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

Filing 241

NOTICE by AOL Inc., Gannett Company, Inc., Google Inc., IAC Search & Media, Inc., Target Corporation re 238 Memorandum in Support, of Filing of Additional Exhibits to the Declaration of Howard Chen in Support of Defendants' Motion for Summary Judgment (Attachments: # 1 Exhibit 17, # 2 Exhibit 18, # 3 Exhibit 19, # 4 Exhibit 20, # 5 Exhibit 21, # 6 Exhibit 22, # 7 Exhibit 23, # 8 Exhibit 24, # 9 Exhibit 25, # 10 Exhibit 26, # 11 Exhibit 27, # 12 Exhibit 28, # 13 Exhibit 29, # 14 Exhibit 30, # 15 Exhibit 31, # 16 Exhibit 32, # 17 Exhibit 33)(Noona, Stephen)

EXHIBIT 33

United States Court of Appeals for the Federal Circuit
2009-1068

BID FOR POSITION, LLC,
Plaintiff-Appellant,
v.
AOL, LLC, and GOOGLE, INC.,
Defendants-Appellees.

Gregory S. Dovel, Dovel & Luner, LLP, of Santa Monica, California, argued for
plaintiff-appellant. Of counsel was David E. Rosen, Murphy Rosen & Meylan, LLP, of
Santa Monica, California.
Charles K. Verhoeven, Quinn Emanuel Urquhart Oliver & Hedges LLP, of San
Francisco, California, argued for defendants-appellees. With him on the brief were
David A. Perlson and Jamie L. Lisagor.
Appealed from: United States District Court for the Eastern District of Virginia
Judge Jerome B. Friedman

United States Court of Appeals for the Federal Circuit

2009-1068
BID FOR POSITION, LLC,
Plaintiff-Appellant,
v.
AOL, LLC, and GOOGLE, INC.,
Defendants-Appellants.

Appeal from the United States District Court for the Eastern District of Virginia
in case no. 2:07-CV-582, Judge Jerome B. Friedman.
___________________________
DECIDED: April 7, 2010
___________________________
Before NEWMAN, BRYSON, and MOORE, Circuit Judges.
BRYSON, Circuit Judge.
Plaintiff Bid for Position, LLC, appeals from a final judgment of noninfringement
entered in its patent infringement suit against defendants Google, Inc., and AOL, LLC.
The patent-in-suit, U.S. Patent No. 7,225,151 B1, describes a method for conducting a
continuous auction, such as a consumers’ auction on the internet for goods or services,
or a vendors’ auction for positions in an internet advertising display.

The claimed

method allows a bidder to select a position of priority in the auction and automatically
adjusts the bidder’s bid so as to maintain that chosen priority status. The accused
system is Google’s internet advertising system, AdWords, which runs continuous

auctions to determine the placement of advertisements on Google’s search results
pages. 1
I
A
In the accused AdWords system, advertisers choose keywords to trigger the
display of their advertisements. When a keyword is used in a search performed on
Google.com, AdWords runs an auction to determine the order in which the
advertisements will be placed next to the search results. Each advertiser submits a bid
in the form of a Maximum Cost-Per-Click (“CPC”), i.e., the maximum price the advertiser
is willing to pay each time its advertisement is “clicked” by a user of the search engine.
AdWords then multiplies each bid by a “Quality Score,” also known as the estimated
Click Through Rate (“eCTR”), which predicts the likelihood that a user searching for the
designated keyword will click on the subject advertisement, based on a confidential
algorithm that considers various historical factors.
The product of the bid (Maximum CPC) and the Quality Score (eCTR) yields an
“Ad Rank” for each advertisement. The Ad Ranks are then used to sort and place
advertisements in descending order on the corresponding results page.

Once the

advertisements have been sorted, the actual cost paid by an advertiser per click is
discounted to the lowest price the advertiser could have bid to achieve the same
position, using a formula known as generalized second-price auction.

Those

computations are repeated each time a new search is conducted.
1

AOL’s system, AOL Search Marketplace, is a rebranded version of Google’s
AdWords that does not contain the Position Preference feature. Google’s AdSense for
Content is also a rebranded version that places advertisements on Google’s partner
sites.
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AdWords also offers a “Position Preference” feature that allows advertisers to
specify a preferred position or range of positions for the placement of their
advertisements.

