I/P Engine, Inc. v. AOL, Inc. et al

Filing 1024

Declaration re 1022 Memorandum in Support, (Declaration Of Howard Chen In Support Of Defendants Motion For Leave To Submit Evidence And Offer Of Proof In Support Of Defendants Opening Brief On Issues Raised In The Court's August 14 Order) by AOL Inc., Gannett Company, Inc., Google Inc., IAC Search & Media, Inc., Target Corporation. (Attachments: # 1 Exhibit 1 (Public Version), # 2 Exhibit 2 (Public Version), # 3 Exhibit 3 (Public Version))(Noona, Stephen)

EXHIBIT 3
PUBLIC VERSION

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION
I/P ENGINE, INC.
Plaintiff,

Civil Action No. 2:11-cv-512-RAJ

v.
AOL, INC.,
GOOGLE INC.,
IAC SEARCH & MEDIA, INC.,
GANNETT COMPANY, INC., and
TARGET CORPORATION,
Defendants.

DECLARATION OF DEFENDANTS’ EXPERT
KEITH R. UGONE, PH.D.
CONCERNING POST-JUDGMENT ROYALTIES

CONFIDENTIAL -- OUTSIDE COUNSEL ONLY

Table of Contents
I. 

Background .............................................................................................................................1 

II. 

Date and Parties of the Hypothetical Post-Judgment Royalty Negotiation ............................2 

III.  Changed Circumstances Between 2004 and 2012 ..................................................................3 
IV.  Outcome of a Hypothetical Negotiation Between Google and I/P Engine in 2012................5 
A. 

V. 

Georgia Pacific Factor 1: The royalties received by the patentee for the
licensing of the patent in suit. ..................................................................................5 
B. 
Georgia-Pacific Factor Two: Royalties paid by Google for the use of
other comparable patents .......................................................................................10 
C. 
Georgia-Pacific Factor Three: The nature and scope of the license ....................12 
D. 
Georgia-Pacific Factor Four: The licensor’s established policy regarding
licensing .................................................................................................................13 
E. 
Georgia-Pacific Factor Five: The commercial relationship between I/P
Engine and Google .................................................................................................13 
F. 
Georgia-Pacific Factor Six: The extent of derivative or convoyed sales .............14 
G. 
Georgia-Pacific Factor Seven: The duration of the patent and the term of
the license...............................................................................................................14 
H. 
Georgia-Pacific Factors Eight (The established profitability of the
patented product and its commercial success); Nine (The utility and
advantages of the patented product over other modes or devices); Ten
(The nature of the patented invention and the benefits to those who have
used it); Eleven (The extent and value of Google’s use of the invention);
and Thirteen (The portion of the realizable profit credited to the invention
as distinguished from non-patented elements) .......................................................15 
I. 
Georgia-Pacific Factor Twelve: The portion of the profit of the invention
that may be customary to allow for the use of the invention or analogous
inventions ...............................................................................................................21 
J. 
Conclusion .............................................................................................................24 
1. 
Outcome If New AdWords Is Found Not To Infringe ...............................25 
2. 
Outcome If New AdWords Is Found To Infringe ......................................28 
Evaluation of Dr. Becker’s Ongoing Royalty Opinion .........................................................31 
A. 
B. 

Dr. Becker Failed To Appropriately Consider Changed Circumstances
Between March 2004 And November 2012 ..........................................................31 
Dr. Becker Failed To Appropriately Consider Google’s Non-Infringing
Alternative..............................................................................................................38 

1
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I, Keith R. Ugone, Ph.D., declare as follows.1
I.

Background
1.

My name is Keith R. Ugone, Ph.D. I have been retained by Defendants AOL,

Inc., Google Inc., IAC Search & Media, Inc., Target Corp., and Gannett Co., Inc. (collectively
“Defendants”) to give my expert opinion concerning post-judgment royalties.
2.

I submitted an expert report and testified at trial in this matter on behalf of

Defendants. I described my qualifications during my trial testimony2 and in my expert report
(“Ugone Report”). To avoid repetition, I incorporate that Report by reference and attach it as
Exhibit 1. That Report also can be found at D.N. 468-4.
3.

I have been asked to provide my opinion and certain calculations with respect to a

post-judgment (or “on-going”) royalty. I also have been asked to review the Declaration of
Stephen L. Becker, Ph.D. Regarding Ongoing Royalties dated December 18, 2012 (“Becker
Declaration”) and the Report of Stephen L. Becker, Ph.D. Regarding Ongoing Royalties dated
September 25, 2013 (“Becker Ongoing Royalties Report”).3 In this Declaration, I provide my
analysis of the relevant economic evidence in this matter and my professional opinions on the
issue of a post-judgment royalty in this case.
4.

I understand that the jury found claims 10, 14, 15, 25, 27, and 28 of United States

Patent No. 6,314,420 and claims 1, 5, 6, 21, 22, 26, 28, and 38 of United States Patent No.
6,775,664 infringed and not invalid. 4

I further understand that the jury found that the

1

Except for the introductory and concluding sentences of this declaration and a sentence in
paragraph 2 of this declaration stating where my report can be located, this document is identical
to the Report of Keith R. Ugone Concerning Post-Judgment Royalties dated October 15, 2013.

2

Trial Tr., pp. 54-58.

3

D.N. 824. (See Exhibit 2 is a listing of the additional facts, data, and information received.)

4

D.N. 789.
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hypothetical negotiation in 2004 at issue for purposes of past damages would have resulted in a
3.5% running royalty.5 The jury awarded total damages of $30,496,155, attributed as follows:
Google - $15,800,000; AOL - $7,943,000; IAC - $6,650,000; Target - $98,833; and Gannett $4,322.6
5.

On August 13, 2013, the Court issued a Memorandum Opinion and Order.7 The

Court found that I/P Engine is “entitled to an ongoing royalty to compensate it for Defendant’s
continued infringement.”8 The Court also ordered that it would “apply the 20.9% royalty base
introduced at trial to determine the proper ongoing royalty.”9 I understand that the Court has
ruled on that issue and, for purposes of this declaration, I assume that the hypothetical
negotiation for an ongoing royalty would include a running royalty with an apportionment
percentage of 20.9%.10
II.

Date and Parties of the Hypothetical Post-Judgment Royalty Negotiation
6.

The opinions presented in my prior report in this case provide a thorough analysis

of a hypothetical negotiation between Lycos and Google in or around March 2004.

This

declaration provides my opinion of the result of a hypothetical negotiation between I/P Engine
and Google for a license to the patents-in-suit on November 20, 2012, the date of the entry of
5

D.N. 789, p. 11. As explained more fully below, if a 20.9% royalty base apportionment is
used, the damages amounts awarded by the jury reflect a much lower effective royalty rate.

6

D.N. 789, p. 11.

7

D.N. 963.

8

D.N. 963, p. 6.

9

D.N. 963, p. 6

10

Pursuant to the Court’s Order, I have assumed a 20.9% apportionment and a running royalty
for purposes of this report. However, for the reasons stated in my prior declarations, the use of a
20.9% apportionment percentage leads to certain inconsistencies relating to the jury’s verdict and
damages award. (D.N. 806, pp. 4-5; D.N. pp. 1, 14, 16 & 21-23.) Further, comparable Google
and I/P Engine license agreements do not contain unrestricted running royalty payment
structures.
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judgment.11 Therefore, for the purpose of determining a post-judgment royalty in this matter, I
have assumed a hypothetical negotiation in November 2012 between I/P Engine (i.e., the owner
of the patents-in-suit at this time) and Google. Thus, more than eight years separates the pre-trial
hypothetical negotiation in my prior report and the hypothetical negotiation at issue in the
determination of a post-judgment on-going royalty.
III.

Changed Circumstances Between 2004 and 2012
7.

Although much of the discussion of the 2004 hypothetical negotiation in my

previous report would not be affected, events associated with the change in the date of the
hypothetical negotiation would affect some significant aspects of the analysis. A summary of the
relatively more important changed circumstances is provided below.
7.1
The change in the hypothetical negotiation date alters the parties to that
negotiation. The patents-in-suit were owned by I/P Engine, rather than Lycos, in
2012.
7.2
The change in the hypothetical negotiation date affects the relative weights
assigned to the real-world license agreements in the record.
a.
Dr. Becker based his 3.5% running royalty rate opinion at trial
upon several license agreements for a group of patents owned by
Overture12 that were executed during 2005.13
b.
The change in the hypothetical negotiation date renders other
agreements more probative to the outcome of the negotiation. As
described in my report, Google purchased several patents from Carl Meyer
in 2008. As also described in my report, Lycos received offers to
purchase the patents-in-suit in 2008-2009 and 2011, and eventually sold
the patents to I/P Engine in 2011 for $3.2 million.14

11

D.N. 823, p. 7 n.3.

12

Trial Tr., pp. 784-785.

13

D.N. 824, p. 5.

14

Trial Tr., pp. 1582-1583; Exhibit 1 (Ugone Report), pp. 40-45; Declaration of Margaret P.
Kammerud in Support of Defendants' Opposition to Plaintiff's Motion for Post-Judgment
Royalties ("Kammerud Decl."), Ex. 1.
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c.
However, if the Overture licenses are deemed to be probative to
the outcome of the November 2012 hypothetical negotiation, greater
weight would be placed upon a license between Overture and Google than
the licenses between Overture and other parties.
7.3
The change in the hypothetical negotiation date would mean that the
parties to the 2012 negotiation would be aware of the jury’s findings on past
damages.
7.4
I have been informed, as described more fully below, that by the time of
the jury verdict,

a.
Assuming that the changes Google implemented render Google’s
system to be non-infringing, Google’s development of alternative designs
to the patents-in-suit would be another changed circumstance at the
November 2012 hypothetical negotiation that needs to be considered in the
determination of an ongoing royalty.
b.
Assuming that the changes Google implemented render Google’s
system to be non-infringing, Google’s implementation of these changes
could have been accelerated if Google were faced with a significantly high
claimed royalty rate. Under such circumstances, Google could have
implemented the necessary changes within two weeks to one and a half
months of the November 2012 hypothetical negotiation date.
8.

