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Court: Google infringed patents, must pay 1.36 percent of AdWords revenue (arstechnica.com)
294 points by kjhughes 462 days ago | 180 comments



> Even though there was no evidence of copying—Vringo admitted as much

What a ridiculous system we all operate under. You come up with a mathematical formula for ranking some text on a page (in this case, what ads to show first), and you could now owe $250M/year to some company you've never heard of because they already bought the rights to that formula. It turns my stomach; sorry that I have nothing of more substance to add to this story.

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The lack of an independent invention defense (or some variation of this) is pretty much 80% of what's wrong with patent law in my opinion. A sampling of the issues an independent invention addresses:

* Obviousness. Patents are required to be non-obvious to a "person holding ordinary skill in the art", but obviousness is highly subjective and difficult to assess (especially for a non-technical jury). In contrast, evaluating whether something was independently invented, while not necessarily simple, is a more objective test.

* Utility. One of the rationales behind the patent system is that we want to encourage inventors to share their ideas with the world instead of just keeping them secret for as long as possible. While the patent system requires publication of the invention, it doesn't require publication in a manner that's particularly useful. If you could only assert patents against people actually using them, then you would have a strong incentive to make them useful (e.g. source code).

* Supply and Demand. The current system grants a flat 20 years to each patented invention, regardless of how difficult or expensive it was to invent. Recognizing independent invention creates the opportunity for a more flexible system. Inventions that are hard to reproduce independently are more valuable to society and should enjoy a longer term than easier ones.

The obvious problem with all of the above of course is how feasible it is to assess whether something was invented "independently". I've addressed that to some degree in this blog post (http://www.techdirt.com/articles/20121011/14171220681/yes-in...), but I admit it's a hard problem.

EDIT: Typos

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I'd argue you'd get more economic benefit abolishing patents entirely (not just the software ones, I mean the ones on reproducing someone elses car or gas furnace). You pay a cost in a loss of investment valuation towards invention because it is less economically beneficial if you can't have a monopoly on your patented good, but you benefit economically by letting new inventions reach natural price equilibrium immediately, and the spread of new inventions would propagate more inventions, even without a major profit motive - you still benefit being "first out the door" on a new idea. Which we see all the time in software, and then run into this problem where first out the door has already made a bunch but is now suing me for trying to do something even remotely in the same problem domain because I see demand there, but I won't be able to meet it because I'm artificially locked out of that market.

That applies to all economic domains. Patents worked back when it was extremely hard to sell your goods to its entire market, because you were either distance limited, communication limited, or production rate limited. In the first two situations someone could just take your idea, set up half way across the country, and made all the returns.

Today, I can invent anything I want and have it on ebay overnight and ship it anywhere in the world. I can advertise on most major ad services if I want, with an audience of the entire first world. The only limiting factor for me is demand, but that just means I have to be safe when bringing inventions to market, but it is good for the economy overall because it means if I can't meet demand, someone else will pick up the slack.

It is still, like I said, advantageous to the first to market with an idea, enough so that I wouldn't predict much of a drop in novel ideas. Like I said, I would expect more if technology and designs were more open and people could cheaply iterate and extend past concepts more readily.

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Being "first to market" only matters when you're building things like Facebook or Windows, where network effects are relevant. If you're making consumable or durable goods, being first to market is irrelevant. India will clone your drug within a few months of its release, but there is no way you'll make up all that capital investment by then.

Without patents, the rational thing to do is not invest any more in an invention than you can recoup in the short window before someone clones it and undercuts you on price. Moreover, it diminishes inventors and elevates manufacturers. The smart strategy in a world without patents is to build up massive overseas manufacturing capacity, because you can always quickly copy designs and then undercut the original designer with your manufacturing muscle.

'Andrewfong has a good point about independent invention being a defense. The idea of inventing something on your own only to have someone else claim they patented it is most of what bugs people about patents. In engineering circles where that is much less common, you don't have an anti-patent sentiment. When I was studying aerospace engineering in college, nobody I encountered perceived patents as anything but a good thing.

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Not disagreeing with your point, but I chuckled a bit at your examples. I wouldn't qualify either Facebook or Windows as being "first to market".

Though I think this mainly just points out the squishiness of the term.

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Mentioning the term "first to market" was unfortunate, but the key phrase in that sentence was "network effects", and Windows, Office, and Facebook all great examples of the advantage of network effects.

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Agreed!

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Yes, its only recently with software that patents have really come to hurt. Maybe that's because most engineering disciplines do not patent frivolously, or maybe that not many patents in these areas can generate so many billions in revenue.

(PS: Please don't use the term "India" to refer to certain Indian Biotech companies that reverse engineer patented pharmaceuticals developed in the US)

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Not necessarily opposed, but there are a couple areas where this might be a net loss absent other adjustments. Pharmaceuticals would be the obvious one -- they require a large upfront research cost, copying is trivial, and the FDA approval process erodes first-to-market advantages.

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Pharmaceuticals would be devastated. While there are externalities that need to be solved around our production of drugs, the patent system is a good thing overall for them.

No one spends $1 billion to make a drug if anyone can copy it simply.

Additionally there are international problems related to abolishing patents.

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Why everyone think of drugs only?

it required research. Just like a car required crash tests, etc.

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Ease of copying. It takes some effort to reverse engineer a car, and things like manufacturing processes are difficult to ascertain by just looking at the final product. In contrast, many pharmaceuticals are relatively simple to copy and manufacture once you know the chemical composition of a product.

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If you prefer you can think of software. However software is protected by Copyright quite sufficiently so doesn't come up when talking about patents (well in this way).

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But even in situations where pharmaceutical companies don't have patent protection, just providing a better product at lower prices to a larger, poorer market has proven to recoup costs just as well as charging $10,000 per dose on a patent drug.

(I saw quotes yesterday from the founders or presidents(?) of Merck and Bayer, which espoused both philosophies, and both claimed successes.)

I'm not entirely convinced that patents are necessary to ford the research and regulatory approval. Even in a market where generics are relatively trivial, there are ample opportunities for profit.

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Let's stay: I am a pharmaceutical company, and you're a competing pharmaceutical company.

