Every time someone types “head shots” into Yahoo Inc.’s search engine, Terry Frick’s photography shop appears at the top of the computer screen.

His popularity didn’t get him there – he paid for it.

“I have made so many tens of thousands of dollars from Yahoo it’s not even funny,” said Frick, who began advertising his Burbank business on the Web in 1999. “I make $8 for every $1 I spend.”

Frick’s online advertisement, which offers customers two rolls of portraits for $195, is one of a growing number of ads designed to reach users of Web search engines. Last year, they made up 40 percent of the $9.6 billion Internet advertising market, up from 35 percent in 2003, according to the Interactive Advertising Bureau.

But the popularity of this advertising method has prompted expensive legal challenges, as search engines vie for a larger slice of the market. At the center of those disputes is Yahoo, which claims to have acquired a patent that protects the business method behind paid search advertising, stemming from its purchase of Pasadena-based Overture Services Inc.

Those patent claims have been challenged in a federal suit by FindWhat.com, a second-tier search engine company. Last week those claims were left unresolved after a federal judge in Los Angeles declared a mistrial in the infringement case.

A lot remains at stake. Should the patent be invalidated, analysts expect more companies to start offering paid searches, challenging the dominance of Yahoo and Google Inc. (Google is paying Yahoo an undisclosed license fee as part of a separate patent infringement case that was settled last year.)

Should the patent be enforceable, Yahoo would be empowered to sue other search engines that offer, or plan to offer, paid searches that they claim do not infringe on Yahoo’s patent. With a patent, Yahoo could also generate more revenue in licensing fees.

“Overture figured out a way to monetize search results,” said Jim Friedland, senior research analyst at SG Cowen & Co.. “If you are a retailer trying to sell plasma TVs and you bid for the words, ‘plasma TV,’ chances are someone wants to buy it. That’s a very high return. You can see how you can generate a higher return on your marketing dollars.”

Pay-per-click
Exactly how paid search results work helps explain why they have become so profitable for both advertisers and search engines.

The paid results, usually identified by labels such as “sponsor results” or “sponsored links,” are different from regular search results, which are usually free to companies whose links appear on the computer screen.

They typically appear above or on the right-hand side of the regular search results, which are derived by using a mathematical algorithm that may take into account, for example, how often other users click on a site. And their placement relative to other paid results is the consequence of a bidding process, not a fee set by the search engine. Moreover, unlike banner ads, an advertiser pays only if a computer user clicks on its advertisement.

“You have no control (with regular search results). It’s in the hands of an algorithm; whereas, with pay-per-click advertisements, if you’re willing to pay more than the next guy, you’ll show up ahead of them,” said Jonathan Smith, founder of Peak Placement in Sylvan Lake, Mich.