Sunday, August 21, 2016

Don't blame Ars Technica for the inevitability of an Oracle v. Google Android-Java copyright re-retrial

It ain't over till it's over, and Oracle v. Google is very far from over.

At a Wednesday hearing, Judge Alsup told Google that it should have disclosed its Marshmallow Chrome project. As a follow-up to the hearing, he issued an order on Thursday, which I'll quote from and comment on below:

"By THURSDAY AUGUST 25, AT NOON, Christa Anderson, counsel for Google, shall submit a sworn statement explaining why the discovery responses referenced in Court yesterday were not updated, including the full extent to which counsel knew Google's intention to launch a full version of Marshmallow, including the Google Play Store, for Chrome OS."

This could be one last chance for Google to justify the unjustifiable and, which is what I guess is going to happen, for Google's lawyers to avoid consequences for themselves. Oracle's counsel claimed at the hearin g that "they" were "LYING" to the jury. At least that was the net effect of what happened. In a fairly recent post I quoted those lies.

But who is "they" in "they were LYING?"

The expert witnesses were instructed by Google's trial counsel. It's highly unlikely--if not simply implausible--that the expert witnesses were aware of the secretive Marshmallow Chrome project whne testifying.

The net effect of this was that the jury was being lied to. The requested declaration may shed some light on how this happened and on who has to accept responsibility. But Google and its lawyers are less interested in bringing the truth to light. What they'll try to do is to reinforce the points they made at the hearing about why they thought Marshmallow Chrome was outside the scope of the trial though the Marshmallow version of Android undoubtedly was at issue.

I'll comment on that declaration once it is filed. I presume it will be made public, at least large parts of it. For now I doubt that it will change anything with respect to the likelihood of a re-retrial. And the primary reason I doubt it is that Judge Alsup would be headed for another overruling, far worse than last time, if he denied Oracle's motion for a new trial even though the appeals court will then see very clearly that

  • Google's expert witnesses told the opposite of the truth about the single most important issue in the case (given that Marshmallow Chrome affects the "transformative use" analysis as well as the assessment of market harm) and

  • Google itself made it clear, and reporters and industry watchers clearly understood, that the integration of Marshmallow into Chrome is totally unrelated to the App Runtime for Chrome (ARC). I'll talk about the Ars Technica article and its implications further below.

In the event of an appeal, the appeals court will also get to see a list of other problems (I'm sure there would be an appeal on multiple grounds, which is also what Oracle announced after the spring retrial) and a consistent pattern of Oracle being disadvantaged by the judge. At the hearing he again sought to justify some of his decisions to limit Oracle's ability to present the full story to the jury with case management arguments. I've been watching this case for more than six years now and while Judge Alsup has put case management above the truth on various occasions, he has not even been perfectly consistent (for example, he didn't care in 2012 about wasting jury time instead of firstly ruling on copyrightability but then bifurcated merits and damages on remand) except that his case management decisions have always helped Google and harmed Oracle. That kind of consistency would also be easy for the appeals court to see, and let's not forget that the Federal Circuit is generally quite sympathetic to intellectual property right holders trying to enforce their rights against infringers.

"By the same date and time, Annette Hurst, counsel for Oracle, shall submit a sworn statement setting forth, after full inquiry, the full extent to which Oracle neglected to update its discovery responses by reason, in whole or in part, of one or more rulings by the judge."

The word "neglected" in the above passage is a bit strange. All dictionary definitions of the word show that it has a very negative connotation in terms of a failure to do something a careful person should have done. A non-judgmental term would have been "decided not [to update]" or something like that. He certainly was non-judgmental in the paragraph quoted further above concerning Google's statement, though in Google's case it's now clear that something was not disclosed that should have been disclosed, while in Oracle's case it's, at best, hypothetical (it's possible that no such thing exists at all but, above all, there doesn't appear to be the slightest indication of any wrongdoing). But I've seen far worse things in connection with this case. Maybe I'm just being hypersensitive after all that has already gone awry. (Again, I'll try my best to look at the proceedings relating to a re-retrial, unless Judge Alsup denies it and the appeals court orders it (in which case it would be absolutely impossible to have too much faith in his fairness), as if nothing had gone wrong before.)

Can this part help Google? I doubt this, too. At most Oracle's response might bring up stuff that would have to be discussed at a re-retrial. But the question of whether a re-retrial is necessary has everything to do with Google's conduct and nothing with Oracle's conduct.

