Lodsys, a patent troll who threatened mobile developers over their use of in-app upgrade/purchase buttons, started a blog to explain itself—and why it targets small companies that can’t afford to fight back.
There is a misalignment in the market where the litigation costs greatly influence the incentives. At the low end, the cost of litigation exceeds the value of the license and this puts strong pressure on small vendors to take a license rather than litigate. However, above a certain threshold, there is a perverse incentive for the larger market players to not pay (even if they should) and to force the rights holder into litigation since the higher expenses of litigation and the risk may knock out the need to pay. This cost of doing business often means that individual inventors cannot afford to attempt to license (or they don’t have the expertise), and so they sell to companies that specialize in rights licensing and which have the economic reserve to deal with the litigation costs and/or they partner with contingency law firms. Ironically, contingency law firms take a % that is in the range of what Apple and Amazon charge to retail digital goods.
Emphasis added. Here’s the pricing:
In the case of an Application doing an in-application upgrade (and only this scenario), Lodsys 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. So on an application that sells US$1m worth of sales in a year, the licensee would have an economic exposure of $5,750 per year.
The implication is that it’s cheap. But any price is too high when your patent is thin air.
Also on offer at the blog is a rambling explanation of intellectual property, offered to address the question, “Why is something as obvious as an upgrade/purchase icon a patentable innovation?” The honest answer — “because it is” — emerges only implicitly as Lodsys prattles on and on about the role of IP in tech history. Indeed, the most direct reference to the patent in question is to note that the original filer “visualized/created metaphors.” The jokes about vague patents write themselves: Lodsys can’t even find a word to singly describe what the inventor even did.
Given that these upgrade buttons are a built-in element of Apple’s mobile development platform, the assumption’s been that Apple didn’t know about Lodsys and would maybe kick its ass or something. Lodsys, however, writes that Apple, Google and Microsoft have already entered into licensing agreements with it.
Given that fact, the quote posted above — ostensibly a no-nonsense explanation of IP outfits’ legitimate place in the market — starts to look more like a strategy guide for patent trolls. Forget the more spectacular method of demanding huge sums directly from “larger market players.” Recognize that they have “perverse incentives” to refuse, and instead secure deals that leave them unfleeced, but less able to protect their dependent markets. Then launch the real attack: threats sent to the “low end,” where media exposure and outrage is guaranteed, but huge numbers of victims, unable to afford litigation, will pay handsomely in aggregate.