I invented miracle-drug and can now produce miracle-drug at 0.04$ per pill, can you can produce miracle-drug at 0.06$ per pill. You would think I should win because I can product the pill cheaper, but the full story is your very first miracle-drug pill costs you 0.06$ and my very first miracle-drug pill cost 1.5 billion dollars. I lose because I invented.

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Yet you don't lose, because you can recoup that investment.

The alternative is to not make any money at all. As long as that drug produces you a net profit in the long run, which I imagine would fund additional research after recouping anyone investing in the project, then the fact someone else can also make money is irrelevant.

Think of it from the alt-companies perspective: X is sold at $0.06 a pill, but I could sell it for $0.04! There is demand, I can create supply, and everyone benefits except X.

But I don't buy that selfish interests wouldn't still invest heavily in medicine even if it is a risky investment - nobody considers the emotional fact that rich people do get sick, and are likely (in the absence of big pharma research) to directly invest to see the diseases they suffer or are concerned about cured or abated. Think of how kickstarter works - you throw money at a project that may or may not succeed, but it happens all the time because people want the outcomes regardless of the financial risk associated. Same could easily happen with pharma.

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> just providing a better product at lower prices to a larger, poorer market has proven to recoup costs just as well as charging $10,000 per dose on a patent drug.

Unfortunately, it's not alway possible, there are sometimes very few people in the first place:

http://en.wikipedia.org/wiki/Orphan_drug

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evaluating whether something was independently invented, while not necessarily simple, is a more a objective test

Only if you take a very generous interpretation of "independent". For an reinvention to be truly independent, the reinventor would not only need to not have read about the original invention, but also to have not read about anything inspired by the original invention, and not talked to anyone who read about anything inspired by the original invention, etc.

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Right, independence isn't binary. There are definitely degrees of dependence. But it's more objective than "obviousness" at least. Obviousness is also non-binary, and because the jury must assess obviousness from a "person holding ordinary skill in the arts", there are additional questions as to what constitutes "ordinary skill" and what constitutes the requisite "art".

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This is the core problem. The probability of two independent "inventors" (i.e., software engineers) discovering a similar solution is very high.

Before software engineering, the probability of this happening may very well have been low enough to where nobody cared.

But if you're writing code, you are relying on and creating thousands of "inventions" a day. To "claim" one of those inventions so that nobody else can use it is absurd.

The law just doesn't get that yet, which is weird, because big tech companies have been getting burned by it for decades now. I guess they just figure the benefits>costs for them, and when peons get screwed, who cares?

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A much simpler solution would be adjusting the expiration of IT-patents. The patents in this case are from 1996 and expiring in 2016. If the term for IT patents was reduced to 10 years, we would have many fewer problems.

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Fewer problems, but still a pain. If you independently come up with something one year in IT after the original patent holder, that's still nine years of suck.

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I mostly agree. Though, you'd get some interesting reverse engineering related problems.

Ie look at the patent, come up with a problem that would make this patent obvious, lock some engineers in a sealed room with the problem, and wait for something like the patent to fall out. Was that independent invention, then?

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Probably not, although you could write the rules in a way that avoids this I think -- e.g. the knowledge of the person who looks at the patent is imparted to the engineers because they're all part of the same organization.

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You could probably work around this by e.g. introducing enough layers of separation between engineers and the person who read the patent/formulated the problem. It would be an interesting form of... knowledge laundering? ;).

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Cigarette companies don't get those kind of super-sized judgements against them, gun manufacturers don't. Why the hell should Google?

My favourite part is just how good the Microsoft lawyers are - "we will pay 5% of whatever Google pays" is an incredibly good deal and shafts Google quite nicely at the same time.

And anyway, isn't this really obvious - to anyone? I have scanned the patents referenced and frankly I don't see any algorithm that is not "return information relevant to the search term presented, and mark the users profile if they liked it"

No implementation details, which frankly seems to be the whole difference in software vs hardware.

Edit: my calculation ignored US only

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Cigarette companies do - http://en.wikipedia.org/wiki/Tobacco_Master_Settlement_Agree...

"the original participating manufacturers (OPM) agreed to pay a minimum of $206 billion over the first twenty-five years of the agreement" - 4 companies, 25 years, works out at $2.1bn a year each. 10x more than the article thinks Google will pay out...

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Standing, corrected, thanks :-)

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Gun manufacturers/dealers are protected from civil liability by unconstitutional legislation.

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I don't see why independent invention wouldn't lead to a legal assumption of obviousness. Independent invention seems like incredibly clear cut proof of obviousness to me, anyway.

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The issue is: obvious to whom? Both Newton and Leibniz independently invented* Calculus at about the same time. That may mean Calculus was obvious to Newton and Leibniz (and it may very well have been obvious to anyone in that particular community of mathematician), but it certainly wasn't obvious to the average mathematician at the time.

* More like discovered (don't want to imply math is patentable), but the point remains the same.

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technically, it is pretty simple and effective.

If several people would claim independent invention, it is obviously a statement about obviousness. So the patent would already be invalid under the current law.

Now, since everyone involved in patents, they don't want to interpret the law that way. So there is a non-written agreement that no one will go that route. and that is idiotic.

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I agree. The basis for the plaintiff's suit no doubt consists of rarefied lawyerese, and the plaintiff has probably added no value to the world. But they get many millions. How has the property law been allowed to tie itself up into this knot?

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Yes, I think they got millions for doing nothing is one of the problems. Probably, you should only have right to defend your patent if you're actually using it. Like that's part of your business. And if you don't use it for couple of years, patent goes to public domain.

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I think even in the case that the invention is actually being used, patents may not be justified. I mean, suppose Google owned the patent they just got sued on. Would it make sense for them to have the power to freeze other people out of the market, when operating in the market without any statutory monopoly powers is already spectacularly profitable for them?

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They(and you), did hear of the company that originally got these patents. Here's the very interesting story behind the patents.

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

edit: I am rate limited from replying to fpgeeks reply below so I will post my reply here.

First, the author is extremely clear that he invested in Vringo, in fact the whole article is about why he did so., so I am not sure why you talk about it as if it is kind of a revelation. Second, the article is very informative about the history of the patents and is highly relevant. Third,which of my comments are pro Vringo, really? Fourth, can I be suspicious that you're short Vringo stock, or do you get a free pass just because you have an older HN account.