"The same statement shall explain why counsel repeatedly represented that the Jones v. Aero/chem decision required an 'evidentiary hearing' when that decision, as it turns out, made no mention of an 'evidentiary hearing' and instead remanded because no 'hearing' or other consideration at all had been given to the issue of discovery conduct by the district judge."

Despite my other concerns and reservations, I took a quick look at that decision and I understand that decision and the circumstances leading to it just the way Judge Alsup also describes that precedent. What I don't know is what exactly Oracle's counsel said about that case at the hearing. So let's see what Oracle files.

This, again, is nothing that can have any bearing on the pressing need for a re-retrial.

"By the same date, counsel shall meet and confer and advise the Court whether the form of judgment should be amended to reflect that it is not a final judgment but a Rule 52(c) judgment on partial findings, given that Oracle is entitled to challenge further uses of Android herein."

This paragraph here is hard to interpret because everything depends on what will happen with respect to Google's decision to keep the Marshmallow Chrome project secret from Oracle's lawyers. What's certain, however, is that it reflects the fact this dispute could get substantially broader soon.

I don't have the slightest idea of how Oracle and Google's lawyers will address this one. In my opinion, it was a final judgment that must be set aside because Marshmallow was part of the case and the jury was being lied to. However, if the case continues, it might indeed make sense to present everything to the jury including other devices than just smartphones. That is more of a question of admissible evidence to me than anything else.

Ars Technica

In my previous post I already linked to and quoted from the Ars Technica article Google's counsel presented at the Wednesday motion hearing.

Oracle's counsel called Ars Technica "the premier publication in this industry." That's hyperbole, and I attribute it to two factors. One, she obviously wanted to give that article maximum weight at the motion hearing. Two, she had written an op-ed for Ars Technica after the spring retrial.

Ars is certainly influential and widely read. And one could probably define a set of criteria based on which it would be number one. But it's not number one in this industry by all measures and standards. Also, its coverage of Oracle v. Google is neither enlightening nor fair.

Interestingly, when the author of that Ars Technica article heard about how Oracle tried to use it at the trial, he immediately felt compelled to portray another story, but for lack of knowledge about what was really at issue in the motion hearing, he actually just confirmed again why his article helps Oracle:

It is all about the underpinnings. It's about the inner workings.

That's because the App Runtime for Chrome (ARC), which according to Google could not even have passed its Android compatibility test, really was separate from Android, while the Marshmallow Chrome project serves as a great unifier.

What shocked Oracle's lawyers? Not the fact that Google would in some way, shape or form make Android apps run on Chrome. That was old news. The shocker was that Google would actually incorporate the Android Marshmallow APIs into Chrome: APIs that contain APIs Google should have licensed from Oracle a long time ago.

Many people out there have been misled. If all software developers truly understood what this case is about and what it is not (for example, the retrial was not about whether APIs are protected but just about whether Google's trial counsel could manipulate a jury by presenting witnesses who made it sound like everything related to Java, especially the APIs, was for the taking), Ars Technica's Ron Amadeo wouldn't have had to try to put his article into perspective. I'll talk about implications for developers again on some other occasion. The timing of that will very much depend on procedures. I, for my part, would be shocked if the request for a re-retrial was denied.

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Wednesday, August 17, 2016

Judge may order a new Oracle v. Google retrial over evidence unwisely withheld by Google

Thanks to Twitter coverage by Mike Swift (MLex), Sarah Jeong (Motherboard, EFF) and Ross Todd (The Recorder), I just had the opportunity to "follow" the Oracle v. Google post-trial motion hearing in the Northern District of California. Since I already shared my observations, opinions and predictions last week, I can keep this post here brief:

  • As expected, Judge Alsup is not going to agree with Oracle on JMOL. He continues to believe that the jury had a reasonable basis for reaching its verdict based on the evidence and testimony it saw/heard.

  • I'm pleased to see that Judge Alsup, Google and Oracle all affirmatively agreed with me today that Oracle could, as a last resort, bring a new copyright infringement lawsuit to raise issues that were kept out of this year's retrial. Such consensus is unusual. Google tried to somehow nuance its concession by saying "collateral estoppel issues aside," but it's unclear how that would work--not just to me but, more importantly, also to Judge Alsup.

