Do I need to register as LLC even if I plan to make my iOS apps free?


1

I have personally made some apps and I want to put them on the Apple app store as free apps. I will probably also make them open source on github or something. I had been reluctant to do so because I'm afraid of patent trolls. I've read that I should incorporate in my state as LLC.

I guess I'm just a little confused on what to do. If I don't make any money off my apps, can the patent trolls still troll me for intellectual property and what not?

Thanks.

LLC Development Legal Apps

asked Feb 27 '13 at 19:53
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Yeesterbunny
108 points

3 Answers


2

Organizing an LLC typically is considered to be a way to protect yourself from personal liability.

It might give an entepreneur some added confidence in dealing with adverse patents because if properly maintained, the company will be responsibe for libilities and not the entrepreneur personally.

As for the patent question, on one hand if you are not making any sales you will be less likely to catch the attention of someone looking to enforce their patent portfolio. This is especially true if the patent owner is primarily seeking damages for lost sales. However, the fact you are not benefiting from an allegedly infringing invention does not mean you are not causing damages, and it does not mean you will not be sued.

From the patent holder's perspective, the mere appearance of an allegedly infringing substitute on the market might erode the supply-demand curve away from monopoly pricing. It is sometimes said that IP rights are "use it or lose it," and that failure to enforce a patent may result in a waiver, cause intervening rights, or othewise compromise the value of the patent. For these and other reasons, a patent owner might feel obligated to seek an injunction against further infringement.

Ideally, someone in your position might want to consider limiting liability by forming an LLC or incorporating, and also consulting a lawyer when funds are available. It is really a question of allocation of risk.

Keep up the good work on those apps.

answered Feb 28 '13 at 02:05
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Yorick
826 points
  • Though it may be "sometimes said" that failure to enforce a patent may result in losing the patent, in the U.S. at least, it is *not true*. That *is* true for trademarks. It is decidedly not true for patents; in fact, that one need not pursue damages until one wishes to is what allows submarine patents to be lurking dangers. You might want to edit your post to reflect this legal reality. – Chelonian 7 years ago
  • You seem to be saying something different than the answer says. Regardless, I am not sure it is accurate to criticize the answer as "decidedly not true." For one, the doctrine of implied waiver is set forth in Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004 (Fed. Cir. 2008). Implied license is another relevant doctrine, I think. You might want to edit your comment... – Yorick 7 years ago
  • I'd hoped to clarify that, unlike trademarks, there's no risk for patent holders to lose their patent through non-enforcement. Do you disagree? I agree with Richard Stallman that patents, copyrights, and patents ought not to be conflated as all "IP"; they do have importantly different properties, such as this one. The cited case, AIUI, isn't evidence for a co. losing its right to enforce a patent by not pursuing infringers, but a special case in which a license was implied by participation in a standards-setting body and a failure to disclose patents in good faith at the appropriate time. – Chelonian 7 years ago
  • Perhaps you saw Radio Systems Corp. v. Lalor, handed down by the Federal Circuit two days ago? Equitable estoppel is alive and well, so perhaps now you will agree that in your own words...a company can "los[e] its right to enforce a patent by not pursuing infringers." This is party-specific. – Yorick 7 years ago
  • I hadn't seen that judgment, but now have read it, and yes, I will agree that my statement you quoted is in fact not always accurate: AIUI, in cases in which a company leads another company to reasonably infer (based on a history of contact between the two companies) that the patent holder will not pursue enforcement, and the "infringing" company then bases decisions on that and would be harmed by a later finding of infringement, yes, that infringement *could be* estopped as happened in that case. Nice find, and I'm happy to be brought into better understanding of all this. – Chelonian 7 years ago

1

If I don't make any money off my apps, can the patent trolls still
troll me for intellectual property and what not?

Yes. Let's be clear with the language: they can sue you for damages (money). Prior to actually suing, they can request a legal arrangement in which they license the patented software component to you, for a per-copy fee. Or a flat fee. Or whatever they want to offer as an arrangement. They can name any price they want. And defending a lawsuit costs money, often a large amount.

(Well, in some sense, any person can sue anyone for anything; that's not to say that they will win the suit, though. Still, what I describe above does not fall into the category of frivolous lawsuits--though there are many who wish patent trolling suits would).

Of course, this is not cost-free on their side, either; and so the points in the other answers about the likeliness of this happening to a free and open source or free software project are something to consider. It did happen in the Jacobsen v. Katzer case, though. For some sense of probabilities, you might want to look at the recent paper by Colleen Chien

I've read that I should incorporate in my state as LLC.

You can form an LLC in your state or any state of the U.S. However, one of the requirements for a properly formed LLC is that the company have sufficient funds in its account to handle potential problems such as debts or defenses of lawsuits. If you have a one-member LLC that that makes no money, has no mechanism for making money, and has no funds, it is possible a judge will pierce the corporate veil and find it is merely an alter ego of you, and then you would be personally liable for whatever damages are awarded in a suit.

[Obligatory I Am Not A Lawyer footer]

answered Feb 28 '13 at 15:44
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Chelonian
146 points

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From what I know, patent law does not change/consider whether you are making money or not. If it is infringing a patent, then the patent holder can claim so. However I do not see a company is going to sue you if there is no monetary advantage for them and that is assuming you are making some kind of benefit (Goodwill, money etc..) or doing the reverse, i.e. cutting their profit by introducing a piece of software that is infringing on the patent that is for free.

If you are releasing code in Opensource that you have wrote and it is not copying code from a licensed software, or is a recipe followed from a patent application then you should be ok and no need to be an LLC.

There may be other reasons for incorporating as an LLC but I do not see this as a pressing reason. Hope this helps.

answered Feb 27 '13 at 21:44
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Adonis
56 points
  • I am not sure the second paragraph holds true. And while sales (making money) may not be required for infringement, patent law may consider them very relevant to the issue of damages. – Yorick 7 years ago

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