The Position Preference feature enables advertisers to select a

position or range of positions for AdWords to target, such as position 4, positions 1
through 5, or positions 5 through 10. If the advertiser activates the Position Preference
feature, AdWords ensures that the advertisement will never appear below the lowest
preferred position, although it may appear above the highest preferred position.
AdWords monitors the advertisement’s average position over a period of time, as
auctions are triggered by relevant keyword searches, and it submits an adjusted proxy
bid every 24 hours as needed to keep the advertisement at or above the target position.
Other than the periodic substitution of a new proxy bid, the auctions are conducted in
the same manner whether or not the Position Preference feature is activated.
B
The ’151 patent builds on prior art involving continuous auctions for priority
placement in internet search results. An early search engine called Goto.com offered
auctions in which advertisers could compete for the top positions on the search results
for any given keyword. The highest bidder would appear first in the search results, and
each successive entry would be awarded to the next highest bidder. The purported
novelty of the ’151 patent is that it enables bidders to pursue positions other than the
highest available position. It does so by determining whether a bidder’s bid is too high
for a specific position of priority that the bidder wishes to maintain in the auction. If it is,
the system automatically reduces the bidder’s bid to avoid exceeding the amount
necessary to maintain the bidder’s desired position of priority. If the bidder’s bid is too

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low for a specific position of priority that the bidder wishes to maintain, the system
automatically increases the bidder’s bid, up to a maximum level set by the bidder.
Thus, even though the auction is continuous, the process allows the bidder to maintain
a relatively constant position over time, as long as the bidder’s maximum bid is not
exceeded.
The two claims at issue in this appeal are a method claim and a corresponding
system claim. Claim 1 of the ’151 patent reads as follows (emphases added):
A method for automatically managing an auction for determining relative
priority for a service in a system wherein priority is based on the
relative value of related bids, comprising:
receiving bid management data from a first bidder for managing bidding by
the first bidder in the auction, the auction having at least two or more
positions of priority, the received bid management data including
information for selecting one of the two or more positions of priority that
the first bidder wishes to maintain in the auction;
checking for if a second bidder holds the selected position of priority, and
checking for whether a first bid from the first bidder exceeds a second bid
from the second bidder in the auction for determining continuing
priority for providing an ongoing service for the first and second bidder,
wherein the relative position of priority for providing the service for the
first bidder is dependent on whether the value of the first bid exceeds
the value of the second bid, and wherein the relative position of priority
for providing the service for the second bidder is dependent on
whether the value of the second bid exceeds the value of the first bid;
according to the bid management data received from the first bidder,
automatically incrementing the first bid to a value exceeding the
second bid if the first bid does not exceed the second bid, to thereby
maintain the selected position of priority for providing the service for
the first bidder;
checking for whether the first bid is higher than needed to maintain the
selected position of priority that the first bidder wishes to maintain in
the auction, and
if the first bid is higher than needed to maintain the selected position of
priority that the first bidder wishes to maintain in the auction,
automatically reducing the first bid to a minimum which allows the
bidder to keep the selected position of priority.

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Claim 11, the system claim, is identical to claim 1 in all relevant respects except
that in the first subparagraph, claim 11 reads, “the received bid management data
including selected one of the two or more positions of priority,” while claim 1 reads, “the
received bid management data including information for selecting one of the two or
more positions of priority.” 2
Following a Markman hearing, the district court issued a claim construction order
on July 11, 2008. Only three clauses in the claims are relevant to this appeal: (1)
“information for selecting one of the two or more positions of priority that the first bidder
wishes to maintain in the auction” (claim 1) and “selected one of the two or more
positions of priority that the first bidder wishes to maintain in the auction” (claim 11); (2)
“wherein the relative position of priority for providing the service for the first bidder is
dependent upon whether the value of the first bid exceeds the value of the second bid”;
and (3) “the auction for determining continuing priority for providing an ongoing service.”
The district court interpreted the first clause to mean that the bidder, not the
system, chooses the desired position of priority in the auction. The court found support
for that conclusion in the claim language, which stated that the bid management data is
“received” from the bidder and that it is the bidder who selects the position of priority to
maintain in the auction. The court also pointed to the specification and the prosecution
history as indicating that it is the bidder who enters the bid management data.
2

