OK, before I even get into this post, let me be clear: this is based on old news. However, it was news that no one seemed to pick up at the time, and when we discovered it, we thought it was quite interesting.

If you're unfamiliar with Lodsys, let's start with a history lesson. They're better known as the shell corporation offspring of a company called Intellectual Ventures LLC, a patent clearinghouse owned by a group of, shall we say, enterprising individuals. Their purpose? Buy as many viable tech patents as possible, and force major corporations into licensing (paying royalties) deals when infringement on any of these patents, which is actively searched for, is discovered.

So far, it's been estimated that IV has pulled in roughly $5 billion from the likes of eBay, Google, Microsoft, Apple, Intel, and others. The company has also taken on engineers and scientists for the purpose of developing its own patents in house, though Intellectual Ventures produces no tangible goods whatsoever.

Our own Supreme Court weighed in on the issue of patent trolls, at least Justices Kennedy and former Justice Stevens, in the seminal case eBay v. MercExchange:

An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees ... For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent.

eBay Inc. v. MercExchange, LLC., 547 U.S. 388 (2006) (concurring opinion).

Even some of our nation's highest appointed officials saw some degree of moral turpitude in the business practices of these companies, though their tactics and profit model have generally been condoned as perfectly legal.

When Lodsys began going after Android and iOS developers who used in-app "upgrade" purchasing systems, an idea Lodsys claims to own through a patent for a telephone-based ordering system, the internet community expressed outrage. Apple made some attempts at responding to Lodsys' action, but they've proven fruitless so far as we know. Google has yet to do anything about it. How could Google and Apple hang developers out to dry like that?

Apparently, Lodsys isn't asking all that much.

In fact, the company publishes what its royalty rates are right on its website, here. The rate is 0.575% of all United States revenue, including compensation for past revenue since the time in-app purchasing was implemented. For a patent, this is a very low rate. Royalties on patents range anywhere from 1%-4%, generally speaking, depending on what's being licensed.

The low rate is likely more a business decision than anything - Lodsys licenses patents to so many companies that it can afford to be a little more reasonable in its royalty rates. A lower rate also means potential defendants are much more likely to settle instead of fight, especially someone like a small app developer.

For example, let's say you're the developer of a free Android game that has a paid upgrade to a full version, and you get 15,000 paid upgrade purchases over the last year. You charge $4US for upgrading to the full version of your game. This means your total revenue was $42,000 (this is subtracting Google's cut, which is not part of revenue) for the year. If Lodsys puts you on notice, they'll demand that you immediately compensate them $241.50 (yes, that's it), and 2.3 cents in royalties on every upgrade thereafter.

It's possible Lodsys is also seeking additional money upfront from larger developers (for various reasons, including willful infringement), but for your average Joe, it's not exactly a ton of cash to lose. Of course, there's the argument that these kinds of patents could nickel-and-dime developers to death, but that's sheer speculation and, frankly, ignores many of the complexities of patent law and the seriousness of putting someone on notice for infringement.

The merits of the patent in question are still dubious in my mind, but until the matter is litigated (it sounds like Rovio and Lodsys may duke it out in court), we just can't know how courts will interpret it. Still, a little over half a cent on the dollar isn't the worst thing in the world if they're right, is it?