Lodsys became one of the most scorned patent holders in 2011 by making seemingly small cash demands (just 0.575 percent of your revenue, please!) against small app makers, who it said were infringing its patents that cover in-app purchasing and upgrades.

Within months, that brought a legal challenge by Apple, which saw a clear threat to its ecosystem. Apple had already paid to license Lodsys patents when they were in the hands of an earlier owner—Intellectual Ventures. So Apple went to court, arguing that Lodsys can't demand additional payments by threatening iOS developers.

Now, after two years of litigation, it's back to square one. The East Texas judge overseeing Lodsys' systematic patent attack on app developers has refused to even consider Apple's motion. Instead, he allowed the patent-holding company to settle all its cases—and then dismissed Apple's motion as moot. By doing so, US District Judge Rodney Gilstrap—who has inherited the patent-happy East Texas court that once belonged to patent-troll favorite T. John Ward—has enabled Lodsys to threaten developers for months, and perhaps even years, to come.

Six million iOS developers unheard

The judge's refusal comes amidst a plethora of Lodsys lawsuits and out-of-court threats, a background that Apple made clear in its motion. On April 2, 2013, Lodsys sued ten additional developers that sell either iOS products exclusively or both iOS and Android products. On April 16, Lodsys sued five more iOS developers. On May 9, it sued five more.

The new lawsuits made "substantively identical allegations based on the use of licensed Apple technology," wrote Apple. The motion continues:

The only difference is that now, in an almost farcical attempt to conceal the true nature of its claims, Lodsys has edited its contentions to remove the screenshots and other specific references to Apple technology it formerly displayed.

It is... obvious that Lodsys’ purpose is to buy time in which it can continue to hold up iOS-based app developers for settlements of claims that Lodsys knows it has no right to assert. In light of Apple’s estimate that there are more than 6 million developers of iOS-based apps, the potential number of such claims is virtually limitless...

[A]nything short of an unconditional promise by Lodsys that it will not assert infringement claims against Apple or its customers is insufficient to render this dispute moot. [Emphasis in original.]

Lodsys' consistent practice has been to threaten and, if necessary to extract a payment, to sue large numbers of developers, to settle with most of them as quickly as possible, and then to dismiss or stay any claims that have not yet been settled by the time Apple's claims are ripe for decision.



The Lodsys method is to settle cases "quickly and cheaply," wrote Apple lawyers, who included many settlement terms as sealed attachments to their motion.

While much of the docket is sealed, it's clear Apple went through extensive discovery to brief its motion, including taking depositions and hiring at least one expert witness.

The picture Apple painted was put in more context by an amicus brief filed by the App Developers Alliance (ADA) and the Electronic Frontier Foundation (EFF). Lodsys is part of a trend where "patent trolls" sue over a customer's use of commonly used technology. In fact, "six out of the top ten patent litigation campaigns exclusively named companies for whom the adoption of another's technology was the basis for infringement," notes a recent study, quoted in the ADA/EFF brief.

"Lodsys’ pattern of sending out demand letters, suing a seemingly random sampling of app developers and then settling with those app developers, promises that those developers’ claims of a right to use the technology in question will never be heard," wrote EFF lawyer Daniel Nazer. "The resulting uncertainty leaves developers in limbo. In fact, there have been reports that app developers are indeed pulling apps out of the US markets entirely."

The developers' pleas—and Apple's—fell on deaf ears. Judge Gilstrap ruled that Apple's motion only applied to the seven defendants in the case. If they were out, the case was done. He ignored the Apple and developer arguments about the widespread nature of Lodsys' campaign, declining to see any broader issue.

"A claim covering six million unnamed app developers is far outside the scope of the instant action," wrote Gilstrap in last week's order.

Gilstrap has suggested Apple sue Lodsys directly, but there's no guarantee that case wouldn't get thrown out, too. Lodsys has recognized Apple's license and said it won't sue Apple. It is the customer conflicts that are at issue.

Several companies that have been directly threatened by Lodsys have gone ahead and counter-sued. The 13th lawsuit directly challenging Lodsys' patents was filed last week by Martha Stewart Living Omnimedia. Lodsys had demanded Stewart pay $20,000—$5,000 for each of its iPad apps. Instead, Stewart sued Lodsys in Wisconsin, where Lodsys CEO Mark Small lives. (Lodsys' official office, like so many patent-holding companies, is just an office suite in Marshall, Texas.)

Considering Martha Stewart and other potential Lodsys-killers

More immediately though, the consolidated Lodsys case that Apple is now out of is still going to trial.

Dozens of defendants in that case settled, including all of the iOS developers, and it's hard to blame them. Even a six-figure settlement looks cheap in comparison to a faraway trial that could result in disaster, and a five-figure settlement would seem downright irresistible. Even a one-week patent trial can easily cost around $1 million, and an entire case often costs $2 million to $5 million from start to finish. Then, of course, the defendant is only paying for the chance to lose many millions more. That's how $100,000 settlements, or even $500,000 settlements, can start to look attractive.

Tech companies like Atari and Symantec and retailers like Men's Wearhouse and Estee Lauder were all consolidated into this suit. While they settled, recent docket entries indicate that one defendant, computer security company Kaspersky Lab, continues to be scheduled for a jury trial beginning October 7. A proposed jury verdict form has been filed in that case.

At trial, Kaspersky will have the chance to argue to a jury that the Lodsys "in-app purchase" patents are invalid. Even if it's successful, though, Lodsys has at least two other patents it mentions in its demand letters. Apple's argument that the Lodsys patents are already paid for could have been a clean and effective way to shut down much of the Lodsys patent campaign.

EFF lawyer Daniel Nazer said he's hopeful the issue will come up again sooner rather than later.

"A court concerned about a lot of small players being mistreated would expedite Apple's argument on the license question," he said. "If Apple's license really does cover these app developers, a great injustice has been done. We're really disappointed that they've managed to duck away from having the issue decided. Apple went through a whole litigation—that's a long, expensive journey."

Lodsys has 13 other pending cases in just the Eastern District of Texas. The company has sued a total of 192 users of Apple technology in the past three years, according to a recent study. It has threatened hundreds, if not thousands, more. Lodsys itself boasts that 500 companies have paid it for its patents, including "many world-leading corporations."

Apple may be able to intervene in another one of those Texas cases, although it seems like there's nothing to stop Lodsys from using the same "settle-and-dismiss" strategy it did here, since it has clearly found a judge willing to stick his head in the sand with regard to the broader issue.

Lodsys can be sure it will continue to draw Judge Gilstrap as long as it files its cases in Marshall, Texas. The other judge who considers patent cases filed there is US District Judge Leonard Davis, but since Judge Davis' son William "Bo" Davis is Lodsys' lawyer, the company's cases will all be redirected to Gilstrap.