  • Based on the quotes I read on Twitter, I initially felt that Judge Alsup was not quite inclined to order a new trial. But Oracle's counsel, Orrick's Annette Hurst, didn't give up. She pointed to how Google's lawyers had "lied" to the jury and committed "fraud" by centering a transformative-use argument around differences between personal computers and smartphones. She also dealt a blow to Google's argument that the integration of the Marshmallow APIs into Chrome OS was essentially just the same as the Android App Runtime for Chrome (ARC), and in this context she read parts of this Ars Technica article aloud. Here's an unbelievably powerful passage that makes Google's ARC-based excuse downright ridiculous:

    "The real shocker here is that this release of Google Play on Chrome OS is not based on ARC. Zelidrag Hornung, the engineering director of Chrome & Android, filled us in on the details: "We have redone this completely differently. There are no connecting points between the two projects (ARC and today's announcement) from an implementation perspective."

  • Judge Alsup told Google that at the time it decided not to disclose its Marshmallow Chrome project, "this was possibly an important point." And while he made it clear that he wasn't yet at the point of expressing his position on the new trial motion, a re-retrial definitely is a possibility, especially since he also told Google's counsel: "If I had been in your position, I would have disclosed it."

    It's also important to consider that Marshmallow was part of the retrial and the jury verdict was not about particular devices but about Android versions up to and including Marshmallow. I noted on Twitter that this is a key difference between Oracle v. Google and the various Apple v. Samsung trials, where juries made device-specific determinations on the merits and on damages.

All in all, the things I read on Twitter suggest that Judge Alsup was a whole lot more evenhanded today than at any point during the retrial and its preparations. I do believe that this "fair use" issue should never have been put before a jury in the first place, but if a new trial is ordered and the Marshmallow-related evidence becomes part of the case, even Judge Alsup's JMOL analysis (under those new circumstances) may be a different one than so far. What I consider less important is that he appears to consider a Google motion for fees "greedy" and said he might just deny it if the parties couldn't reach an agreement on this one. A motion about a few million dollars of expenses is just a sideshow in the context of a multi-billion dollar case. But the Marshmallow Chrome issue is absolutely pivotal, and in case Judge Alsup orders a re-retrial, it will be a whole new ball game and in that case I'll form my opinion on each and every decision before, during and after the re-retrial as if the things that went wrong last time had never happened in the first place. Yes, the spring 2016 retrial may soon be water under the bridge, and a correct outcome may be possible even prior to an appeal.

In retrospect it's really hard to understand what Google did here. And even harder to justify.

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Monday, August 8, 2016

Companies, associations and professors join 111 designers in supporting Apple against Samsung

[UPDATE] An earlier version of this post was based on the (false) assumption that last week's widely-reported amicus brief by 111 designers and design educators was the only amicus brief supporting Apple. This misperception was due to the delay with which both the court's own website and the SCOTUSblog get updated. Actually, a total of 10 briefs were filed in support of Apple. Furthermore, the first version of this post noted an "artsy font" used on the title page of the designers' brief. However, that font was only used in the version published on Apple's website. I've now updated this post and may still have been first to upload (to Scribd) all of these amicus briefs. [/UPDATE]

An amicus curiae brief filed with the Supreme Court by 111 designers and design educators in support of Apple's design patent damages position against Samsung last week drew lots of attention. Understandably so, as Apple indeed managed to get support from a group that included some very famous people such as Calvin Klein and Norman Foster.

The brief was authored by a team of Orrick appellate lawyers.

Two months ago I commented on various amicus briefs filed in support of Samsung as well as some filed in support of neither party, most notably the position taken by the U.S. government. In that post I wrote that Apple might still orchestrate something big to show support for its position that the infringement of a design patent entitles its holder to an unapportioned disgorgement of the infringer's profits made with multifunctional, complex products. But I expressed doubts.

While Apple has clearly exceeded my expectations in terms of the individuals supporting its cause (great work, no doubt), support from companies is about in line with my expectations, especially since Apple's position appears to be an outlier position among large U.S. technology companies. The following companies and industry bodies support Samsung: The Internet Association, The Software & Information Industry Association, Dell, eBay, Facebook, Garmin, Google, HP, Lenovo, Motorola Mobility, Newegg, Pegasystems, Red Hat, SAS Institute, Varian Medical Systems, Vizio; and the Computer & Communications Industry Association, which has been a thought leader on this issue.

