Saturday, May 20, 2006
eBay Ruling Puts Patent Rights Under the Microscope
On Monday, the U.S. Supreme Court ruled in favor of eBay in a longstanding patent dispute with MercExchange. In particular, the Court reversed the appeals court's interpretation regarding the granting of an injunction in a patent infringement suit. For well over a hundred years, patentees, in addition to recovering monetary damages for infringement, have also been entitled to seek injunctive relief. The theory has been that a patent is a property right, covering intellectual property, and injunctive relief gives the patentee dominion over the usage of that right and denying others from traversing.
Akin to personal property rights, injunctive relief is necessary for an owner to exercise exclusivity, which is the precise nature of a patentee's limited grant from the government. The Court held that patentees seeking equitable relief are not automatically entitled to injunctions, and must instead demonstrate that injunctive relief is necessary and in the public's interest. The Court, unhappy with both the trial and appellate court interpretations, remanded the case for further proceedings -- that is, instructed the parties to try again. A monetary judgment against eBay for US$29.5 million for infringement of MercExchange's patent rights is not affected by this ruling. The eBay decision is a boon for IT companies and a possible bane for other industries such as life sciences. Over the last year or so, Microsoft and other large IT companies -- notably Intel -- have campaigned to soften the power of patentees in seeking injunctive relief.
Their considered argument is that IT/software products incorporate numerous innovations, each of which is potentially a patent lawsuit in and of itself. There is an inherent unfairness in being compelled to defend myriad suits, they maintain, especially those brought by companies that are not competitors -- that is, patent-holding companies seeking licensing fees, or so-called "trolls."
The troll argument was used effectively by RIM in its defense against NTP's lawsuit, although the parties ultimately settled. The bitter pill RIM swallowed and the lawsuit's attack on the U.S. patent system -- RIM is a Canadian company -- got considerable press that likely influenced the Justices' opinions, especially the concurrence by J. Kennedy.
For life sciences, chemical and many other industries, the eBay decision will decrease the value of patents. A patent, being an exclusionary right, protects the "property" in question -- that is, the intellectual property -- and injunctions prevent others from abusing that property. Since these innovations are covered by a small number of patents -- as opposed to large software products or integrated circuitry with thousands of discrete innovations -- the patent rights are key tools in these industries. Any erosion of patent rights will adversely affect valuation of assets, downplay the amount of R&D spent -- if it cannot be protected, why spend millions? -- and otherwise create a negative climate for innovation. Justice Roberts, however, indicated in his concurrence that the long history of granting injunctive rights to patentees should be a good indication of the need for such relief, even if not automatically given.
The very short and unanimous opinion written by Justice Thomas, however, does not necessarily spell the end of innovation. The Justices well know that the social balance for patenting requires giving innovators a stake in their inventions and the power to exercise their rights. Over time, as new cases accumulate that articulate the reasons for the social contract and advantages patents bring, we can then examine the impact to various industries of Monday's decision. It is possible that Congress may get into the act to more precisely define the standards for imposition of the patent right -- for example, to require that an infringement determination would trigger the injunctive right unless particular factors apply. The "normal" injunctive relief standard is, however, quite workable in patent infringement actions, with the assumption that the public interest is served by having a robust patent system. A refinement of the equity test for injunctive relief is not necessarily a call for action -- yet. Nonetheless, it may cause concern among stockholders and innovators. The U.S. patent system, with all its flaws, is still a marvel of the present age and, in large measure, a reason for the industrial might of the U.S.
Any decrease in the value of patent rights must be carefully evaluated and the impact on society, as a whole, considered. Monday's opinion provides a catalyst to start this dialogue anew.
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Akin to personal property rights, injunctive relief is necessary for an owner to exercise exclusivity, which is the precise nature of a patentee's limited grant from the government. The Court held that patentees seeking equitable relief are not automatically entitled to injunctions, and must instead demonstrate that injunctive relief is necessary and in the public's interest. The Court, unhappy with both the trial and appellate court interpretations, remanded the case for further proceedings -- that is, instructed the parties to try again. A monetary judgment against eBay for US$29.5 million for infringement of MercExchange's patent rights is not affected by this ruling. The eBay decision is a boon for IT companies and a possible bane for other industries such as life sciences. Over the last year or so, Microsoft and other large IT companies -- notably Intel -- have campaigned to soften the power of patentees in seeking injunctive relief.
