It is no secret that the fortunes of Mountain View, CA-based tech conglomerate Alphabet Inc. (NASDAQ:GOOGL) are largely based upon the advertising revenues accrued through its subsidiary Google and its incredibly popular search engine. The company’s most recent earnings report for the third quarter of 2017 shows that, of the company’s $22.5 billion in revenues for the quarter, $19.8 billion came from Google advertising revenues. That’s nearly 90 percent of Google’s entire revenues for the third quarter; the rest comes from Google’s other revenues ($2.4 billion) and Alphabet’s Other Bets ($197 million). The name of the corporation may be Alphabet but that entity is nothing without Google and its advertising revenues.
This third quarter revenue trend for Google is no anomaly. The first nine months of 2017 saw the tech giant take in $64.2 billion in revenues. $57 billion worth of those revenues were generated from Google’s advertising operations. If advertising is incredibly valuable to Google, it appears that Google is also very valuable to the world of advertising according to analysis of a 2016 Internet advertising report published this April by the Internet Advertising Bureau (IAB). The IAB concluded that Internet advertising revenues in the United States through 2016 reached $75.2 billion for the year, an increase of 21.8 percent over 2015’s totals. Using IAB’s advertising revenue totals released in a quarterly update in June 2016, Jason Kint, CEO of Digital Content Next, provided analysis of IAB revenue numbers and corporate earnings reports in a blog post which showed that 90 percent of Internet advertising revenue growth went to Google and fellow American tech giant Facebook Inc. (NASDAQ:FB) Google itself took 52 percent of digital ad growth based on those numbers. These were similar to numbers released by Kint in response to the IAB’s 2016 full year report.
Google’s advertising revenues are generated through properties like AdSense and DoubleClick Ad Exchange through which advertisers purchase ad inventory and most customers pay Google on a cost-per-click basis; others pay on a cost-per-impression basis. Part of what makes these services so valuable is that they have mechanisms for targeting audiences based on the massive compendium of data which Google has on all Internet users through its search engine. Google openly admits that AdSense targets audiences in multiple ways including contextual targeting based on keyword analysis, placement targeting for specific location placement on publisher web pages, personalized advertising meant to engage viewers based on demographic and interest data, as well as language targeting based on appropriate language on publisher web pages. AdSense also offers device targeting so that advertisers can “show your ads to the right people across all devices, based on their specific location, time of day, and device type.” Similarly, buyers on the DoubleClick Ad Exchange can benefit from demand-side platforms buying over multiple exchanges “using sophisticated targeting capabilities and optimization algorithms.”
Google’s ability to target audiences with its advertising tools, then, is of crucial importance to the entire company. It’s just too bad that Google and Alphabet do not own the patent covering the technology which is earning them about $20 billion each quarter. Some wonder whether this could explain why Google has been so actively engaged in very public efforts on Capitol Hill and in the Courts to weaken the U.S. patent system.
In September 2012, Memphis, TN-based B.E. Technology, L.L.C., filed a suit alleging claims of patent infringement against Google in the Western District of Tennessee, asserting claims from two patents owned by the company. Those patents are:
- U.S. Patent No. 6628314, titled Computer Interface Method and Apparatus with Targeted Advertising. Issued to B.E. Tech in September 2003 and listing Martin David Hoyle as the inventor, this patent covers the system of upgrading software for an application providing advertising over the Internet.
- U.S. Patent No. 6771290, titled Computer Interface Method and Apparatus with Portable Network Organization System and Targeted Advertising. Another Hoyle patent issued in August 2004 to B.E. Tech, it covers a toolbar application developed by B.E. Tech providing a user with a graphical user interface (GUI) to interact with the data system providing an advertising platform.
To this day, B.E. Tech’s intellectual property covering the sector of Internet advertising continues to be foundational, and this is a fact confirmed by Google’s own search engine. A screenshot of Google search results conducted on November 7th using the term ‘targeted advertising patent’ (without quotes) shows that the most cited document on the topic is another Hoyle patent assigned to B.E. Tech. U.S. Patent No. 6141010, same title as the ‘314 patent and issued in October 2000, which claims an apparatus for use by a computer to provide a computer’s user with access to information resources via a browser in a way that benefits both the end user and advertisers by providing advertisers with a system for obtaining demographic data from end users to develop accurate profiles for targeting. Google’s search engine shows that the ‘010 patent has been cited a total of 804 times through November 7th. According to Google Patents’ entry on the ‘010 patent, the patent has been referenced as a forward citation in 1,032 U.S. patents and patent applications.
