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

Filing 1028

Memorandum Opening Brief on Post-Judgment Royalties filed by I/P Engine, Inc.. (Attachments: # 1 Declaration of Dr. Ophir Frieder, # 2 Declaration of Dr. Stephen Becker)(Sherwood, Jeffrey)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION
__________________________________________
)
I/P ENGINE, INC.,
)
)
Plaintiff,
)
v.
)
Civil Action No. 2:11-cv-512
)
AOL, INC. et al.,
)
)
Defendants.
)
__________________________________________)
I/P ENGINE, INC.’S OPENING BRIEF ON POST-JUDGMENT ROYALTIES
I/P Engine is entitled to post-judgment royalties in the form of an ongoing royalty using a
royalty base of 20.9% of U.S. AdWords revenues. D.I. 963 at 6. Those royalties are owed to I/P
Engine from the date of judgment through at least May 11, 2013. See id. at 7. The royalty rate
should be 7% based on a 2012 hypothetically negotiated post-judgment rate of 5%, and then
enhanced for Defendants’ continued willful infringement.
After May 11, the date when Google allegedly modified the infringing system (“New
AdWords”), this Court must determine whether New AdWords is no more than a colorable
variation of the adjudged infringing system (“Old AdWords”), and if so, whether New AdWords
still infringes the patents-in-suit.1 TiVo Inc. v. Echostar Corp., 646 F.3d 869, 880-81 (Fed. Cir.
2011) (en banc). The evidence shows that New AdWords contains the same functionality that
was found to infringe in Old AdWords: filtering out low quality ads on the basis of pCTR.
Google argues that it
. But that difference constitutes no more than a colorable variation

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I/P Engine understands from this Court’s August 14 Order and the parties’ communications
with this Court’s clerk that this filing is limited to 15 pages, including all supporting evidence.

because the claims do not require a specific point in time when the filtering must occur. Because
the modification kept the infringing functionality—filtering out low quality ads on the basis of
pCTR—New AdWords continues to infringe, and royalties thus remain ongoing.
I.

THE MODIFIED GEORGIA-PACIFIC ANALYSIS RESULTS IN A ROYALTY
OF 5% AND THE READ FACTORS REQUIRE ENHANCEMENT TO 7%
This Court should increase the jury’s determined royalty rate (3.5%) based on the

changed circumstances of the parties post-judgment under a modified Georgia-Pacific analysis,
and then enhance that rate due to Defendants’ willful infringement. See e.g., Mondis Tech. Ltd.
v. Chimei InnoLux Corp., 822 F. Supp. 2d 639 (E.D. Tex. 2011) (GP analysis increased jury rate
from 0.5% to 0.75%; Read analysis doubling rate to 1.5%); Affinity Labs of Tex., LLC v. BMW N.
Am., LLC, 783 F. Supp. 2d 891 (E.D. Tex. 2011) (GP analysis, $11 base rate; Read analysis
increased rate to $14.50); see also Creative Internet Advertising Corp. v. Yahoo! Inc., 674 F.
Supp. 2d 847, 861 (E.D. Tex. 2009) (GP analysis increased jury’s rate from 20% to 23%).
A.

Under A Modified Georgia-Pacific Analysis, A Rate Of 5% Is Appropriate

Courts routinely use the jury’s “royalty rate [as] a starting point for determining the
ongoing post-judgment royalty rate.” Soverain Software LLC v. J.C. Penney Corp., Inc., 899 F.
Supp. 2d 574, 589 (E.D. Tex. 2012) (citations omitted); see also Creative Internet, 674 F. Supp.
2d at 861. Here, that starting point is 3.5%. D.I. 789 at 11. Courts also routinely increase the
jury’s rate based on the changed circumstances of the parties post-judgment. Creative Internet,
674 F. Supp. 2d at 861. Here, the following four changed circumstances weigh in favor of this
Court adjusting upward the jury’s rate to 5%. See id.; Becker Decl. ¶¶ 3-7.
The Parties’ Changed Legal Status. Because Defendants are adjudged infringers of I/P
Engine’s valid patents, I/P Engine’s bargaining position is stronger. See Becker Decl. ¶ 4; see

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Creative Internet, 674 F. Supp. 2d at 861 (“a jury verdict” affects “the parties’ bargaining
position”). This supports an upward adjustment of the rate.
The Negotiating Parties are Different. In 2012, I/P Engine owned the patents-in-suit and,
unlike Lycos, enforces and licenses its patents. Becker Decl. ¶ 5. I/P Engine is also financially
sound giving it a much stronger bargaining position. Id. This supports the upward adjustment.
The Negotiation Date is Different. In 2012, unlike in 2004, AdWords’ revenue impact
was not an expectation; it was known, well documented and significant. Id. at ¶ 6; see also PX228; PX-32; PX-34; PX-337; PX-64, slide 38. This warrants an increase of the jury’s rate.
Becker Decl. ¶ 6; see Mondis Tech, 822 F. Supp. 2d at 648 (finding commercial success after the
original hypothetical negotiation warranted an increase of the jury’s rate).
The Applicable Comparable Rates are Different. At trial, Dr. Becker presented
“discounted” rates from the Overture license agreements because a business relationship existed
between Lycos and Google during the 2004 hypothetical negotiation. See Trial Tr. 842:2843:23. No such business relationship, however, would exist in the 2012 hypothetical
negotiation between I/P Engine and Google. Becker Decl. ¶ 7. So the comparable rates in 2012
would be
B.

