Patents raise stakes in search wars

The battle lines were drawn last week, when Yahoo dumped longtime partner Google as its provider of Web navigation software and so set off a search engine arms race.

The two companies have been tussling for months over a patent for a bidding system--the money engine that powers search-related advertisements--that Yahoo inherited after its acquisition of Overture Services last year. Although the case is unfolding very quietly, it offers an early sign of the intensification of intellectual property struggles over Web search, analysts said.

"Yahoo v. Google is part of the iceberg under the surface," said David Jacobs, an attorney for Lucash, Gesmer and Updegrove, a law firm based in Boston. "A lot goes on behind the scenes, like the exchange of 'nastygrams' between attorneys, and much of that moves the industry or is a drag on it, however you want to look at it."

Patents are important in any business that relies on technology, and it's not surprising to see companies face off over intellectual property (IP) in Web search. But few turf wars have erupted so rapidly, and with such sweeping potential consequences, as they have in the search industry.

Long considered a dry area of academic research, search exploded into the business mainstream about two years ago, when it was realized that search results had the power to influence transactions. Search-engine advertising is now one of the fastest-growing segments of the rebounding Internet marketing sector, and helped fuel Yahoo's earnings growth of 84 percent last year.

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With recognition has come respect, and search is fast becoming a research and development priority at some of the biggest players in technology, including Microsoft and IBM. It's led to a feeding frenzy, according to some search industry insiders.

"They file patents like they're going out of style," said Jason Weiner, who plans to launch a new Web search engine called Dipsie later this year. "It's gotten much more important to make sure IP is protected off the bat."

For its part, Yahoo holds the keys to a storehouse of patents amassed through two major acquisitions in the last 14 months--Inktomi and Overture. CEO Terry Semel remarked on the importance of Yahoo's patent holdings immediately after it bought Overture: "We'll add...to our technology assets Overture's impressive intellectual property portfolio of both algorithmic and sponsored search patents."

Before its takeover by Yahoo, Overture bought AltaVista and so acquired some of the oldest patents on Web search. When AltaVista was part of Digital Equipment, it secured seven patents on Web crawling technologies, seven on indexing and two on query processing. It has 16 patents pending related to forward-looking search technologies.

In addition, with its $280 million buyout of Inktomi, Yahoo picked up another handful of search-related patents.

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Google holds at least eight patents, but it might have more. Those include patents on methods for information extraction from a database and for detecting duplicate and near-duplicate files. Google founder Larry Page was part of a group at Stanford that patented PageRank, a formula for calculating the importance of Web pages, based on the number of other pages linked to it.

At the same time, Microsoft holds general search-related patents that include methods for searching information in directory listings; a system for improving search area selection; and a third method of "concept" searching that uses a Boolean or keyword search engine.

Online retailer Amazon.com has also laid claim to a patent that could affect search-related advertising. In March, it updated an application for a method of auctioning off ads that appear on a Web page.

Recently awarded search patents include one granted to NEC for a "focused search engine" and one awarded to Alexa Internet, part of Amazon.com, for tracing Web surfing history.

To add strength to their claims, Google, Microsoft and others are taking the tack of writing copious academic papers that cite the method in question and get it on record, according to industry watchers. Academic papers can be used to prove "prior art," or that the idea or invention was floated before a patent comes along to claim the same thing.

Microsoft, for example, has hired experts in the field of natural-language information retrieval, and the team is writing academic papers and filing patents related to search.

Bidding for a patent win Although companies are mainly just jostling for position for now, a handful of Web search patent claims have already gone to court.

Overture, formerly called GoTo.com, claims the rights to a system and method that allows Web site customers to influence how they rank within search results. The company auctions off keywords, giving the top bidders the highest placement in searches that use those terms. Overture's system also uses a pay-for-performance model, under which advertisers pay the bid price only when a surfer clicks on a displayed link.

Overture has long sought to protect its growing market dominance: It has hired a staff of IP experts and aggressively wielded its portfolio of patents for pay-for-performance search against rivals. The company sued FindWhat.com in February 2002, after FindWhat filed a summary judgment request in a New York federal court in an attempt to fend off any potential infringement charge from Overture. Two months later, Overture launched a second lawsuit, in which it said that Google's pay-for-performance ad system infringed its patent.

According to that lawsuit, Overture's patent covers 67 separate claims, including exclusive rights to a "system for enabling an advertising Web site promoter using a computer network to update information relating to a search listing within a search-result list generated by an Internet search engine."

Attorneys in the case are still in discovery phase, according to both sides. A tutorial hearing and a Markman hearing are set for March 10 and March 24, respectively. Those hearings are designed to work out how the court interprets the patent claims, or what they mean in plain English. These hearings will serve as important milestones in the case, after which counsel will propose a trial date.

A trial date for the FindWhat case is scheduled for Aug. 24. Industry watchers are anxiously anticipating its outcome.

"The case is significant to all search engines, because it will be the first to consider the scope and validity of the method patent Overture obtained back in 1999, which purports to lock up the so-called bid for placement product on search engines," said Terrence Ross, an attorney at the law firm Gibson Dunn.

"If Overture prevails, it (and its owner, Yahoo) will have a major advantage over all other search engines for the duration of the patent (20 years)."

It's hard to judge who's ahead in the contest, given the uncertainties of patent law. The search-engine business has already seen some wide-ranging patent claims sputter.

Lycos and one-time AltaVista owner CMGI once publicly claimed patents that suggested they owned the rights to basic technology, known as "spidering," that is used to index the Web pages included in search databases. The claims did not come to much.

In fact, patents often play a defensive rather than offensive role in business strategies. Patents that are never used to bring an infringement suit against a competitor can still be useful, for example, in strengthening a company's hand in licensing negotiations.

"Patents are one of those things in life you absolutely want to have but may never use," said Jim Barnett, former CEO of AltaVista. "It's a form of insurance--without a strong patent portfolio, you're exposed."