One aspect of the hypothetical negotiation that would not change is the

assumption that the patents are valid and infringed. I understand that I/P Engine has argued that
the jury’s finding of validity and infringement would strengthen I/P Engine’s negotiating
position in 2012 relative to Lycos’ in 2004. However, as stated in my previous report and Dr.
Becker’s report, and as testified to by Dr. Becker and myself, the parties to the 2004 hypothetical
negotiation would have conclusively assumed that the patents are valid and infringed.15 The
jury’s verdict simply would confirm these assumptions. Confirming what was already assumed
does not alter the analysis or the weight placed upon that consideration.16
15

Trial Tr., pp. 785-86, 1570-71.

16

I understand several courts have held that the jury’s finding of validity and infringement is not
a change in the circumstances at the post-judgment negotiation. Univ. of Pittsburgh v. Varian
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IV.

Outcome of a Hypothetical Negotiation Between Google and I/P Engine in 2012
9.

The outcome of a November 2012 hypothetical negotiation between Google and

I/P Engine can be evaluated in terms of the non-exclusive list of factors in Georgia-Pacific Corp.
v. United States Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). I consider each of the
relevant factors in the context of a November 2012 hypothetical negotiation below.
A.

Georgia Pacific Factor 1: The royalties received by the patentee for the
licensing of the patent in suit.

10.

Prior to the sale to I/P Engine, Lycos had licensed the patents-in-suit. Lycos

entered into settlement license agreements relating to the patent family that included the patents17

in-suit (a)

18

(b)
19

and (c)

I also understand that

Med. Sys., Inc., No. 08cv1307, 2012 WL 1436569, at *11-12 (W.D. Pa. Apr. 25, 2012) (“The
jury was instructed to assume, for purposes of the damages portion of the trial, that the ’554
patent was valid and was being infringed . . . . Thus, because the jury found, in the third portion
of the trial, that the claims of the ’554 patent at issue in the damages portion of the trial are, in
fact, valid, there is no change in the circumstances from the jury's award of a reasonable
royalty.”); Mondis Tech. Ltd. v. Chimei Innolux Corp., 822 F. Supp. 2d 639, 648 (E.D. Tex.
2011) (“Furthermore, when the jury determined damages based on a hypothetical negotiation in
2005, it also assumed that validity and infringement for those claims it found to be valid and
infringed. Therefore, InnoLux's status as an adjudicated infringer (aside from potentially
willfulness) has not changed the parties’ bargaining position with respect to the 2005
hypothetical negotiation as compared to the post-judgment negotiation.”); Presidio Components
Inc. v. Am. Tech. Ceramics Corp., No. 08-cv-335, 2010 WL 3070370, at *4 (S.D. Cal. Aug. 5,
2010), vacated in part on other grounds, 702 F.3d 1351; Cummins–Allison Corp. v. SBM Co.,
584 F. Supp. 2d 916, 918 (E.D. Tex. 2008) (“[A] jury finding of infringement and no invalidity
does not change any logically consistent analysis; rather, it merely confirms the original
assumption of those facts.”); Ariba, Inc. v. Emptoris, Inc., 567 F. Supp. 2d 914, 918 (E.D. Tex.
2008) (“[I]t is logically inconsistent to argue that a calculation based upon assumptions of
infringement and validity would change when those assumptions are replaced by jury findings of
the same facts.”).
17

Kammerud Decl., Ex. 2.

18

Kammerud Decl., Ex. 3.

19

Kammerud Decl., Ex. 4..
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I/P Engine (a) granted a partial license to AOL for a lump-sum of $100,000 in 201220 and (b) a
license to Microsoft in 2013 for $1 million, six of Microsoft’s patents, and 5% of any amounts
Google pays for use of the patents-in-suit. Microsoft’s “total liability” under the agreement is
subject to a cap that would be triggered if “the amounts received from Google substantially
exceed the judgment previously awarded.”21

I/P Engine’s license agreement with Microsoft

indicates that I/P Engine is willing to accept a royalty payment structure with a cap.
11.

Also, by way of background, Lycos (with the patents-in-suit) was at one time

owned by Terra, a Spanish Internet company. Terra sold Lycos (including the patents-in-suit) to
Daum Communications in 2004.22 Daum acquired Lycos in a 100 percent stock transfer for $95
million. 23 Mr. Blais testified that Daum acquired all of Lycos’ “properties and Websites,
products and services,” except for Lycos Europe which remained with Terra.24 Lycos retained
ownership of its patents and intellectual property.25 Thus, Daum paid $95 million for what was
essentially the entire Lycos company and its assets (including intellectual property). Making a
relative value observation, the acquisition of an entire company and its goodwill and assets
(including its intellectual property) is more valuable than a non-exclusive license to two of that
same company's patents.

20

Kammerud Decl., Ex. 5.

21

D.N. 954. According to Vringo’s Form 8-K, “the parties also agreed to a limitation on
Microsoft’s total liability, which would not impact the Company unless the amounts received
from Google substantially exceed the judgment previously awarded.”
22

Blais Deposition, p. 30.

23

Blais Deposition, p. 117.

24

Blais Deposition, pp. 117-18.

25

Blais Deposition, pp. 117-18.
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12.

At the end of 2008, Lycos began receiving offers to purchase its entire patent

portfolio.26 By 2011, the offers were no longer for the entire portfolio, but rather for one specific
patent family that included the patents-in-suit. These offers evolved into a bidding process,
which led to Lycos’ sale of this patent family to Smart Search Labs (i.e., the predecessor to I/P
Engine) in 2011 for a lump-sum payment of $3.2 million.27 During that bidding process Altitude
Capital Partners offered $3 million for the patent family, including the patents-in-suit.28 Altitude
Capital Partners previously offered $4 million for Lycos’ entire patent portfolio.29 Mr. Stayko
Staykov also negotiated for the purchase of the patent family, including the patents-in-suit. His
final offer was $2.5 million.30
13.

The $3.2 million lump-sum payment that resulted from the bidding process

among Altitude Capital Partners, Mr. Staykov, and Hudson Bay Capital (on behalf of Smart
Search Labs) provides a value indicator of the patent portfolio that included the patents-in-suit
close to the time of the November 2012 hypothetical negotiation.31 The $3.2 million figure was
determined by sophisticated participants through a competitive bidding process. It therefore is a
highly relevant indicator of value of the patents-in-suit. Further, the sale of the patents occurred
well after it was publicly known that Google implemented the accused AdWords system. 32
Given that the $3.2 million lump-sum payment was for the sale of a patent family (which would

26

Exhibit 1 (Ugone Report), pp. 40-41; Kammerud Decl., Ex. 23, pp. 30 & 122-40.

27

Trial Tr., pp. 1582-1583; Exhibit 1 (Ugone Report), pp. 42-45; DX-019.

28

Exhibit 1 (Ugone Report), p. 42; Kammerud Decl., Ex. 23, pp. 135 & 140.

29

Exhibit 1 (Ugone Report), p. 41; Kammerud Decl., Ex. 6.

30

Exhibit 1 (Ugone Report), p. 43; Kammerud Decl., Ex. 23, p. 135.

31

Exhibit 1 (Ugone Report), pp. 43-45; Kammerud Decl., Exs. 7, 8, 9.

32

D.N. 800, pp. 8-9.
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confer greater value in comparison to a license to the two patents at issue), this amount likely
overstates the value of a license to the patents-in-suit.
14.

Relative to a 2004 hypothetical negotiation, more emphasis would be placed upon

I/P Engine’s purchase of the patents-in-suit from Lycos – which occurred closer to the time of
the 2012 hypothetical negotiation and would be aligned more closely with current underlying
economic and technological conditions.
15.

In addition, I/P Engine’s license to Microsoft is an indicator of value relating to

the patents-in-suit. Microsoft received a license to the patents-in-suit in exchange for six patents,
$1 million, and a payment equal to 5% of any amounts Google pays for use of the patents-in-suit
(subject to a cap).33 This license agreement was (a) entered into after, but very close to, the
November 2012 hypothetical negotiation date, (b) after a jury had found the patents not invalid,
and (c) was with Google’s largest competitor in the search advertising market.
16.

Also, in 2012, a jury found that the 2004 hypothetical negotiation between the

parties would have resulted in payments totaling $30,496,155, attributed as follows: Google $15,800,000; AOL - $7,943,000; IAC - $6,650,000; Target - $98,833; and Gannett - $4,322.34
As described below, the parties to the hypothetical negotiation could calculate that, using the
court-ordered 20.9% apportionment rate, the jury utilized an effective royalty rate of 0.5%. I
explain the derivation of the 0.5% effective royalty rate immediately below.
17.

I understand that during closing arguments at trial, I/P Engine displayed a

demonstrative exhibit (i.e., PDX-441) for the allowable damages period (i.e., a damages period
beginning September 15, 2011) which showed a claimed damages amount of approximately

33

D.N. 954.

34

D.N. 789, p. 11.
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$118 million.35 The claimed damages amount of $118 million was based upon a 3.5% royalty
rate and a 20.9% royalty base apportionment. I/P Engine asked the jury to use the demonstrative
exhibit PDX-441 to determine “what’s a reasonable royalty for Google to pay.”36 However, Dr.
Becker previously had testified that the claimed damages figures in this demonstrative exhibit
were based upon all revenues that Google and the non-Google Defendants received.37 Hence, I/P
Engine’s instruction to the jury would yield double counting of claimed damages. Should the
Court determine that there was a double counting of damages (i.e., the damages the jury awarded
against Google included damages owed by the non-Google Defendants), and if such double
counting were removed, the jury award of $15.8 million against Google translates to an effective
royalty rate of 0.5%. The 0.5% effective royalty rate is derived as follows. (Exhibit 3.)
17.1 Using I/P Engine’s claimed damages figure of $118 million and a claimed
royalty rate of 3.5%, the apportioned royalty base used to derive the $118 million
is
17.2 Using a royalty base apportioned at 20.9% (i.e.,
award of $15.8 million yields an effective royalty rate of 0.5%
.
18.

), the jury

Should the Court determine that there is no double counting of damages, the jury

award of $30.5 million against all Defendants combined translates to an effective royalty rate of
0.9%.
(which was derived based upon PDX-441 and an
apportionment percentage of 20.9%).

35

Trial Tr. 2005:13-2008:24; D.N. 807 at ¶ 2 & Ex. B (PDX-441).

36

Trial Tr. 2008:19-2008:24.

37

Trial Tr. 848:14-849:6.
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B.

Georgia-Pacific Factor Two: Royalties paid by Google for the use of other
comparable patents

19.

