A jury of nine is perhaps only hours away from reaching a verdict in what is a landmark case in intellectual property. It involves search giant Google and nascent challenger Vringo (VRNG) in a high-stakes battle over search technology at the core of AdWords and AdSense, the bread and butter advertising products accounting for an estimated 97% of Google’s revenue.
Recent media buzz has generated a wide group of onlookers, from owners of technology patents to students of law to industry watchers, all anxiously awaiting the outcome. How paid ads perform in search has been hugely important to Google’s revenue stream, so any challenge to this technology gets a lot of attention.
Vringo, a once little-known company, is fighting to monetize its patent assets (going the ‘patent trolling’ route as the street version goes), seeking multi millions in damages and future royalties from Google. Not too surprisingly, Google has been reluctant to settle as the case heads into what could be the final day in jury deliberation. For what it matters, Vringo is also suing AOL, Gannett, IAC and Target, which all use the same advertising technology licensed from Google.
Whatever the outcome, it’s hard to imagine there being much financial impact on Google's bottom line, or its technology. Non-practicing entities (NPE’s), however, build their business around this strategy. A loss could embolden other patent holding firms and set off a slew of lawsuits in the industry (as if there weren’t enough already). Just ask Samsung and Apple how that’s going. Vringo could also leverage a win to go after other big names like Yahoo, Microsoft, and Facebook.
Formally set into motion about a year ago with Vringo’s legal filing, the patent issue actually traces back to the early days of search. Back in the 90’s when Lycos was blazing new ground as a budding search engine, its Chief Technology Officer, Ken Lang, was involved in patenting a search method for filtering and displaying relevant content. A patent that he never had an opportunity to really put to use. It was only recently that Lang repurchased rights to the original patents. He followed up with launching I/P Engine and merging his newly found firm with Vringo.
In their legal complaint, Vringo summarizes the patent dispute as follows:
In the search engine industry, results are positioned on websites based on their determined "rank." For example, in search advertising, an advertisement with the highest "rank" appears in the first position, and so on down the page. Search engines seek to place the high quality advertisements in the best positions because such placements are critical to attracting advertisers, pleasing end users and producing search advertising revenues (the primary source of revenue for search engines). Andrew Lang and Donald Kosak, inventors of U.S. Patent Nos. 6,314,420 ("the '420 patent") and 6,775,664 ("the '664 patent") (collectively "the patents-in-suit"), invented a relevance filtering technology that is used in the search engine industry, and that has become the dominant technology used to place high quality advertisements in the best positions and thereby generate substantial revenue. At least some of the defendants knew about the patents-in-suit for years, and despite such knowledge, these defendants continued to use it unlawfully. This patent infringement action seeks a remedy for this unlawful taking.
You can find Lang’s 664 and 420 patent summarized online in the Google Patents database (of all places). Or take a look at Google's own description of Adwords Quality Score, or listen to Google’s Chief Economist describe the algorithm as it relates to sorting ads based on click-throughs.
What’s remain to be seen is whether Lang and the Vringo team will be successful in capitalizing on this early invention. Some argue that if Google felt these patents were a threat to their IP, they would have snatched them up years ago. Perhaps Google is confident they have developed a successful work-around or that Lang’s patents will eventually be deemed invalid. Google has requested the USPTO to re-examine the patents.
Adding a twist in the trial, last week U.S. District Judge Raymond A. Jackson ruled to limit any potential damages. Jackson felt Vringo waited too long to file the lawsuit because Google made the technology available in 2005. This was a favorable development for Google as it takes millions in potential damages off the table -- a decision Vringo may seek to appeal. Vringo is banking on landing a favorable verdict, which could still draw considerable damages, and potentially lead to sizable future royalties.
The Eastern District of Virginia is traditionally a plaintiff friendly venue, but how often do firms go up against the Big G? Jury verdicts are almost completely unpredictable and don't necessarily follow the facts, so there’s really no way to know how this plays out.
There has been some speculation that Google could seek to settle or even make a move to scoop up the little company. While the longer deliberations drag out, there is also the possibility (albeit a small chance) of a mistrial if a unanimous decision cannot be reached. If Vringo manages to pull off the win, it would be big news, but it seems a vigorous appeal by Google would also be expected, potentially dragging on for years.
Questions about trial outcome and the probability of what happens next provoke some of the most interesting discussions (and the hardest to answer because there are so many nuances and I’m not a lawyer).
If you’re interested in following the case, it should be a lively topic this week on Twitter. Court dockets are publicly available on Pacer, if you’re into that, or you can just Google it.
Disclaimer: EZlocal is a Google Certified Partner in the Google AdWords Certification Program. I wrote this article myself, and it expresses my own opinions. Nothing on this blog constitutes, or is meant to constitute, advice of any kind.