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> You can think to yourself: “ugh, patent trolls are disgusting”. But the protection of intellectual property is what America is built on. Smart people invent things. Then they get to protect the intellectual property on what they invents. Other companies can’t steal[1] that technology.

"Protection of intellectual property is what America is built on?" Hyperbole much?

"Smart people invent things. Then they get to protect [...] what they invents." Oversimplification much?

Not exactly a home-run defense of patents by Mr. Altucher.

[1]: As admitted by the article, there was no "stealing" here anyway.

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> But the protection of intellectual property is what America is built on.

Is it? I recall the story of how the textile industry in America was built upon designs illegally smuggled out of Britain.

Also, the movie, auto, and aviation industries were all hobbled for years under patent lawsuits. It was so bad in the aviation business that development in the US pretty much ground to a standstill and the center for aviation progress switched over to Europe for a decade or two.

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Not just that - a young America ignored foreign authors copyright in publishing. Film making took off in Southern California in order to escape the Edison company's protection of its film patents.

Intellectual property protection became important to America once it had leapfrogged other nations by ignoring their rights. Which is what makes the current stance on international intellectual property a little hypocritical, especially when it comes to generic drugs in third world countries.

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Indeed--in fact the word 'yankee' as applied to americans long ago, referred to the american ripping off of intellectual property: yankee meant IP pirate. No joke!

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I don't think yankee meant pirate. I'm pretty sure it's an old term with the same meaning as 'wanker'.

However, the Yankees turned it around on the British and owned the term. Classic.

Edit: the actual origin of the word is lost in obscurity. There are lots of theories.

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As magicalist notes below, the author of this story is an investor in Vringo.

Separately, given the allegations in the Ars comment thread:

http://arstechnica.com/tech-policy/2014/01/court-orders-goog...

I'm more than a bit suspicious of a brand-new account that's posting pro-Vringo comments.

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> Here's the very interesting story behind the patents.

> http://techcrunch.com/2012/03/31/why-google-might-be-going-t...

That link is definitely worth a few minutes. Thanks.

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whew i thought they had to pay the $$$ to PUD from Fucked company for the little tiny ads!

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Just because the same thing can be invented independently doesn't mean the system is ridiculous. In fact, it's the very fact that the system relies on to create research competition.

Being the Vringo is the motivation to invent things before the competition does.

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Alternatively, it creates a motivation to not even try in the first place. If you've come up with an idea, there's a good chance someone else has as well. Why work on an invention if there's (1) a very good chance that someone else will get there first and (2) this will force you to toss all your work out the window, even if your implementation is better.

Moreover, the current system creates a perverse incentive to obfuscate your patent. Although all patents are (eventually) published, there's no requirement that they be published in a manner that's useful (no source code) or discoverable (non-standard jargon). The incentive is not always to make the patent well known until after a party has already invested significant resources into an enterprise, at which point the patent can be used for something pretty close to extortion.

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You seemed to have missed the part where Vringo bought the patents from Lycos, a company google killed on the open market by, in your terms, doing better research.

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The inventor Ken Lang sold to Lycos and bought back. He is the CTO at Vringo. See the comments after the original article.

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Wow the Microsoft angle is pretty corrupt. They paid the plaintiff a million bucks plus 5% of the judgement they get against Google, effectively bankrolling their lawsuit and putting a patent troll on commission.

There's near-endless bitching and whining about Google being evil these days, but even today nobody sinks as low as Microsoft.

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I read that and thought, how funny if Google bought Vringo out, then determined Google owed $10B. Of course that'd mean paying Vringo, which is a vile thing.

I don't think it's corrupt though. Sounds like MS said hey, here's some money (versus losing a settlement for far more, like they did over XML), and if you win against Google, then we'll pay likewise. Otherwise, you'll fight both of us.

Of course it'd be nice if MS stood up and fought, but it's easy to say what other people should do with their billions.

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I read it as Microsoft paid a million dollars and will pay 5% of what Google pays. I dislike Microsoft as much as the next guy, but it seems like they believed the patent would win in court and wanted the cheapest way out.

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This is it, not sure how you could read this another way. When reading the article it hit me that this was a great bit of business from Microsoft.

A million dollars isn't much for MS to pay to make this go away... and then only paying 5% of Google will be forced to pay if they lose in court.. Microsoft's legal advisor must be happy with himself today

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Well I don't see how it is a Win for MS when their ad revenue is ~3% that of Google. In a sense, aren't they paying more ?

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> Well I don't see how it is a Win for MS when their ad revenue is ~3% that of Google. In a sense, aren't they paying more ?

How do you figure?

Microsoft earned $3.2 billion in the Online Services division in fiscal year 2013. According to Microsoft's annual report, advertising accounted for "nearly all of" that division's revenues.

$3.2 billion is about 5.6% of Google's trailing 12 months revenues of $57 billion. Subtract out Motorola, and it's about 6% of Google's ad revenues.

What's more, the settlement locks in Microsoft's liability at 5% of Google's. If Microsoft were to grow its share vs. Google, then it would get to pay less than the proportional amount.

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I was using these(http://www.emarketer.com/Article/Microsoft-Takes-Small-Share...) numbers for reference. More specifically the second table.

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But if google grows it's share... microsoft pays more.

... Actually, could google buy vringo, then just get money off MS?

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I mean I guess that is one way to look at it. The other could be that they settled. If Google wins the case they pay 5% more of zero, if they lose, Microsoft pays more but so does Google. Its not totally win-win but yeah I can see it mostly being such. But to even get a settlement like that, wouldn't Vringo have to accept it? It isn't just Microsoft malice.

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Bing was infringing and Vringo had tens of millions in cash and big investors like Mark Cuban bankrolling it. They certainly didn't need a paltry million bucks to continue the lawsuit.

Vringo already had the jury verdict against Google before the MS settlement. Also, maybe Bing has only 5% of Google's revenue/profit.

Funny that you seem to be falling victim to what you accuse others of doing i.e kneejerk birching and whining.

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Mark Cuban is bankrolling a patent troll? From what I've heard from him, he absolutely detests patent trolls, I'd be surprised if he's backing one.

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Yes, unfortunately

http://www.businessinsider.com/mark-cuban-heres-why-im-takin...