On December 18, 2008, Google executed a patent purchase agreement with Carl

Meyer in which Google acquired three U.S. patents and two U.S. patent applications for a lumpsum payment of $3.55 million.38 Mr. Maccoun testified that the acquired technology relates to
determining “which advertisements are most effective when used on the internet.”39 Dr. Unger
testified that the technology in these patents was comparable to the technology covered by the
patents-in-suit because the Carl Meyer patents described a system “for placing ads across
multiple different locations and sites and . . . track[ing] the click-through rate . . . and it filters
out and say’s [sic] don’t show ads that have low click-through rates.”40
20.

Google’s $3.55 million lump-sum payment to Carl Meyer is an indicator of

Google’s willingness to pay for a license to the patents-in-suit close to the time of the November
2012 hypothetical negotiation. In addition, the Carl Meyer agreement is for a patent purchase, as
opposed to a patent license. A patent purchase provides more rights than a non-exclusive
license. Therefore, the Google / Carl Meyer agreement (and the payment contained within the
agreement) is a conservative indicator of the outcome of the 2012 hypothetical negotiation.
21.

Compared to a 2004 hypothetical negotiation, relatively more emphasis would be

placed upon the Carl Meyer agreement – which occurred closer to the time of the 2012
hypothetical negotiation.
22.

In addition, while I have opined here and elsewhere in my report that patent-

related agreements with comparable technologies to the patents-in-suit executed closer to the

38

Trial Tr., pp. 1567, 1595-1596; DX-090.

39

Exhibit 1 (Ugone Report), p. 77; D.N. 652 (Maccoun Dep.) at 63.

40

Trial Tr., pp. 1274-1277.
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date of the November 2012 hypothetical negotiation should carry more weight, if it is deemed
that agreements closer to the date of 2004 hypothetical negotiation are still relevant, the
agreement that Google executed with Disney, Infoseek, and Starwave in November 2004 would
serve as an additional indicator of value for a license to the patents-in-suit.

It is my

understanding that Dr. Unger has opined that the technology contained within the patents
purchased and licensed from Disney is comparable to the technology covered by the patents-insuit.

Google made a lump-sum payment of $5 million for both the patent purchase and patent
license. 41 Similar to the Google / Carl Meyer agreement, this agreement involves a patent
purchase, which confers more rights (and value) than a non-exclusive patent license.
Additionally, this agreement involves a larger number of licensed and purchased patents,
whereas the November 2012 hypothetical negotiation would have involved a non-exclusive
license to just two patents. To the extent the parties at the 2012 hypothetical negotiation would
have looked to the agreements executed closer to the date of the 2004 hypothetical negotiation,
more weight would be placed upon the Google / Disney agreement than the Overture agreements
(which have significant differences from the hypothetical license to the patents-in-suit for the
reasons discussed later in my report).
23.

In addition to the Google / Carl Meyer agreement and the Google / Disney

agreement, I understand Dr. Unger has opined that the technology contained within the patents in
two agreements that Google executed with

41

is comparable to the technology

Exhibit 1 (Ugone Report), pp. 75-76.
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covered by the patents-in-suit. These financial parameters of the two agreements are discussed
below.
23.1
23.2

These two agreements provide additional guidance as to the outcome of the 2012 hypothetical
negotiation.
C.

Georgia-Pacific Factor Three: The nature and scope of the license

24.

I/P Engine and Google would have negotiated a freedom-to-operate and non-

exclusive U.S. license to the patents-in-suit. I am not aware of any technical information or
knowhow that I/P Engine would provide with the license agreement. In addition, as with the
original March 2004 hypothetical negotiation, significant ongoing contributions by Google
would be required to maintain the Accused Products (including hardware infrastructure and
software programming).44 Also, a license to the patents-in-suit would not provide Google with
the specific method of computing the predicted Click Through Rates (“pCTRs”) that allegedly
are used in the Accused Functionality.45

42

Exhibit 1 (Ugone Report), p. 77.

43

Exhibit 1 (Ugone Report), pp. 76-77.

44

Trial Tr., pp. 1048-49 (discussing how Google makes “about two dozen or so very significant
changes to AdWords” each quarter and constantly works to improve the system), 1050-51
(discussing work on serving systems, computers, and data centers necessary to return ads
quickly), 1091-1101 (discussing generally the infrastructure involved with AdWords), 1117
(discussing changes to SmartAds models); Exhibit 1 (Ugone Report), pp. 59-60, 64-65.

45

Trial Tr., pp. 709-710.
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25.

The November 2012 license would give Google full use of the patents-in-suit,

including making Google’s technology available to its partners such as AOL, IAC, Gannett, and
Target.46
26.

Because the comparable agreements in the record (e.g., the sale of the patents by

Lycos to I/P Engine and the Carl Meyer patent purchase agreement) involve the transfer of title,
this suggests they are conservative indicators of the value of a non-exclusive license to the
patents-in-suit.
D.

Georgia-Pacific Factor Four: The licensor’s established policy regarding
licensing

27.

I/P Engine’s willingness to license its patents is evidenced by the fact that it

recently has granted a license to Microsoft and a partial license to AOL.47 I/P Engine does not
have a policy of maintaining exclusive use of (or not licensing) the patents-in-suit. In addition,
I/P Engine was formed for the purpose of licensing the patents-in-suit. Further, I/P Engine
would benefit significantly from licensing its patents to Google given Google’s strong brand
name and commercial success. Consequently, I/P Engine would have a strong incentive to
execute a license with Google and to encourage Google to use the patented technology.
E.

Georgia-Pacific Factor Five:
Engine and Google

The commercial relationship between I/P

28.

I/P Engine and Google did not have a commercial relationship. I/P Engine and

Google also were not competitors because I/P Engine did not practice the patents-in-suit or
commercialize a product embodying the teachings of the patents-in-suit, inter alia. Therefore,
given that I/P Engine and Google were not competitors and that I/P Engine did not practice the

46

Trial Tr., pp. 850, 1621.

47

Kammerud Decl., Ex. 5; D.N. 954.
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patents-in-suit, the only economic benefit I/P Engine could gain from the patents-in-suit would
be from licensing.
29.

I/P Engine would recognize the advantages of licensing the patents-in-suit to a

company like Google. I/P Engine would realize that it would be able to earn licensing revenues
driven by Google’s strong brand name and commercial success (but tempered by Google’s
contributions to the successful implementation of the accused functionalities).
F.

Georgia-Pacific Factor Six: The extent of derivative or convoyed sales

30.

I/P Engine agrees that there are no derivative or convoyed sales associated with

the patents-in-suit.48 Google, therefore, was not at risk of losing sales of non-patented products
or services should it not obtain a license to the patents-in-suit. Also, I/P Engine would not be
able to negotiate a higher royalty payment based upon this licensing consideration.
G.

Georgia-Pacific Factor Seven: The duration of the patent and the term of the
license

31.

I understand that on May 11, 2013, Google completed changes to the accused

systems
49

I further understand that Google had already begun implementing these changes

before the jury reached a verdict and before entry of final judgment.50
31.1 If Google’s new system is found not to infringe the patents-in-suit, at the
November 2012 hypothetical negotiation, I/P Engine and Google would have

48

Kammerud Decl., Ex. 24, PDX071; Tr. 795.

49

Furrow Declaration; Furrow Deposition pp. 130-31.

50

Trial Tr., p. 1069 (“We are working on changes to our system now whereby we will no longer
need to limit the number of ads that we look at for these purposes.”); Furrow Deposition, p. 122
(“So whole-page auction is a broad -- is a broader effort that's been going on, I think it's been
discussed since 2011, possibly earlier, to -- with the goal of changing how we select which ads
are shown on -- in AdWords.”); Furrow Deposition, p. 128
.
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negotiated a license with a duration of approximately six months (i.e., until May
11, 2013).
31.2 If Google’s new system is found to infringe the patents-in-suit, the
hypothetical negotiation in November 2012 would have been for a license that
would last less than four years (i.e., until the expiration of the patents-in-suit on
April 4, 201651 or until another design around option could be implemented).
32.

In contrast, the patents-in-suit had approximately five years left when I/P Engine

purchased them in 2011. I also understand that the Carl Meyer patents had more than ten years
left before expiration when Google purchased them.52 This suggests that these agreements are a
conservative indicator of the outcome of the November 2012 hypothetical negotiation, because
they included rights for patents with longer remaining periods until expiration.
H.

Georgia-Pacific Factors Eight (The established profitability of the patented
product and its commercial success); Nine (The utility and advantages of the
patented product over other modes or devices); Ten (The nature of the
patented invention and the benefits to those who have used it); Eleven (The
extent and value of Google’s use of the invention); and Thirteen (The portion
of the realizable profit credited to the invention as distinguished from nonpatented elements)

33.

Factors eight through eleven and thirteen are directed to measuring the value of

the patents-in-suit in relation to the prior art and the benefits the licensee would gain from a
license. They can be appropriately considered together in this context.
34.

As discussed extensively in my expert report in this case, the commercial success

of the Accused Products is attributable significantly to Google’s contributions rather than to the
claimed teachings of the patents-in-suit.

This observation continues to be true as of the

November 2012 hypothetical negotiation.
35.

Google had achieved significant commercial success prior to the first alleged

infringement (and prior to the first hypothetical negotiation in March 2004).
51

D.N. 823, p. 1.

52

DX-90.
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35.1 Google had established a large user base and network of advertisers and
partnership sites that would drive Google's accused advertising revenues
independent of the patents-in-suit.
35.2 At the March 2004 hypothetical negotiation, Lycos and Google would
have acknowledged that Google would continuously introduce new and improved
products, services, features, and functionalities unrelated to the patents-in-suit to
maintain and enhance its installed base of users and advertisers.
35.3 Google had built an extremely successful search engine prior to any
alleged infringement.
35.4 Google's Accused Products offer features and benefits that drive demand
and contribute to their success independent of the claimed teachings of the
patents-in-suit. These features and benefits include keyword-based search
advertising, account management features, additional services for large
advertisers, an effective return on investment, and an extremely fast display of
advertisements (which has been achieved through Google’s extensive
infrastructure investment).
35.5 As early as 2002, when most online businesses were advertising in
traditional ways, Google implemented an auction-based system for selling
advertisements. Google’s auction system drives the accused advertising revenues
independent of the claimed teachings of the Patents-in-Suit. Google's shift in
2002 from a pay-per-impression system to a pay-per-click system, combined with
its use of an auction system that incorporated both bid amount and predicted
click-through rate in the ranking of ads, was a significant improvement over prior
search advertising systems.53
36.
November

As with the original March 2004 hypothetical negotiation, at the time of the
2012

hypothetical

negotiation,

I/P

Engine’s

sole

contribution

to

the

commercialization of a product practicing the claims of the patents-in-suit would be a bare (or
naked) patent licensing agreement.

