Digital Envoy Inc., v. Google Inc.,

Filing 45

Digital Envoy Inc., v. Google Inc.,

Doc. 45

Case 5:04-cv-01497-RS

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Filed 09/23/2004

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1 P. CRAIG CARDON, Cal. Bar No. 168646

BRIAN R. BLACKMAN, Cal. Bar No. 196996 2 KENDALL M. BURTON, Cal. Bar No. 228720 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP Four Embarcadero Center, 17th Floor 3 San Francisco, California 94111-4106 4 Telephone: [phone] Facsimile: 415-434-3947

5

6 TIMOTHY H. KRATZ (Admitted Pro Hac Vice)
LUKE ANDERSON (Admitted Pro Hac Vice) MCGUIRE WOODS, L.L.P 7 1170 Peachtree Street, N.E., Suite 2100 8 Atlanta, Georgia 30309 Telephone: [phone] Facsimile: 404.443.5751 9

10 Attorneys for DIGITAL ENVOY, INC. 11 12 13 14 DIGITAL ENVOY, INC., 15 16 17 18 19 20 21 22 24 25
1. Plaintiff Digital Envoy, Inc. ("Digital Envoy"), for its Amended Complaint against v. GOOGLE, INC., Defendant/Counterclaimant. Plaintiff/Counterdefendant, UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION Case No. C 04 01497 RS AMENDED COMPLAINT OF DIGITAL ENVOY, INC. [DEMAND FOR JURY TRIAL]

23 defendant Google, Inc. ("Google"), respectfully shows to the Court the following:
I. SUMMARY OF COMPLAINT Digital Envoy brings this action because Google is using Digital Envoy's

26 technology in non-permitted ways. Digital Envoy seeks to recover for Google's wrongful use of 27 Digital Envoy's technology which helped grow Google's business at a phenomenal rate without 28 Google properly compensating Digital Envoy. Digital Envoy is the inventor and market leader in
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1 IP Intelligence technology which enables the determination of the geographic location of any 2 computer hooked to the Internet by reliably and rapidly tracking protocol addresses. 3
2. In November 2000, Digital Envoy and Google entered into an agreement

4 permitting Google to use Digital Envoy's technology for limited uses. At the beginning of this 5 business relationship, Google properly used the technology on its search site for a variety of 6 purposes, including selling what is referred to by Google as "paid links" (or links directly related 7 to a user search on Google.com which are paid for by third parties who want to highlight their 8 products to users and are highlighted as such on Google.com). 9
3. Later, Google expanded its business model and began to service non-search related

10 advertising on third party sites and sell geographically targeted advertising on those sites -- using 11 Digital Envoy's technology outside the scope of the license and without compensating Digital 12 Envoy. From this wrongful conduct, Google has built a vast and profitable online advertising 13 business (which is a $7.2 billion/year industry and growing), and Digital Envoy has lost 14 substantial income opportunities. Digital Envoy brings this action to recover its lost income, to 15 disgorge Google from its wrongful income, to prevent Google from further wrongful conduct, and 16 to recover additional damages as provided by law. 17 18
4. II. JURISDICTION Digital Envoy is a Georgia corporation with its principal place of business in

19 Norcross, Georgia. The company was formed in October 1999 by the inventors of the technology 20 which is the subject of this action and others. 21 23
5. Google is a Delaware corporation with its principal place of business at its

22 "Googleplex" in Mountain View, California.
6. The Court has jurisdiction over this dispute under 28 U.S.C. § 1332 in that the

24 matter in controversy exceeds the sum or value of $75,000 exclusive of interest and costs and is 25 between citizens of different States. Digital Envoy is a citizen of the State of Georgia and Google 26 is a citizen of the State of California. 27 28
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1

7.