Their considered argument is that IT/software products incorporate numerous innovations, each of which is potentially a patent lawsuit in and of itself. There is an inherent unfairness in being compelled to defend myriad suits, they maintain, especially those brought by companies that are not competitors -- that is, patent-holding companies seeking licensing fees, or so-called "trolls."
The troll argument was used effectively by RIM in its defense against NTP's lawsuit, although the parties ultimately settled. The bitter pill RIM swallowed and the lawsuit's attack on the U.S. patent system -- RIM is a Canadian company -- got considerable press that likely influenced the Justices' opinions, especially the concurrence by J. Kennedy.
For life sciences, chemical and many other industries, the eBay decision will decrease the value of patents. A patent, being an exclusionary right, protects the "property" in question -- that is, the intellectual property -- and injunctions prevent others from abusing that property. Since these innovations are covered by a small number of patents -- as opposed to large software products or integrated circuitry with thousands of discrete innovations -- the patent rights are key tools in these industries. Any erosion of patent rights will adversely affect valuation of assets, downplay the amount of R&D spent -- if it cannot be protected, why spend millions? -- and otherwise create a negative climate for innovation. Justice Roberts, however, indicated in his concurrence that the long history of granting injunctive rights to patentees should be a good indication of the need for such relief, even if not automatically given.
The very short and unanimous opinion written by Justice Thomas, however, does not necessarily spell the end of innovation. The Justices well know that the social balance for patenting requires giving innovators a stake in their inventions and the power to exercise their rights. Over time, as new cases accumulate that articulate the reasons for the social contract and advantages patents bring, we can then examine the impact to various industries of Monday's decision. It is possible that Congress may get into the act to more precisely define the standards for imposition of the patent right -- for example, to require that an infringement determination would trigger the injunctive right unless particular factors apply. The "normal" injunctive relief standard is, however, quite workable in patent infringement actions, with the assumption that the public interest is served by having a robust patent system. A refinement of the equity test for injunctive relief is not necessarily a call for action -- yet. Nonetheless, it may cause concern among stockholders and innovators. The U.S. patent system, with all its flaws, is still a marvel of the present age and, in large measure, a reason for the industrial might of the U.S.
Any decrease in the value of patent rights must be carefully evaluated and the impact on society, as a whole, considered. Monday's opinion provides a catalyst to start this dialogue anew.
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Monday, May 08, 2006
AOL to Offer AIM Users Free Phone Number
America Online is offering its instant messaging users a free phone number for digitized incoming calls, and for an additional charge they can call regular phones using the technology. The move is designed to help AOL cash in on a quickly expanding Internet phone market. eBay subsidiary Skype is already boasting 100 million users touting a similar service. AOL will begin offering the free numbers later this month, though the system will not be designed to allow users to transfer an existing phone number to the service. It is believed that the extra number for incoming calls will be attractive to those wishing to keep their home phone number private or separate from other numbers. For US$14.95 a month users will be able to upgrade to a service that allows for incoming and outgoing calls to the U.S., Canada, and 30 other countries.
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Google Hounded by Click Fraud Concerns
John Thys still hasn't figured out how much his company has paid Google for bogus sales referrals caused by "click fraud" -- a sham aimed at a perceived weakness in the Internet search leader's lucrative advertising network. However, Thys says he has uncovered enough of it to conclude that Google is trying to shortchange his company and thousands of other advertisers by offering refunds totaling US$60 million to settle a lawsuit. "It's almost like an insult that they expect us to take this token money," said Thys, director of Internet marketing for Radiator.com.
Google also expects to pay $30 million to the lawyers who settled the case on behalf of advertisers, raising the settlement's total value to as high as $90 million. Still, that's a fraction of the more than $10 billion in cash held by the Mountain View, Calif.-based search company.
An Arkansas judge is expected to consider the proposed class-action settlement in late July.
The refunds, which will be provided in the form of advertising credits, are meant to compensate Google's customers for undetected click fraud, which contributed to the $13.3 billion in ad revenue that has poured into the company since 2001. Google's offer works out to a $4.50 refund on every $1,000 spent in its vast advertising network over the past 4 1/4 years. Meanwhile, independent studies assert that anywhere from $100 to $400 of every $1,000 stems from click fraud. If those estimates prove correct, Google might be on the hook for $1 billion to $5 billion in advertising refunds.