Significant contributions beyond a bare license were

required by Google to implement the Accused Functionality. A post-November 2012 license
would not provide Google with any of the practical requirements for implementing the Accused
Functionality, including necessary hardware infrastructure or software programming.
53

The

Trial Tr., pp. 710-11 (discussing the auction system, as well as ranking and pricing of
advertisements, all of which was not accused of infringement), 1091-1101 (discussing generally
the infrastructure involved with AdWords), 1117 (discussing changes to SmartAds models);
Exhibit 1 (Ugone Report), pp. 59-65.
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parties would have understood that the claimed teachings of the patents (in isolation) were not
sufficient to obtain commercial success.
36.1 For example, I understand that one component of the Accused
Functionality was the calculation of a predicted clickthrough rate (pCTR).54
36.2 It is my understanding that Smart Ads’ specific computation of pCTRs (in
isolation) was not accused of infringing the patents-in-suit.55
36.3 I/P Engine’s technical expert, Dr. Frieder, testified at his deposition that
“[t]he way Google makes its predicted clickthrough rate is it is developed by
Google . . . . Google came up with how it does predicted click-through rate . . .
.”56
36.4 It is my understanding that pCTRs played a broader role in the Accused
Products beyond merely promoting and disabling advertisements.57
37.

The limited contribution of the patents-in-suit to the success of the Accused

Products is demonstrated by the different levels of success associated with the different products
that I/P Engine has accused. For example, in addition to Google’s search advertising systems,
AOL’s “Advertising.com Sponsored Listings” was accused of infringing the Patents-in-Suit.
However, there is a significant variation in the levels of success of different search advertising
systems alleged to employ the same patented technology (i.e., Google’s systems vs. AOL’s).
Thus, the success of Google’s search advertising systems is driven by Google-specific
contributions.

This consideration would be even more evident as of the November 2012

hypothetical negotiation relative to the March 2004 hypothetical negotiation, because by that
time, Google would have implemented significantly more improvements and changes to its own
system.

54

Trial Tr., pp. 463-64.

55

Trial Tr., pp. 709-710.

56

Trial Tr., p. 710.

57

Trial Tr., pp. 709-711, 1616.
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38.

Based upon discussions with Google engineer Bartholomew Furrow, a review of

the transcript of his September 2013 deposition, and his previously filed declaration,58 it is my
understanding that by the time of the November 2012 hypothetical negotiation, Google had
begun implementing changes to the Accused Products. I understand that one basis for I/P
Engine’s infringement theory at trial was the use of QBB disabling, which I/P Engine alleged
practiced the “filter” and “filtering” related claim limitations.59 Mr. Furrow testified

.61
38.1

38.2

39.

I further understand from Mr. Furrow that (a) these changes were technically

feasible and relatively easy to implement in the normal course of business (including in the
normal course of software updating and maintenance) and that Google has in fact implemented
them and (b) these changes are acceptable to Defendants, their advertisers, and their users and
58

I understand that Mr. Furrow currently is the technical lead on the ads click quality team.
(Furrow Deposition, pp. 7-8.)

59

Trial Tr. pp. 556 & 1015-16.

60

Furrow Deposition, p. 65.

61

Furrow Deposition, p. 129.

62

Furrow Declaration; Furrow Deposition 112 & 208

63

Furrow Deposition, pp. 14-15 (“In the current system, that step no longer exists.”).

64

Furrow Declaration; Furrow Deposition, pp. 130-31; Frieder Report ¶ 7.
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they have had a positive impact on advertisement quality. I have further been informed by Mr.
Furrow that these changes have not had any discernible negative impact on revenues or the
performance of the AdWords system.65 Mr. Furrow testified at his deposition that Google has
found the changes to the Accused Products “to be a net win,”66 that they “were all changes that
[Google] wanted to make in any case,”67 and that

40.

In addition, according to Mr. Furrow, operational costs as a result of the roll-out

that included the

are expected to

increase by less than $10 million per year. 69 However, these cost increases are primarily
attributable to other previously-planned improvements to the auction implemented around the
same time as the

. Google does not

expect there to be incremental operations costs that are specifically attributable to the
70

Mr. Furrow testified that his $10 million figure was an

“outrageously high” estimate and that the actual cost will “be less than that number.”71
41.

I understand that I/P Engine alleges that Google’s new, redesigned system that is

presently in place infringes the patents-in-suit. (It also is my understanding that Google

65

Furrow Declaration; Furrow Deposition, pp. 129-30 (“We expect to make very significant
gains from the
.”); Furrow Deposition, pp. 133-34 (“I believe that the
removal did not have an impact on quality metrics.”).

66

Furrow Deposition, p. 65.

67

Furrow Deposition, p. 109.

68

Furrow Deposition, p. 122.

69

Furrow Deposition, pp. 131-32; Furrow Declaration,

70

Furrow Declaration; Furrow Deposition, pp. 131-33

71

Furrow Deposition, p. 132
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Engine contended practiced the “filtering” limitations of the patents-in-suit. 72 ) Dr. Frieder
testified at trial that the purpose of this disabling was to limit the number of advertisements that
were eligible for the auction that determined which advertisements were displayed to the user.73
I/P Engine argued to the jury that, without this pre-auction filtering, Google would have had too
many potential advertisements to quickly and efficiently conduct the auction.74 I/P Engine’s
counsel asked Google officers to confirm that its invention was important because “you have to
take [the excess ads] away because the computers that Google has are not able to actually
analyze all of those ads in the context of a particular query” and “because of latency and overall
overhead constraints, you couldn’t take all the eligible or candidate ads for an auction and bring
them into the mixer points.”75 Dr. Frieder therefore states that his present analysis “focused on
the functionality,

QBB disabling, Mixer disabling and Promotion steps

the jury found to infringe the claimed ‘filtering’ limitation.”76
41.1 In his new report, I understand that Dr. Frieder alleges that Google’s new
system performs the claimed “filtering” step
.77
41.2
41.3
72

Dr. Frieder does not contend that the new system
.78
Dr. Frieder opines that the new system performs this step “
.”79

Frieder Report ¶7; Furrow Declaration; Furrow Deposition, pp. 112, 130-31 & 208.;

73

Trial Tr., pp. 439, 494-95, 693, 697-98 & 728-29.

74

Trial Tr., pp. 1994-96.

75

Trial Tr., p. 1068

76

Frieder Report ¶6.

77

Frieder Report ¶ 13 (“
.”).

78

Frieder Report ¶ 14 (“Except for the timing of the step relative to the auction, LTV is used in
New AdWords in exactly the same way as in Old AdWords, namely, as a “standard” to protect
against showing poor quality ads.”).
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41.4 Dr. Frieder does not contend that the purpose of this “filtering” in the new
system is to limit the number of advertisements eligible for the auction.
42.

Georgia-Pacific factors eight through eleven and thirteen provide the following

implications for the November 2012 hypothetical negotiation.
42.1 Given the continuous improvements and updates Google implemented
between 2004 and 2012, the relative contributory value of the patents-in-suit to
Google’s systems would diminish over time. Hence, Georgia-Pacific factors
eight through eleven and thirteen would place downward pressure on the
reasonable royalty payment.
42.2 If Google’s new system is found to no longer infringe the patents-in-suit,
the availability of a non-infringing design around at the time of the hypothetical
negotiation would weigh in favor of a lower royalty payment. Implementation of
Google’s new system would result in the end of any running royalty obligation as
of May 13, 2013, the date that Google completed its implementation.
I.

Georgia-Pacific Factor Twelve: The portion of the profit of the invention
that may be customary to allow for the use of the invention or analogous
inventions

43.

There is no customary royalty payment associated with the claimed teachings of

the patents-in-suit.
44.

I understand that I/P Engine contends that certain licenses executed between

Overture and three non-parties tend to show a customary licensing rate. This assertion is flawed
for several reasons (based upon my discussions with Dr. Ungar and the reasons set forth in my
prior report80).
44.1 First, the Overture licenses were executed in 2005, seven years before the
November 2012 hypothetical negotiation.81
44.2 Second, the Overture licenses did not include the patents-in-suit, unlike
other more probative transactions involving the patents-in-suit (e.g., Lycos’ sale
of the patent family including the patents-in-suit to Smart Search Labs).

79

Frieder Report ¶ 13.

80

Exhibit 1 (Ugone Report), pp. 95-96.

81

D.N. 824, p. 5.
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44.3 Third, I understand that the Overture patents are not technologically
comparable to the patents-in-suit. I/P Engine’s technical expert testified at trial
that they were comparable only “in the general sense.”82 Both I/P Engine’s and
Defendants’ technical expert testified about differences between the ’361 patent
and the patents-in-suit.83
44.4 Fourth, the Overture licenses provide rights to a portfolio of patents and
applications in addition to the seminal ’361 Patent.
44.5

Fifth, the Overture licensees were not similarly situated to Google.

44.6 Sixth, Overture was a leader in paid search when it executed the license
agreements relied upon by Dr. Becker and was practicing its patents.
45.

Therefore, the Overture licenses, which did not concern the patents-in-suit, did

not involve either Google or I/P Engine, and occurred seven years prior to a November 2012
hypothetical negotiation, are not as probative to the outcome of the November 2012 hypothetical
negotiation as (a) the actual sale price of the patents-in-suit and (b) the Carl Meyer agreement
with Google.
46.

To the extent that the Court determines that the Overture licenses are probative of

the outcome of a November 2012 hypothetical negotiation between I/P Engine and Google,
greater weight should be placed upon Overture’s license with Google than Overture’s licenses
with other companies (e.g., Marchex, eXact, and Interchange).

Overture’s agreement with

Google is discussed below.
46.1 On August 9, 2004, Yahoo! (which acquired Overture) 84 and Google
entered into a settlement agreement, whereby Google issued 2.7 million shares of
its common stock to Yahoo! to resolve two disputes between the parties: (a) a
patent infringement lawsuit in which Overture asserted that Google’s AdWords
and AdSense infringed Overture’s ’361 Patent and (b) a warrant dispute
concerning a warrant held by Yahoo! to purchase 3.72 million shares of Google’s
stock in connection with a June 2000 services agreement. Concurrently with the
settlement agreement, Yahoo! and Google executed a license agreement in which
82

Trial Tr., p. 630.