. Id. This also supports the upward adjustment.
The Negotiated Post-Judgment Rate of 5% Should Be Enhanced To 7%

“Once judgment is entered, ongoing infringement by the adjudged infringer is willful.”
Paice LLC v. Toyota Motor Corp., 609 F. Supp. 2d 620, 626 (E.D. Tex. 2009); see also Amado v.
Microsoft Corp., 517 F.3d 1353, 1362 (Fed. Cir. 2008); Affinity Labs, 783 F. Supp. 2d at 899;
Soverain Software LLC v. Newegg Inc., 836 F. Supp. 2d 462, 483 (E.D. Tex. 2010) (reversed on
other grounds). Hence, without dispute, Defendants’ continued use of AdWords was and is
willful. Under the relevant Read factors, described below, an enhancement to 7% is proper.

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Factors 2 and 5 (Good Faith Non-Infringement/Invalidity Belief and Closeness of Case).
Neither (1) a pending appeal nor reexamination, (2) a good-faith belief of non-infringement or
invalidity, nor (3) “closeness” of the case militates away from enhancement. See Mondis Tech.,
822 F. Supp. 2d at 649 (finding “no reason to discount the royalty base based on the possible
outcome of an appeal” (internal citation omitted)); J.C. Penney, 899 F. Supp. 2d at 589 (factors 2
and 5 “strongly favor enhancement” as defendants are adjudged infringers of valid patents);
Affinity Labs, 783 F. Supp. 2d at 902-03 (finding post-judgment, no good faith belief of
invalidity, non-infringement or close case; this exerts an upward influence on the enhancement).
Factor 4 (Defendants’ Size and Financial Condition). In this case, enhancement will not
unduly prejudice Google’s non-infringing business. See Krippelz v. Ford Motor Co., 670 F.
Supp. 2d 815, 822-23 (N.D. Ill. 2009). With a $301.42 billion market cap, Google can easily
carry on its business despite an ongoing royalty of 7% until the patents-in-suit expire (in 2016).
Factor 7 (Defendant’s Remedial Actions). At trial, Google offered three non-infringing
alternatives that it told the jury were easy to implement at minimal cost. Trial Tr. at 1470:9-19;
D.I. 1005, Ex. 6, ¶ 21. After trial, Google implemented a fourth alternative (New AdWords) that
was not available until after the 2012 hypothetical negotiation date. See Furrow Decl. ¶¶ 1-8.
Google took no meaningful remedial action until after the 2012 negotiation date and misled the
jury about the first three alternatives. This supports enhancement. Moreover, the law supports
enhancement in cases of an alleged design around. Affinity Labs, 783 F. Supp. 2d at 904.
II.

NEW ADWORDS IS NO MORE THAN A COLORABLE VARIATION FROM
OLD ADWORDS AND STILL INFRINGES
Ongoing royalties should continue after the implementation of New AdWords because

the modified features of New AdWords are no more than a colorable variation of the adjudged

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A.

The Purported Modifications To New AdWords

Old AdWords filtered out low quality ads using a
. D.I. 945, Furrow Decl. ¶¶ 10-11. Specifically,
Id. at ¶ 11.

Id.

Furrow Trial Tr. at 1085:11-19.
Filtering ads to ensure quality standards was a central theory of I/P Engine’s case. See
Trial Tr. 612:6-18 (Dr. Frieder testifying that Mixer Disabling “eliminates low quality ads.”);
Trial Tr. 618:11-15 (Dr. Frieder testifying that the three filtering steps are “taking away bad
ads.”); Trial. Tr. 1067:5-6 (Google’s representative testifying that disabling means “finding ads
that we don’t want to show”); Trial Tr. 667:2-3 (Google’s Chief Economist stating that low
quality ads do not get shown to users).
In New AdWords, Google still maintains its quality standards by filtering out low quality
ads. Frieder Decl. ¶¶ 6-8. Google does so in the exact same way that it did in Old AdWords:

Id.; SC-G-IPE-0000274.

Frieder Decl. ¶¶ 6-8. The
filtering functionality in New AdWords achieves the same result as the Old AdWords filtering
functionality—
:

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Furrow Dep. Tr. 85:10-19 (emphasis added). In both systems, filtering is a comparison of an
ad’s LTV score to a threshold of zero and ads below the threshold are not shown to the user.
B.