Click fraud takes different shapes, but the end result is usually the same: Merchants are billed for fruitless traffic generated by scam artists and mischief makers who repeatedly click on an advertiser's Web link with no intention of buying anything. Based on a month-long analysis of the traffic that Google ads referred to Radiators.com, Thys suspects click fraud may have accounted for 35 percent of the Web site's $20,000 ad bill. After reviewing Thys' evidence, Google said its internal safeguards had spotted the suspicious activity as it occurred and never billed Radiators.com for fraudulent clicks. However, Thys said the search engine didn't provide him with any data to back up its findings in an e-mail signed simply by "Ray" from Google's click quality team.
Google maintains its class-action settlement represents a fair offer that underscores how well it has shielded advertisers from the costs of click fraud. The class action settlement of the Arkansas lawsuit will likely test advertisers' faith in Google. The company is supposed to send out notices of the settlement later this month, giving advertisers until late June to reject or protest the refund offer. Radiators.com already has decided to reject the offer. If the entire deal is rejected, lawyers then go back to the negotiating table; individual advertisers can also declare they won't participate, freeing them to file their own lawsuits seeking better deals or join a separate one pending in California.
Miller County Circuit Court Judge Joe Griffin is scheduled to decide whether to approve the settlement in a two-day hearing beginning July 24. Meanwhile, Yahoo - owner of the Internet's second-largest advertising network -- continues to fight similar click fraud allegations in the same Arkansas court as well as a federal court in California. A click-fraud lawsuit filed against Google in that same federal court has been suspended while its Arkansas settlement is reviewed. The Google settlement, announced in early March, already has focused more attention on click fraud.
The shady activity produces revenue for Google, Yahoo and a long list of Web sites that display the ads because the clicks trigger sales commissions even if a referral doesn't produce a sale.
Suspected motives vary. Sometimes Web merchants try to deplete a rival's advertising budget. In other instances, the owners of small Web sites participating in the marketing networks run by Google and Yahoo are believed to click on ads to generate more commissions for themselves.
Complicating the click fraud issue even further, search engine advertising isn't subjected to independent auditing like the advertising done in newspapers, magazines and broadcast media.
In search advertising, Web site owners sign contracts obligating them to pay for all valid clicks -- and the search engine has discretion over what is valid. Google is examining ways to make its fraud-fighting efforts more transparent without revealing crucial information that might help swindlers elude detection, said Shuman Ghosemajumder, the company's product manager for trust and safety.
Outside help also may be on the way. The class-action settlement requires a report from a yet-undisclosed independent expert to verify that Google has made reasonable efforts to weed out click fraud. Separately, Minneapolis-based Fair Isaac is studying the issue, drawing on its years of helping lenders fight fraud. San Antonio-based Click Forensics recently set up a free service that intends to issue quarterly reports on the frequency of click fraud, compiling information from more than 1,000 advertisers. The index's initial findings, released in late April, estimated Google and Yahoo suffered a click fraud rate of 12 percent, translating to more than $1.5 billion of Google's ad revenue. Given those findings, the settlement amount in the Arkansas class action "was very surprising to us," said Tom Cuthbert, Click Forensics' chief executive. "If I were an advertiser, I would take great care in studying that settlement." Attorneys suing Google in the California case say they will do everything possible to persuade advertisers to reject the Arkansas settlement. "Google's motto is 'do no evil,' but it's not following its own advice by entering into this kind of settlement," lawyer Brian Kabateck said.
If enough advertisers balk, it might derail the deal. Google has the right to nullify the settlement if advertisers that supplied more than 5 percent of its revenue since 2001 reject the agreement.
Google spokesperson Barry Schnitt said Kabateck and his colleagues are trying to rally opposition to the Arkansas settlement so they can revive the California lawsuit in an attempt to drum up more fees for themselves. Stephen Malouf, a Dallas lawyer who negotiated the Arkansas settlement, doubts advertisers can get a better deal than what Google has offered. "It's easy to take cheap shots now, but what is the alternative and what are the chances of success?"
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Google also expects to pay $30 million to the lawyers who settled the case on behalf of advertisers, raising the settlement's total value to as high as $90 million. Still, that's a fraction of the more than $10 billion in cash held by the Mountain View, Calif.-based search company.
An Arkansas judge is expected to consider the proposed class-action settlement in late July.