83

Trial Tr., pp. 716-17, 1277-78.

84

Yahoo! acquired Overture in October 2003. (Exhibit 1 (Ugone Report), p. 92.)
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Yahoo! granted Google a non-exclusive license to Overture’s ’361 Patent
portfolio.85
46.2 The settlement agreement between Yahoo!/Overture and Google included
an excerpt from Google’s SEC filings which stated that (a) Google preliminarily
estimated the non-cash charge associated with this settlement would be between
$260 million and $290 million based upon Google’s proposed initial public
offering (“IPO”) price range and (b) Google would “engage a third party
valuation consultant to assist management in the allocation of the settlement
amount” between the license and the warrant grant.86
46.3 According to Google’s 2004 Form 10-K, Google valued the total
consideration under the settlement agreement with Yahoo!/Overture at $229.5
million based upon Google’s actual IPO price. 87 Also according to Google’s
2004 Form 10-K, Google had “engaged a third party valuation consultant to assist
management in the allocation of the value of the settlement consideration” and
determined that the value of the total consideration attributable to the licensed
Overture patents was $28.5 million.88
47.

To the extent that the Court determines that the Overture licenses are probative of

the outcome of a November 2012 hypothetical negotiation, Overture’s license with Google
provides guidance that the aggregate royalty payment that I/P Engine and Google would have
agreed upon would be subject to a royalty cap of $28.5 million. A licensing structure with a
royalty cap is consistent with the license that I/P Engine executed with Microsoft (i.e., Google’s

85

Confidential Settlement Agreement and Release between Yahoo! Inc./Overture Services, Inc.
and Google Inc. dated August 9, 2004 (G-IPE-0220601 – 637 at 601 – 603 and 619 – 620) and
Google 2004 10-K, p. 86.

86

Google Inc., Amendment No. 5 to Form S-1 filed on August 9, 2004, pp. 60 – 61 and
Confidential Settlement Agreement and Release between Yahoo! Inc./Overture Services, Inc.
and Google Inc. dated August 9, 2004 (G-IPE-0220601 – 637 at 634).
87

Google 2004 10-K, pp. 18 and 86. On August 18, 2004, Google conducted its IPO with a
price per share of $85. The total settlement consideration (i.e., $229.5 million) was determined
by multiplying the number of shares Google issued to Yahoo! (i.e., 2.7 million shares) by
Google’s IPO price (i.e., $85).

88

Google 2004 10-K, p. 86. According to Schedule 1 of the agreement between Yahoo! and
Google, Yahoo! allocated 1 million shares (out of 2.7 million shares) to the license agreement
relating to the Overture patents. (G-IPE-0220601 – 637 at 630.) Subsequently, Google and its
third-party valuation consultant placed a value of $28.5 million on the license agreement.
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largest competitor in the search advertising market) close to the time of the November 2012
hypothetical negotiation.
J.

Conclusion

48.

The outcome of a November 2012 hypothetical negotiation would take into

account the changes in the circumstances between a March 2004 hypothetical negotiation and a
November 2012 hypothetical negotiation. These changes include the following.
48.1 Relatively more weight would be placed upon the comparable license
agreements that occurred close to the time of the November 2012 hypothetical
negotiation (e.g., Google’s patent purchase agreement with Carl Meyer for $3.55
million in December 2008 and I/P Engine’s purchase of the patent family
including the patents-in-suit for $3.2 million in June 2011).
48.2 Relatively less weight (if any) would be placed upon the Overture license
agreements which relate to seminal technologies that are significantly more
valuable than the patents-in-suit and occurred over seven years prior to the
November 2012 hypothetical negotiation. However, to the extent that the Court
determines that the Overture licenses are probative of the outcome of a November
2012 hypothetical negotiation between I/P Engine and Google, greater weight
should be placed upon Overture’s license with Google than Overture’s licenses
with other companies. Under Overture’s agreement with Google, a $28.5 million
value was attributed to Overture’s license of its patent portfolio to Google.
48.3 The damages the jury awarded against all Defendants totaled $30.5
million – only 26% of the damages claimed by I/P Engine at trial (i.e.,
approximately $118 million against all Defendants). Should the Court determine
that there was a double counting of damages (i.e., the damages the jury awarded
against Google includes damages owed by the non-Google Defendants), and if
such double counting were removed, the jury award of $15.8 million against
Google yields an effective royalty rate of 0.5% if a 20.9% royalty base
apportionment percentage (as instructed by the Court)89 is used.90

89

I have conducted my analyses using the Court’s directive that an apportionment factor of
20.9% be used. However, if the Court were to revisit the issue of the apportionment factor, there
are indications that an apportionment factor of 20.9% overstates the contribution of the Accused
Functionality. These reasons are detailed in the Ugone Report and my declaration dated May 13,
2013 and include: (a) the apportionment factor was derived based upon a draft Google
presentation dated June 2006 (i.e., over six years prior to the November 2012 hypothetical
negotiation); (b) when Smart Ads was first implemented in 2004, it only resulted in a 7.8%
increase in advertising revenue; (c) the initial experiment Google performed using Smart Ads
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48.4

.
48.5

Operational costs as a result of the roll-out that

but these cost increases are primarily attributable to
other previously-planned improvements to the auction implemented around the
same time as
.
1. Outcome If New AdWords Is Found Not To Infringe
49.

Assuming that Google’s alternative solution does not infringe the patents-in-suit,

the availability of the alternative designs that Google had begun implementing at the time of the
November 2012 hypothetical negotiation would place downward pressure on the aggregate tobe-negotiated on-going royalty payment. Also, the implementation of New AdWords would
shorten the duration of the license that the parties would negotiate. Based upon input from
Google, I have presented for the Court’s consideration three scenarios: (a) assuming no
acceleration of the implementation of New AdWords which Google already performed, (b)
assuming that the
would have been accelerated, and (c) assuming that
.

resulted in a decrease in revenue from the prior system; and (d) the jury verdict against Google
equates to a royalty base apportioned at 2.8% of revenue (based upon a 3.5% royalty rate).
90

The parties to the 2012 hypothetical negotiation would place greater significance on the
effective rate actually applied by the jury because that figure is derived from the actual award.

91

Furrow Declaration; Furrow Deposition, pp. 111 & 208; Frieder Dec. ¶ 7.

92

Furrow Declaration; Furrow Deposition 130-31.
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a. Scenario 1a: No Acceleration Of Non-Infringing Alternative
Implementation
50.

Assuming no acceleration in the implementation of the existing New AdWords

system, the outcome of the November 2012 hypothetical negotiation would be a running royalty
rate of no more than 0.5%93 to be applied to an apportioned royalty base of 20.9% (in accordance
with Court’s ruling) of accused advertising revenues from November 21, 2012 to May 11, 2013.
This outcome takes into account the constraining influence of the alternative solution, the
effective royalty rate applied by the jury (given an apportionment rate of 20.9%), and other
considerations discussed above (including but not limited to I/P Engine’s purchase of the
patents-in-suit and Google’s license with Carl Meyer which occurred close the time of the
hypothetical negotiation).
b. Scenario 1b: Acceleration Of
51.

I have been informed that Google could have accelerated the implementation of

the

, launching the

new system within one and a half months of the November 20, 2012 hypothetical negotiation.
Generally, my understanding of this option is as follows.
51.1 Beginning in the fourth quarter of 2011 and to date, Google engineers
have spent approximately
Beginning in the
first quarter of 2012 and to date, Google engineers have spent approximately

51.2 I have been informed that with a 25% increase in man hours devoted to the
implementation of a
within one and a half months

93

Should the Court determine that there was no double counting of damages in the jury damages
award, the royalty rate would be no more than 0.9%.

94

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of November 20, 2012 (i.e., by January 4, 2013).95 I have been informed that the
per-hour cost for a Google engineer is
. Therefore, for a cost of
approximately
, Google
could have accelerated the
and the
transition to the
to January 4, 2013 (instead of May 11,
2013).
51.3

The launch of the

is associated with an increase in operational
costs of no more than
per year. Under the conservative assumption
that the entire incremental operational costs of $10 million per year is attributable
to no longer using the Accused Functionality, these incremental costs amount to
no more than $3.5 million over the January 4, 2013 to May 11, 2013 time period.
51.4
the

Therefore, assuming that Google could have accelerated the transition to

by January 4, 2013, the November 2012 hypothetical negotiation
would result in a payment totaling no more than the following: (a) a running
royalty rate of no more than 0.5% to be applied to an apportioned royalty base of
20.9% of accused advertising revenues from November 21, 2012 to January 4,
2013 and (b) a one-time payment of $3.55 million. The one-time payment of
$3.55 million is the sum of the costs of accelerating the implementation (i.e.,
$51,500) and the incremental operational costs (i.e., $3.5 million).96
c. Scenario 1c: Acceleration Of
52.

I have been informed that Google could have accelerated the
, launching these changes within two weeks of the November 20, 2012

hypothetical negotiation (i.e., by December 4, 2012). Generally, my understanding of this
options is as follows.
52.1 As previously mentioned, beginning in the first quarter of 2012 and to
date, Google engineers have spent approximately
.

95

I have been advised that Google could have
within two weeks of November 20, 2012 for no additional cost.

96

This royalty payment figure is conservatively high in that the entire identified cost savings is
allocated to the royalty payment rather than being divided (or shared) between I/P Engine and
Google.
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52.2

I have been informed that with a 25% increase in man hours devoted to the

Google could have removed these features within two weeks of
November 20, 2012 (i.e., by December 4, 2013). Applying the per-hour cost of a
Google engineer (i.e.,
) to
results in an additional cost of
features by December 4,
2012.
52.3 Under the conservative assumption that the entire incremental operational
costs of
per year is attributable to
, these incremental costs amount to no more than
over
the December 4, 2013 to May 11, 2013 time period.
52.4 Under this scenario, the November 2012 hypothetical negotiation would
result in a payment totaling no more than the following: (a) a running royalty rate
of no more than 0.5% to be applied to an apportioned royalty base of 20.9% of
accused advertising revenues from November 21, 2012 to December 4, 2012 (i.e.,
the completion of the
) and (b) a one-time payment of
The one-time payment of

d. Summary
53.

