Vringo Patent Ruling May Cost Google Plenty

, The Litigation Daily

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In dribs and drabs, Vringo Inc.'s November 2012 patent infringement verdict against Google Inc. has ballooned into one of the largest in years. The licensing company may have landed the knockout punch on Tuesday, when a judge awarded it a slice of Google's future revenue from the online advertising platform AdWords.

In an eight-page decision, U.S. District Judge Raymond Jackson in Alexandria, Va., ordered Google to pay Vringo a 1.36 percent royalty on its U.S.–based AdWords revenue. Google still hasn't revealed the size of that revenue, and it remains unclear when the royalty period will end, so Google's exact liability isn't yet clear. But the company may be on the hook for more than $600 million, for reasons we'll explain. And that comes on top of $48 million Google was already ordered to pay for past infringement of Vringo's search engine patents.

In 2011 an entity called I/P Engine Inc. acquired patents from the search engine pioneer Lycos Inc. A few months after the purchase, I/P Engine asserted two patents against Google and a few of its AdWords customers, including AOL Inc. and Target Corp (Google has indemnified its customers). Vringo, which started as a ring tone company but now focuses on litigation, acquired I/P Engine and took over the lawsuits in 2012. A Dickstein Shapiro team led by Jeffrey Sherwood represents Vringo, along with attorneys at Crenshaw Ware & Martin.

The case culminated in a November 2012 trial, which focused on the issue of past infringement. Sherwood squared off against Google counsel David Perlson, David Nelson and David Bilsker of Quinn Emanuel Urquhart & Sullivan. A jury awarded Vringo $30.5 million, much less than it was seeking. Earlier this month, Jackson tacked on $17.5 million in supplemental damages for past infringement during a 51-day period that included the trial itself.

The separate fight over future damages has been a rout for Vringo. Google's defense hinged on a so-called design-around, in which the defendant modifies its technology to avoid the alleged infringement. Google said it completed a design-around of Vringo's patents in May 2013, so its liability for future damages ended then.

Jackson rejected Quinn Emanuel's arguments in Jan. 22 decision, writing that the new AdWords system isn't "colorably different" than the infringing one. The debate then shifted to determining future damages.

Tuesday's ruling represents Jackson's first stab at resolving that key issue. Siding with Vringo, he ruled that Google should pay a royalty of 6.5 percent on 21 percent of U.S.–based AdWords revenue, which works out to a 1.36 percent royalty on Google's total AdWords revenue. The royalty payments will continue until Vringo's patents expire in April 2016, unless Google does a second design-around that satisfies the judge.

We don't know Google's exact liability under either scenario, since Google hasn't yet divulged its total revenue. Joe Mullin of Ars Technica estimates that Google's AdWords revenue is between $15 billion and $18 billion per year. If he's right, Google's liability would be more than $200 million a year. If Google ends up on the hook until April 2016, it's looking at roughly $600 million or $700 million in damages on top of the prior verdict.

Quinn Emanuel's Perlson and Nelson didn't return requests for comment. Google has already appealed the underlying infringement verdict, and it will surely appeal Jackson's latest orders as well. The U.S. Court of Appeals for the Federal Circuit does have a habit of slicing big patent verdicts, so Vringo can't claim victory yet.

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