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Wow, hedging against patent trolls by backing them is some sick and twisted logic.

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> Wow, hedging against patent trolls by backing them is some sick and twisted logic.

But not unexpected for Mark Cuban.

This is the man who owes his status as a billionaire to hedging. If he hadn't hedged out his Yahoo exposure at the very top of the dot-com bubble, then he would've been worth about $60 million by the time his lock-up period expired.

$1.4 billion vs. $60 million. Being one of the richest 500 Americans, vs. not even being able to buy the Dallas Mavericks. You can see why Mark Cuban believes in hedging.

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It's entirely logical. You're talking about emotions, not logic.

Patent trolls win => his legit companies lose value, his patent troll gains value

Patent trolls lose => legit companies gain value, patent trolls lose value

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To be clear, it is the same logic that justifies patent trolling.

Imagine if some startup "hedged" by covertly transfering funds from customers' bank accounts when they cancel their subscriptions:

Great product => paying customers

Bad product => steal money from customers

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Oh yeah, filing a civil suit and outright stealing from people are totally the same thing. Great comparison, bravo.

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One thing to consider is if Vringo is bankrolled by a steady $200+million revenue stream, they are most likely going to turn around and use that money to buy up patents all over the place. I doubt the money will be used to create any products. We'd be looking at the next Intellectual Ventures, backed by a massive hundred million dollar guaranteed revenue stream.

Even if you hate Google, this is a pretty raw deal for the industry.

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What's also terrible about the patent system is there is simply no way for any of us to tell, when we develop something, if we're infringing on patents or not. We're all subject, at any time, to being subject to some massive infringement lawsuit.

What I do not understand is why the big companies do not all get together and lobby to abolish software patents. Do they think that if they acquire enough patents, they will win? They all seem to be losing as many patent suits as they win. Pyrrhic victories all around.

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As a programmer, this is exactly what I fear.

It is also why I will not create a startup company, and have my dream crash because of a failed and corrupt system.

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Assuming this goes through with no successful appeal Google will have to pay 1.36% of their revenue related to a particular infringing product to Vringo for a period for which they were well aware of this patent until it expires in 2016. This example gives nothing to indicate that any business you start will be crippled by patent issues.

Now legal costs and/or Lodsys like trolls might be a real threat to a fledgling business but they seem to have gone quite quiet for the moment.

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Good point.

It's no indication, but it would generate fear and doubt when I code. What if the code I'm writing right now is patented by some company taking advantage of a system, with resources searching everywhere just to sue? I probably wouldn't, but I could become paranoiac because of this, looking on the internet to find if I am infringing patents, instead of being productive.

It's true 1.36% seems like nothing, but for a small company, it could mean a lot. Plus, it would be heart-breaking (or even outraging) to know that a program I made on my own, with no knowledge about some software patent, nor ill intention, gives money to someone that has nothing to do with it.

And, as you mention, legal costs, time wasted and stress could easily be real threats to a startup.

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I really wouldn't let it worry you, there are many more things likely to make you fail than patents unless you are going into an especially patent heavy field (such as video codecs).

Patent holders generally need to target big players to get worthwhile payoffs so unless you are big (in which case you have already won) then it is only the Lodsys type scum you need to worry about trying to extort you (in which case your paranoia and research won't have helped because the accusation doesn't have to be valid to cause you problems). Lodsys and their ilk seem to have gone quiet (I don't know why) but I suspect that if you don't look like an easy target they may ignore you.

You also fear your emotions, try to look logically at the situation. Making $1M and having to pay out $13K to someone you feel is unworthy is annoying not heartbreaking. Making much less and you are hardly worth targeting.

I'm not saying that you have to like the current situation but that it isn't bad enough that it should be a major driver of your life. There are many reasons not to do a startup but I wouldn't let this be one if I were you.

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> Patent holders generally need to target big players to get worthwhile payoffs so unless you are big (in which case you have already won) then it is only the Lodsys type scum you need to worry about trying to extort you

Uh, yeah, exactly. I don't know what you think Lodsys is that's not a "patent holder", but that's exactly what they are, and they're a great example of patent trolls going after small businesses. This happens all the time.

In this whole thread you've also ignored the fact that this is 1.36% of revenue for one small aspect of a product. Now consider the fact that your product is also highlighting certain parts of data returned from a database, or you have a a certain type of UI interaction when you scroll past the bottom of a widget, etc etc etc and you have a whole lot of companies ready to claim their 1.36%.

I don't know if it's enough that it should stop people from wanting to start at all, but it is a very real problem that is very much affecting real people. For instance:

The Patent, Used as a Sword

http://www.nytimes.com/2012/10/08/technology/patent-wars-amo...

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Fair points although I didn't say Lodsys wasn't a patent holder ('generally' meant 'mostly' not 'universally') I think you overstate the density of patents in general software (at least of valid ones without prior art).

I agree expense of the US legal system that makes settling vexatious (Lodsys etc.) suits financially attractive is a real problem.

The 1.36% of revenue is for an aspect of the product that Google were not happy to remove or change sufficiently following a loss in court and includes an increase for willfulness. If I understand correctly it includes the key revenue maximisation process. It is not just for a minor UI feature and that is presumably why Google didn't just work round it. Yes the stacking of percentage royalties could be a real problem but that would mostly happen on standards if FRAND wasn't enforced and everyone stayed outside patent pools and claimed 2.4% of final retail price (Motorola/Google).

Regarding your article that does sound troubling although a large part of the problem seems to have been a dependence on winning some big deals. I do suspect that speech recognition is one of the patent heavy areas along with codecs as I mentioned, probably autonomous cars, audio and video tagging, watermarking and recognition. In these areas I would definitely want to be careful and perhaps apply for patents before proceeding too far (this would both mean patent searches were conducted and give something to defend attacks with). Alternatively I would be studying the literature and material that was 20 years old and documenting the process of obvious steps when combing approaches. Most software is not in these patent thick areas.

A proper list of dangerous areas for patents would be really quite useful...maybe an Ask HN topic?

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If you have a startup that you care about, at the end of the day it isn't all about money.

Thanks for the healthy dose of optimism and realism :). I'll keep that in mind.

