I/P Engine, Inc. v. AOL, Inc. et al
Opposition to 1033 Sealed Document Defendants Opening Brief on Issues in the Courts August 14 Order filed by I/P Engine, Inc.. (Attachments: # 1 Rebuttal Declaration of Dr. Ophir Frieder, Ph.D. in Support of Opposition)(Sherwood, Jeffrey)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
I/P ENGINE, INC.,
AOL INC. et al.,
Civ. Action No. 2:11-cv-512
PLAINTIFF I/P ENGINE, INC.’S OPPOSITION TO DEFENDANTS’
OPENING BRIEF ON ISSUES RAISED IN THE COURT’S AUGUST 14 ORDER
Like Old AdWords, New AdWords filters out low-quality ads based on Quality
Score/Predicted Clickthrough Rate. On this point, both Google’s source code and the testimony
of its own witness, Mr. Bartholomew Furrow, are consistent and undisputed. Because filtering in
New AdWords occurs at a different time than in Old AdWords, Defendants argue that New
AdWords is more than a colorable variation. But, to be more than a colorable variation, the law
requires a difference that impacts at least one claim limitation. None of the differences
Defendants identify, including the timing difference, impact any claim limitation. New
AdWords therefore cannot be more than a colorable variation of Old AdWords as a matter of
Relying on evidence that the jury and Court previously considered and rejected,
Defendants propose a post-judgment royalty rate of 0.5% in disregard of the jury’s explicit
royalty rate finding of 3.5%. Fundamentally, they ignore the parties’ changed circumstances
post-verdict, and that a royalty rate baseline of 3.5% exists as a result of the verdict. Defendants’
proposed rate of 0.5% has no factual or analytic support, and implausibly suggests that the
favorable jury verdict in this case severely weakened I/P Engine’s post-judgment negotiation
position. That suggestion is wrong as a matter of law.
DEFENDANTS PROFFER NOTHING TO ESTABLISH THAT NEW ADWORDS
IS MORE THAN A COLORABLE VARIATION OF OLD ADWORDS: PERPOSITION AUCTIONS PERFORM THE INFRINGING “FILTERING” STEP
New AdWords is no more than a colorable variation of Old AdWords. D.I. 1038.
Defendants’ arguments to the contrary are inconsistent with the record.
Google Merely Moved the Infringing Functionality Within The System
Defendants characterize the changes to New AdWords as the removal of the accused
QBB Disabling, Mixer Disabling, and Promotion Disabling steps. But Google replaced those
Through its designated witness
Mr. Furrow, Google admits that
D.I. 1038, Frieder Decl. ¶ 6; Furrow Dep. Tr. 140:20-141:10. According to Mr. Furrow, the new
filtering functionality (
) achieves the same result of maintaining quality
standards as the old functionality (
Google’s source code comments also confirm that New AdWords simply moved the
filtering functionality found to infringe in Old AdWords. For example, the comments state that
Frieder Rebuttal Decl. ¶ 2. Thus, the comments
themselves demonstrate the change simply merged (or replaced, or moved) the pre-existing
threshold (used for filtering) with the auction. The code does not say such thresholds were
Defendants cite nCube Corp. v. SeaChange Int’l, Inc., 732 F.3d 1346 (Fed. Cir. 2013).
But there, “the defendant redesigned the product and the patentee subsequently claimed that an
entirely different component that performed a different function than what Plaintiff pointed to at
trial nevertheless infringed.” Id. at 1350-51 (emphasis added). Here, per position auctions
perform the same filtering function that I/P Engine asserted that the QBB Disabling, Mixer
Disabling and Promotion steps did at trial:
. D.I. 1038, Frieder Decl.
¶¶ 6-8; SC-G-IPE-0000274; Furrow Dep. Tr. 85:10-19. Unlike nCube, where the defendant
pointed to a different component that performs a different function, I/P Engine points to the
identical function in the source code.
