To date, targets of mobile-related patents have been large corporations that produce hardware or operating systems: Google (GOOG), Apple (AAPL), Nokia (NOK), Motorola (MMI), and HTC, to name a few. But success in the industry depends on large numbers of apps being available for the various mobile platforms.
Although the app developers named in this suit are larger companies, how long will it be before smaller ones face a legal complaint? Few of the developers are well funded -- or funded at all. Make it too dangerous for them to do business, and the industry could suddenly hit a pothole on the information superhighway.
H-W Technology seems like a classic trolling company, as it's apparently headquartered at a $396,000 single family home in Lubbock, Tex. The name on file with Its corporate registration is George Hardberger. (I wasn't able to reach him.)
H-W is suing 32 entities that boil down to 21companies, including Apple, Google, Motorola, Nokia, Sony Ericsson, and Kyocera: the usual suspects. Below you can see the complaint for alleged infringement of patent number 7,525,955:
What makes the suit unusual is the inclusion of companies because of their apps. Amazon (AMZN), Kayak, eBay, Buy.com, and others are on the list of alleged infringers for:
... making, using, importing, selling or offering to sell products that have systems and/or methods for allowing a multi-convergence device utilizing a domain specific application to complete a merchant transaction without the need to generate a voice call.App companies in danger
That description suggests that many other companies could have made the roll if they had apps that allowed users to complet transactions without having to make a voice call. There's the industry problem. Mobile has become a brutal legal battleground, with companies trying to hinder competitors and garner advantage for themselves by asserting patents.
It has been bloody but not fatal to date. But that's only because the companies involved have had the financial resources to wage a battle and generally have had their own patent portfolios for negotiation leverage. Such is unlikely the case with smaller companies, especially start-up software firms that create the apps that have helped fuel the adoption of smartphones and turn wireless into a hot market.
As Brad Burnham of VC firm Union Square Ventures has written, small companies often become the first targets of patent actions:
They pick on startups because undercapitalized small companies cannot afford to be ideological. When faced with the prospect of extensive legal fees and a huge distraction, they do the pragmatic thing - they settle. The troll can accept less from a startup because the troll can later argue the startup has a small market share and a limited ability to pay. A smaller settlement does not preclude larger settlements with bigger players later. In a side note, one troll accepted services from our portfolio company in lieu of cash because the troll could not technically do the thing that our company was accused of copying so we are providing them with the capability. The irony there kills me. It feels a little like being forced to dig your own grave before being shot.None of the defendants in this suit are very small companies, but who knows if some had to settle. If patent owners increasingly target app companies, fewer entrepreneurs may be willing to create something for a mobile market, reducing innovation.
Time to disarm the mobile patent bomb
Such a situation wouldn't matter much for Apple. Who would even notice if a handful, or even thousands, of apps disappeared from its App Store? For Google, it's more of an issue, but still not a huge one. However, for Microsoft, HP (HPQ) and its upcoming webOS devices, and RIM's BlackBerrys and PlayBooks, discouraged developers could be a serious obstacle to market acceptance.
It's time to take stock of reality. Small companies want patents to protect their entry into the growing mobile market, but they can easily become targets. Large companies want patents as a weapon to use against their big competitors, but they are already competing effectively. Perhaps it's a good time for a patent stand down. Let everyone put their patents into a big pool with reasonable royalties so everyone could afford to go to market -- and stay out of court.
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