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1.36% of revenue could be 100% of profit, in some cases.

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The Microsoft settlement for the same was interesting:

"Vringo also sued Microsoft over ads in its Bing search engine. Microsoft settled that case in May, agreeing to pay $1 million plus 5 percent of whatever Google ultimately pays."

It's strange agreeing to pay 5% of Google outcome on the same and quite clever the more I consider the pros/cons.

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They're arming patent trolls and aiming them at google. This isn't the first one (rockstar).

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I don't understand why people keep coming to this conclusion. To me it just sounds like MS ducked faster.

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I tried really hard to understand the 2 patents in question in this case. I can see that both patents relate to a method of assigning value to search results based on how long a user spends looking at the result, or number of clicks, etc. But I am sure I am missing a bunch of nuances. Could someone with Patent background explain these to patents:

http://www.google.com/patents/US6314420 and http://www.google.com/patents/US6775664

Or maybe link me to the explanation. I am interested because from what I have understood this sounds really obvious, just application of good business practices to the internet. If customers like a particular product (click on one link a lot), you get more of that product (show the link more often), so you can sell more. Is there more to it? There has to be, right?

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>just application of good business practices to the internet...

That's the foundation of nearly all software patents these days. Its business, but on the internet.

It seems to work because of the built in novelty factor. When there was no internet, it was impossible to do business on it, now that there is, its suddenly possible and so seems novel. It feels like a new invention when in fact, its really just an application of the technology to the same old same old.

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I wish I could travel back in time to the early 1990 and patent "a method for making profit by buying and/or producing products and selling them at a higher price.... on the internet."

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"A method for taking existing existing techniques and patenting their usage on the internet."

I call it "the meta patent troll".

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The money is going to the guy who patented a crucial part of Google's AdWords algorithm which neither they nor Bing can apparently design around.

The guy got crushed in the market, being just a little fish, he was gobbled right up. But he bought back his patent, and took the fight to Google and Bing and won.

You can argue the percentage calculation is a too rich by an order of magnitude or two (and I think it is), but you can't argue whether the patent is valid or whether they infringe. A judge and jury said it is, and they did, and that will stand until a higher court says otherwise.

Did Google invent it first? Nope. Did Google find any prior art? Nope. Was the patent obvious? Nope.

I don't have a problem with large companies paying large sums to inventors who actually produce a product, patent their invention, but get crushed by the market a few years later.

This is actually kinda how it's supposed to work. If this is an example of what is "wrong" then there there must be no patent that is "right".

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The money is going to the guy who patented a crucial part of Google's AdWords algorithm which neither they nor Bing can apparently design around.

Was the patent obvious? Nope.

These comments seem to be at odds with on another. If the patent covers an algorithm that is a natural solution to the problem multiple companies are trying to solve, doesn't that mean the solution is 'obvious'?

Is that how we want software development to work? I solve a technical problem in an application, but because someone I've never heard of on the other side of the country happened to patent that solution first, I can be sued for money? Sure, it benefits the people who file patents, but I don't think patents should exist solely because they can profit a revenue stream to the people who file them.

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I think 'natural solution' is a play on words. My understanding is that all the search engines (including Google) spent many years figuring this out, failing many times along the way. PG's patent on Bayesian anti-spam is another example of something which seems obvious in retrospect, and now everyone does it.

'Natural' to me means a product or feature which just fits perfectly within the system. A natural solution is the most valuable and often hardest to come by. They also tend to seem incredibly obvious in retrospect, and yet examining history will demonstrate that others suffered for years for lack of that exact functionality.

For example, the intermittent wiper, or the teleprompter, or maybe even the paper clip. It's the ideas that seem the most obvious in retrospect which need the strongest patent protection. But only if you can show it's novel.

One way the patent office will let you demonstrate something is 'non-obvious' is if you can show something is both novel and actually solves a large existing problem in the market. The novel, simple, elegant solution to a large problem is by definition non-obvious, or else someone else would already be doing it.

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Let's remember that when the guy was "gobbled right up", Google was a dozen people with one server in a garage.

The fact that multiple entities came up with this idea, without communication of the idea between them, means that it was more a function of the environment the idea was conceived in than the person who did the conceiving.

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Agree with everything you've said, and I still think Google has to pay for infringing.

Patents are NOT just to prevent copying. Patents are not supposed to be worthless against larger companies who can just replicate your work without your help.

If you could just re-engineer any patented invention, patents would be worthless. Companies would be incentivized to bury their heads in the sand so they could be sure they were not 'inspired' by anything out there that might have been patented. The only way to prevent this is to say, we don't care if you "knew" about the patent you still can be found infringing.

The thing I hope will be reversed on appeal is willfulness. It seems to me this was not willful. Or perhaps the definition of 'willful' should be tightened to mean reverse-engineered or copied from a practicing entity. That's one way to get the damage award to be more reasonable.

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Patents are not supposed to be worthless against larger companies who can just replicate your work without your help.

If people can replicate your work without having to look at any specific about your work, why should your work be patentable?

What about if you reverse the actors in your example? Should large companies with vast warchests filled with patents be allowed to strong arm smaller competitors who likely don't have nearly as many patents with which to defend themselves?

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All work can be replicated.

Patents aren't about protecting an idea because the person who came up with it was uniquely qualified to create that particular thing. Any number of people could create the same thing independently. But only one person can be the first person to create a thing.

Patents reward those who come first, those who push a boundary, who create something novel. Novel doesn't say anything about how many hours it took to come up with the idea.

Remember, this patent is from 1996, and soon to be expired. 16 years later the algorithm powering AdWords can't live without it. I'd say this patent was 'ahead of the curve' when it was written.

Injunctions are becoming more rare, and if the penalty is apportioned correctly it would always make very little sense for a much larger company to sue a smaller one, because even a win would cost more than it was worth.

Even with recent changes, the law could due with some strengthening to protect against harassment suits. From large companies against small, and from trolls against anyone. Reasonable costs for the defendant could be carried by the plaintiff in some cases.

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> Companies would be incentivized to bury their heads in the sand so they could be sure they were not 'inspired' by anything out there that might have been patented.