The refunds, which will be provided in the form of advertising credits, are meant to compensate Google's customers for undetected click fraud, which contributed to the $13.3 billion in ad revenue that has poured into the company since 2001. Google's offer works out to a $4.50 refund on every $1,000 spent in its vast advertising network over the past 4 1/4 years. Meanwhile, independent studies assert that anywhere from $100 to $400 of every $1,000 stems from click fraud. If those estimates prove correct, Google might be on the hook for $1 billion to $5 billion in advertising refunds.
Click fraud takes different shapes, but the end result is usually the same: Merchants are billed for fruitless traffic generated by scam artists and mischief makers who repeatedly click on an advertiser's Web link with no intention of buying anything. Based on a month-long analysis of the traffic that Google ads referred to Radiators.com, Thys suspects click fraud may have accounted for 35 percent of the Web site's $20,000 ad bill. After reviewing Thys' evidence, Google said its internal safeguards had spotted the suspicious activity as it occurred and never billed Radiators.com for fraudulent clicks. However, Thys said the search engine didn't provide him with any data to back up its findings in an e-mail signed simply by "Ray" from Google's click quality team.
Google maintains its class-action settlement represents a fair offer that underscores how well it has shielded advertisers from the costs of click fraud. The class action settlement of the Arkansas lawsuit will likely test advertisers' faith in Google. The company is supposed to send out notices of the settlement later this month, giving advertisers until late June to reject or protest the refund offer. Radiators.com already has decided to reject the offer. If the entire deal is rejected, lawyers then go back to the negotiating table; individual advertisers can also declare they won't participate, freeing them to file their own lawsuits seeking better deals or join a separate one pending in California.
Miller County Circuit Court Judge Joe Griffin is scheduled to decide whether to approve the settlement in a two-day hearing beginning July 24. Meanwhile, Yahoo - owner of the Internet's second-largest advertising network -- continues to fight similar click fraud allegations in the same Arkansas court as well as a federal court in California. A click-fraud lawsuit filed against Google in that same federal court has been suspended while its Arkansas settlement is reviewed. The Google settlement, announced in early March, already has focused more attention on click fraud.
The shady activity produces revenue for Google, Yahoo and a long list of Web sites that display the ads because the clicks trigger sales commissions even if a referral doesn't produce a sale.
Suspected motives vary. Sometimes Web merchants try to deplete a rival's advertising budget. In other instances, the owners of small Web sites participating in the marketing networks run by Google and Yahoo are believed to click on ads to generate more commissions for themselves.
Complicating the click fraud issue even further, search engine advertising isn't subjected to independent auditing like the advertising done in newspapers, magazines and broadcast media.
In search advertising, Web site owners sign contracts obligating them to pay for all valid clicks -- and the search engine has discretion over what is valid. Google is examining ways to make its fraud-fighting efforts more transparent without revealing crucial information that might help swindlers elude detection, said Shuman Ghosemajumder, the company's product manager for trust and safety.
Outside help also may be on the way. The class-action settlement requires a report from a yet-undisclosed independent expert to verify that Google has made reasonable efforts to weed out click fraud. Separately, Minneapolis-based Fair Isaac is studying the issue, drawing on its years of helping lenders fight fraud. San Antonio-based Click Forensics recently set up a free service that intends to issue quarterly reports on the frequency of click fraud, compiling information from more than 1,000 advertisers. The index's initial findings, released in late April, estimated Google and Yahoo suffered a click fraud rate of 12 percent, translating to more than $1.5 billion of Google's ad revenue. Given those findings, the settlement amount in the Arkansas class action "was very surprising to us," said Tom Cuthbert, Click Forensics' chief executive. "If I were an advertiser, I would take great care in studying that settlement." Attorneys suing Google in the California case say they will do everything possible to persuade advertisers to reject the Arkansas settlement. "Google's motto is 'do no evil,' but it's not following its own advice by entering into this kind of settlement," lawyer Brian Kabateck said.
If enough advertisers balk, it might derail the deal. Google has the right to nullify the settlement if advertisers that supplied more than 5 percent of its revenue since 2001 reject the agreement.
Google spokesperson Barry Schnitt said Kabateck and his colleagues are trying to rally opposition to the Arkansas settlement so they can revive the California lawsuit in an attempt to drum up more fees for themselves. Stephen Malouf, a Dallas lawyer who negotiated the Arkansas settlement, doubts advertisers can get a better deal than what Google has offered. "It's easy to take cheap shots now, but what is the alternative and what are the chances of success?"
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