The district court did not distinguish between the two variations of the clause.
The defendants argue in passing that the use of “selected” in the past tense carries
some independent significance. The prosecution history indicates, however, that the
difference in language does not reflect any difference in claim scope, but is merely the
result of a scrivener’s error in failing to modify the claim language correctly when the
clause “bid management information including a selected position of priority” was
amended to read “bid management data including information for selecting one of the
two or more positions of priority.”
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The dispute over the second clause turned entirely on the construction of the
term “value.” Plaintiff Bid for Position requested that the court construe that term to
mean “relative worth, utility, or importance.” The district court, however, observed that
“value” is used in reference to “bid,” and that “bid” was agreed to mean “an offer of a
price.” The court therefore defined the “value” of a bid to mean simply the monetary
amount set forth in the bid.
The district court’s construction of the third clause focused on the term
“continuing priority” and whether that term includes a temporal aspect, i.e., whether the
priority status must be maintained for a meaningful period of time. The court observed
that the main purpose of the patent is to maintain the bidder’s desired position of priority
for a period of time until it is no longer possible to maintain that position without
exceeding the maximum bid amount. Accordingly, the court concluded that “continuing
priority” requires the bidder to maintain the position of priority for some period of time.
C
On October 15, 2008, the district court granted summary judgment in favor of the
defendants.

With respect to AdWords without Position Preference, the court found

non-infringement as to each of the three contested limitations.
First, the court found that whereas the ’151 patent requires bidders to select the
position of priority, the AdWords system controls the assignment of positions based on
Ad Rank.

Because AdWords determines what Quality Score to assign to each

advertisement, the court concluded that “[t]he multiplying of the bid with the Quality
Score means the advertiser loses control to determine the placement of the
advertisement, and a higher bid does not mean a higher placement.” Bid for Position,

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LLC v. AOL, LLC, No. 07-CV-582, slip op. at 12 (E.D. Va. Oct. 15, 2008). The court
also rejected Bid for Position’s argument that not activating the Position Preference
feature is an implicit choice by the bidder for the highest possible position of priority.
That argument, the court explained, “would essentially nullify the position of priority
feature of the ’151 patent because all auctions would involve positions of priority, and
bidders would be choosing positions of priority in every auction simply by submitting a
bid.” Id. at 13.
Second, the district court held that the ’151 patent compares bids and ranks them
by bid amount, while AdWords multiplies each bid by a subjective Quality Score to rank
ads by relevance rather than by bid amount.

Accordingly, a higher bidding

advertisement might be placed below a lower bidding advertisement because the latter
is deemed more relevant and is given a higher Quality Score.
Bid for Position argued that the Quality Score (or estimated click-through rate) is
simply a mechanical conversion factor that converts each bid from cost-per-click to
“cost-per-impression,” i.e., the cost for each time the advertisement is displayed. The
district court rejected that argument on the ground that Ad Rank is not a “bid,” and
therefore AdWords does not compare bid amounts. The court characterized the Quality
Score as a subjective judgment controlled by Google and thus entirely distinct from the
bid information submitted by the bidder. The court explained that
[t]he Quality Score is a judgment made of the advertisement and the
keyword attributed to that advertisement to determine the likelihood that
an individual will find that advertisement useful when it conducts a search
with that keyword. The ’151 patent does not assess or evaluate the
advertisements of the bidders when determining their ranking.

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Bid for Position, slip op. at 17. For that reason, the court rejected Bid for Position’s
argument that converting a bid into an Ad Rank is a simple conversion of equivalent
values, such as the conversion of one currency into another. To the contrary, the court
ruled that converting a bid into an Ad Rank is based on a particularized evaluation by
the auction system, rather than on a known and objectively determined conversion
factor.
Third, the district court found that the ’151 patent requires priority to be
maintained for some period of time, while AdWords calculates a new Quality Score and
Ad Rank each time a search is conducted, without consideration of positions assigned
in prior auctions. The court noted that “[w]hile it is possible for the advertisement to
have the same Ad Rank and position from one auction to the next, it is a result of
mathematical chance, not the deliberate action of AdWords to ensure that the
advertisement has the same position from one auction to the next.” Bid for Position, slip
op. at 19. The court added that holding a position for a single auction is insufficient to
satisfy the “continuing priority” limitation because the ’151 patent uses the idea of
“continuing priority” to mean “that the bidder is able to keep his position of priority
through multiple auctions, and the system will manage the bidding to ensure that the
bidder keeps that position through multiple auctions.” Id. at 20. The court therefore
held that AdWords without Position Preference does not infringe the ’151 patent.
As to AdWords with Position Preference, the court first ruled that the Position
Preference feature does not alter the fact that “AdWords does not determine priority or
rank advertisements based upon bid amounts.” Bid for Position, slip op. at 21. The
court explained that while the Position Preference feature “allows a bidder to enter a