This District and Division is one of the districts and divisions in which venue

2 properly lays under 28 U.S.C. § 1391 in that a substantial part of the events or omissions giving 3 rise to the claim occurred in this district and division. 4 5 A. 6
8. III. FACTUAL ALLEGATIONS Digital Envoy and its Technology Digital Envoy invented and developed technology ("IP Intelligence") which

7 essentially delivers specific information about a visitor to a website, including: geographic 8 location down to the closest city, connection speed and, in some cases, the industry in which the 9 visitor works. 10
9. IP Intelligence represents a substantial breakthrough in Internet technology. The

11 Internet contains more than 4 billion IP addresses, which incorporate no geographical information. 12 Furthermore, IP addresses are assigned in random order, providing no logical associations based 13 on the numbers. Digital Envoy's proprietary technology essentially maps the Internet's ever 14 changing topology and overlays a geographical map which allows the technology to tie an IP 15 address to a geographic location. Digital Envoy has applied for a patent covering certain aspects 16 of its technology and has received favorable indication from the Patent and Trademark Office. 17
10. Digital Envoy delivers the information obtained through IP Intelligence with

18 industry-leading reliability and virtually instantaneous speed which is essential for the practical 19 uses of this information. 20
11. Digital Envoy's customers benefit from this information in a variety of ways, such

21 as permitting the assemblage of basic market data, enabling the website to publish its content in 22 the visitor's language, enhancing security and enabling geographically targeted advertising. 23
12. IP Intelligence also provides a superior manner of collecting this basic information,

24 which otherwise would be obtained through the use of privacy-invading "cookies" or intrusive 25 user questionnaires, either of which are more susceptible to abuse. 26
13. Digital Envoy's simple business model is predicated upon receiving payment for its

27 customers' fair use of this limited information. Accordingly, its customers are restricted in their 28 use of this information, such that it is not readily made available to third parties, except when
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1 expressly permitted in an agreement which fairly compensates Digital Envoy. These restrictions 2 are necessary to not foreclose Digital Envoy's business opportunities (either directly or indirectly) 3 to do business with third party web sites directly. 4
14. Digital Envoy's proprietary technology has significant and independent economic

5 value to Digital Envoy because it is unique, and not generally known to, or readily ascertainable 6 by proper means, by other persons who could obtain economic value from the use or disclosure of 7 this technology. Furthermore, since the value of Digital Envoy's IP Intelligence technology is the 8 delivery of information, the company takes reasonable measures to protect the unauthorized 9 distribution of this information. Specifically, without limitation, Digital Envoy restricts its 10 customers for specific licensed uses and transmits the information (known as Digital Envoy's 11 "Database Library") in encrypted binary format. 12
15. One of the most profitable uses of Digital Envoy's IP Intelligence technology is to

13 enable its users to geographically target advertising on their website. By instantaneously 14 obtaining the geographical location of a visitor down to the closest city, the customer can target 15 specific advertising relevant to the visitor. 16
16. The ability to target advertising in this matter is attractive to advertisers reluctant to

17 buy Internet advertising which would otherwise be sent all over the world. Digital Envoy's 18 customers can thus sell more advertising, and the advertising is more successful and thereby more 19 profitable to the customer since Internet advertising is often paid on a click-through basis, 20 meaning the advertiser pays when a computer user actually clicks on the advertisement. Since 21 geographically targeted advertising is more relevant to the customer's visitors, the "click-through 22 rate" (or whatever other measure of success of the ad is employed) is often higher than un-targeted 23 advertising. 24 26 27 28
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17.

By filling this niche, Digital Envoy has developed into a small but profitable and

25 growing business.

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1 B. 2

Google Background 18. Google is an Internet search engine company formed in September 1998. Through

3 excellent technological innovations and strong financial backing, Google became the world's 4 largest search engine in mid-2000. 5
19. Google is a play on the word "googol" which refers to the number represented by

6 the number 1 followed by 100 zeros. Google's use of the term reflects the company's mission to 7 organize the immense, seemingly infinite amount of information available on the web. 8
20. Google portrays itself as having started with a couple of students with an

9 innovative idea who opened its door in an office attached to a garage of a friend. The Googleplex, 10 as Google's present world headquarters is known, is (or was) complete with lava lamps, roving 11 large dogs, a chef who is a Dead-head (a fan of the musical group, the Grateful Dead), and room in 12 the parking lot for twice-weekly roller hockey games. Google claims it is working on offering 13 searches in the fictional Klingon language from the television show StarTrek. 14
21. At the same time, Google is backed by funding from two leading venture capital

