This week: the software giant's hard-nosed strategy for dealing with patent-holding plaintiffs gets put to the test—and proves successful.
Late last month, Google won its first patent infringement lawsuit to go to a jury trial, in the Eastern District of Texas. The plaintiff was Function Media LLC, a patent holding company owned by husband-and-wife inventors Michael Dean and Lucinda Stone. Unlike like many of those who file patent suits in the plaintiff-friendly venue, Dean and Stone actually live in the Eastern District, residing in Tyler.While the broad facts of the case—a pair of entrepreneurs with one failed business idea, almost no computer programming experience, and a couple of patents march into court waving those patents and demand $600 million from one of the most successful companies of the digital age—might seem far-fetched, but they’re actually quite commonplace.
In fact, it’s fair to view Function Media v. Google as a true sign of the times. The suit is one of more than 45 filed since 2007 in which the search giant has been forced to defend itself against patent assertions. More than 30 of the suits, most of them brought by patent holding companies like Function Media that offer no products or services, are still pending.
The patents-in-suit in this instance, No. 7,240,025 and 7,249,059, describe a system for customizing ads published on websites ("media venues" in the language of the patents) so that they mesh with the color and texture of the sites on which they are published. In their suit, Dean and Stone claimed their patents covered Google's AdSense for Content program, which enables website owners to run Google-generated ads on their web pages and split revenue with Google.The couple applied for the patents in 2002 and 2004, and received them in 2007. At trial, Dean and Stone testified that they'd first started thinking about Internet advertising in 1998. The patents-in-suit had a "parent" patent—which includes an abstract that doesn't even mention Internet advertising—that they’d applied for in 2000. (They were ultimately awarded that patent, though it wasn't asserted at trial against Google.)
Dean and Stone didn't communicate with anyone at Google until their Susman Godfrey lawyers helped them file their lawsuit against the company the day the patent-in-suit issued in 2007—something that’s increasingly commonplace, because recent legal precedents make it easier for potential patent defendants to file suits challenging the patents over which they’re about to be sued.
Google adopted its usual stance: refusing to settle with NPE lawsuits it considers meritless. Dean, Stone and Function Media got their day in court in January. Their supporting cast included the usual damage and technical experts, one good-sized national law firm, and no less than four East Texas firms. Lawyers on both sides got 15 hours to present evidence to the jury. Among the highlights from Dean’s testimony:
He never finished writing the computer code for the program that his patents described.
While being questioned by one of his lawyers, Dean told the jury that his limited knowledge of code-writing—derived from a junior college programming class—wasn't sufficient to allow him to complete the project. Instead, he hired his programming teacher to finish the job. Unfortunately, Dean and Stone ran out of money before the teacher was done. Dean insisted to the jury, though, that he could have finished the project:
Dean: So, yes…we could have accomplished it.
Q: Did the patent describe how to complete the system that you just described here?
A: Yes, it did.
Q: Why didn't you complete the system?
A: We…quite frankly, we're a small mom-and-pop business, and… we ran out of money.
Then Dean's lawyer, Justin Nelson of Susman Godfrey, asked him about getting funding to help finish the project.
Dean: I met with venture capitalists, and I was told that we were too old. I was told that they were looking for "fresh faces with briefcases."
Q: Is that a quote?
A: That's a direct quote.
Dean initially thought he deserved 20 percent of Google’s revenue.
Dean told the jury that his $600 million damage demand—based on a 12-percent "Internet industry" royalty, explained by Function damages expert Walter Bratic—was actually less than he originally wanted: an ongoing royalty worth 20 percent of Google's AdSense for Content revenue.
Nelson: Now, have you had the opportunity to specifically think about what any starting point would have been for you in these negotiations that you would have had with Google?
Dean: Yes. Lucinda and I have talked about it, or talked about it back then.
Q: And more recently, too?
Q: And what would that have been?
A: It would have been 20 percent.
Q: Why 20 percent as a starting point?
A: These…are fundamental, core technologies…Google's system…the accused products do not work without our invention.
Dean's motivation for the lawsuit: defending his property rights.
At one point during his testimony, Dean explained why he had gone after Google. (He had testified during his deposition that he and Stone started considering a lawsuit against Google in 2005, two years before their patent issued. The pair also sued Yahoo; that case settled in the middle of last year. )
Q: Now, you briefly touched upon this at the beginning of your testimony today, but why are you suing Google for patent infringement?
Dean: These patents are our property….These are the property of Lucinda and I. And…this property right was granted to us…by the PTO through Congress and all the way back to the Constitution….This is our ownership right as Americans to have these patents….Google is making a huge amount of money off this system…and we just want a fair royalty….We want a fair licensing agreement and royalty off of our property.
That argument ultimately failed to win over the jury. Google's lead defense lawyer, Charles Verhoeven of Quinn Emanuel Urquhart & Hedges, presented a three-point non-infringement defense, and he says the plaintiffs' focus on the emotional hot spots often used in IP lawsuits backfired. Deliberations went so badly for Function Media that the jury found the asserted claims in its two patents to be invalid, as well.