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range of preferred positions, it is AdWords that still determines the advertisement’s
position based upon the Ad Rank.” Id. The court also concluded that selecting the
Position Preference feature does not alter the fact that the AdWords system does not
ensure continuing priority, since “a new auction is still run for each search, and a new
Ad Rank and position are calculated each search.” Id. at 22.
With respect to the issue of comparing bid amounts, the court acknowledged that
the Position Preference feature computes new proxy bids when it is necessary to
maintain the advertiser’s preferred position, but it concluded that the system does so by
examining the advertisement’s individual performance over the previous 24 hours,
without any consideration of the other advertisers’ bids.

Thus, the district court

concluded that the Position Preference feature does not “compare bids” to determine
which is greater, and hence does not infringe the ’151 patent.
II
We affirm the district court’s ruling that AdWords without Position Preference
does not infringe, because we agree with the court that the ’151 patent does not read on
a system that simply selects the highest ranking position of priority that is available for
the offered bid, which is what AdWords does when the Position Preference feature is
not activated.

Bid for Position’s argument to the contrary is barred by the claim

language, particularly when read in light of the prosecution history.
The claims recite that the bidder must submit information for selecting a priority
position that the bidder wishes to maintain in the auction. That language suggests that
the bidder must select a particular position, not simply accept whatever position its bid
will support. The prosecution history confirms that the patent does not cover a system

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in which the bidder simply bids for the “best available” position. During prosecution, the
patent examiner issued a rejection stating that the prior art already taught “selecting a
bidding position, specifically the highest ranking bid position,” and then “automatically
reducing the first bid to a minimum which allows the bidder to keep the selected position
of priority.”
In response to the examiner’s rejection, and to avoid the prior art cited by the
examiner, the inventor amended the claims to require the entry of information regarding
the specific position of priority that the bidder wishes to maintain. Accordingly, it is clear
that the inventor disclaimed the subject matter of selecting, through inaction, the highest
available priority position. See Seachange Int’l, Inc. v. C-COR, Inc., 413 F.3d 1361,
1372-73 (Fed. Cir. 2005). Because that is how AdWords functions without the Position
Preference feature activated, that configuration does not satisfy every limitation of
claims 1 and 11, and it therefore does not infringe the ’151 patent.
We reach the same conclusion with respect to AdWords with the Position
Preference feature activated, but for a different reason. While AdWords with Position
Preference allows a bidder to select a specific position of priority, it does not satisfy the
limitation of the ’151 patent that states: “the relative position of priority for providing the
service for the first bidder is dependent on whether the value of the first bid exceeds the
value of the second bid.”
The district court interpreted the “value” of a bid, as used in the patent, to mean
the monetary “amount” of the bid, i.e., the price offered by the bidder. Bid for Position
contends that the term “value” includes equivalents of the monetary amount of the bid.
Bid for Position further argues that the Quality Score in the AdWords system is obtained

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simply through a mechanical conversion of the bid amount (i.e., the Maximum CPC),
akin to a currency exchange conversion. Therefore, according to Bid for Position, the
“value” of the bid, as that term is used in the ’151 patent, includes the Ad Rank that
results from adjusting the bid by the Quality Score.
The flaw in Bid for Position’s argument is that the order of the bidders’ bid
amounts, arranged according to Maximum CPC, can be entirely different from the order
of the bidders’ Ad Ranks.

If the conversion of bids to Ad Ranks were simply

substitutions of equivalent values, the same order of positions would obtain after the
conversions. Instead, the application of the Quality Score creates rankings that have no
consistent mapping to the original bids.
Bid for Position is also incorrect in arguing for a construction of “value” that is
distinct from the amount or price of the bid. The claim language uses the terms “bid”
and “value of the bid” interchangeably, such that the two cannot be read to have
separate meanings. Claim 1 recites, in a single subparagraph, the step of “checking for
whether a first bid from the first bidder exceeds a second bid from the second bidder,”
wherein the bidders’ relative position of priority “is dependent on whether the value of
the first bid exceeds the value of the second bid.” ’151 patent, col. 14, ll. 15-16, 20-22
(emphases added). Under that formulation, it is clear that checking for whether the first
bid exceeds the second bid has the function of determining whether the value of the first
bid exceeds the value of the second bid, and thus that there is no distinction between
the comparison of “bids” and the comparison of “bid values.”
The next step in claim 1 recites “incrementing the first bid to a value exceeding
the second bid if the first bid does not exceed the second bid.” That step would make