Apple garnered support from companies that are mostly non-tech/low-tech: Crocs, Nordock, Tiffany, Bison Designs, Deckers Outdoor Corporation, Design Ideas, Kohler, KRC Capital, Lutron Electronics, Method Produts, Novo Nordisk, Nuelle, Nuvasive, Oakley, Sun Products, SZ DJI Technology, Thule Group, and Cleveland Golf. Many of those companies operate in industries where a product is typically covered by only one design patent, and products with a very substantial part of their value lying in designs.

The only industry association backing Apple is ACT, which has always positioned itself as a voice of small innovative businesses though its funding came from large organizations, with smaller companies being offered free memberships. A few years ago ACT all of a sudden started positioning/portraying itself as an association of app developers. I'm an app developers and don't see my interests being represented by them, and especially not in this context here.

Companies (and industry associations) are really important in a case that has huge economic implications. Individuals, no matter how famous and well-respected, can say whatever they want but they don't have to defend against design patent infringement claims by others. At most, the companies they're affiliated with will have to defend, but those companies can then disown whatever the individuals wrote in their personal filing. Take Calvin Klein, for example: he sold his company a decade and a half ago.

Not only have Apple's lawyers been unable to counterbalance Samsung's tremendous support from industry but they also have far fewer law professors on their side. There's 50 of them in Samsung's camp (a number that has increased at every stage of proceeding). Apple has five of them, and while it's not just about a headcount, there's really no basis for a claim that those five counterbalance Samsung's 50. However, the notoriously right holder-friendly American Intellectual Property Law Association (AIPLA) also supports Apple, as does a local organization of the same kind, the Boston Patent Law Association.

Let's not forget about another important group of amici: public-interest advocates. I'm sometimes skeptical of some of those organizations and of what they write, but if a party has zero support from that group and no support from industry, then it could just be that its positions run counter to the public interest. Designers and IP lawyers have their professional interests just like Apple is pursuing certain objectives in this litigation. But what's good for the economy at large? For society? Hardly any neutral party appears to agree with Apple, while Samsung got support from representatives of minorities and rural communities, the Electronic Frontier Foundation,Public Knowledge, R Street Institute, American Antitrust Institute, IP Justice, Engine Advocacy, and the Software Freedom Law Center.

Obviously, amicus curiae briefs are just a factor that can influence decisions and the public perception, but amici don't make the law. I'll talk about the legal arguments made by Apple and its amici later this month. For now I just wanted to share my observations on who supports, and especially who doesn't support, Apple's positions in this case. The PR impact of the 111 designers' brief is one story. The actual weight thrown behind Apple's legal position is another. There's more weight here than just the designers, but for the reasons outlined above, Samsung has far more (and far more credible) support from large technology companies.

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Google's integration of Android into Chrome makes a third Android-Java copyright trial 100% inevitable

About a month ago, Oracle renewed its motion for judgment as a matter of law against Google and brought a Rule 59 motion for a new trial. While such post-trial motions are common and expected in high-stakes IP cases, there's much more to it here.

Unless the parties settle, it's not just likely or very likely, but absolutely certain, that there will be (at least) a third Oracle v. Google Android-Java copyright trial.

Trust me: there will be one. The only question is whether it will result from

  • a potential decision by Judge Alsup that Google is guilty of serious discovery misconduct,

  • the appeals court overruling the trial judge again, or

  • a new lawsuit that Oracle would have to bring according to Google's position.

The first of these possibilities is much more likely than I initially thought. Judge Alsup will hold a post-trial motion hearing next week. It's a safe guess that he won't agree with Oracle on JMOL. It's also a safe guess that he'll disagree with various Rule 59 arguments that are based on his own pre-trial decisions. He's afraid of Oracle's appeal (this much is sure based on the way he denied JMOL a couple of months ago) but he's not going to say that he messed up. It's hard to think of any judge who would do that but even harder to think of a judge less likely to do it than him. But Google's misconduct actually provides him with a nice exit strategy. He can avoid the potentially huge embarrassment of being overruled twice in the same case by judges who are more powerful and more IP-savvy than him, and put the blame on Google.

I have no idea whether he will do that, but it would be a very appropriate and rational thing to do. And it would be convenient, too, because he could correct some of his pre-trial errors very elegantly without having to backtrack: it would simply be a whole new ball game, especially with respect to the admissibility of evidence relating to Android's non-mobile target markets. Even the question of whether a bifurcated trial prejudiced Oracle (in my opinion, it did, even massively) could be avoided and the third trial could, for whatever case management reason, be a single trial. Furthermore, evidence that Oracle wasn't allowed to use last time to counter some utterly dishonest statements by Google's lawyers could also be admitted in the event Google were to make certain statements again at the third trial.

