In the 1990s, Lycos was one of the most popular sites on the web. The search engine and onetime owner of WIRED Digital was one of the primary portals onto the internet in those days. Fifteen years later, the Lycos website still exists but is all but forgotten, thanks in large part to the rise of Google. But this week, other remnants of the company rose zombie-like from the grave and took an enormous bite out of the search giant that killed it.
In Virginia, a federal judge has ruled that Google must pay 1.36 percent of revenues from its Adwords online advertising system to a tiny company that purchased a group of patents originally filed by Lycos, as first reported by Ars Technica. That is no small thing. Adwords is Google’s golden goose, the system that funds almost everything else it does.
Today’s court ruling underscores the incredible power of “patent trolls,” companies that use patents solely as a way of making money from other businesses. Google is fighting all sorts of patent holders — including a mega-troll called Rockstar, which is backed by Apple, Microsoft, Blackberry, and others — and these legal wars can affect practically any part of its business, including the very heart of the operation.
Google is known for a wide range of products and services, including the Android operating system, the Google+ social network, and now robotics and home automation, thanks to its recent acquisition of startups Boston Dynamics and Nest. But the bulk of its revenue comes from advertising sold on its flagship search engine. Despite all its interest in robots and mad science, Google is still very much an advertising company, and AdWords drives most of its advertising dollars.
In 2011, a company called Vringo acquired a set of advertising-related patents from Lycos and then sued Google over Adwords. According to Ars Technica, Vringo is a publicly traded company with its own a smartphone ringtone business, but it has never earned significant revenues, and it has spent around $10 million on legal expenses, an indication that its real business model is patent trolling.
After it first sued Google, Vringo won a cool $30 million. Then Google changed its ad auction system to avoid additional payments, but this week, the court ruled that the new version wasn’t different enough. The judge decided that the intellectual property in question contributes to about 20.9 percent of Google’s Adwords revenue, and that Google will have to pay 6.5 percent percent of that 20.9 percent to Vringo. This could amount to hundreds of millions of dollars.
Vringo also named AOL, Gannett, Target, and IAC — all of which use Adwords — in the lawsuit, but it indemnified them in the case, meaning it took on legal responsibility and will not seek money from them as well. Vringo also sued Microsoft, which settled last May for $1 million plus five percent of what Google ends up paying.
Google has vowed to appeal the case. It has a history of fighting patent trolls. But like so many others across the industry, it doesn’t always win.