New Adwords’s “Filtering” is No More Than Colorably Different From The
Adjudged Infringing “Filtering” Of Old AdWords

New AdWords’ “filtering” functionality is no more than a colorable variation of Old
AdWords. Frieder Decl. ¶¶ 2-5. Both the old and new systems filter out low quality candidate
ads. Id.
Id. The old and new systems are so similar that Google’s own
description of the filtering functionality on its AdWords website has not changed—it currently
describes an ad’s “eligibility” based on ad quality score in the exact same terms as the earlier Old
AdWords versions of those documents, which were admitted as evidence at trial. See
https://support.google.com/adwords/answer/2454010?hl=en (visited Oct. 30, 2013).
“Colorable variations” may be analyzed under the function-way-result test. ePlus, Case
No. 3:09-cv-620, 2013 WL 4430912 at *4. If New AdWords’ filtering functionality performs
substantially the same function in substantially the same way to achieve substantially the same
result as Old AdWords’ filtering functionality, it is considered no more than a colorable variation
of those steps. As illustrated below, the functions, ways, and results of the old and new systems
are the same. Frieder Decl., ¶¶ 2-5. Thus, the modification is not a significant difference. Id.

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Frieder Decl., ¶ 2.
Defendants’ expert essentially asserts that when the “filtering” step occurs (pre-auction
versus during the auction) constitutes the significant difference. But, the asserted claims do not
require a specific time when the “filtering” must occur—they only require that the act of
“filtering” occur. If a design change is not relevant to a claim limitation, that change is not more
than a colorable variation. TiVo, 646 F.3d at 882; see also Suntiger, Inc. v. Telebrands Adver.
Corp., 2003 U.S. Dist. LEXIS 26564, at *15-16 (E.D. Va. 2003). Shifting the filtering
functionality from before the auction to during it would not constitute a colorable variation as it
performs the same function in substantially the same way to obtain the same result. Hughes
Aircraft Co. v. U.S., 717 F.2d 1351, 1365 (Fed. Cir. 1983) (finding a change to an accused
product’s ability to provide an indication in “real time” versus a “delayed” response does not
establish that the accused product does not perform the same function in substantially the same
way to obtain the same result).
C.

New AdWords Still Infringes The Asserted Claims

It is undisputed that it uses the same content and collaborative data, and combines them
in the same way

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Frieder Decl. ¶¶ 6-8.

Id.
Because Google did not alter the infringing functionality in a way that affects the patent
claims, it still infringes them. KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 152829 (Fed. Cir. 1985) (Federal Circuit has explained that “[i]t may, in some cases only be
necessary to determine that the modified device has not been changed from the adjudged device
in a way which affects an element of a claim.”) (overruled on other grounds); Brine, Inc. v. STX,
L.L.C., 367 F. Supp. 2d 61, 68 (D. Mass. 2005). This is true for both literal infringement and the
doctrine of equivalents because, as noted above, they perform substantially the same function, in
substantially the same way, to yield substantially the same result.

Dated: October 30, 2013

By: /s/ Jeffrey K. Sherwood

Donald C. Schultz (Virginia Bar No. 30531)
W. Ryan Snow (Virginia Bar No. 47423)
CRENSHAW, WARE & MARTIN PLC
150 West Main Street
Norfolk, VA 23510
Telephone:
[phone]
Facsimile:
[phone]

Jeffrey K. Sherwood (Virginia Bar No. 19222)
Frank C. Cimino, Jr.
Kenneth W. Brothers
Dawn Rudenko
Charles J. Monterio, Jr.
Jonathan Falkler
DICKSTEIN SHAPIRO LLP
1825 Eye Street, NW
Washington, DC 20006
Telephone:
[phone]
Facsimile:
[phone]
Counsel for Plaintiff I/P Engine, Inc.

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CERTIFICATE OF SERVICE

I certify that on this 30th day of October 2013 I electronically filed the foregoing with the
Clerk of Court using the CM/ECF system, which will send notification to the following:
Stephen Edward Noona
Kaufman & Canoles, P.C.
150 W Main St, Suite 2100
Norfolk, VA 23510
[e-mail]
David Bilsker
David Perlson
Quinn Emanuel Urquhart & Sullivan LLP
50 California Street, 22nd Floor San Francisco, CA 94111
[e-mail]
[e-mail]
Robert L. Burns
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP Two
Freedom Square
11955 Freedom Drive Reston, VA 20190
[e-mail]
Cortney S. Alexander
Finnegan, Henderson, Farabow, Garrett & Dunner, LLP
3500 SunTrust Plaza
303 Peachtree Street, NE Atlanta, GA 94111
[e-mail]

/s/ Jeffrey K. Sherwood