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BREAKING NEWS: Mobile marketing firms accused of SMS short code patent infringement

An undisclosed number of mobile marketing firms and SMS aggregators have received a legal letter from TeleCommunication Systems Inc. alleging infringement of short code patents.

The letter, from TCS law firm Flachsbart & Greenspoon LLC, claims that the mobile marketing firms are infringing its client's United States Patent Nos. 6,891,811 and 7,355,990 based on the use of MO-to-application SMS short codes. If proved true, the demands could roil the mobile marketing industry and affect SMS text messaging programs.

"We write on behalf of the patent owner, TeleCommunication Systems Inc. (TCS), to explain the infringement and offer favorable licensing terms â?¦ to continue using the '811 and '990 patents," said William W. Flachsbart in his letter.

The letter, sent via email PDF from the law firm's Chicago office, comes 13 months after Annapolis, MD-based TCS filed a lawsuit against BlackBerry maker Research In Motion Inc. for alleged infringement of its U.S. patent 6,871,215.

TCS claimed infringement by RIM's products and services that allow a wireless user to access and manage multiple email accounts. Failure of negotiations between the two parties is said to have led to the suit's filing.

A similar lawsuit against RIM from another patent holder called NTP Inc. about the BlackBerry infringing on several NTP patents related to mobile email communications led to a $612.5 million payout.

The patents
A publicly held company, TCS offers wireless technology for text messaging and location-based services, including 911 for wireless carriers and voiceover Internet Protocol service providers. The company also offers satellite-based communication services for government.

In the current situation, TCS claims that Richard A. Smith and Johanna Wilson invented the '811 and '990 patents while working at TCS.

"These patents disclose a way for companies to let individuals send SMS text messages to Internet-connected computer applications, and receive messages back from those applications in return," Mr. Flachsbart said in his letter.

"While this technology is commonplace and in widespread use today, Smith and Wilson's innovative efforts first brought this technology into existence many years ago, as reflected by the April 2000 priority dates of the patents," he said.

"In 2000, the inventors noted the need for a solution that allowed short message communications "between wireless devices and application servers in the Internet without the need for a specialized browser," the patent specifications describe the invention as allowing "any standard 2-way SMS capable handset to interact with specialized web applications. '811 patent at 4:41-47, 5:43-48.

"The inventions accomplish this through creation of a "gateway" between the existing SMSC and web application. '811 patent at cols. 5-7. The preferred embodiment's gateway (called the "mobile to HTTP Gateway," or "MHG" in the patent) "generates HTTP protocol POST commands to an application program on a relevant IP server 152-156 based on mobile-originated messages, and translates responses to the same from HTTP protocol back into standard format SMPP messages for forwarding back to the relevant mobile device 120." '811 patent at 6:46-52. Put another way, the MHG described in the patents takes the message content from the original SMS text and puts it into a URL addressed to the destination server that is registered to correspond with the outgoing SMS address. '811 patent at cols. 8-9.

"The bottom line is this. The recipient of a mobile originated (MO) message no longer has to be another wireless device (such as MOBILE 120), but may instead be one or more application servers accessible over the Internet (e.g., IP SERVER 152, 154 and 156).

"In short, the inventions allow mobile originated messages (MO) to communicate with web applications. The '811 and '990 Patents currently have a continuation pending in the U.S. Patent and Trademark Office.

Alleged infringement
In Mr. Flachsbart's letter, he claims that, after investigation, one of the targeted firms uses its short code to connect consumers to Web-enabled applications.

Thus, Mr. Flachbart alleges that the firm "uses one or more gateways that place mobile-originated (MO) text messages into HTTP protocol messages to web-based APIs.

"To be more specific, [the targeted firm] works with an aggregator and/or an application provider that employs the gateway of claim 1 of the respective patents," he said in the letter.

"Since 35 U.S.C. section 271 (a) prohibits the unauthorized use of the gateway of claim 1, and since [the targeted firm] has used such a gateway so far without a license, [the firm] infringes."

Offered license terms
In the same letter, Mr. Flachsbart says his client has established a "reasonable royalty rate that takes into account the high value of its intellectual property to brand companies and the like, balanced against the need to price these license rights in line with corporate promotional budgets.

"TCS is not, at this time, asking [the targeted firm] to cease and desist using MO-to-application short codes," he said.

"Instead, TCS would prefer to come to terms that will allow [the targeted firm] to continue to use such short codes (and their associated gateways) with express authorization and under a license by TCS.

"These terms are based on the easily measurable extent of use of the invention, and the type of use (premium short codes or not). Royalty amounts begin at a $5,000 payment for a three-year license, and go up from there."

The royalty scheduled per short code is:

 For less than 100,000 messages a month, $5,000 for a non-premium three-year term license and $10,000 for a premium license
 For between 100,000 and 1 million messages, $20,000 for a non-premium three-year term license and $40,000 for a premium license
 For between 1 million and 5 million messages, $50,000 for non-premium three-year term license and $100,000 for premium license
 For more than 5 million messages, $100,000 for non-premium three-year term license and $200,000 for premium license

Pretty broad sweep
TCS claims to hold 65 patents in the wireless field, with 199 applications pending, as of Oct. 8, 2008.

Besides the suit against RIM, TCS in 2007 gained a jury verdict of patent infringement in its favor against Sybase 365 in the Eastern District of Virginia to "remedy infringement of one of TCS's intercarrier messaging patents," Mr. Flachsbart pointed out in his letter.

Meanwhile, a senior mobile marketing executive, speaking on condition of anonymity, said the TCS patent in its current situation was very broad.

"It doesn't make any sense that the aggregators wouldn't possess this patent, because they are fundamentally infringing with every customer/short code they have," the executive said.

"Receiving MOs -- message from a consumer -- and transferring it to a URL for the application server to take action begins at the aggregator level," the executive said.

"They do the first posting we register with. So, all communication with such a license must start at the aggregator level.

"These guys are known for such business tactics and who knows how the mobile industry will rally to get this taken care of. We will for sure use our aggregator as a heat shield as this issue starts with them."