Already the case, because willful infringement penalties are much worse than accidental infringement. Any lawyer will tell you that, as an engineer, you should never read patents:

http://www.dresan.com/blog/?p=1030

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Disgusting, what a broken system. Can anybody actually defend such a system and explain how it promotes innovation?

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It seems to be pretty well established now that this system does not support innovation (at least not in the software business.

If the benefit of society as a whole is the objective then inventions are only worth protecting if they would not have occurred without such protection. An idea clearly does not fall into that category, it's worth is in the execution and not in "having it".

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> It seems to be pretty well established now that this system does not support innovation (at least not in the software business.

Back when I was actively studying this stuff, it was noted that there are four specific industries where intellectual property just doesn't work as intended. Software was one, pharma was another, and I forget the other two but a quick Google ought to surface them with more credibility than I can drop here.

That's not to say it works much better outside those industries, but it's not completely pointless.

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> pharma was another

I thought pharma relied on patents to offset the massive cost of regulatory control over the product. (FDA fees, cost of running patient trials, etc)

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Yeah, Judge Posner wrote an excellent post about how pharmaceuticals and software were basically polar opposites in their needs for patent protection:

http://www.becker-posner-blog.com/2012/09/do-patent-and-copy...

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The reasons why patents are bad in pharma are different from software- in pharma, if you can't afford to pay for a patented drug, you (very well could) die.

Also, pharma companies have been known to get patents on drugs that have existed for many years- which does not support innovation (though pharma argues it supports government regulation of these drugs, which have been on the market for many years)

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I never get that. Why do you make this distinction. Either patents is a good system for all goods or it isn't. What does it make a good system for everything else execpt pharmacy and software?

Dont't get me wrong, I am for abolishing all patents. Even if, say 80% of the patent were unimbigiously justified, the bureaucracy and costs it introduces are tremendous.

I would loved to know the percentage to the total budget of the legal departments of companies like MS, Google and Apple

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One cannot assume that a system that works for one industry is good for all of them. I'll provide some examples: "six sigma" is useful in manufacturing, but its statistical defect analysis methods are awkward at best when applied to software. Cinnamon works well for flavoring apple cider, but not so much beef gravy.

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Software startups are more likely to raise VC funding if they can demonstrate they have a defensible product or service.

One of the ways of making a product defensible is to patent its underlying technology.

If a software startup doesn't hold a patent, there is a chance a larger player could just copy the startup's product or service and drive the startup out of business.

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I agree with the comments on Ars.

This sort of 'litle parent that could' story are the post child for pro patent folk.

No, that's not how it works. No, small one-time inventors to not benefit from the current parent system. Irritating as anything seeing it being played out this way.

This is a commercial patent trolling company, from the inception it was so, and it remains so now. These are the people who the current patent system benefits.

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FUCK PATENTS. The old system (copyright, IP, etc) needs to BURN TO THE GROUND.

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Let's not throw out the baby with the bathwater. Fuck software patents... Absolutely. Copyright... Not so much. That is actually useful. Open source and free software would not work without copyright law. Copyright only triggers when you copy somebody else's work, I.e. a specific expression of an idea. Patents trigger when you merely happen to have the same idea.

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> Copyright... Not so much. That is actually useful. Open source and free software would not work without copyright law.

Not true at all. Copyleft licenses as currently written wouldn't work without copyright law; all-permissive licenses like MIT and BSD would become the default state. I'll happily take that trade, and several folks at the FSF and other FOSS organizations are on record saying the same.

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I am not a lawyer, but even even MIT/BSD licenses only work because of copyright granting the originators the right to release under any license and restrict certain things, such as liability, usage of the originators name, etc.

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Except that the current system of enforcement is broken and the current length of copyright is ridiculous.

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So is the tech industry as such not interested in changing this system? I find it inconceivable that the entire tech industry is not able to change the law about just software patents, not all patents, but just software patents. All the old laggard companies have invested a lot of time and money and hoarded a bunch of patents and so they do not care enough. Eventually the companies that are hurt in this are the small ones.

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Google is already appealing, but what happens if Google loses ? Would the supreme court agree to hear this case ? If so, the silver lining might be that the supreme court overturns this decision and in doing to comes up with something useful like the 2007 decision which limits a patent troll's ability to get an injunction to knock out a product.

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Sometimes I wonder if I am witnessing America's greatness in action, or the unraveling of it.

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It is clearly America's downfall -- and America is pulling the world with itself.

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Oh come now. Patent trolls are a massive nuisance, but they don't represent an existential threat to this country - let alone all of human civilization.

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Lol, it's probably hyperbole.

But think about it - what exactly does American produce these days?

Yes, they still have a heavy manufacturing base - but that's declining and fast.

If you stifle innovation, you've basically shot yourself in the foot.

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Hollywood, Wall St, Apple, Boeing... Yeah the US doesn't produce anything... they just make up that 15 trillion dollars of GDP (double what the next biggest economy makes - China).

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Firstly GDP is not a measure of what an economy "makes", it is a measure of its throughput. Remember that every dollar the US government "borrows" out of thin air and spends on military hardware adds to that total, so I wouldn't regard a high GDP as necessarily a sign of economic health.

Secondly, of your haphazard list, only Boeing does any manufacturing. Maybe instead of knee-jerking with "America is great" you should read a bit more carefully?

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I was responding to "America doesn't produce anything"...

All of those industries produce, and all of them make significant money, and the GDP backs that up. Producing stuff while going into debt, is still producing stuff, so your reasoning about debt has no relevance.

So maybe you should take your own advice?

Just for the record: I think America is a shit hole, and I'm generally anti-capitalist. But it's nonsense to pretend they don't produce anything.

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This isn't accurate at all. America is still the world's largest manufacturer, even larger than China (but not the largest exporter). The manufacturing base is not declining fast, manufacturing jobs are, due to dramatic and continuing productivity gains (America has the most productive manufacturing base on earth).

http://business.time.com/2011/03/10/can-china-compete-with-a...