15 firms and has a management team, board of directors and technical advisory council that rivals any 16 company in the world for business and financial acumen. Its two founders have also just joined 17 Forbes' billionaire club. Google also exceeded $1 billion in revenue in 2003, mostly from 18 advertising, and the company is valued at more than $15 billion. 19
22. As with many Internet-based companies, Google did not make a profit in its first

20 three years. Google's principal source of income originally came from marketing its search 21 technology to other Internet-based companies. At the same time, Google offered limited "paid 22 link" opportunities on its website. However, as described below, Google soon began to expand 23 its business from pure search into advertising and the company soon thereafter achieved elusive 24 profitability. 25 C. 26
The Agreement Between Google and Digital Envoy 23. Google's "paid link" program began in mid-2000 and was originally centered on

27 the ability to offer paid links or relevant information tied to a user's search request. Thus on its 28 site, through keyword targeting or "paid links", only those users who are actively conducting a
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1 web search and requesting information related to a third party's product are shown that third 2 party's message. The third party pays Google for its placement of its "paid link" on Google.com. 3
24. Google recognized that one factor in the relevance of paid links is geography.

4 Accordingly, shortly after it began its paid link program, Google was attracted to Digital Envoy's 5 technology which would permit paid link results which was geographically targeted to its 6 audience. 7
25. In November 2000, Google and Digital Envoy began to negotiate a license

8 agreement whereby Google would have use of Digital Envoy's IP Technology to obtain the 9 geographic location of visitors to its website, presumably to publish Google's site text in the 10 visitor's language without prompt and to sell geographically targeted "paid links" on its website. 11 13
26. On November 30, 2000, Google and Digital Envoy entered into a Product and

12 Electronic Database Evaluation and License Agreement (the "Agreement").
27. Under the Agreement, Google obtained a strictly limited, non-exclusive right to use

14 Digital Envoy's IP Intelligence technology and Database Libraries only in Google's business of 15 producing and maintaining information search technology and for no other business purpose 16 (emphasis added). Additionally, Google is expressly prohibited from selling, licensing, 17 distributing, sharing or otherwise giving, in any form, the Database Libraries to any other party or 18 using it outside of Google's site. 19
28. Under the Agreement, Digital Envoy retained all ownership of the Database

20 Libraries, including any patents, copyrights or trade secrets associated with the Database Libraries 21 of its IP Intelligence technology. Google is also obligated under this Section to hold all of Digital 22 Envoy's product information in strict confidence and is prohibited from sharing such information 23 with any third parties, and from distributing, disclosing or otherwise making available the 24 Database Libraries, or any information contained therein to any other party whatsoever. 25 27 28
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29.

Google is also obligated under the Agreement to promptly notify Digital Envoy of

26 any possible infringement of Digital Envoy's rights in the Database Libraries.

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30.

For the use of Digital Envoy's IP Intelligence technology, including the Database

2 Libraries, Google pays to Digital Envoy a flat monthly fee, originally $3,000 during the evaluation 3 period and currently $8,000 per month. 4 D. 5
Google's Use of Digital Envoy's Technology 31. Google used Digital Envoy's IP Intelligence technology to enable geographically

6 targeted paid links, solely in conjunction with a user search, on its information search technology 7 website. Such targeting fit well with Google's business program and was incorporated into 8 Google's promotional materials directed to potential third party paid link purchasers on its 9 website. 10
32. Google's paid link program as well as its third party ad network program, as it is

11 directed to outside companies on Google's search site, is called "AdWords" by Google. Google 12 also has a Premium Sponsorship program for large participants to negotiate a specific agreement 13 with Google. Companies signing up to use paid links through the AdWords program pay Google 14 based on cost-per-click such that Google benefits financially when advertisements placed by 15 Google are "clicked" on by the visitor to the site. 16
33. To enhance the "click through rate", companies signing to obtain paid links and to