Judge Alsup can either seize this splendid opportunity to correct some of his mistakes or he can make another huge mistake by letting Google's lawyers get away with what they've done, which is so bad that Oracle would be very likely to get a new trial on appeal (if it doesn't succeed on JMOL anyway, which it might and in my view should, but for the appeals court it would probably also be easier to just look at the integration of Android into Chrome and simply remand for a new trial).

For the huge, game-changing implications of Google's integration of Android Marshmallow into Chrome (i.e., Android is competing with Java SE on desktop and laptop computers, not just in mobile markets), may I refer you to my post on Oracle's Rule 59 motion. Simply put, the whole "fair use" analysis changes, especially with respect to market harm and "transformative" use.

In its July 20 opposition filing, Google essentially argued that it had no obligation to make any disclosures regarding the Marshmallow/Chrome project because it had provided information regarding the Google App Runtime for Chrome (ARC). Google basically said that the integration of Marshmallow into Chrome was just an evolution of ARC ("update"), which Oracle knew about and which was "outside the scope of the retrial." A week later, however, Oracle's lawyers filed a very powerful reply brief that exposes Google's ARC-related arguments as extremely flimsy (this post continues below the document):

16-07-27 Oracle Reply in Support of Motion for New Trial by Florian Mueller on Scribd

The first thing to consider here is that Marshmallow was part of the trial (in a February 16 follow-up trial order, Judge Alsup wrote that "Marshmallow shall be added to the named versions of Android to be in play at the trial") and there was no question about whether it contained the asserted material: Google conceded this much, and the jury was instructed accordingly ("it has already been established that [Marshmallow] used [...] the declaring code and [SSO: structure, sequence and organization] of 37 Java API packages"). That already makes it a very different situation from the one concerning ARC.

On the technical side, the most important difference is, as Oracle's reply brief points out, that ARC could not have passed Google's own Android compatibility test because lots of Android apps wouldn't work with it, and even those that do wouldn't run right away without modifications.

Oracle also notes that fact discovery closed before the orders on trial scope that Google claims put the Marshmallow/Chrome project outside the trial scope. But Google couldn't know at the time what the subsequent orders would be.

What I find disgusting is that Google's technical and economic experts told the jury things that make absolutely no sense in light of Marshmallow/Chrome:

  • Google's only technical expert at trial, Dr. Astrachan, said that Android includes "libraries [that] are designed specifically for the mobile platform, which is a different platform from where the 37 [Java SE] API packages came from." He meant that desktop and laptop computers are a different type of platform. But that's exactly the Chrome market.

  • Similarly, Google's economist Dr. Leonard said "the two products are on very different devices [...] Java SE is on personal computers. Android [...] is on smartphones." In his closing argument, Google's counsel said the same: "Android is not a substitute. Java SE is on personal computers; Android is on smartphones."

There cannot be the slightest doubt that the trial could have had a different result if Oracle had been able to counter those untruths with references to Marshmallow/Chrome.

I look forward to whatever the court reporters attending next week's motion hearing will observe. There's a good chance that Judge Alsup will be very angry with Google. If he is, then a retrial will loom large.

If not, Oracle has another silver bullet for its appeal.

But if everyone told Oracle that Marshmallow/Chrome was outside the scope of that trial, Oracle could and certainly (knowing that Oracle never quits in those kinds of disputes) would file a new complaint over newer Android versions. That would also lead to a third Oracle v. Google trial, though things would take a bit longer then.

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Thursday, July 7, 2016

Oracle moves for new copyright trial against Google, renews motion for judgment as a matter of law

Despite the fact that Google's incorporation of more than 10,000 lines of Oracle's Java API declaring code into Android does not merely fall short of fair use criteria but is simply the exact opposite of fair use, a San Francisco jury, misguided by Judge William H. Alsup, misinformed by Google's manipulative attorneys and misled by questionable witnesses, found in favor of Google in May.

Thereafter, Judge Alsup, who could hardly have done a worse job handling this case, entered final judgment. At the same time, he wrote a JMOL ruling (denying the parties' pre-verdict motions for judgment as a matter of law) that, instead of actually addressing the substantive issues raised by Oracle, was a public letter to the appeals court of the "please don't overrule me again" kind, demonstrating his fear that the Federal Circuit will once again clarify that the law is what is and not what Judge Alsup, labeled by a lawyer on Twitter as a "sore loser" (in light of the previous appellate decision in Oracle's favor), wanted the jury to think it is.