(it's understood this doesn't cover '10-'13, but it still makes the point it was intended to: 1) manufacturing is not declining; 2) America still has a truly massive manufacturing base)

"According to United Nations data, the U.S. is still the largest manufacturing country in the world. In 2009, American manufacturing output (in real terms) was nearly $2.2 trillion. That’s about 45% larger than China’s, at just under $1.5 trillion. (For statistical reasons, I chose to use figures that include mining and utilities as part of manufacturing.) Though China, of course, is growing very quickly, the U.S. has also maintained its global share of manufacturing, at 20% in 2009 compared to just over 22% in 1980. What’s more, American manufacturing is becoming more productive. In 2009, productivity in U.S. manufacturing increased by 7.7%, more than any other country followed by the Bureau of Labor Statistics."

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The problem are not the patent trolls. If you think, the patent trolls are the patent system biggest trouble, than you are victim of the brain washing, the big corporations give to us all.

Please read my other post in the same forum about "intellectual property" to understand.

All the patent system by itself also does not end human civilization (I did not want to imply that), but the patent system is another symptom of the current state of human civilization and the state of human greed that drives western civilizations down.

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This is largely a showcase of stupid economy in United States. If you look back past 20 years, there really isn't any meaningful economy growth except the high tech industry. In most cases, you simply higher price for the same house, transportation, education, healthcare, food, lawsuit, and other BS. Instead of encouraging people and companies to do great things that actually improve living quality, the current economic and political system simply drags everything down.

American voters stuck too much with personal values and elect a congress that does not do anything and gets 10% approval rate. Now we have to deal with this kind of stupidity. #thanksobama

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iirc the finance industry grew a ton over the same time period.

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1.36% of AdWords Revenue? That is a lot of money. I don't see how they are entitled to that amount in any way.

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Also, why an ongoing 1.36% cut? What's the significance of that number? Might as well peel back the layers on this farce.

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Read the article, it explains the percentage calculation.

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I did, still seems kinda arbitrary..

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Good.

There are few things which can effect change better than billionaires in fear of losing hundreds of millions of dollars a year. When it happens to small fry you lament because they can't do anything to change and end up settling to save themselves or losing and losing everything. When it happens to the 55th largest company you rejoice because they have the power and motivation to change the rules.

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I remember thinking exactly that, when Microsoft was hit by the $100M Stac Electronics judgement in 1993. "Surely large companies will understand now that they have a lot more to lose from software patents than they could possibly have to gain," I said to myself. "I'll bet they're calling their pet Congressmen and writing checks this very minute."

I've been wrong before, but not usually that wrong.

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Instead they played that same game and are now part of the big software patent companies. In a selfish perspective, it does make sense.

I fear Google one day understands that they should join this mafia and start suing for their patents, under the pressure of their shareholders.

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The Googlers would revolt.

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You may be overestimating a lot of googlers

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I'm sure there are a lot who wouldn't care, but MANY would leave (including myself), and recruitment would dry up. It would be a disaster.

Despite what hacker news comments would have you believe, Google is (in my strongly held opinion) a force for good in the tech world, and very genuine in what it tries to accomplish.

Becoming a patent troll would undermine that sentiment.

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> There are few things which can effect change better than billionaires in fear of losing hundreds of millions of dollars a year.

What change would you like this to effect? I thought Google already had a solid reputation of being against patent trolls and software patents. For example:

http://www.theverge.com/2013/4/17/4233818/google-submits-pub...

http://www.google.com/patents/opnpledge/pledge/

http://www.google.com/patents/opnpledge/patents/

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> When it happens to the 55th largest company you rejoice because they have the power and motivation to change the rules.

Or they just settle next time.

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When it happens to the 55th largest company you rejoice because they have the power and motivation to change the rules.

Or they realize that fighting the system is a suckers game and join in, this cementing the system against their competition.

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nothing would happen until google is driven into the ground(bankrupcy) with spurious judgements from various companies against its profits. I would love to see that happen, because then something will be done. Anything above is just a blip in earnings diagram. Digital mafia will just keep on truckin'

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ever the optimist eh?

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Every now and then our government can be corrupted by rich folk to do good.

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So called "intellectual property" is an other way to decrease the value of manual work and increase the income of pure "possessions".

By making creative work "property" that can be owned and making minimal creative acts "possessable" in a way, that other creativity is inhibited or at least "billed", actual work is diminished for pure "property" holding.

The only way, non-possessing people can climb up "from rags to riches" is by their work. But working is less and less valued in this system.

And with the patent system, the true inventors are getting very limited money (in big companies, it is most often just a fixed amount per patent) -- the rest of the value goes to lawyers, the companies investors and the buyers of the patents when the company goes bankrupt or looses interest. Thus creating a system, where part of the mobile phone or the software or whatever gadgets price must pay the royalties for the patent owner (not the inventor!). Thus this amount goes away from the money that can be paid to workers and inventors. The whole system improves income generated by possessions, but reduces income possibilities for workers and creative people.

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What if manual work is required to produce this intellectual property? And isn't the intent that the rights belong to the inventor or creator?

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Yes, it is.

But that is not the point. The point is, that the manual labor gets less and less earnings, but the possession of the properties. How many creative products with high value are in the hands of their creators?

In reality, the high earnings are not made by the inventors or creators of things, but by those that have acquired them in any way. In corporations, it is normal, that inventors just get some small fixed amounts for their inventions. Even in the music business, the musicians have the smallest part of the earnings. Often time, the musicians have to sell the rights to the companies, so the companies are earning most of the money. Only very few musicians can make extra-deals and get rich.

To answer your second question: No, it is absolutely not the intent! By making "intellectual property" the same level as other property, the intent is not, that the inventors should have them (as normal copyright once was intended), but the intention is, that it is a trade-able good, that can be accumulated by the wealthy and used against those that are creative (something, that money is not, so creativity must kept cheap).

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Makes sense.

So what is the alternative? Reformation of patent laws, or no patent laws in general?

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This is an interesting angle of thought. Thanks!

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Is there any push right now to enact legislation that makes patent litigation available only to entities that actively participate in the relevant marketplaces? It doesn't seem like there is, but maybe I'm not that informed in these affairs.

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No. Just stop granting patents on software or business processes. Copyright, yes, patents, no.

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You can grant both but for no longer than a year.

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That seems like a pretty unfair approach -- if it's valid to have a patent, seems like you shouldn't penalize someone who doesn't have the resources to "actively participate" in the market by preventing them from licensing or selling it to others.

I personally don't care for patents, but even more unfair than what we have would be letting some, but not all, actors get and enforce these patents.

