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Vringo claims Google patent infringement

http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-201210170137KRTRIB__BUSNEWS_35855_28368-1&params=timestamp%7C%7C10/17/2012%201:37%20AM%20ET%7C%7Cheadline%7C%7CPatent%20suit%20seeks%20millions%20from%20Internet%20giants%20%5BThe%20Virginian-Pilot%5D%7C%7CdocSource%7C%7CKnight%20Ridder/Tribune%7C%7Cprovider%7C%7CACQUIREMEDIA%7C%7Cbridgesymbol%7C%7CUS;GCI&ticker=GCI

http://techcrunch.com/2012/03/31/why-google-might-be-going-to-0/

 

On October 16, Vringo, a small company with big-time patent claims, began its trial against Google in the Eastern District of Virginia. Vringo’s claim is that Google has infringed on a patent filed by Ken Lang in 1998. Lang’s patent classified how search advertising and search results were listed and displayed based on the number of click-thrus an ad receives, as well as the perceived relevance of the ad to the user query.

At stake is a potential windfall for Vringo and its shareholders. Vringo claims that the patents are at the core of Google’s AdWords and AdSense systems, which account for nearly 97% of Google’s revenue. The company is seeking royalties for past and future infringement. Vringo, which currently trades at a market capitalization of  $230 million, is thought to be seeking damages of between $500 million and $1 billion. A positive verdict or settlement would catapult the $4 stock.

Our textbook mentions the development of ranking mechanisms for search engines and advertisers, specifically mentioning Overture as the company responsible for pioneering keyword-based advertising. Interestingly, Yahoo, which bought Overture, successfully sued Google in 2003 for patent infringement concerning a patent outlining a bidding system for search engine advertising. Even more interesting – according to investor and hedge fund manager James Altucher, when Overture originally filed the patent, they were restricted by the patent office in the scope of their patent claim because Mr. Lang had already patented certain aspects of their methodology. Overture’s subsequent settlement with Google suggests that there is merit in Vringo’s patent claims against Google, which are presumably even more integral to the search engine advertising methodology currently employed by Google.

Overture’s original ad ranking system allowed advertisers to bid on advertising slots, with the highest bidders receiving the top slots. This methodology was flawed, however, as content and relevance to search query was not factored into ad placement, meaning advertisers were able to gain exposure to consumers without having to pay for click-thrus (because the ads were not always relevant to customer searches). Mr. Lang’s patent introduced a more sophisticated methodology which incorporated the relevance of the content of the add as a basis for ranking and displaying content. With the new methodology, users might see an ad for “hotels” when searching “vacations,” instead of an ad for “dentists” or some other, less relevant result.

Google’s AdWords and AdSense advertising systems utilize a system that Google terms “Quality Score.” Google uses a combination of factors to filter advertisements, including the perceived relevance of the content of the advertisement to the search query, as well as the click-thru rate from previous users conducting similar searches. Vringo claims that this filtering system is precisely the sort of classification system described in Dr. Lang’s patents, and their case seems to have merit.

-beantown

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