April 5, 2002 3:10 PM PST

Overture sues Google over search patent

update Paid-search listing company Overture Services has filed a patent infringement lawsuit against Google, saying the rival search service overstepped its bounds with its ad-placement tools.

Overture said the suit, filed late Thursday in U.S. District Court in Los Angeles, applies to all Google products that are not related to its mathematical search methods--techniques whose results have endeared Google to Web surfers the world over for their objectivity and relevance. The lawsuit follows a similar case that Overture filed against FindWhat.com in January.

"We've recently become aware that (Google is) infringing on our patent, and it's our policy to protect our intellectual property," said Overture spokesman Al Duncan.

Google denied that it infringes on the patent.

"Basically we've analyzed the patent and determined that we do not infringe on any valid claim that it contains," said Cindy McCaffrey, a Google spokeswoman.

The litigation underscores growing friction between Overture and Google--two companies that have garnered significant attention for their distinctive approaches to Internet search. Overture sells its listings by auctioning off search terms to the highest bidder--an approach that it compares to the yellow pages. Google, by contrast, seeks to index every page on the Web and then rank pages according to a proprietary statistical system.

Rivalry between the services has grown in recent months, with Google in February knocking out Overture as the paid-search service for Internet service provider EarthLink, a deal that marked Google's first foray into syndicated advertising. Although analysts said Overture's immediate position appeared unthreatened, the company's shares tumbled more than 10 percent on the news.

Another question mark has appeared above Overture's prospects in recent weeks concerning the status of a key contract with America Online. Last month, the companies extended their deal through April 24 as they seek to hammer out a long-term agreement.

At issue in Thursday's lawsuit is Google's method for selling and displaying advertising, which is keyed to search terms and appears alongside and above search results on its Web site. In February, the company introduced a service called AdWords Select that allows marketers to bid for higher placement in marked sections--a tactic that has some similarities to Overture's search-listing auctions.

Specifically, Overture alleges that Google is infringing on its Patent 6,269,361, which applies to the essential components "related to the features and innovations surrounding our bid-for-placement products and our pay-for-performance search technologies," Overture's Duncan said.

According to the filing, the 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."

Overture's patent infringement suit comes amid widespread criticism of so-called business method patents--a relatively new class of invention recognized by the U.S. Patent Office and the courts that has led to a flood of filings laying claim to nuts and bolts Internet activities. Several high-profile Internet business method patents have drawn scrutiny from intellectual property experts, including a Priceline.com patent on Internet reverse auctions and Amazon.com's 1-Click shopping feature.

Danny Sullivan, an editor with SearchEngineWatch.com, predicted the Overture lawsuits against Google and FindWhat are unlikely to lead to sweeping limits on paid-search listings, but he added that the litigation does not bode well for search engine marketing.

"Ultimately, the bigger impact could be on consumers," he said. "The big fear...here is that suddenly, they get a very broad-based ruling and nobody can have listings organized--even say on a cost-per-click basis. We wouldn't have paid listings at all."

Battle of the search engines
Google has become extremely popular with Web surfers who value its results, but like many other Web businesses, its popularity has not provided an automatic boost for its bottom line.

According to Nielsen/NetRatings, Google attracted the third-largest search audience on the Net in February, with 27.4 million unique visitors. While it trailed Yahoo and Microsoft's MSN in audience numbers, its visitors on average stayed for about 26 minutes, nearly three times as long as its more-trafficked rivals.

In recent months, the Mountain View, Calif.-based company has begun beefing up its commercial offerings, which many observers interpret as a sign that it hopes to raise interest for an initial public offering.

Those moves have increasingly brought the service into direct competition with Overture, the most successful paid-search listing service with syndication through most major Web portals, including Yahoo, Microsoft's MSN site and AOL.

Overture's model already generates a healthy revenue stream for the company, making it a huge hit with investors. The company's stock has nearly tripled in the past year, jumping from below $10 last March to its $26.82 close Friday.

Merrill Lynch analyst Justin Baldauf recently said he expects Overture to hit $440 million in revenues in 2002, up from $288.1 million last year. And it's profitable, with earnings of 36 cents a share in 2001. Google, by contrast, pulls in less than $100 million annually, Baldauf estimates.

Despite Overture's dominance, the company has taken some hits in recent months, partly because of uncertainty over the potential long-term affect of competition with Google.

In addition to winning the EarthLink contract, Google in February said it would begin auctioning ad-sponsored links on its search-results pages, firing a clear shot across Overture's bow.

The AdWords Select program ranks ads based partly on how much an advertiser pays and partly on popularity, or click-through rates. AdWords Select requires advertisers to pay only when a visitor clicks on the ad. Google's previous program, AdWords, was based on a traditional online system that required payment by the number of impressions delivered.

Despite the brewing battle over paid-search bidding methods, SearchEngineWatch's Sullivan said the model may eventually fall away as companies seek greater predictability from search engine marketing.

"Interestingly, in the long term what's going to happen is some of the bigger advertisers are not going to be excited about the idea of bidding for placement," he said. "They're actually demanding systems where they can pay a flat fee and know that they're going to have a certain kind of result."

News.com's Evan Hansen contributed to this report.

 

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