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no sense if the “value” of the bid for purposes of the patent were different from the
amount of the bid submitted by the bidder. It would be meaningless to refer to the
“value” of the first bid “exceeding the second bid” if the value of a bid meant something
different from the amount of the bid.
The specification supplies further evidence that the terms “bid” and “value of the
bid” mean the same thing in the ’151 patent. In the detailed description of the first
preferred embodiment, for example, the patent provides that a bidder may enter
maximum bids into the system and that the system will increase the bidder’s lower bids
“until they reach desired bidding positions entered by the bidders as long as the bids do
not exceed maximum values entered by the respective bidders.”

The system will

ensure relative priority for the bidder “as long as the maximum bid is not exceeded.”
’151 patent, col. 3, ll. 40-52. As applied to AdWords, the “maximum values entered by
the respective bidders” cannot refer to the Ad Ranks, since the bidders do not know
what Quality Score the system might assign to their advertisements. Instead, “value,”
as used in that passage, can only refer to the bid amount, a quantity that the bidders do
control.
The same theme is repeated in several of the other embodiments.

In the

embodiment relating to an auction for a priority position for a website, the specification
states that the system “checks for whether the bidder’s bid exceeds all other bids in the
auction for determining continuing priority for listing the bidder’s web page.”

’151

patent, col. 4, ll. 52-55. Thus, it is the comparison of the bids (i.e., the bid amounts
submitted by the bidders) that determines the position of priority, not the comparison of
a separately determined “value” of the bids, as calculated by the system.

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The

specification likewise equates the bidders’ bids with the “value” of those bids when it
describes an auction for golf tee times as determining priority “based on the relative
value of related bids” and checking “for whether the golfer’s bid exceeds all other bids in
the auction.” Id., col. 6, ll. 37-38, 48-49. The same formulation is employed in the
description of each of the other embodiments. See id., col. 8, ll. 37-38, 48-50 (in an
auction for frequent flyer airline seats, “wherein priority is based on the relative value of
related bids,” the system “checks for whether the frequent flyer’s bid exceeds all other
bids in the auction for determining priority for preferred seating”); id., col. 10, ll. 43-44,
55-57 (in an auction for priority position for online vendors, “wherein sales are based on
the relative value of related bids,” the system “checks for whether the vendor’s bid is
lower than all other bids in the auction”). In each instance, the “value” of the bid is
equated with the bid itself, i.e., the amount of the bid as offered by the bidder.
The consistent use of the term “value” throughout the patent thus confirms that
the ’151 patent does not read on AdWords with Position Preference, which bases the
award of priority on something other than a comparison of the bid amounts. The district
court therefore correctly entered summary judgment of no literal infringement with
respect to AdWords with Position Preference.
Apart from literal infringement, Bid for Position also argues briefly that the
AdWords system infringes the “position of priority” limitation under the doctrine of
equivalents. The district court held that a reasonable fact-finder could not conclude that
the “ranking of advertisements based upon their Ad Rank is substantially similar to the
ranking of advertisements based upon their bid amounts.” Bid for Position, slip op. at
17. The court explained that the advertiser controls the ranking of its advertisements

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when the ranking is based on the bid amount, but not when it is based on Ad Rank. An
Ad Rank “is not the monetary amount of the bid, and the conversion of a bid to an Ad
Rank changes the nature or status of the bid from a monetary amount into a
nonmonetary quantity.” Id. at 18.
We agree that the method recited in the ’151 patent, in which the amount of the
bidder’s bid determines the placement of the advertisement, is substantially different
from AdWords, with or without Position Preference. In the method of the ’151 patent,
the ultimate placement of an advertisement is purely a function of the relative amounts
of the competing advertisers’ bids, whereas in AdWords the ultimate placement of an
advertisement is dictated by the product of the bid amount and the Quality Score that
AdWords assigns. Thus, AdWords is not a pure bidding system, such as the system
recited in the ’151 patent, but instead operates in a quite different manner that enables
the bid recipient, i.e., Google, to exercise substantial control over the outcome of the
auction. That difference is sufficiently fundamental that we conclude, as did the district
court, that a trier of fact could not properly find the AdWords system to be equivalent to
the system recited in the ’151 patent.
AFFIRMED.

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