17 participate in the Google Ad Network through the AdWords program are offered the option to 18 geographically target their link. In fact, the first of the four steps required to sign up for the 19 Google AdWords program requests the advertiser to choose its geographic targets, which, unless 20 "All Countries" and "All Languages" are chosen, requires use of Digital Envoy's technology. 21
34. The Premium Sponsorship paid link and ad network program is also based on the

22 success of the paid link or advertisement, measured by the click through rate or some other 23 measure, and also permits geographic targeting. 24
35. At the time of the Agreement, Google had just begun to sign agreements with other

25 Internet companies to power search services on those companies' sites. However, Google did not 26 supply advertising services to third party web sites at that time, had not contemplated providing 27 such services and did not disclose to Digital Envoy its intention to enter into this business. Instead 28 Google's business at the time was solely related to information search.
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36.

On the strength of Google's targeted paid link program, which included Regional

2 Targeting using Digital Envoy's IP Intelligence, Google had signed up more than 350 Premium 3 Sponsorships and thousands of AdWords participants by mid-2001. Due to Google's targeted 4 paid link program on Google.com, its click through rates at that time were four to five times 5 higher than click through rates for traditional advertisement programs. 6 E. 7
Google's Misuse of Digital Envoy's Technology 37. By August 2002, Google began to enter into agreements to provide Google

8 advertisements (including advertisements developed under its AdWords program) on third party 9 websites to which it was providing search services. 10
38. In February ­ March, 2003, Google began to syndicate advertisements to major

11 advertising networks supporting nearly 24,000 websites. Google announced that it entered into 12 this arrangement as part of a test of a new service to place text ads on pages selected for their 13 relevance to a marketer's products or services. Thus, for the first time, Google announced plans to 14 place cost-per-click listings on content-targeted websites, rather than search-related pages. Google 15 advertisers, including the more than 100,000 active advertisers in its Google AdWords program, 16 would thereafter have the option to appear on websites unrelated to search. Google's business 17 thus was expanding outside of information search. 18
39. In May ­ June 2003, Google launched a new program which it called "Google

19 AdSense" wherein Google would supply advertisements to any content-based website which 20 signed up. Google announced that the program was designed to maximize the revenue potential 21 of a website by serving highly relevant ads specific to the content of the page. Under this 22 program, Google and the AdSense client share in revenue paid by the advertisers, typically on a 23 per click basis or some other measure of the success of the advertisement on the AdSense client's 24 website. Google's initial clients in the AdSense program included ABC.com, HowStuffWorks, 25 Internet Broadcasting Systems, Inc., Lycos Europe, New York Post Online Edition, Reed Business 26 Information and U.S. News & World Report. Google refers to third party web sites in its AdSense 27 program and the delivery of advertisements on such sites, as the "Google Ad Network." 28
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40.

As part of the service it provides to its clients, Google uses Digital Envoy's IP

2 Intelligence technology and Database Libraries to provide geographically targeted, non3 information search related, advertisements on those third party websites in the "Google Ad 4 Network". Such use is beyond the scope of the Agreement between Google and Digital Envoy. 5 Google did not obtain authorization from Digital Envoy to make such use and did not, in fact, tell 6 Digital Envoy that it was doing so. 7
41. Due in large part to the strength of its AdSense program, Google more than

8 doubled its revenues from 2002 to 2003, and the trend continues upward in 2004. Google 9 specifically makes substantial income and profit from the placement of geographically targeted, 10 non-information search related, advertisements on its client's websites in the Google ad network. 11
42. At the same time, Digital Envoy has received no income from Google's

12 unauthorized use of Digital Envoy's proprietary technology, but instead has lost significant 13 licensing opportunities. 14
43. In February 2004, Digital Envoy notified Google that it considered Google's use of

15 Digital Envoy's IP Intelligence technology and Database Libraries to provide geographically 16 targeted advertising on third party websites to be unauthorized under the Agreement. Google 17 admitted to its conduct but refused to stop. Instead, in response to Digital Envoy's inquiry, 18 Google offered to increase its payment under the Agreement to $12,000 per month. Digital Envoy 19 rejected this offer because it fell woefully short of the income enjoyed by Google and the lost 20 income to Digital Envoy as a result of Google's unauthorized conduct. 21 22 23 24 26 28
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COUNT I (Misappropriation of Trade Secrets) (Cal. Civ. Code § 3426 et seq., O.C.G.A. § 10-1-760 et seq., and Georgia Common Law) 44. Digital Envoy incorporates its allegations contained in paragraphs 1 through 43 as

25 if fully stated herein.
45. Digital Envoy's IP Intelligence and its Database Libraries are trade secrets,

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46.