While it's very obvious that this case will go back to Washington, DC, Oracle has just filed two motions. The first one is a renewed motion for JMOL (this post continues below the document):

16-07-06 Oracle's Renewed Motion for JMOL Against Google by Florian Mueller on Scribd

There is no question that Judge Alsup will deny it. His aforementioned open letter made that clear. He's now just going to hide behind the jury since he accomplished his objective: a verdict in Google's favor. But he may just have to go through the motions process now, and Oracle has requested that a hearing be held in August.

The JMOL question is extremely important because it's hard to imagine a "fair use" case where JMOL would be more warranted than here. As I've talked about that on a few occasions and will talk about it some more during the appellate proceedings, I'd now like to focus on Oracle's motion for a new trial since it raises a number of serious issues due to which the "final judgment" can't and most probably won't stand. Here's Oracle's motion (this post continues below the document):

16-07-06 Oracle Motion for New Copyright Trial Against Google by Florian Mueller on Scribd

Prior to raising several specific issues, Oracle reserves the right to pursue other bases for a new trial on appeal. Now, the issues raised explicitly in the motion:

The first argument for a new trial is that "the verdict was against the weight of the evidence." This is basically the JMOL argument, just in the context of a Rule 59 motion.

The second argument is that just after Oracled rested its case, Google announced that a full version of Android Marshmallow (one of the Android versions at issue in this case) would be released as part of ChromeOS--including the Google Play Store, i.e., all Android apps. Oracle argues that Google withheld this information (given that it presumably had been working on that project for some time) and failed to make disclosures in discovery requests.

Here's why this is a big problem: ChromeOS is a desktop/notebook/netbook operating system. That's just another huge market in which it's now competing with Java; more specifically, with Java SE. It also shows that any distinction between mobile Java and Java in general makes no sense in the Android-Java context (when it comes to harm, transformative use etc.). It was a Google-Judge Alsup smokescreen in any event, but the smoke lifted with Google's announcement--at a time when Oracle no longer had any chance to inject this issue into the rigged trial.

Oracle rightfully demands a new trial in order to be able to "present its full case, including this newly discovered and improperly withheld evidence."

The third argument relates to how Judge Alsup improperly limited Oracle's evidence of market harm to the mobile phone and tablet computer markets. Oracle recalls how it filed a supplemental complaint last summer to bring up various other Android business areas such as Android Wear. Judge Alsup, however, sided with Google on a motion in limine and told Oracle that it would have "to sue on those new products in a future trial."

The fourth argument is also about how the judge precluded Oracle's lawyers from making their strongest legitimate case. Google made the "Java was free and open" point more than thirty times in that trial, but the court did not allow Oracle to present an April 2007 email from Stefano Mazzocchi (then an Apache Foundation leader), which stated the following:

"This makes us *already* doing illegal things (in fact, Android using Harmony code is illegal as well)."

Judge Alsup required that key sentence to be redacted because it was, in his incorrect opinion, "too inflammatory and without foundation." That email actually had much more of a foundation than most of the key decisions Judge Alsup has made in this litigation so far. But the biggest problem is that Google's lawyers were able to elicit statements from Mr. Mazzochi (during examination) that he thought what Apache was doing was above board.

Those first four points are all very strong, but I personally feel very strongly about the fifth one as well. The fifth argument is that bifurcation prejudiced Oracle and that a new trial should be a single-phase trial on liability and damages.

When I saw Judge Alsup's bifurcation decision last year, I started to doubt that he was going to act fairly. And indeed, he turned out to be the most unfair judge I've ever watched in a high-profile case except in fictional movies, historic documentaries, or reports on some of the totalitarian regimes that still exist today.

Toward the end of that fifth section, Oracle says the following:

"And, bifurcation provided a structural incentive for the jury to return a defense verdict."

That is exactly right. I saw something on Twitter from one of the courtroom tweeters that indicates Judge Alsup told the jury something like "please don't let your desire to go home quickly influence your decision." Should Judge Alsup really have said so (and I wouldn't put it past him), it was a devious way of telling the jury to be smart, to get their lives back and to go back to making more money than (roughly) minimum wage.