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It has some precedent. I have read that at pioneer times you could have been given deed to the piece of land but only on condition that you did something with the land. If you didn't used your land in any way it could be taken away from you.

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We need a numbers based study that shows patent trolls retard innovation and consequently weaken national security. Regulators, senators, and Presidents (in the US) prioritize that stuff.

How can I, as a small start up, produce a new mobile phone? Every concept from the hardware to the software is layered in patents. What other things are small companies not bothering to produce because of the patent minefield? At every turn and corner you may be stepping on another patent troll waiting to take a percentage of your earnings as well as drain your bank account on legal fees.

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> US-based revenue from AdWords, Google's flagship program

Given Google's structure and revenue recognition, I'd be surprised if they had to pay out anything significant.

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Google's corporate structure is designed to hide and move profit, not revenue. If this ruling is upheld we're talking a super-massive quantity of money going to someone who did nothing.

And the patent system will still not get reformed.

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It's also not even designed to hide or move US profit, so it's doubly irrelevant. Double Irish Dutch Sandwiches don't do anything for money made in the US.

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Is it because Google operates servers and whatnot in the US that they couldn't sell all their ad inventory at $1 to their Ireland division or another company or something?

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"While publicly-traded Vringo" - hum, somehow they have a market cap of $332.30M.

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Almost 334 now; it was the first thing I checked after reading that story.

A hostile take over might be cheaper than paying royalties.

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So if Google took over the company and settled for paying a massive amount to them, this would in turn force Microsoft to pay 5% of that. Except anything Google paid, would essentially go back to Google. Could you bankrupt Microsoft this way?

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No, the judge would alter his ruling because of a Microsoft appeal. Judges are remarkably unimpressed with such attempts to use their rulings like that.

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What if Google had bought Vringo after the settlement with MS but before the judges ruling? Then it'd be a private contract?

Sort of the inverse of the Mosaic licensing, where Spyglass got a royalty off of IE revenue, and MS proceeded to give it away for free.

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Probably a Microsoft + Google buyout = status quo is a fine thing if it cheapens the bill

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What does this mean for ad-supported startups? Does anyone have specifics on the patent issue here? I didn't get it from the news coverage.

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I haven't read the patents yet. According to the original article and it's comments, looks like there are two aspects are infringed: auction model and user re-targeting model.

It looks like the auction model based on the number of hits is pretty obvious now, but it was not quite obvious in 1999. The re-targeting model is definitely novel in 1999.

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Software patents need to be abolished for good.

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I´m a peacefull and calm person, which despites violent but the more I read about US patent law the more I want to set a torch to the trolls and kill them with fire.

I know that this is not very constructive. I know that violence is not a solution. But seeing what these [insert insult here] do to our industry I just can not help myself.

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They are pretty clear on what they do: "Vringo, Inc. is engaged in the innovation, development and monetization of intellectual property and mobile technologies"

http://www.vringoip.com/cgi-bin/index.pl

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With a market cap of less than $350 million, shouldn't Google just buy them? I realize that they'd pay more than that, and that there might not be enough stock available to get a controlling share, but it would be an interesting strategy if they could pull it off.

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It's about $425m as I write this. Yes, Google should probably try to buy them if they can. The people that control VRNG might consider that they'd rather have a billion in cash from the payouts, that they can then push into more patent gains, than to sell right now for, say, $800m.

I think people in that type of position frequently tend to get over-confident after winning, and rather than take one big payday, they keep rolling the dice.

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As long as clueless fucking judges allow this shit to keep happening, America is going to keep losing its tech edge. These patent trolls make creating anything in the US risky for businesses.

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Article makes no mention of the validity of the patent. Does the court not take that into question?

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I'm not a lawyer, but as I understand it, the validity of a patent, and the infringement case, are handled by separate courts, each on its own schedule. You can get an infringement judgement against you for a patent that is ultimately invalidated, and the judgement still stands.

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Repeat after me: the patent system cannot be reformed -- the only real way to fix this is to abolish patents completely. Patents no longer serve any other purpose than wasting our time.

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Yeah, just get rid of patents. They serve no purpose any more today.

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Just hundreds of millions? Is that only going forward or is it retroactive? If it's the latter, I'd expect that number to be much, much higher.

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It's only retroactive back to 2012 and the patent expires in 2016.

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I was wondering Google started to use Adwords from 2012? But I heard about re-targeting in 2012 though. It is said Google knew it from 2005, but didn't buy it or failed to buy it. Not sure. Interesting story.

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Why can't they simply incorporate outside US in some country where the patents are milder ? Or is it that they have to pay royalty even then...

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It wouldn't have any effect on business they do in the US.

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Here is what two economists at the St Louis Federal Reserve have to say about patents (tl;dr they are bad)

http://research.stlouisfed.org/wp/2012/2012-035.pdf

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Wouldn't it be cheaper and safer for google to just controller interest in the company? A hostile takeover if you will...

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If you infringe, you have to pay.

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> Smart people invent things. Then they get to protect the intellectual property on what they invents.

Then all previous knowledges we get from ancestors should be protected. The dead also deserve a share.

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google got shafted...or was it the other way around...? Good day!

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Wow! As a patent agent, those patents are pure MONEY patents, incredibly broad, especially to have been published in 2001 (but with a priority date of 1996) Here is the money claim:

A search engine system comprising: a first system for receiving informons from a network on a continuing search basis, for filtering such informons for relevancy to a query from an individual user, and for storing a ranked list of relevant informons as a wire; a second system for receiving informons from a network on a current demand search basis and for filtering such informons for relevancy to the query from the individual user; and a third system for selecting at least one of the first and second systems to make a search for the query and to return the wire or demand search results to the individual user. ==========

here is the money claim for the other patent:

. A search system comprising: a scanning system for searching for information relevant to a query associated with a first user in a plurality of users; a feedback system for receiving information found to be relevant to the query by other users; and a content-based filter system for combining the information from the feedback system with the information from the scanning system and for filtering the combined information for relevance to at least one of the query and the first user.

man, that second one is a pretty broad patent.

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Vringo isn't your average patent troll and actually has a fascinating back story and history behind it. Here's a good link to understand the background.

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

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Note that the author is an investor in Vringo.

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