Rader as Trial Judge Hands Google & AOL Victory in ED of Texas

Sitting by designation in the United States District Court for the Eastern District of Texas, soon to be Chief Judge of the Federal Circuit, Judge Randall Rader, granted summary judgment to Google Inc. and AOL LLC in the case brought by Performance Pricing, Inc., which alleged infringement of U.S. Patent No. 6,978,253. This decision, which was handed down on March 17, 2010, was brought to my attention by Docket Report, and was the lead case today in their daily summary of patent cases, rulings and important decisions.

Performance Pricing accused both Google and AOL of infringing claims 1, 2, 12-15, 18, 20-23, and 30 of the ’253 patent, titled “Systems and Methods for Transacting Business Over a Global Communications Network Such as the Internet.”  The patent claims methods of doing business over the Internet “wherein various forms of competition and/or entertainment are used to determine transaction prices between buyers and sellers.” ’253 patent, col.1 ll.10-14.  Specifically, the patent discloses methods for using a “price-determining activity,” or PDA, to market on the internet.   The specification broadly describes the types of activities that constitute a price-determining activity, such as “a video game (including audio/visual games), electronic board game, crossword puzzle or other word game, sports bet, card game, or any other activity or combination of activities.” Id. at col. 2 ll.28-31. The patent suggests that a seller might offer a Mark McGwire rookie card for anywhere between $500 to $575.  As an aside Judge Rader points out that the patent was filed in 1999, the year after Mark McGwire broke the single season home run record.

Following extensive briefing and a claim construction hearing, the Magistrate Judge, to whom the case was referred, construed the disputed terms of the asserted claims.  The court construed “price-determining-activity” to mean “any form of competition or entertainment activity or combination of such activities that is used to determine the price paid for the product or service and is not otherwise part of a sales transaction.”  The parties then filed cross motions for summary judgment on the issue of infringement.  Performance Pricing argued that the “price-determining activity” in AdWords is the creation and submission of the most relevant advertisement for a keyword. In response, Defendants argued, among other things, that AdWords does not have a price-determining activity because the ad text that the buyer submits is what is displayed on a search result page. Thus, Defendants contended, the buyer’s submission of relevant ad text plays a “part of [the] sales transaction” in addition to determining price.

According to the invention, a buyer interested in purchasing the McGwire card is then presented with a pull-down menu of five different PDAs to choose from, one being a Mark McGwire trivia quiz consisting of ten questions.  The patent explains that, for example, the seller might offer the card for $500 if the buyer answers nine of ten multiple choice questions correctly and $560 if he answers five of ten correctly.  In all of the claims of the patent, the price of a product is to be based on a “performance of [a] buyer while participating in a Price-Determining-Activity (PDA).”

Performance Pricing accused AdWords, Google’s online advertising auction system, of infringing the ’253 patent. Performance Pricing also accused AOL Search Marketplace of infringing the ’253 patent given that AOL uses the search technology of Google’s AdWords in providing its AOL Search Marketplace.

AdWords is an auction system used to sell Internet advertising space in connection with search results on Google.com and on its partner sites. Each time an end user enters a search query on Google.com, AdWords runs an auction for the ad space available on the search results page displayed to the end user. To participate in AdWords auctions, the following must be submitted: ad text, a bid amount, and a keyword that the advertiser wishes to associate with its ad text. The ad text includes a title, up to two additional lines of description, and a web address that represents the advertiser’s website (a “display URL”).  In each AdWords auction, AdWords ranks the eligible ads based on their “Ad Rank.”  Winning ads are displayed to the end user such that ads with higher Ad Ranks have priority over ads with lower Ad Ranks in the same ad block.

Ad Rank is calculated based on the advertiser’s Maximum Cost-Per-Click bid and what Google refers to as the “Quality Score”: Ad Rank = Maximum Cost-Per-Click × Quality Score.  AdWords computes a Quality Score for each eligible ad that predicts the likelihood that the end user will click on the ad in that particular auction. Google’s proprietary Quality Score algorithm includes many parameters, one of which might be the ad text.  Quality Score is also used to calculate the price an advertiser will pay if an end user clicks on the ad. Google refers to the price as “Actual Cost Per Click.” The Actual Cost Per Click is calculated according to the following formula: Actual Cost Per Click = next-best Ad Rank / Quality Score.

Judge Rader ruled that there was no infringement and summary judgment was appropriate because there were no genuine issues of fact in dispute.  More specifically, Rader determined that AdWords does not contain a price-determining activity.  Google requires advertisers to submit the very ad text that Google will display in the ad space. Thus, the advertiser’s submission of the most relevant ad text necessarily defines the product itself.  Furthermore, it was determined that AdWords is not at all akin to a buyer correctly answering baseball trivia in order to obtain a lower price on a separate pre-existing baseball card. In fact, the advertiser’s submission is “otherwise part of the sales transaction” because the buyer’s performance in AdWords not only affects the price but actually becomes part of, the product.  Still further, the record showed that the advertising space purchased by the buyer actually changes based on its performance in submitting effective ad text.

AdWords decides if a submission appears in the first, second, third, or lower ad space on the page. Once again, the submitting activity changes the product itself.  Therefore, Performance Pricing could not succeed in creating any genuine issue of material fact, failing in its attempt to create a factual dispute by contending that the sales transaction in AdWords is for advertising space divorced from the relevancy of the ad.

Performance Pricing’s last argument was characterized by the court as seeking an exception to the court’s claim construction for price-determining activity, basically urging an exception appropriate for when the activity is combined with an auction. This was ineffective, at least in part, because the parties stipulated during claim construction that “an auction is not a PDA.”  Notwithstanding Rader went on to explain that the specification describes the embodiment where price is partially determined based on an auction as “the buyer may be entitled to a further discount of the auction or reverse auction price, which discount may be greater if the buyer performs well at the PDA, and not so great if the buyer performs poorly.” ’253 patent, col.4 ll.39-44 (emphasis added).  Thus, the patent does not contemplate a different construction of price-determining activity in the auction context  and Performance Pricing provided no legal support that would justify construing a term differently in different factual contexts.

Therefore, because there were no genuine issues of material fact and because even when broadly construed the claims of the ‘253 patent were not infringed, summary judgment was awarded.


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