The sixth part of Oracle's argument for a new trial is about documents that were excluded on hearsay grounds. Among other things, Oracle argues that the court "incorrectly excluded damning evidence of market harm solely because that evidence was in PowerPoint format."

All in all, the Oracle v. Google retrial was a total disgrace for the American court system, and while there are some well-liked and well-respected people who view this differently, I remain convinced that Judge Alsup will be overruled for good, by judges who are neutral, which he isn't, and smarter than him.

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Friday, July 1, 2016

Spotify's concerns over Apple Music are obvious but it's just manufacturing an App Store antitrust issue

[UPDATE on July 2] Apple's response has now been leaked. Apple's general counsel says that Spotify's "in-app purchase feature had been removed and replaced with an account sign-up feature clearly intended to circumvent Apple's in-app purchase rules." Thereafter, on June 10, Spotify submitted another version, which in Apple's opinion was part of a "continued attempt to get around [Apple's] guidelines" and "to circumvent in-app purchase rules." [/UPDATE]

I wish to clarify upfront that I've never done any work for Apple or Spotify. A more elaborate disclosure can be found at the end of this post. The perspective from which I am writing this post is that of an app developer who happens to have fought hard for fair, reasonable and non-discriminatory (FRAND) behavior by companies wielding monopoly power. And one of the two iOS apps I'll launch later this year will come with two different types of subscription offerings, which users can even use in combination. So I do have a strong interest in this, but for now I can't see any wrongdoing on Apple's part.

Spotify's general counsel Horacio Gutierrez--who used to be Microsoft's second-highest-ranking in-house lawyer--has reportedly sent a letter to his counterpart at Apple alleging violation of U.S. and EU antitrust laws as Apple has so far rejected an update to Spotify's iOS app. More generally, Spotify complains about a "troubling pattern of behavior by Apple to exclude and diminish the competitiveness of Spotify on iOS and as a rival to Apple Music," referring to "previous anticompetitive conduct aimed at Spotify."

Spotify still has about twice as many subscribers as Apple Music, but the latter still casts a dark shadow over the impending IPO of the former.

Few people could claim to know the U.S. and EU antitrust game better than Mr. Gutierrez, who among other things also was in charge of Microsoft's EU activities. At this stage, Spotify's obvious objective is to instigate formal antitrust investigations of Apple's conduct in the U.S., the EU (Spotify is a Swedish company), and potentially in Asia, where the scope of an ongoing investigation (in South Korea) is unclear. Getting antitrust authorities to investigate a company like Apple requires a mix of demonstrating a genuine competition issue, broadbased support for a formal or informal complaint, and some publicity. Leaking letters is common in this situation.

Apple avoided antitrust scrutiny a few years ago, and I'm convinced that its recent modification of subscription terms--reducing its App Store cut from 30% to 15% after the first year of a subscription--was not a voluntary act of generosity but motivated exclusively by Apple's desire to avert formal investigations. The reduction was announced shortly before last month's developer conference (WWDC) and first reported by Jim "The Beard" Dalrymple on LoopInsight.com (The Loop) and by Lauren Goode on TheVerge.

It's worth noting that Google, which could face similar complaints at some point, matched Apple's move and even went beyond: Google reduces its share of subscription revenue to 15% from the first day, not just starting with the second year. The Loop's Dave Mark wrote he was "[s]till trying to wrap [his] head around the logic of waiting 12 months before the 85/15 split locks in." Rightfully so, but it does make sense against the background of Spotify's antitrust initiative: since Spotify has been around for years, it can no longer complain about the 30% cut--by which it's no longer affected--being too high, but Apple has kept a nice bargaining chip. If that's what it takes to provide a face-saving exit to antitrust authorities, now or later, Apple can hand them a victory by letting the 85-15 split apply to new apps.

So the key question to think about in light of Spotify's letter is this: does Apple have to do more to avoid formal antitrust scrutiny? That question must be looked at from multiple angles:

  1. Are antitrust enforcers likely inclined for political reasons to do Spotify the favor it's asking for?

    I think Apple faces a pretty significant political risk, for various reasons including (but not limited to) its enormous success, its controversial tax minimization strategies, its lack of cooperation in the San Bernardino context, and the fact that Spotify as well as some of the leading game app makers (Supercell, King.com) are based in Europe (though King now belongs to Activision Blizzard and roughly 85% of Supercell's shares are being acquired by China's Tencent).

  2. Does Spotify have a genuine, meritorious antitrust case at this juncture?

    I don't think so. If one focused strictly on the facts, leaving aside political considerations and everything else, then antitrust authorities should either require Apple to expand the 85-15 split or move on.