The Timing of Filtering Relative the Auction Is Not Relevant to the Claims
Defendants argue that performing the filtering step during the auction is different than
performing the filtering step before the auction. D.I. 1033 at 7-9.1 But, that timing difference is
irrelevant to the asserted claims—none require any particular timing or sequencing relative to the
auction. And Defendants have failed to identify any specific claim limitation that is relevant to
or impacted by such a timing change.
Following this Court’s Order, I/P Engine submitted 15 pages of briefing and supporting
evidence. Defendants, on the other hand, did not follow that Order, and submitted 15 pages of
briefing without any supporting evidence.
Similarly, the other differences Defendants identified –
– do not in any way relate to or impact asserted claim limitations. As a matter of law,
therefore, these differences cannot rebut I/P Engine’s showing that New AdWords is no more
than a colorable variation of Old AdWords.
The colorably different determination involves “making a comparison between the
original product, the modified product, and the claims.” Creative Internet Adver. Corp. v.
Yahoo! Inc., 674 F. Supp. 2d 847, 855 (E.D. Tex. 2009) (citing TiVo Inc. v. Dish Network Corp.,
640 F. Supp. 2d 853, 863 (E.D. Tex. 2009)) (emphasis added); see also TiVo Inc. v. Echostar
Corp., 646 F.3d 869, 882 (Fed. Cir. 2011) (the analysis must not focus on “randomly chosen
features of the product”). In Creative Internet, the defendant argued that removing a graphical
representation of a check box for a feature made its system colorably different. 674 F. Supp. 2d
at 857. The court, however, correctly noted that “[the asserted claim] does not claim a check
box” and therefore “a comparison between the adjudicated device and the modified device, in
light of the claim language supports that the ‘new’ version of Yahoo Messenger is no more than
a ‘colorable variation’ of the infringing protocol.” Id. at 856, 859. The same is true here – the
claims do not require filtering ads before an auction, nor do they require reducing machine costs.
Even if taken as true, those differences cannot render New AdWords more than a colorable
Instead of citing differences that impact specific claim limitations, Defendants rely upon
selective portions of I/P Engine’s trial statements that describe a benefit achieved by filtering
pre-auction – computational savings – and argues that New AdWords no longer obtains that
benefit. D.I. 1033 at 6. But, computational savings is not a claim limitation. And, I/P Engine
addressed many benefits at trial, including the important benefit of ensuring Google’s quality
standards by removing low quality ads from being shown to the user. See D.I. 1038 at 6. There
is no dispute that this benefit is still achieved by New AdWords’ per-position auction thresholds.
Mr. Furrow admitted it during his deposition. D.I. 1038, Frieder Decl. ¶ 6; Furrow Dep. Tr.
Defendants’ citation to Petter Invs., Inc. v. Hydro Eng’g, Inc., No. 1:07-cv-1033, 2011
WL 2935411 (W.D. Mich. July 18, 2011), is misplaced. There, the court determined that a new
wash pad was significantly different because the new wash pads lacked claimed features. Petter,
2011 WL 2935411, at *7-8. The case does not stand for the proposition that functional
differences unrelated to the claims are relevant. Here, Defendants’ differences are unrelated to
the claims. As a matter of law, they are afforded no weight in the “colorable variation” analysis.
New AdWords “Filters” Ads
Defendants claim that New AdWords does not “filter” ads when
D.I. 1033 at 7-11. First, this argument contradicts
Google’s own documents. The source code function that
. D.I. 1038, Frieder Decl. at ¶ 7 (emphasis added).