"They were more focused on the typical thing you do: analogies to property lines, and oil-rig licenses," said Verhoeven. "They weren't focused on our non-infringement points."
Function Media never disputed that Google invented the AdSense program on its own. Indeed, Google wasn't accused of copying anything, and was never shown to have any knowledge of Function’s patent applications. But even companies that show they've invented their technology independently can be found liable for patent infringement. Verhoeven recognized that it was important to tell Google's story of independent creation in front of the jury.
"You've got all the law, but these jurors are trying to figure out who's wearing the white hat,” Verhoeven says. “We showed that we built this program with our own ideas, our own technology, our own person power. We didn't have any ideas these patents existed."
Still, says Verhoeven, it was a "formidable case.” Dean and Stone made good witnesses—the owners of a mom-and-pop business based in Tyler. Add to that Dean’s background as a decorated Vietnam veteran, and it’s easy to see how a jury might have looked on them favorably.
The Function Media case is now in the post-trial phase, with both sides having filed motions, most of them sealed, for judgment as a matter of law on a variety of issues. (Dean and Stone did not immediately respond to an interview request.)
The Function suit was one of four against Google scheduled to go to trial in East Texas by September 2010. The plaintiffs in all four of those cases are demanding to be paid royalties on Google's AdSense and AdWords products. Verhoeven and Quinn Emanuel represent Google in all four cases, and their victory in the Function case sends a strong signal that just showing up to court in East Texas doesn't mean patent-holders can expect to walk away with a big check from Google.
Google has been sued 45 times for patent infringement over various of its products and services since 2007, and in one case initiated a declaratory judgment action after its business partners were sued. Nearly all of the lawsuits were filed by non-practicing entities, or “patent trolls” like Function Media. While a few of the litigants are small companies with some products, none are actual competitors to Google in the search or online advertising market. Michelle Lee, the company's chief patent counsel, noted the barrage of lawsuits at a gathering of patent lawyers in Monterey last year. Lee has also noted that a "disturbing" number of the lawsuits come from companies controlled by patent lawyers, sometimes asserting the lawyers' own "inventions."
That's one reason, Lee told TPA in an interview this week, that the company continues to be involved in the push for patent reform legislation.
What stands out about Google's docket is that the company appears to have settled only a few of the suits brought against it. Of the 46 patent assertions Google has defended since 2007, more than 25 are still pending. The company has won at least three on summary judgment, and now one at trial. More than half of the suits are situated, no surprise, in the famous Eastern District of Texas. (One of the rare cases Google did settle—the imbroglio involving Scott Harris, Fish & Richardson, and “patent troll” Illinois Computer Research, which had an unusual fact pattern.)
The company's strategy of not backing down when it’s sued by NPEs is one that other frequent “troll” targets—Apple and Microsoft, to name two—have been either unwilling or unable to pursue.
"We look at it on a case-by-case basis," says Lee. "We respect IP rights, and we file patents of our own. But if the claim lacks merit, we're not going to just pay money for that."
As to the merits of playing hardball by refusing to settle with most NPEs—a strategy also pursued by such companies as Juniper Networks—Lee says, "You do invite additional lawsuits if you're settling a bunch of litigation that lacks merit. That's not good for the patent system, and I don't think it's good for companies in general."
More on Function Media, L.L.C. v. Google, Inc. et al, 07-cv-00279, E.D. Texas (Marshall):
- See earlier coverage from AmLaw Litigation Daily (subscription required).
- Check out the daily coverage of the trial from the local newspaper of Marshall, Texas, the Marshall News-Messenger. The News-Messenger published several articles on the trial: see stories from Jan. 20, Jan. 21, Jan. 22, Jan. 23, Jan. 26, and Jan. 27.
- Most of the documents in the Function Media case are available on the lawsuit's Justia.com page.
- An online lodging directory, virtualcities.com, has been operated by inventors Dean and Stone since 1995.
The other three AdSense suits scheduled to go to trial soon are:
- Performance Pricing, Inc. v. Google et al. 07-cv-00432, E.D. Texas (Marshall). Performance Pricing is an arm of patent-holding heavyweight Acacia Research.
- PA Advisors, LLC v. Google Inc. et al. 07-cv-00480-RRR, E.D. Texas (Marshall). PA Advisors is one of many patent-holding companies affiliated with Erich Spangenberg. See earlier TPA coverage of PA Advisors.
- Paid Search Engine Tools v. Yahoo Inc.
07-cv-00403-DF-CE, E.D. Texas (Marshall). A separate PSET lawsuit was
filed against Google and Microsoft, but was later consolidated with
this suit against Yahoo.
An interesting twist: the above two cases have been handed off to Justice Randall Rader of the U.S. Court of Appeals for the Federal Circuit, who is sitting by designation in E.D. Texas.Photo: flickr / Maxfell96