I/P Engine, Inc. ("I/P Engine") filed a complaint against AOL, Inc., Google, Inc., IAC Search & Media, Inc., Gannett Company, Inc. and Target Corporation (collectively "Defendants") in which I/P Engine alleged that the Defendants infringed several of its patents. After a jury trial, the jury reached a verdict finding that Google had infringed the asserted claims of two of I/P Engine's patents and the jury awarded I/P Engine damages in the amount of $30,496,155, which did not include interest. The jury also awarded I/P Engine a running royalty rate of 3.5%. After the trial, I/P Engine moved for an ongoing royalty and Google opposed.

The district court began its analysis by noting that "[i]n light of the Supreme Court's decision in eBay, Inc. v, MercExchange, LW, 547 U.S. 388 (2006), it is no longer appropriate for a district court to enter an automatic permanent injunction to prevent future patent infringement." Based on this directive, the district court also discussed that many other courts have found that an ongoing royalty is appropriate if the plaintiff cannot meet the requirements of a permanent injunction. The district court also concluded that "there is adequate support for the Court's authority to impose an ongoing royalty when necessary to effectuate the jury's finding of patent infringement. Further, there is no support in eBay or the subsequent case law that suggests a prevailing party in a patent infringement suit must be able to show that the requirements for a permanent injunction have been met before an ongoing royalty can be awarded to said party."

As the district court explained, "[o]nce a district court determines that a permanent injunction is not warranted and an ongoing royalty is necessary to compensate a Plaintiff for future infringement, the Court must fix an appropriate ongoing royalty. Doing so requires the Court to make three determinations. First, the Court must determine what the appropriate royalty base is. Second, the Court must determine what the appropriate royalty rate is. Third, the Court must determine the frequency of the royalty payment. Furthermore, in situations in which a Defendant argues that it is no longer infringing on the Plaintiff's technology, the Court must determine the duration an ongoing royalty should be awarded for as well as whether an ongoing royalty is justified at all."

The district court then turned to the question of the ongoing royalty. "At trial, the Plaintiff introduced expert testimony that starting in the Fourth Quarter of 2007, the infringing components of the Smart Ads system added 20.9% to Google's U.S. AdWords revenue and additional evidence is in the record to support this position. The Defendants continue to contest the use of this base and the matter is on appeal at the Federal Circuit. The Court will not re-litigate this question and will apply the 20.9% royalty base introduced at trial to determine the proper ongoing royalty."

Nonetheless, the district court also had to address Google's argument that its AdWords products no longer infringed the plaintiff's technology. "Google argues that its AdWords products, as of May 11, 2013, no longer infringe on the Plaintiff's patents. In effect, Google asserts it has created a "new" product ("New AdWords") that does not infringe and should not be subject to any ongoing royalty. The Plaintiff calls the Defendants' claim a "red herring" and urges the Court to establish a parallel proceeding for resolving the question of whether New AdWords is nothing more than a colorable variation of the adjudicated system and whether an ongoing royalty on New AdWords is appropriate. Since the ease and availability of non-infringing alternatives has some relevance to the question of an ongoing royalty as well as to the duration of such a royalty, running a parallel proceeding to address New AdWords is not in the interests of judicial economy. Instead, the Creative Internet Court's approach is preferred. In that case, the court directed the parties engage in additional discovery and additional briefing and addressed all royalty matters in a comprehensive fashion."

As a result, the district court ordered additional discovery.

Finally, the district court also ordered the parties to attempt to negotiate their own ongoing royalty rate as suggested by the Federal Circuit. "As the Federal Circuit suggests, parties should be given the opportunity to set their own royalty rate before the Court imposes one. Paice II, 504 F.3d at 1314-1315. To this end, within FIVE (5) days of completing the aforementioned discovery and briefing schedule, the Court ORDERS the parties to meet and to negotiate an appropriate ongoing royalty rate, using 20.9% of U.S. AdWords revenues as the appropriate royalty base. If the parties are unable to come to an agreement, the Court FURTHER ORDERS the parties to schedule a settlement conference with the United States Magistrate Judge assigned to this case no later than December 1, 2013."

IP Engine, Inc. v. AOL, Inc., et al., Case No. 2:11-cv-00512-RAJ-TEM (E.D. Va. Aug. 14, 2013)