Google ordered to pay royalty on AdWords revenue to Vringo

The judge ruled on the royalty rate after the companies did not come to an agreement on it

Google has been ordered by a court in Virginia to pay royalty to I/P Engine for infringing some claims of two of its patents through the AdWords advertising system.

District Judge Raymond A. Jackson of the U.S. District Court for the Eastern District of Virginia, Norfolk division decided Tuesday that I/P Engine, a patent licensing subsidiary of Vringo, should be paid an ongoing royalty rate of 6.5 percent on a part of AdWords revenue.

Google had earlier argued that it had redesigned AdWords, and functions of the system that I/P Engine held to be infringing had been removed even before the entry of judgment. It held that if royalties were warranted, it should be in a lump sum, according to court records.

But the judge ruled earlier this month that the modified system was "nothing more than a colorable variation of the system adjudged to infringe." The judge also ordered the parties to meet to negotiate an appropriate ongoing royalty rate.

Google, which has already appealed the court's decisions in the U.S. Court of Appeals for the Federal Circuit, is planning to appeal the royalty award as well. "We believe strongly in our pending appeal in this matter, and we anticipate seeking Federal Circuit review of today's decision as well," Google's patent counsel Jennifer Polse said in a statement Tuesday.

The lawsuit dates back to Sept. 15, 2011, when I/P Engine filed a complaint against AOL, Google, Target and others, alleging that the defendants had infringed two of its patents through the AdWords search advertising system which the companies were using.

The two patents -- U.S Patent no. 6,314,420 entitled "Collaborative/adaptive search engine" and Patent No. 6,775,664 entitled "Information filter system and method for integrated content-based and collaborative/adaptive feedback queries"-- relate to relevance filtering technology used in search to place advertisements in the best positions. They were acquired from Lycos, one of the earliest participants in the search engine industry.

On Nov. 6, 2012, a jury reached a verdict finding that Google and the other defendants had infringed the asserted claims of the two I/P Engine patents. The jury awarded I/P Engine US$30.5 million in damages without interest, and a running royalty rate of 3.5 percent instead of a lump sum. In an order this month, the District Court ordered that I/P Engine recover an additional sum of $17.32 million from the defendants for supplemental damages and prejudgment interest.

I/P Engine has been awarded the royalty rate of 6.5 percent, after it asked for an increase in the royalty rate awarded by the jury. In August, the court entered an order finding that I/P Engine was entitled to an ongoing royalty with a royalty base of 20.9 percent, and that royalty payments should be made on a quarterly basis. The royalty base is that part of AdWords revenue that can be attributed to the infringing features. The effective rate of royalty on AdWords revenue is hence likely to be about 1.36 percent.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is john_ribeiro@idg.com

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