In December 2013, Judge Jon Phipps McCalla entered a motion to stay the proceedings between B.E. Tech and Google pending resolution of petitions for inter partes review (IPR) filed by Samsung, Facebook and others at the Patent Trial and Appeal Board (PTAB). According to statistics collected from Lex Machina, a total of 14 post grant challenges were brought against both the ‘290 and ‘314 patents. These 14 challenges matured into nine instituted trials. In each of those trials, final decisions were issued that found all challenged claims unpatentable. It is worth noting that the institution rate was 100% with several challenges being joined together to consolidate for purpose of administrative trial at the PTAB.
“Google is not a conventional company. We do not intend to become one. Throughout Google’s evolution as a privately held company, we have managed Google differently. We have also emphasized an atmosphere of creativity and challenge, which has helped us provide unbiased, accurate and free access to information for those who rely on us around the world.”
These words serve as the introductory language to Google’s S-1 filing with the U.S. Securities and Exchange Commission (SEC) from April 2004, the same month the company had its stock publicly listed for its initial public offering (IPO). The S-1 filing notes that, with respect to intellectual property rights claims, “we may have to pay damages or stop using technology found to be in violation of a third party’s rights.” At that time, Google was engaged in a patent infringement suit filed by Overture for patents covering bid-for-placement and pay-for-performance patents, which were allegedly infringed by Google’s AdWords program. Google settled that suit in August 2004 by offering Yahoo, Overture’s parent company, 2.7 million shares of Google stock valued at about $328 million.
Of course, that settlement came at a time when a company like Google couldn’t rely on the PTAB to render more than 90 percent of challenged patents as defective at the time of the Overture deal, or that story may have ended differently. In B.E. Tech’s case, it had to defend its property rights at an Article I tribunal run by an agency, which has admitted that panels are stacked in order to achieve policy objectives of the Director of the U.S. Patent and Trademark Office. Interestingly, the same trio of administrative patent judges (APJs) sat on the panel on each IPR proceeding involving B.E. Tech’s patents: Sally Medley, Lynne Pettigrew and Kalyan Deshpande. An article from Intellectual Property on PTAB judges, reprinted by Ropes & Gray with permission, notes that all three of these judges were in the top 10 in terms of highest cancellation rates on some or all claims. Both Medley and Deshpande had a 100 percent cancellation rate on some or all claims, and Pettigrew had a 97 percent cancellation rate. The only PTAB trials where all three of these judges sat on the same panel were the trials adjudicating the validity of B.E. Tech’s patents. Whether it was the luck of the draw, or intentional, it would be difficult – if not impossible – for B.E. Tech to have drawn a worse panel of judges.
Two judges assigned to the same set of cases having a 100 percent cancellation rate and a third judge assigned to the same set of cases having a 97 percent cancellation rate is why patent owners feel the PTAB has a clear agenda and cannot be trusted as a fair arbiter. While some in the industry say it is not helpful to characterize individuals, or judges, as pro-patent versus anti-patent, judges having a 100 percent cancellation rate defies explanation when dealing with a property right that has already been thoroughly examined and is supposed to be statutorily presumed valid, with all burdens favoring the patent owner. Call it what you will, anti-patent or not, between 100 percent cancellation rates and stacking PTAB panels to place the thumb on the scales of justice, the agency does not comport with any objective sense of what American jurisprudence is supposed to be. It makes the system look and feel rigged – and rigged against the patent owner who is put at great disadvantage to defend a property right of Constitutional magnitude.
The B.E. Tech IPRs also raise a very troubling and deeply disturbing question that must be asked. The USPTO has already admitted that Director Michelle Lee stacked PTAB panels to ensure outcomes were to her liking. How pervasive was this practice, and did the selecting of APJs to make up panels become influenced by the Director in cases other than those where panels were stacked? In other words, was B.E. Tech just assigned the worst imaginable panel a patent owner could receive through a random selection process, or were APJs selected for these cases in order to guarantee claims would be lost by the patent owner for some other reason?
While it may seem crazy to even repeat what seem to largely be conspiracy theories swirling through the community, there are no doubt many patent owners that feel that Google received different justice citing to the fact that Michelle Lee was a former Google executive. Whether that is the case or not, there is no doubt that the PTAB has needlessly brought these questions onto itself through a series of nearly incomprehensible decisions and scandals. Stacking panels is but one scandal, not having a judicial ethics policy, which allowed one PTAB judge who formerly represented Apple to decide 25 IPRs filed by Apple is another scandal. Not accepting timely submitted evidence and grossly misreading the statute and rules seems almost mundane at this point.
All of this may soon change after the U.S. Supreme Court hears oral arguments in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC on November 27th. The case will decide whether the PTAB acts in violation of the U.S. Constitution by extinguishing private property rights in a non-Article III forum without a jury. Whether the Supreme Court decides that the PTAB acts in violation of the Constitution, many patent owners hope the Supreme Court will at a minimum acknowledge that the PTAB works consistently to the detriment of patent owners in favor of efficient infringers.