Although acquired by lawful means, Google's misuse of Digital Envoy's trade

2 secrets constitutes a misappropriation in that it was acquired under circumstances giving rise to a 3 duty to maintain its secrecy and limit its use and that Google used Digital Envoy's trade secrets 4 through improper means, including failing to limit its use of the trade secrets. 5 7 9 11
47. Google's misappropriation of Digital Envoy's trade secrets have damaged Digital

6 Envoy through lost income, licensing and other business opportunities.
48. Google's misappropriation of Digital Envoy's trade secrets have also unjustly

8 enriched Google.
49. Digital Envoy is entitled to recover damages against Google in amounts to be

10 proved at trial.
50. Google's actions have been willful and malicious. Accordingly, Digital Envoy is

12 entitled to recover punitive or exemplary damages, including those provided for in Cal. Civ. Code 13 § 3426.3(c), against Google in amounts to be determined by the jury. 14 15 16 18
51. COUNT II (Federal Unfair Competition -- 15 U.S.C. § 1125(a)) Digital Envoy incorporates its allegations contained in paragraphs 1 through 50 as

17 if fully stated herein.
52. Google's actions, as set forth above, made in connection with services and used in

19 commerce, falsely designate the origin of its services, are misleading in their description or 20 representation of fact. Google's actions deceive others (including its AdSense and AdWords 21 customers) as to the origin and approval of its services and its commercial activities and Digital 22 Envoy is damaged by this conduct. Google's actions thus constitute violations of § 43(a) of the 23 Lanham Act, 15 U.S.C. § 1125(a). 24 26 28
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53.

Google acted as set forth above with knowledge and in disregard of Digital

25 Envoy's rights.
54. Digital Envoy is entitled to recover its actual damages, Google's profits, treble

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55.

In the manner set forth above, Google has also irreparably damaged Digital Envoy

2 and will continue to irreparably damage Digital Envoy unless enjoined by this Court. Digital 3 Envoy is without an adequate remedy at law. 4 5 6 8 10 seq.. 11 13
58. Google acted as set forth above with knowledge and deceit and in disregard of 56. Count III (Unfair Competition -- O.C.G.A. § 10-1-372 and Cal. Bus. & Prof. Code § 17200, et seq.) Digital Envoy incorporates its allegations contained in paragraphs 1 through 55 as

7 if fully stated herein.
57. As set forth above, Google has engaged, and is continuing to engage in acts of

9 unfair competition in violation of O.C.G.A. § 10-1-372 and Cal. Bus. & Prof. Code § 17200, et

12 Digital Envoy's rights and has caused Digital Envoy actual damages.
59. In the manner set forth above, Google has irreparably damaged Digital Envoy and

14 will continue to irreparably damage Digital Envoy unless enjoined by this Court. Digital Envoy is 15 without an adequate remedy at law. 16 18 19 20 22 24 26 28
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60.

Digital Envoy is thereby entitled to an injunction and to recover its attorneys' fees

17 and restitution from Google.
COUNT IV (Georgia and California Common Law Unfair Competition) 61. Digital Envoy incorporates its allegations contained in paragraphs 1 through 60 as

21 if fully stated herein.
62. The actions of Google set forth above constitute unfair competition in violation of

23 common law in that:
(a) the actions enable Google to obtain the benefit of, and trade on, the

25 goodwill of Digital Envoy;
(b) the actions by Google damage Digital Envoy in that Digital Envoy has no

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1 3 4 6
63.