Assuming that New AdWords does not infringe, there is a range of outcomes for

the hypothetical negotiation. Specifically, I/P Engine and Google would have agreed to a
running royalty rate of no more than 0.5% from November 21, 2012 to the completion of the
, which is either May 11, 2013 or earlier (depending upon the acceleration scenario).
Moreover, assuming that the implementation could have been accelerated, there would have been
an additional one-time payment ranging from

(depending upon the

acceleration scenario).
2. Outcome If New AdWords Is Found To Infringe
54.

Assuming that Google’s alternative solution continues to infringe the patents-in-

suit, the value indicators of the patents-in-suit that occurred closer to the November 2012
hypothetical negotiation (including I/P Engine’s purchase of the patents-in-suit, Google’s license
97

25% x 400 hours = 100 hours.
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with Carl Meyer, and the aggregate jury award in this matter) would be probative as to an
ongoing royalty. For example, the parties would take into consideration the damages award of
$15.8 million that the jury awarded I/P Engine for Google’s infringement over the September
2011 – September 2012 time period (based upon a 2004 hypothetical negotiation). Using (a) a
20.9% royalty base apportionment percentage (as instructed by the Court) and (b) accused
advertising revenues over the September 2011 – September 2012 time period, the damages
award of $15.8 million translates to an effective royalty rate of 0.5%.98
55.

As discussed throughout my declaration, changed circumstances between the

March 2004 hypothetical negotiation and November 2012 hypothetical negotiation indicate
downward pressure on the reasonable royalty rate relative to the royalty rate resulting from a
2004 hypothetical negotiation. These changed circumstances include: (1) the change in parties
to the hypothetical negotiation; (2) the change in relative probative value of the licenses in the
record; (3) I/P Engine’s licensing of the patents-in-suit; (4) the jury’s application of an effective
0.9% royalty rate; and (5) Google’s decision to, independent of I/P Engine’s patents, redesign the
Accused Products. In addition, to the extent that the Overture licenses are probative of the
outcome of the November 2012 hypothetical negotiation, under Google’s agreement with
Overture, the value that Google and its third-party valuation consultant attributed to the license
to the Overture patents was $28.5 million.
56.

With respect to Google’s decision to redesign the Accused Products, as an

additional consideration, the jury damages award was based upon three filtering steps: QBB
disabling, mixer disabling, and promotion disabling.

98

The effective royalty rate of 0.5% assumes that the Court may find the damages awarded by
the jury double counts certain accused base revenues. If the double counting is not omitted, the
effective royalty rate would be 0.9%.
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. I understand Dr.
Frieder does not opine that a QBB equivalent exists in Google’s current advertising
system. Given that there is no dispute at least one of the three filtering steps (which formed the
basis for the jury’s verdict) is no longer applicable to Google’s current advertising system in the
post-judgment period, this consideration would place downward pressure on the 0.5% effective
royalty rate derived from the jury’s damages award.
57.

Given these considerations, should Google’s system be found to still infringe the

patents-in-suit, an ongoing reasonable royalty rate for a license to the Patents-in-Suit would be
no more than 0.5% to be applied to an apportioned royalty base of 20.9% (in accordance with the
Court’s ruling that I must apply this apportionment rate) of the accused advertising revenues.
Consistent with the licensing structure in I/P Engine’s agreement with Microsoft, which used a
cap as detailed above, the aggregate royalty payment to be paid by Google and non-Google
Defendants would be subject to a cap in the amount of $28.5 million.99 The royalty cap has as a
basis the value attributable to a license to Overture patents in Google’s agreement with Overture,
and other value indicators relating to the patents-in-suit close to the time of the November 2012
hypothetical negotiation.

In light of the many changed circumstances since the 2004

hypothetical negotiation that was the subject of the jury verdict, a 0.5% royalty rate, subject to a
$28.5 million royalty cap, represents a conservative determination of the ongoing royalty rate
that Google and I/P Engine would have agreed to in November 2012 (until the expiration of the
patents-in-suit on April 4, 2016 or until another design around option could be implemented).
99

Should the Court determine that there is no double counting in the jury damages award, the
outcome of the November 2012 hypothetical negotiation would be a royalty rate of no more than
0.9% to be applied to an apportioned royalty base of 20.9% of the accused advertising revenues,
subject to a royalty cap of $28.5 million.
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V.

Evaluation of Dr. Becker’s Ongoing Royalty Opinion
58.

Dr. Becker opined that during a November 2012 hypothetical negotiation Google

and I/P Engine would have agreed to a 5% running royalty applied to a royalty base of 20.9% of
Google’s revenues from AdWords, AdSense for Search, and AdSense for Mobile Search.100 Dr.
Becker failed to acknowledge the following important changes in the circumstances between a
2004 hypothetical negotiation and a 2012 hypothetical negotiation (discussed in greater detail in
the remainder of my declaration).
58.1 Dr. Becker failed to place any weight upon the bidding process in Spring
2011 (i.e., close to the time of the November 2012 hypothetical negotiation) that
resulted in a market-determined value indicator for the Patents-in-Suit of $3.2
million.
58.2 Dr. Becker failed to alter (i.e., decrease) the relative weight that would be
placed upon the Overture agreements, which occurred over seven years prior to
the November 2012 hypothetical negotiation.
58.3 Dr. Becker failed to place any weight upon the incremental improvements
Google made to its advertising systems between 2004 and 2012.
58.4 In the event that Google’s alternative solution is found not to infringe the
patents-in-suit, Dr. Becker failed to appropriately take into consideration the
availability of Google’s alternative design that it had already begun implementing
by the time of the November 2012 hypothetical negotiation. Instead, Dr. Becker
inappropriately concluded that the non-infringing alternatives would not affect the
outcome of the November 2012 hypothetical negotiation.
A. Dr. Becker Failed To Appropriately Consider Changed Circumstances
Between March 2004 And November 2012
59.

Dr. Becker’s claimed royalty rate of 5% is overstated and does not appropriately

take into account the changed circumstances between a March 2004 hypothetical negotiation and
a November 2012 hypothetical negotiation.
60.

Certain value indicators that occurred after the March 2004 hypothetical

negotiation would have occurred prior to the November 2012 hypothetical negotiation (i.e., ex100

Becker Ongoing Royalties Report, p. 8.
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post indicators of value have become ex-ante indicators of value). These value indicators
include: (a) the purchase of the patent family that includes the patents-in-suit by I/P Engine for
$3.2 million in June 2011; 101 (b) the bidding process for the patent family that included the
patents-in-suit in Spring 2011 whereby Mr. Staykov made a final offer of $2.5 million, Altitude
Capital Partners made a final offer of $3.0 million, and Hudson Bay Capital (on behalf of Smart
Search Labs) made a final offer of $3.2 million;102 (c) Altitude’s highest offer to purchase Lycos’
entire patent portfolio, which included the patents-in-suit, for $4 million in February 2009;103 and
(d) Google’s patent purchase agreement with Carl Meyer relating to comparable patents for
$3.55 million in December 2008.104
61.

Dr. Becker also does not account for I/P Engine’s license agreement with

Microsoft. That agreement was executed within months of the date of the 2012 hypothetical
negotiation and is with Google’s largest competitor in the search advertising industry. I/P
Engine, as a party to that agreement, is in the best position to determine the value of the
consideration Microsoft provided in exchange for a license to the patents-in-suit, including the
value of the Microsoft patents transferred. Yet, Dr. Becker does not state that he has made any
inquiry into this agreement or whether a royalty rate can be derived from the agreement.
62.

Given the closer proximity in time between a November 2012 hypothetical

negotiation and (a) probative agreements relating to the patents-in-suit (e.g., Lycos’ sale of the
patent family including the patents-in-suit to Smart Search Labs) or (b) probative agreements for
comparable technology (e.g., the Google/Carl Meyer agreement), relatively more weight would

101

DX-019.

102

Kammerud Decl., Ex. 23, pp. 122-37; Kammerud Decl., Exs. 7, 8.

103

Exhibit 1 (Ugone Report), p. 41; Kammerud Decl., Ex. 21.

104

DX-090.
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be placed upon these agreements by negotiators than the Overture license agreements presented
by Dr. Becker (and which Dr. Becker used as a foundation for his March 2004 hypothetical
negotiation opinions).
63.

The Overture license agreements are not relevant to a November 2012

hypothetical negotiation for multiple reasons.
63.1 First, the agreements were executed over seven years prior to the 2012
hypothetical negotiation. Dr. Becker testified at trial that he did not believe the
2008 Carl Meyer license was probative of the 2004 hypothetical negotiation
because the four-year difference rendered it “temporally removed from 2004.” 105
Under Dr. Becker’s own reasoning, the 2005 Overture licenses are even more
temporally removed from the 2012 negotiation.
63.2 Second, the Overture licenses did not involve the patents-in-suit, unlike
the other more probative transactions involving the patents-in-suit (e.g., Lycos’
sale of the patent family including the patents-in-suit to Smart Search Labs). All
things being equal, a real-world transaction involving the patents-in-suit (such as
Lycos’ sale of the patents-in-suit) is more probative of the value of the patents-insuit than a transaction involving unrelated patents (such as the Overture licenses).
63.3 Third, I understand that the Overture patents are not technologically
comparable to the patents-in-suit. I/P Engine’s technical expert testified at trial
that they were comparable only “in the general sense.”106 Both I/P Engine’s and
Defendants’ technical expert testified about differences between Overture’s ’361
patent and the patents-in-suit.107 As discussed above, it was undisputed at trial
that the Overture license agreements relate to seminal technologies that are
significantly more valuable than the technology covered by the patents-in-suit.
Google would be aware of the seminal value of the Overture patents because
Google executed a settlement license agreement with Overture relating to these
patents.
63.4 Fourth, the Overture licenses provide rights to a portfolio of patents and
applications in addition to the seminal ’361 patent. All three licenses include
rights to U.S. Patent 6,078,866, and the

105

Trial Tr. 837.

106

Trial Tr., p. 630.

107

Trial Tr., pp. 716-717, 1277-1278.
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63.5 Fifth, the Overture licensees were not similarly situated to Google. In
2012, Google was a global technology leader. The Overture licensees either
provided only
The contributions of the licensees
in these three Overture agreements would not be representative of Google's
contributions to the success of the accused functionalities that would be discussed
during a negotiation with I/P Engine in 2012.
63.6 Sixth, Overture was a leader in paid search when it executed the license
agreements relied upon by Dr. Becker and was practicing its patents. 110 I/P
Engine, on the other hand, has not contended that it has ever practiced the patentsin-suit.
64.