Second, Google incorrectly focuses on ad ranking, and ignores ad filtering. In Old
. D.I. 1038 at
6. In New AdWords,
The ranking process in both Old AdWords and New AdWords is irrelevant because it was
and is not accused and does not impact any claim limitation. The filtering functionality in both
cases is exactly the same –
Google uses the same filtering functionality,
Google also claims this process is not “filtering” because it does not consider ads one-byone. D.I. 1033 at 7-11. But, each ad in New AdWords that is considered for display to the user
Defendants’ argument that I/P Engine’s position is inconsistent with I/P Engine’s expert,
Dr. Jamie Carbonell’s description of filtering is unavailing. Dr. Carbonell distinguished the
Bowman prior art because it described only ranking items, not filtering them. Dr. Carbonell
testified that “filtering is done with a fixed criterion, a criterion that does not depend on the other
items, and it does the processing one at a time without comparing one item to another.” Trial Tr.
at 1847:6-9. It is undisputed that New AdWords uses a “fixed criterion, a criterion that does not
depend on the other items” for filtering:
. New AdWords compares each ad
considered for display one-by-one to that
. New AdWords will display no ads if
none of the candidate ads
. D.I. 1038, Frieder
Decl. ¶ 6; Furrow Dep. Tr. 85:9-15. This is filtering – in exactly the same way as all experts
described it at trial.
DEFENDANTS’ POST-JUDGMENT ROYALTY OF 0.5% HAS NO MERIT
The Jury Found The Pre-Judgment Royalty Rate To Be 3.5% And That Is
The Proper Baseline For Post-Judgment Royalties
The jury determined a royalty rate of 3.5% (D.I. 789 at 11), not 0.5% (D.I. 1033 at 11).
That is the starting point for consideration of a post-judgment royalty. Ignoring the jury’s
unambiguous determination, as Defendants must in order to arrive at 0.5%, lacks merit.2
Post-Verdict, I/P Engine Was In A Far Superior Bargaining Position Than
Lycos Was 8 Years Earlier, The Date The Jury Relied Upon In Affixing The
Pre-Judgment Royalty Rate Of 3.5% Warranting An Upward Adjustment
In awarding post-judgment royalties, this Court “must consider the change in the legal
relationship between the parties to avoid incentivizing defendants ‘to fight each patent
infringement case to the bitter end because without consideration of the changed legal status,
there is essentially no downside to losing.’” Fractus, S.A. v. Samsung Elecs. Co., 876 F. Supp.
2d 802, 855 (E.D. Tex. 2012) (quoting Paice, LLC v. Toyota Motor Corp., 609 F. Supp. 2d 620,
628 (E.D. Tex. 2009)). After the jury’s verdict, any post-infringing use of AdWords was made
with a substantially diminished belief that such uses are permissible non-infringing uses.
Morpho Detection, Inc., v. Smiths Detection Inc., Case No. 2:11-cv-498, 2013 WL 5701522, *9
(E.D. Va. Oct. 17, 2013) (citing Amado v. Microsoft Corp., 517 F.3d 1353, 1361-62 (Fed. Cir.
2008) (“[E]asily dispos[ing]” of the defendant’s argument that the district court was limited by
the jury’s reasonable royalty award because “[t]here is a fundamental difference . . . between a
reasonable royalty for pre-verdict infringement and damages for post-verdict infringement,” and
explaining that prejudgment damages are affixed within the context of uncertainty regarding
Defendants have previously made this “jury verdict-implied” argument but as applied to the
royalty base. D.I. 805 at 9-11; D.I. 806 at 3-5; D.I. 944 at 16-17; D.I. 946 ¶¶ 43, 55, 56 (given
the damages awarded and the jury’s determined 3.5% royalty rate, the implied royalty base must
have been 2.8% of Google’s U.S. AdWords revenues). This Court rejected that argument. Now
that this Court has ruled on the royalty base to be used for post-judgment royalties (20.9% of
Google’s U.S. AdWords revenues), Defendants retool their failed argument to assert that the jury
impliedly found a royalty rate of 0.5%, even though the jury explicitly entered the rate of 3.5%
on the verdict form and even though the jury saw no evidence of any rate lower than 3.0% at
trial. Defendants’ continued efforts to re-litigate issues, and rewrite the evidence and the verdict,
should be disregarded.
infringement and validity, whereas post-verdict “a judgment of validity and infringement has
been entered . . . [and] its calculus is markedly different because different economic factors are
involved”); ActiveVideo Networks, Inc. v. Verizon Commc’ns., Inc., 694 F.3d 1312, 1343 (Fed.
