AdWords Patent Infringement Costs Google Big Money

google-money-bagsThe court in Virginia has ordered Google to pay a royalty for all AdWords advertising revenue to Vringo for patent infringement, for infringing upon two patents it owns. Google is appealing the judgment, which could be worth billions of dollars.

Vringo, which bills itself as a video ringtone and Facebook company, purchased 500 patents from Nokia in 2012, including the AdWords infringing patents in question, which was bought from Lycos. Vringo then sued Google, Microsoft, AOL, IAC, Gannett, and Target for infringements.

In 2012, Google and its advertising partners were ordered to pay $30 million plus an ongoing royalty for licensing of patents. This week, the Virginia judge, Raymond Jackson, set an ongoing royalty rate of 6.5 percent on part of the AdWords revenue, which was significantly higher than the 3.5 percent royalty that was the jury’s recommendation. Ars Technica reported:

The math is a little confusing. Today’s order sets a royalty rate at 6.5 percent, on a “royalty base” of 20.9 percent, for an overall rate of 1.3585 percent. The royalty base is supposed to calculate what the Vringo-owned patents add to Google’s search system.

After redesigning its AdWords system, Google decided it no longer infringed upon the patent. However the judge in the case believed that the redesign wasn’t clearly different. This means that as long as this element is included in the AdWords system, it infringes upon the patent.

Google had sought a lump sum payment rather than an ongoing royalty payment.

What is interesting about this patent infringement case is that Vringo says that there was no intent to copy the patents:

Even though there was no evidence of copying—Vringo admitted as much—a willfulness adjustment was still appropriate, the judge found. “Defendants’ misconduct continues presently and Defendants have taken no remedial action,” wrote Jackson. “In fact, they have redesigned a system that clearly replicates the infringing elements of old AdWords.”

In last week’s order, Jackson said that Vringo had proven infringement of both the old and new AdWords systems. While he didn’t go into the details of changes Google made, he did write that all Google had done was apply the “LTV” or “long-term value” score at a different point in the ad-selecting process. It was basically the same: “[I]t is undisputed that new AdWords continues to use a candidate advertisement’s LTV score that includes a predicted click-through rate in the process of choosing which advertisement will ultimately be shown to the individual performing the query.”

Microsoft decided to settle the Vringo lawsuit last year by paying a $1 million and agreeing to an ongoing licensing agreements. Microsoft also agreed they would pay 5 percent of the amount that Google pays for patent usage.

At this time, it isn’t clear exactly how much Google will be on the hook for if the appeal is unsuccessful, since Google doesn’t report on earnings from AdWords specifically. However, it is believed that Vringo will get more than $1 billion from it.

Google has already appealed last week’s jury verdict, and is appealing this week’s royalty verdict as well. Both Google and Vringo agreed that nothing will be paid out while the case is still before the courts.

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