Therefore, the Overture licenses (which did not concern the patents-in-suit, did

not involve either Google or I/P Engine, and occurred seven years prior to a November 2012
hypothetical negotiation) are not as probative to the outcome of the November 2012 hypothetical
negotiation as (a) the actual sale price of the patents-in-suit and (b) the Carl Meyer agreement
with Google.
65.

Dr. Becker opined that an ongoing royalty payment for the patents-in-suit would

be at the upper bound of the royalty rates contained in the Overture license agreements (i.e., 5%).
However, the significant differences between Overture’s technologies and the technology
covered by the patents-in-suit render such a high royalty rate assessment unreasonable. Given
the seminal nature of the Overture patents, the larger number of patents included in the Overture
agreements, and Overture’s proven success in commercializing the Overture patents, a
significant downward adjustment would need to be made to the royalty rate range in the Overture
license agreements in deriving a reasonable ongoing royalty rate for the patents-in-suit.
108

PDX080; PX184; PX185; PX424.

109

PX184; PX185; PX424.

110

Trial Tr., pp. 888-89.
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66.

Under Dr. Becker’s methodology of using the Overture licenses as a benchmark

for the claimed royalty rate, Dr. Becker failed to place weight upon the agreement between
Overture and Google. As stated above, Google and its third-party valuation consultant placed
the value of the license to Overture’s ’361 patent portfolio at $28.5 million. Following Dr.
Becker’s assumption that the Overture licenses are probative of the outcome of the hypothetical
negotiation, Google’s aggregate royalty payment would not exceed $28.5 million.
67.

In addition, the bidding process relating to Lycos’ sale of the patents-in-suit

reflect the market value of the patents. Dr. Becker claims that in contrast to I/P Engine and its
parent company, Vringo, which are “sophisticated licensors,”111 Lycos’ parent company in 2004
(i.e., Terra) “was unaware and uninterested in the value of Lycos’ patent portfolio.” 112 Dr.
Becker failed to acknowledge that just prior to the November 2012 hypothetical negotiation,
there was a bidding process for the patents among three parties (i.e., Mr. Staykov, Altitude, and
Hudson Bay Capital). After Mr. Staykov contacted Lycos to express an interest in purchasing
the patent family that included the patents-in-suit, Lycos proactively sought other bidders for this
patent family. From an economic perspective, through the bidding process in Spring 2011, the
value of the patent family increased to its market value. The purchase price that resulted from
111

I understand that I/P Engine is owned by Vringo, Inc. On November 6, 2012, the date of the
jury verdict, shares of Vringo’s stock sold for $3.57 per share and that there were 81.89 million
shares outstanding – giving the company a market capitalization of approximately $292 million.
I therefore do agree that both Vringo and Google, as well as Lycos, were sophisticated business
entities having sophisticated business personnel that could serve as prudent negotiators.
112

Becker Ongoing Royalties Report, p. 4. Mr. Blais’ deposition testimony, which Dr. Becker
cited, does not support Dr. Becker’s assertion that “Terra was unaware and uninterested in the
value of Lycos’ patent portfolio.” Mr. Blais testified that he did not have knowledge of the
negotiations relating to Terra’s purchase of Lycos and Terra’s subsequent sale of Lycos to
Daum. Mr. Blais testified that he did not know whether the parties discussed the patents-in-suit
during these negotiations. (Kammerud Decl., Ex. 23, p. 30 (“Q: Do you know anything at all
about the negotiations related to Terra’s purchase of Lycos? A: No. Q: Is it relatedly – do you
have any knowledge as to whether the parties discussed the ’420 patent in connection with the
purchase? A: No. Q: Or the ’664 patent? A: No. ”).
35
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this bidding process (i.e., $3.2 million lump-sum amount) reflected the market’s assessment of
the patent family that included the patents-in-suit. The result of this bidding process (i.e., a $3.2
million lump-sum purchase price) is of particular relevance to a November 2012 hypothetical
negotiation given that it occurred close in time to the November 2012 hypothetical negotiation
and is directly related to the patents-in-suit.
68.

Abstracting away from the above discussion relating to patent licenses and patent

sales that provide guidance to an ongoing royalty rate, Dr. Becker claims that the royalty rate of
3.5% awarded by the jury “is a reasonable starting point for the November 2012 negotiation.”113
However, Dr. Becker makes no attempt to reconcile the royalty rate of 3.5% with an
apportionment percentage of 20.9%, given the damages amounts awarded by the jury. The
aggregate damages award by the jury against all Defendants (i.e., $30.5 million) is only 26% of
the claimed damages calculated by Dr. Becker using a 3.5% royalty rate and a 20.9%
apportionment for the September 15, 2011 – September 30, 2012 time period (i.e., $118
million114). This demonstrates that the jury did not use both a 3.5% royalty rate and a 20.9%
apportionment in arriving at the total damages award of $30.5 million. Dr. Becker does not
acknowledge that if a 20.9% apportionment percentage has to be applied (as instructed by the
Court), the royalty rate applicable to the jury award would be significantly less than 3.5%.
69.

In light of the above discussion, the royalty damages demanded by I/P Engine for

the post-judgment period fails a reasonableness test. For illustrative purposes, based upon Dr.
Becker’s claimed royalty rate of 5% and a royalty base apportionment percentage of 20.9%, I/P
Engine’s claimed royalty damages against all Defendants for a one-year period subsequent to the

113

Becker Ongoing Royalties Report, p. 4.

114

PDX-441.
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November 2012 hypothetical negotiation amount to over

.115 In comparison, (1)

the jury awarded damages against Google, AOL, IAC, Target, and Gannett totaling $30.5 million
for the claimed infringement period of September 15, 2011 through September 30, 2012 (also a
one-year period) and (2) as of November 2012, the entire market capitalization of Vringo (owner
of I/P Engine) was only $292 million. Thus, the royalty payments that would result from Dr.
Becker’s methodology are out of proportion with the jury’s verdict and appear to be out of
proportion to the real-world value of I/P Engine and its parent corporation.
70.

Dr. Becker claims that because there was no existing business relationship

between I/P Engine and Google (as existed in the case of Lycos and Google), there would be
upward pressure on the reasonable royalty rate relative to the royalty rate resulting from a 2004
hypothetical negotiation.116 This argument is flawed. Although I/P Engine did not (and does
not) have an existing business relationship with Google, I/P Engine would view Google as an
attractive licensee given Google’s strong brand name, Google’s commercial success, and I/P
Engine’s desire to monetize the patents-in-suit. Given that licensing is I/P Engine’s entire
business model, I/P Engine would have had strong incentives to grant a license to Google.
71.

An additional consideration that Dr. Becker failed to take into account in his

report is the relative contribution of Google to the commercial success of Google’s advertising
systems. As mentioned earlier in my declaration and as discussed in the Ugone Report, Google
makes many ongoing contributions to its advertising systems.

Therefore, the relative

contribution of the patents-in-suit to the commercial success of Google’s accused advertising
systems would diminish over time given Google’s continuous contributions and updating of
115

The revenue figure used in this calculation (i.e.,
) is obtained by
over the January 1, 2012 – November 20, 2012 time period (i.e.,
assuming no growth in revenue).

116

Becker Ongoing Royalties Report, p. 7.
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features (with the eventual removal of the accused filtering functionality in 2012 and 2013).
This observation is independent of the Court’s ruling that 20.9% of the accused revenues form
the royalty base.

This observation is dependent upon Google’s brand name, research and

development, marketing, and other considerations that have led to Google’s increasing
commercial success and increasing advertising revenues overtime.
B.

Dr. Becker Failed To Appropriately Consider Google’s Non-Infringing
Alternative

72.

In the Becker Ongoing Royalties Report, Dr. Becker opined that Google’s

implementation of a non-infringing alternative to the patents-in-suit “would not change the
outcome of the hypothetical negotiation between I/P Engine and Google.” 117 Dr. Becker’s
opinion that Google’s non-infringing alternative has no impact on the determination of an
ongoing royalty rate runs counter to the Court’s determination that “the ease and availability of
non-infringing alternatives has some relevance to the question of an ongoing royalty.”118
73.

As support for his opinion, Dr. Becker stated that if I/P Engine was aware that

Google’s systems would not infringe the patents-in-suit as of May 2013, it was “only
economically reasonable” that I/P Engine would “raise the [ongoing] rate.”119 However, Dr.
Becker’s opinion is flawed.

Generally, the existence of non-infringing alternatives places

downward pressure on a to-be-agreed-upon royalty rate. It is my understanding that prior to the
November 2012 hypothetical negotiation, Google was in the process of implementing its
alternative solution and that some of the infringing features (i.e., QBB disabling) were removed
from AdWords as of the November 2012 hypothetical negotiation.

I also understand that

117

Becker Ongoing Royalties Report, p. 7.

118

D.N. 963, p. 8.

119

Becker Ongoing Royalties Report, p. 8. (Bracketed text added for clarification.)
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Google’s motivation for implementing the alternative solution was for business reasons unrelated
to this lawsuit.120 Therefore, it is reasonable to assume that, if faced with the prospect of paying
an unreasonably high ongoing royalty rate for the six-month period from November 20, 2012 to
May 11, 2013, Google would have accelerated the implementation of its non-infringing
alternative. As discussed above, I have been advised that Google could have accelerated the
removal of the Accused Functionality at a low cost. Dr. Becker does not acknowledge this
incentive to Google in his report. Under such conditions, a demand by I/P Engine for an even
higher royalty payment would further accelerate Google’s implementation of its non-infringing
alternative.
74.

In addition, as previously mentioned, I/P Engine and Google would be aware of

the value indicators of the patents-in-suit (e.g., the $3.2 million purchase price of the patent
family including the patents-in-suit) and the declining relative importance of the patents-in-suit
to Google’s products. These considerations would further increase Google’s unwillingness to
pay an unreasonably high ongoing royalty rate, thereby exerting downward pressure on the tobe-agreed-upon royalty rate. Dr. Becker’s claimed ongoing royalty rate opinion for a November
2012 hypothetical negotiation does not take these changed circumstances into account.
I declare under penalty of perjury that the foregoing is true and correct.

