bullies for free. I asked Dan how much this would have cost me:
“I’ve spent about 200 hours on the matter and Sabrina about another 80. My comparable market hourly rate (partner at a top NYC patent firm) would be $750 and a comparable rate for Sabrina (senior associate at a top patent firm) would be about $500.”
The total costs to my company would have been $190,000. And that’s just for the initial response to this lawsuit. We hadn’t even gotten to court which would have increased that amount into millions. Remember that it only cost Lodsys about $450 to file the lawsuit. This is why small businesses will usually always settle. It’s just not worth it to fight. And even if you could win and get awarded your attorneys fees and costs, which are very rare, you probably won’t see a dime of that money.
This is because patent trolls are set up as shell companies without much in assets. Any money that the patent troll receives from all the licensing agreements is immediately distributed to other companies—this includes the law firm representing the patent troll on contingency and the company that originally held the patent. Any money you might be awarded will be long gone by the time it comes to collect.
Payments are also sent to the troll using overseas bank accounts. This is mainly to avoid paying US taxes, but it could also make it more difficult to follow the money if an investigation was ever brought on. The patent trolls have created an extortion business model that is virtually risk-free–Nothing to lose and everything to gain.
There is a lot of talk going on about patent reform, but most of the ideas being discussed would not help small companies. In my next article, I’ll discuss solutions to the problem and my visit to Capitol Hill where I was able to share my story to those that might be able to fix our broken system. Hopefully one day tech startups can stop worrying about patent trolls and get back to building cool stuff.
My company TMSOFT was recently sued by Lodsys in the eastern district of Texas. I initially thought I was being sued for using a hyperlink in my White Noise application (see below). I know now I’m being sued because the CEO of Lodsys didn’t like what I publicly said about their company. That’s right. I’m being sued because I called Lodsys a “patent troll” on my podcast, Tech 411.
This all started in May, 2011 when my co-host and I re-launched Tech 411, formerly a radio show in Washington DC, as a podcast on iTunes. Our first couple shows discussed how Lodsys was going after app developers. I commented that Lodsys was “patent trolling” with “evil letters” that were “complete b.s.” Around this time Apple had featured our show and it quickly became the #1 tech news show on iTunes.
Shortly after these shows were published, I received one of the infamous Lodsys letters which said I was in violation of their patents. Their letter included a screenshot of White Noise showing a web page used to share news and cross promote other apps. They highlighted a hyperlink that would open a URL to another one of my apps on the App Store. If opening a URL to a web page or app store listing is in violation of their patents then everyone who publishes an app would be in violation.
I invited Patrick Igoe, a registered patent attorney, onto Tech 411 Show #5 to discuss the matter. Patrick had already done analysis of Lodsys’ patents at his applepatent.com blog and he couldn’t find a single reason why app developers would be in violation. That was the same conclusion that Apple’s own legal counsel came to as well.
Over the course of a couple years, I received a few voicemails from either Lodsys or the law firm that was representing them. They wondered if I had any questions regarding taking a license agreement. The only question I ever came up with was wondering how they slept at night. I’m sure the White Noise I created for the purpose of better sleep wouldn’t help them. I continued to hope that Lodsys would think my company was too small to pursue.
That all changed when Lodsys sued another batch of App Store developers which included my company TMSOFT. They even filed suit against the Walt Disney Company. I guess I could be flattered that my little company is being sued along with a 100 billion dollar company, but it isn’t possible for smaller companies like mine to afford a proper patent litigation defense. I’m sure Walt Disney will be fine, but smaller companies like mine are usually forced to settle. And Lodsys really doesn’t want to go to court either; they just want companies to pay a licensing fee and not put up a fight.
I’ve been fortunate to have Dan Ravicher from PUBPAT (pubpat.org) represent my company pro bono in this matter. Pubpat is a not-for-profit organization that has the mission to protect freedom in the patent system. He’s a champion of the little guy who has offered to help app developers and small companies that have been targeted by Lodsys. He is currently representing local farmers against Monsanto, a company that is very aggressive with its patents on genetically modified seeds. He has presented at Google on protecting freedom in the patent system in which he describes some serious issues with our patent system.
Dan contacted the lawyer for Lodsys, who actually admitted to him that this wasn’t about money. It was about the things I said on my tech podcast and blog. During that time, the CEO of Lodsys, Mark Small, was getting a lot of negative media coverage and even wrote on his blog that he received several death threats. Mark obviously didn’t like the comments I made about his company and retaliated by sending a patent infringement letter.
Lodsys is seeking a percentage of revenue from the time they sent me the letter to the time their patent expired. Usually they request around 1% of your in-app-purchases. My company made about $500 with in-app-purchase during this time period and 1% of that is $5. What? I’m getting sued for $5? Given it cost Lodsys $350 to file the lawsuit I assumed they would ask for more than that. And they did.
Lodsys offered to settle with my company for $3,500. If I pay them off, what is stopping the next troll from knocking on my door? Nothing. And I’ve heard that if you pay a troll to go away it can lead to more trolls showing up. It’s like your company gets added to a spam list. That’s not a list I want to be on. I’d rather be able to talk about this issue and hope that at some point in the future our patent and legal system will change to address this serious problem. In the end, it’s dragging down our economy because small innovative companies have to spend time and money defending themselves against bogus lawsuits instead of hiring new employees.
My apps are not in violation of Lodsys’ patents. My lawyer believes this. Apple has stated app developers are not in violation. The EFF says it’s time to beat this troll. If I were to take the Lodsys offer then I’d have to sign terms where I couldn’t talk about it. That’s a real problem because there are lots of people that want to share their patent troll story but they are no longer allowed. I don’t want to be censored. I want to openly discuss issues that are facing my industry. I believe that this case will be dismissed (PUBPAT has filed the motion to dismiss below on TMSOFT’s behalf) and I hope this will open up a path for others to follow. Will you help me in this fight?
One thing you can do to help is spread the word to raise awareness. Share this article on Twitter and Facebook. Another thing you can do is donate to PUBPAT’s Defend Apps from Patents Campaign.