(c)

the actions of Google are likely to cause, and have caused, confusion,

2 mistake or deception; and
(d) the actions of Google will result in the unjust enrichment of Google. Google acted as set forth above with knowledge, in bad faith and in willful

5 disregard of Digital Envoy's rights.
64. In the manner set forth above, Google has irreparably damaged Digital Envoy and

7 will continue to irreparably damage Digital Envoy unless enjoined by this Court. Digital Envoy is 8 without an adequate remedy at law. 9 11 12 13 15 17 19 21
66. 65. Digital Envoy is also entitled to an award of damages to be proved at trial, punitive

10 damages and attorneys' fees.
COUNT V (Common Law Unjust Enrichment) Digital Envoy incorporates its allegations contained in paragraphs 1 through 66 as

14 if fully stated herein.
67. As set forth above, Google has used and continues to use Digital Envoy's

16 technology and information for purposes outside the scope of the Agreement.
68. Google and Digital Envoy had no agreement or understanding which would govern

18 the relationship of the parties for the extra-contractual use set forth above.
69. In this manner, Google has received distinct and direct benefits from Digital

20 Envoy, but without compensating Digital Envoy. Google has thereby been unjustly enriched.
70. Accordingly, Digital Envoy is entitled to recover from Google all monies earned in

22 connection with Google's extra-contractual use of Digital Envoy's proprietary technology and 23 information, in amounts to be proved at trial. 24 25 26 28
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COUNT VI (Breach of Contract) 71. Digital Envoy incorporates its allegations contained in paragraphs 1 through 70 as

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72.

As set forth above, the parties have entered into a valid and enforceable contract,

2 the Agreement described above, which requires Google, among other things, to pay a monthly fee 3 to Digital Envoy in exchange for the limited license granted by Digital Envoy. 4
73. Google has breached the Agreement by, among other things, failing to pay the

5 monthly fee as required by the Agreement. As of August 16, 2004, Google has failed to pay to 6 Digital Envoy $16,000 in monthly fees owing and past due. 7 8 10 11 12 13 14 15 16 17 18 19 //// 20 21 22 23 24 //// 25 26 27 //// 28
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74. 75.

Digital Envoy has fully performed all of its obligations under the Agreement. In the manner set forth above, Digital Envoy has been damaged by Google's breach

9 of contract. Digital Envoy is thereby entitled to recover its damages to be proved at trial.
WHEREFORE, plaintiff Digital Envoy, Inc. prays for:,

(1) (2) (3) (4) (5) (6)

judgment in its favor and against defendant Google, Inc. for actual damages, disgorgement of profits, recovery of monies earned, trebling of damages pursuant to 15 U.S.C. § 1125, punitive damages on Counts for which such relief is available, attorneys' fees interest and costs,

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(7)

and for an injunction prohibiting Google, Inc. from using Digital Envoy's proprietary technology and information beyond the scope of the Agreement, specifically including supplying geographically targeted advertisements on third party websites.
SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

6 DATED: August 27, 2004 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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By

/s/ P. CRAIG CARDON TIMOTHY H. KRATZ (Admitted Pro Hac Vice) LUKE ANDERSON (Admitted Pro Hac Vice) MCGUIRE WOODS, L.L.P 1170 Peachtree Street, N.E., Suite 2100 Atlanta, Georgia 30309 Telephone: [phone] Facsimile: 404.443.5751 Attorneys for DIGITAL ENVOY, INC.

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1 2 3 4 DATED: August 27, 2004 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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JURY TRIAL DEMAND Plaintiff Digital Envoy, Inc. demands trial by jury in this action as to all issues so triable.

SHEPPARD, MULLIN, RICHTER & HAMPTON LLP

By

-sP. CRAIG CARDON TIMOTHY H. KRATZ (Pro Hac Vice To Be Applied For) LUKE ANDERSON (Pro Hac Vice To Be Applied For) MCGUIRE WOODS, L.L.P 1170 Peachtree Street, N.E., Suite 2100 Atlanta, Georgia 30309 Telephone: [phone] Facsimile: 404.443.5751 Attorneys for DIGITAL ENVOY, INC.

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