____________________
Keith R. Ugone, Ph.D.
October 28, 2013

120

Furrow Declaration; Furrow Deposition, pp. 65 & 122.
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Exhibit 1

Exhibit 2

CONFIDENTIAL OUTSIDE COUNSEL ONLY

Supplemental Facts, Data, and Other Information Received
Description

Bates Prefix

Start

End

Legal Documents
I/P Engine, Inc.'s Motion for Leave to File Corrected Reply In Support of Its Motion for An Award of Post Judgment Royalties
I/P Engine, Inc.'s Reply in Support of Its Motion for an Award of Post-Judgment Royalties filed May 20, 2013
I/P Engine, Inc.'s Reply in Support of its Motion for An Award of Post-Judgment Royalties filed May 23, 2013
Memorandum in Support of Plaintiff I/P Engine, Inc.'s Motion for An Award of Post-Judgment Royalties
Memorandum Opinion and Order
Opposition to Plaintiff's Motion for Post-Judgment Royalties
Plaintiff I/P Engine, Inc.'s Motion for An Award of Post-Judgment Royalties

Deposition Transcripts and Associated Exhibits
Deposition of Bartholomew Furrow taken September 20, 2013

Declarations
Declaration of Bartholomew Furrow dated May 11, 2013
Declaration of Brian Kuethe in Support of Defendants' Opposition to Plaintiff's Motion for An Award of Post-Judgment Royalties
Declaration of Keith R. Ugone, Ph.D. on Post-Judgment Royalties dated May 13, 2013
Declaration of Stephen L. Becker, Ph.D. regarding Ongoing Royalties dated December 18, 2012 and Associated Documentation

Expert Reports and Associated Documentation
Expert Report of Ophir Frieder concerning New AdWords Being No More Than A Colorable Variation of Old AdWords
Report of Stephen L. Becker, Ph.D. regarding Ongoing Royalties dated September 25, 2013

Documents Produced by Google
Whole Page… Auction? Presentation

G-IPE

0892256

0892293

Whole Page Google Presentation dated February 13, 2012

G-IPE

0892294

0892332

State of the Auction Google Presentation dated March 19, 2012

G-IPE

0892333

0892353

Whole Page Auction dated May 31, 2013 (https://sites.google.com)

G-IPE

0892354

0892354

Whole Page Auction Decision Tree Design

G-IPE

0892355

0892364

Whole Page Auction Design Doc

G-IPE

0892365

0892372

Ad Format Selection (Whole Page Auction Part I)

G-IPE

0892373

0892380

Auction Code Main Ideas and Example Trees

G-IPE

0892381

0892383

CONFIDENTIAL OUTSIDE COUNSEL ONLY

Page 1 of 3

Supplemental Facts, Data, and Other Information Received
Description

Bates Prefix

Start

End

Pre-Auction Selection of New Ad Formats

G-IPE

0892384

0892386

QBB Min CPC Curves in Serving

G-IPE

0892387

0892399

QBB Off Launch Doc (Http://launchtool.corp.google.com)

G-IPE

0892400

0892405

QBB Min CPC Curves in Serving by David Arthur and Derek Cook

G-IPE

0892406

0892417

QBB Off Launch Doc (Http:launchtool.corp.google.com)

G-IPE

0892418

0892421

Per-Position Auction Rollout

G-IPE

0892422

0892425

Positioning Pctr and Impression Costs Within Per Position Auctions

G-IPE

0892426

0892428

83207 Remove QBBs Role in Filtering and Pricing dated November 5, 2012

G-IPE

0892429

0892435

About the Help Center (https://Support.google.com/adwowrds/answer/3094231)

G-IPE

0892436

0892437

House Ads Code Update + Top/Rhs Auction Refactor (https://ariane.googleplex.com)

G-IPE

0901992

0901992

105391 House Ads Code Update + Top/Rhs Auction Refactor dated May 11, 2013

G-IPE

0901993

0901994

Critique Code Reviews "Store QBB Status on the Keyword Server AGC Replies"

G-IPE

0901995

0901995

Critique Code Reviews "Add Back Flag That Allows Us to do Qbb Filtering in Admixer"

G-IPE

0901996

0901996

Critique Code Reviews "Decouple Creative Rotation from Threshold Checks"

G-IPE

0901997

0901997

Critique Code Reviews "Deprecated Qbb to Mixer Compatibility Mode"

G-IPE

0901998

0901998

Critique Code Reviews "Move Customer Sorting Before Disabling. Two Subtleties"

G-IPE

0901999

0901999

Critique Code Reviews "Do Not Apply XBT to Low Quality Ads"

G-IPE

0902000

0902000

Critique Code Reviews "Remove Disable Low Quality Ads Logic for Filtering if Drop Early Threshold Check is True"

G-IPE

0902001

0902001

Critique Code Reviews "Make New Customer Sorting Function Aware of Upcoming Bottom Auction"

G-IPE

0902002

0902002

Critique Code Reviews "Support Keywordless in Drop Early Threshold Check Mode. This Removes All Keywordless Diffs in Regtest"

G-IPE

0902003

0902003

Critique Code Reviews "Remove the Qbb Status from Ad Serving Binaries"

G-IPE

0902004

0902005

Critique Code Reviews "Support for Removing Pre-Auction Thresholding"

G-IPE

0902006

0902007

Critique Code Reviews "No Thresholding Pre-Auction: Finishing Touches"

G-IPE

0902008

0902008

Critique Code Reviews "Adds An Experiment Flag to Cap Bids for House Ads in the Top Slot Only"

G-IPE

0902009

0902010

Critique Code Reviews "Launches Promotion/Disabling Refactoring. Actually Takes it to 100%. Then I'll Flip the Flag, Then I'll Delete the
Experiment"

G-IPE

0902011

0902011

Critique Code Reviews "Wrap Auction Candidate into AuctionDecisionData, So During the Auction, We Keep AuctionCandidate Constant. As
A Result, We Can Run Auction as a Library"

G-IPE

0902012

0902015

Critique Code Reviews "Remove the Launched Per-Position Flags, and Refactor the Auctioneer a Bit in This Brave New World"

G-IPE

0902016

0902017

CONFIDENTIAL OUTSIDE COUNSEL ONLY

Page 2 of 3

Supplemental Facts, Data, and Other Information Received
Description

Bates Prefix

Start

End

Critique Code Reviews "For Eliminating "Peninsular Ads" Pull the Correct Number of RHS PLA Ads That Takes Current Trumping Logic and
Scenario Selection Into Consideration"

G-IPE

0902018

0902019

Critique Code Reviews "Launch Positioned Pctr on Google (Mobile, Desktop, and Tablet). Tune for Desktop and Tablet as Follows: Multiply
Top Impression Weight and Top Good Impression Weight by 1.0045. Multiply RHS and BTM CTR and Good-CTR Weights by 0.85. No
Tuning for Mobile"

G-IPE

0902020

0902021

Critique Code Reviews "Remove the Deprecated Drop Early Threshold Check, Since This Feature Has Launched Everywhere"

G-IPE

0902022

0902022

Critique Code Reviews "Add Serving Support for Exp Flag QBB to Mixer Compatibility Mode. This Allows Us to Score As Many Ads As If
This Were True QBBless but Without Changing Behavior"

G-IPE

0902023

0902024

Critique Code Reviews "Move Min-Billable Unit Check Out of Initialization and Into Filtering Step Within Strategy-Mixer"

G-IPE

0902025

0902025

Critique Code Reviews "Do No Log QBB -> Mixer Ads That Survived to the Mixer Only Because of This Change. This Includes Both Normal
Ads and BC Ads That Were Rejected In Creative Server"

G-IPE

0902026

0902027

Critique Code Reviews "Delete Three Multi-Rejection Tests"

G-IPE

0902028

0902028

Critique Code Reviews "Finalize QBB -> Mixer.

G-IPE

0902029

0902029

Critique Code Reviews "Changes to Limits on Templog Sizes"

G-IPE

0902030

0902031

Critique Code Reviews "Launch Curve 123 to Google.com + Modes"

G-IPE

0902032

0902032

Critique Code Reviews "YJ Ringo: Launch and Create a Holdback"

G-IPE

0902033

0902034

Critique Code Reviews "Remove Special Checks for QBB Disabling in the Admixer. Just Always Do It for All Ads"

G-IPE

0902035

0902036

Critique Code Reviews "Add Support for Alternate Whole Page Auction Mixer Control Flow"

G-IPE

0902037

0902037

Critique Code Reviews "Launch QBB minCPC Off for AFS and Mobile With The New QBB Model, Gundam"

G-IPE

0902038

0902038

Critique Code Reviews " Launch Curve 123 to PYV"

G-IPE

0902039

0902039

Critique Code Reviews "Remove QBB MinCPCs from Keyword Server"

G-IPE

0902040

0902040

Critique Code Reviews "Launch Whole Page Auction Mixer Flow"

G-IPE

0902041

0902041

Critique Code Reviews "Merge Filter and Score Creatives and Auction in Admixer-Control-Flow"

G-IPE

0902042

0902043

Critique Code Reviews "Remove QBB MinCPCs from Keyword Search"

G-IPE

0902044

0902047

Critique Code Reviews "Delete Unused Low-Ctr Filtering Logic"

G-IPE

0902048

0902048

CONFIDENTIAL OUTSIDE COUNSEL ONLY

Page 3 of 3

Exhibit 3

CONFIDENTIAL OUTSIDE COUNSEL ONLY

Effective Royalty Rate Based Upon Jury Damages Award Amount And A 20.9% Apportionment Percentage

Estimated Claimed Damages From 9/15/2011 - 9/30/2012
(Based Upon a 3.5% Royalty Rate and 20.9% Apportionment)

[A]

I/P Engine's Claimed Royalty Rate

[B]

Jury Damages Award - Google

[D]

Effective Royalty Rate Based Upon Jury Damages Award Amount And A
20.9% Apportionment Percentage

[E] = [D]/[C]

CONFIDENTIAL OUTSIDE COUNSEL ONLY

$118,000,000

3.5%

$15,800,000
0.5%

Estimated Claimed Damages
September 15, 2011 - Q3 2012

Q3 2011
Estimated Claimed Damages
From PDX 441
Portion of Period
Estimated Claimed Damages
Beginning September 15,
2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Total

$24,500,000

$28,000,000

$27,900,000

$29,000,000

$29,200,000

0.17

1.00

1.00

1.00

1.00

$4,260,870

$28,000,000

$27,900,000

$29,000,000

$29,200,000

CONFIDENTIAL OUTSIDE COUNSEL ONLY

$138,600,000

$118,360,870