Patents Loom in Behavioral Targeting Sector

More behavioral targeting-related tremors rumbled yesterday as optimization firm Omniture and Modavox, which is suing AOL’s Tacoda, announced new patents. The Modavox patent, which refines one previously issued by The U.S. Patent Office, has prompted the firm to revise its claims against the newly-acquired Tacoda, and threatens to become a thorn in the side of other behavioral targeting technology firms.

The fact that another behavioral targeting ad network, Blue Lithium, is also set to be scooped up by an online giant — Yahoo — raises questions as to whether they’ll be Modavox’s next lawsuit targets.

The patents and lawsuits in the behavioral targeting arena also bring to the fore concerns about long-controversial business method patents.

Adding to an extensive roster of U.S. and foreign-issued patents, the one awarded Omniture on August 21 deals with its behavioral targeting and testing systems for content and ad targeting, as well as maximizing search and performance-based ad revenue yields. Omniture, which filed for the patent in 2001, offers Web analytics, optimization and on-site behavioral targeting technology.

The company has been caught in the crosshairs of a technology patent suit in the past. Last year Omniture settled out of court with NetRatings, which had filed suits against Omniture and Coremetrics in 2005, claiming the companies were infringing on its patents for computer usage data analysis and reporting. Last year, Coremetrics also settled with NetRatings, now known as Nielsen/NetRatings following a merger with Nielsen.

It’s unclear whether Omniture plans to sue or demand licensing fees from alleged patent infringers as a result of the newly-awarded patent. Omniture did not respond to several requests seeking comment for this story.

Teaching an Old Patent New Tricks

Modavox, on the other hand, has its sights set on taking the infringement lawsuit route to exploiting patents it believes relate to behavioral ad targeting. The multimedia production and services firm-turned-software provider has been assessing possible lawsuit targets, and believes its just-issued USPTO patent number 7,269,636 demonstrates a reaffirmation by the patent office of the legitimacy of the earlier patent it extends, thus bolstering its suit against Tacoda.

Daniel Coughlin, lead counsel in Modavox’s intellectual property enforcement and licensing efforts and partner with Fox Rothschild LLP, told ClickZ News the new patent is “a straight continuation” of one previously-awarded in 2003 for technology that serves customized multimedia content and ads to Web users. Essentially, the new patent acts as an extension of the original, which was filed in 1999, tacking on additional claims in the hopes of keeping the initial patent up to date and, in this case, actionable in court.

“As [Modavox] trudges through the patent office, they’re trying to hone their claims to cover what they see coming down the pike, to keep tailoring it to what else is out there in the market,” said Brett Trout, a patent attorney specializing in Internet technologies.

Tacoda would not comment on the suit for this story. AOL agreed to buy the company last month for $275 million to expand the behavioral targeting capabilities of its Advertising.com ad network and on its own properties. Tacoda, which launched in 2001, alludes to its technology as patent-pending.

Modavox has begun dabbling in the online ad industry by opening a new Interactive Media Division facility in March and boosting rich media ad delivery capabilities through its acquisition of Kino Interactive last year. Yet, even though Modavox provides audio and video content and ad delivery services to some Gannett sites and other clients, it remains virtually unknown in the interactive ad industry.

By comparison, Tacoda has always served the online ad sector and was founded by a Web advertising technology veteran, Dave Morgan. He’s also the founder of one of the first online ad networks, Real Media, which has since merged to become 24/7 Real Media and was recently acquired by agency holding company WPP.

Tacoda could choose to settle out of court, saving years of legal wrangling with Modavox and lots of money. Of course, the defendant does have the option of enduring a legal battle to fight Modavox in the hopes of invalidating its patent. That’s not only likely to be a laborious and lengthy task; it may not be in Tacoda’s or AOL’s best interest.

“If they win and invalidate [Modavox’s] patent, they’ve kind of won the case for all their competitors as well,” said Trout. “It kind of puts AOL at a disadvantage.” AOL did not respond to a request for comment regarding the case.

A Method to the Patent Madness

The patents in question are often referred to as business-method patents, as they cover the method by which a business function is performed. The latest patent awarded Modavox is described as a “Method and code module for adding function to a Web page,” and expands upon the initial patent for a “Method and System for Adding Function to a Web Page.”

Modavox counsel Coughlin prefers to call them software or technology patents. It’s not surprising Modavox may dispute the business method moniker; such patents have been highly controversial since they got their start about a decade ago. Still, they’ve proliferated in the Internet arena ever since 1998, when a pivotal Federal court case allowed for a software patent, opening the flood gates to method patents. In years following, the USPTO began awarding business method patents to the likes of Amazon.com, eBay and Priceline.com for things like ecommerce transaction systems, data processing technologies, and even education and training processes.

“Everybody just inundated the patent office,” said Trout, who suggested the patent office and judges deciding patent cases have been at a disadvantage because there isn’t much to refer to by way of precedent. “The patent office is so far behind in terms of what the state of the art is,” he continued. “A lot of times they issue things that have already been out there for quite some time.”

The descriptions of these patents alone can even seem too generalized to apply to just one company’s technology. Take Omniture’s most recent patent covering a “Method for performing a plurality of candidate actions and monitoring the responses so as to choose the next candidate action to take to control a system so as to optimally control its objective function.”

Modavox’s Next Behavioral Prey Could Be More Vulnerable

Though it has yet to name names, Modavox has not been shy about its intentions to go after other companies in the behavioral targeting space. In a company statement, Modavox Intellectual Property Consultant Andy Burgess suggested the Tacoda suit, filed in New York’s Southern District, is just the beginning. “In addition to Tacoda, we believe additional operations in the behavioral marketing space are infringing and action is being taken through comprehensive infringement analysis and third party verification practices that will provide conclusive actionable data for us moving forward.”

If Tacoda’s acquisition by AOL is any indication, Blue Lithium, a behavioral ad network recently acquired by Yahoo, could be a future target. While those firms may benefit from big legal teams and financial support, most companies in the behavioral targeting and related tech segments, such as Revenue Science and AlmondNet, are relatively small and vulnerable.

Coughlin expects the company may broaden its lawsuit reach in the future, but said it would focus on the behavioral targeting sector for now, noting, “We don’t have the resources to go out against everybody all at the same time.”

Patent suits like the ones Modavox is dangling tend to “have a very disproportionate impact on smaller companies,” said Trout. He believes judges are unlikely to dismiss such cases because they serve as a means to educate the courts about emerging technologies and set precedents in nascent legal arenas. While they may assist the courts, they can hinder growth of young companies and stifle innovation. “Companies can’t get any traction,” continued Trout, adding, “Venture capitalists are reticent to fund [firms that are up against patent suits].”

According to Coughlin, Modavox might consider licensing its patents to supposed infringers. “It makes no sense to keep everybody else from practicing an invention if Modavox can’t fully explore it all on their own,” he said.

Trout and other technology patent lawyers anticipate more Internet technology and business method patent infringement suits; for one thing, precedents have not been set that would otherwise prohibit such cases from court dismissal.

If taken up by the senate and approved, a bill recently passed by the U.S. House of Representatives could put a damper on rampant business method patent filings and lawsuits.

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