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IOS threatened after court dismisses Apple's suit to protect developers

The recent dismissal of Apple?s suit intended to protect developers from what it claims are unwarranted patent fees threatens to cut into developers? profitability and, therefore, the vibrancy of the iOS ecosystem.

The case originates from 2011, when Apple interceded on behalf of seven iOS developers after patent-holding firm Lodsys claimed they were infringing patents related to in-app purchases and upgrade functionalities. Apple's own suit claimed that since it had already licensed the technology, third-party developers should not have to pay. This counterclaim is what has been dismissed by the court.

?This is significant for Apple because in-app purchase is a key element in the business model for developers, and for many of them, the pathway to profitability,? said Raul Castañon-Martinez, senior analyst for cloud and mobile apps at Yankee Group, Boston.

?If a significant number of developers opt-out, this could place Apple in a position similar ? not the same, but somewhat similar ? to Microsoft and BlackBerry,? he said.

?Developers stay away from these two OS due to the size of their client base, and only drastic intervention by Microsoft and BB will motivate developers.?

Apple did not reply to a request for comment.

Patent exhaustion
The key question here is does a patent automatically extend to developers once Apple has already licensed the technology and incorporated it into its app building toolkit for developers.

While many in the industry seem to think that Lodsys? patent rights are exhausted once Apple has paid a licensing fee, this has not stopped some developers from paying again in order to avoid having to face a legal showdown with Lodsys.

If developers begin to see this de facto cost of doing business on iOS as too high, they could decide to focus on developing for other mobile operating systems instead.

However, any impact from the suit being dismissed could be mitigated by the general overall vibrancy of the iOS ecosystem.

?This campaign by Lodsys does not seem to have inhibited app development in any major way,? said C. Graham Gerst, partner at Global IP Law Group LLC, Chicago. ?The app development industry is large and vibrant and very effective.?

Right to collect
The fact that the developers cited in Apple?s suit have already paid a license fee to Lodsys is at the basis of why the company asked the court to dismiss Apple?s suit and why the court agreed.

Some of the companies that reportedly settled with Lodsys include Atari, Symantec, Men?s Wearhouse and Estee Lauder.

However, the issue is far from dead simply because this suit has been dismissed.

Since Lodsys? claims regarding the license issue have not been tested in court, the company continues to go after app developers for these fees.

A number of other developers have suits pending against Lodsys disputing its right to collect a license fee from them, and Apple can easily step in on any of these with a motion similar to the one that was just missed. In fact, the court said in its ruling that its decision should not prevent Apple from getting involved in other cases.

App economics
Lodsys is generally considered to be a patent troll, meaning the company?s primary function is to hold patents that it can license.

?Because Lodsys still has a number of other pending law suits against other developers and Apple?s already invested the time in putting together this brief and paid the legal fees, they could just go ahead and do the same thing in any of those other cases or all of those pending cases if they want,? Mr. Gerst said.

The outstanding suits on this issue include one from Martha Stewart Living Omnimedia, which recently filed a suit in federal court in Wisconsin following a demand from Lodsys to pay $5,000 each for its iPad apps.

Computer security company Kaspersky Lab also reportedly has a pending suit against Lodsys over this issue.

?[The dismissal of Apple?s suit] is particularly significant for independent developers,? Yankee Group's Mr. Castañon-Martinez said. ?The economics of app development are already challenging: consumers are increasingly downloading free and not paid apps, there are only two major app stores, and getting discovered among thousands of other apps is difficult enough.

?This type of legal issues can very well be the last nail on the coffin for many developers,? he said. ?To put it simply, there is not enough money on the table for developers to split with non practicing entities like Lodsys.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York