Cir. 2012) (noting that “although Amado dealt with the imposition of royalty damages while an
injunction was stayed during appeal, [the] holding [also] applies with equal force in the ongoing
royalty context”) (ActiveVideo II). This therefore warrants an upward adjustment to the jurydetermined royalty rate.
Lowering The Jury’s Royalty Rate Based On Evidence Already Heard And
Considered By The Jury Or Rejected By This Court Is Wholly Improper
Both the jury and this Court previously considered and rejected Defendants’ only
evidence to support reducing the jury’s 3.5% rate. While Defendants insist that their damages
model accounts for “real-world indicators” of the value of the patents-in-suit (id. at 14-15), the
jury has already heard and considered all of Defendants’ supposed evidence that support such a
notion. See Trial Tr. at 927:20-928:23 (discussing Google’s license to Overture’s patent); Id. at
892:8-893:7; 1587:13-1592:5 (discussing Google’s non-patent-in-suit related contributions to
AdWords); Id. at 1566:14-19; 1582:14-1584:22 (discussing Lycos’ 2011 sale of the patents-insuit to I/P Engine); Id. at 1258:23-1259:21; 1270:16-1274:17 (discussing ease and availability of
non-infringing alternatives); Id. at 879:3-6; D.I. 705 at 3 (excluding the Lycos license
agreements). The jury, in rendering its verdict, considered and rejected this evidence. The
remaining evidence relied upon by Defendants, the Disney and Invenda license agreements, was
never said to be technologically comparable until now and was excluded at trial by this Court.
D.I. 705 at 4-5; Trial Tr. at 900:22-902:2; 894:6-899:9.
The Microsoft Agreement Is Similarly Irrelevant In Determining PostJudgment Royalties
This Court has recognized, “[i]t would be improper to base a royalty rate” on a preverdict agreement that a patentee had reached when the “bargaining positions [of the involved
parties] in any hypothetical negotiation post-verdict has clearly improved.” ActiveVideo
Networks, Inc. v. Verizon Commc’ns., Inc., 827 F. Supp. 2d 641, 656 (E.D. Va. 2011), confirmed
by ActiveVideo II (ActiveVideo I). The Microsoft Settlement is a pre-litigation settlement, and is
not the result of a post-judgment negotiation. There, different circumstances were at play,
including the benefits of early settlement and avoidance of discovery costs and Microsoft’s small
market share in search engine advertising. See LaserDynamics, Inc. v. Quanta Computer, Inc.,
694 F.3d 51, 78 (Fed. Cir. 2012) (remanding with instructions to exclude settlement agreement
because it was outside the scope of circumstances where settlements are admissible and
probative); see also ePlus, Inc. v. Lawson Software, Inc., No. 3:09-cv-620, 2011 WL 2119410, at
*14 (E.D.Va. May 23, 2011) (rejecting defendant’s assertion that settlement agreements could
permit an adequate basis to calculate reasonable royalty, specifically noting the avoidance of
litigation costs by early-stage settlement). This Court and the Federal Circuit have warned
against using such agreements in a post-royalty determination. See ActiveVideo I, 827 F.Supp.2d
at 656; ActiveVideo II, 694 F.3d at 1342; see also LaserDynamics, 694 F.3d at 77.
Dated: November 11, 2013
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
By: /s/ Jeffrey K. Sherwood
Jeffrey K. Sherwood (Virginia Bar No. 19222)
Frank C. Cimino, Jr.
Kenneth W. Brothers
Dawn Rudenko Albert
Charles J. Monterio, Jr.
DICKSTEIN SHAPIRO LLP
1825 Eye Street, NW
Washington, DC 20006
Counsel for Plaintiff I/P Engine, Inc.
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