    If Apple had not made the 15% change and were then undercutting Spotify simply by leveraging the 30% cut, that would be an issue, but the 30% no longer applies to Spotify's long-term users, so Spotify's average percentage will be far below 30%. If Apple were abusing the app review process by raising unfounded objections (of a technical, editorial or commercial nature) for the sake of having a pretext to withhold approval, I'd be on Spotify's side without hesitation. But I don't see that being the case here. Much to the contrary, I think Spotify's current behavior is abusive and the opposite of consumer-friendly.

    Essentially, Spotify wants to charge people more if they subscribe via the App Store than if they do so via Spotify's website. Apple doesn't appear to prohibit external subscriptions, and it doesn't even appear to dictate the prices of external subscriptions. But it's against Spotify charging iOS users more than Web users and promoting that fact aggressively. I understand Apple's position.

    Consumers can benefit indirectly from competition between music delivery services, but Spotify's fight for its right to set higher prices on the App Store is self-interested and, at least in the short term, bad for consumers.

  3. If someone wanted to set up a third-party App Store competitor and if Apple then prevented that third party from doing so, there could be some interesting issues, but there is no indication of Spotify or anyone else trying to do that at this stage.

Having outlined my overall position on this, I'd now like to talk about my own perspective and interests.

Just like any other app developer, I'd obviously like Apple to lower its App Store fee from 30% to 15%, for all transactions, all apps, and from Day One. However, I'm probably much more relaxed about the 70-30 split than most other people because I've been in the consumer software industry for a long time and I still remember the cost of getting your software distributed to end users 10, 20 or 30 years ago. Compared to today's environment, it was a nightmare:

  • We had to grant a discount on the order of 30% (maybe 20% or 25%, but no less than that) to any reseller who simply presented a certificate of registration of his business.

  • Large retail chains received discounts between 40% and 50%. Every year they came back to us and told us they needed more. And several times a year they demanded cooperative advertising allowances, which were (not in whole, but in no small part) a rip-off we hated.

  • Distributors/wholesalers/importers got discounts of about 60%. So instead of Apple's 70-30 or 85-15 split, it was practically a 40-60 split--almost the reverse ratio--unless you decided to hire your own sales force.

  • Even the guys with the 60% discount didn't really give us access to a global market. Many of them served only customers in one country, or maybe in a small set of countries such as the German-speaking countries. So you also had to maintain customer relationships with a large number of distributors if you wanted to sell a product around the globe. With Apple or Google, it's a one-stop solution now.

There are obvious reasons for which digital software distribution must be more favorable to software publishers than physical distribution. No warehouses, no trucks, no risk of goods being damaged. Still, access to consumers is access to consumers. Apple provides it, and I can live with those terms, though 85-15 is not only more desirable but also more reasonable from my point of view. Spotify's problem is all about the fact that Apple is competing with it, and that competition from the likes of Apple, Google and Amazon is going to be the primary concern on investors' part when Spotify goes public. As Jordan Crook noted on Techcrunch, "Spotify can only afford to hold siege against Apple for so long."

I'll probably comment on this again, maybe even repeatedly. Having been at the center of baseless conspiracy theories more than once, I'll now make some rather elaborate and forthright disclosures.

Disclosures

I've never done any work for Apple or Spotify. I'm long AAPL. I know the author of Spotify's letter, Horacio Gutierrez, back from his years at Microsoft, but haven't talked to him in a couple of years. What I can say is that Spotify got one of the very, very best corporate lawyers in IT, and probably the best fit one could have imagined for Spotify given Horacio's knowledge of IP licensing, litigation, policy, and antitrust. He and Apple's general counsel will be well-matched combatants. I disagreed with Horacio on the desirability of software patents, I agreed with him on FRAND, and for now I'm unconvinced of his allegations against Apple. I'm not saying they're totally baseless, but I don't think there is a strong case now for formal antitrust investigations. I obviously reverse the right to adjust my opinion if new facts are put on the table at some point.

As loyal readers of this blog know, I have supported Apple on FRAND licensing of standard-essential patents, I have supported it in other contexts, but I oppose attempts to extract unreasonable leverage from "dead patents walking" and share numerous organizations' and individuals' concerns over an unapportioned disgorgement of infringer's profits when design patents cover only minor visual aspects of highly multifaceted and multifunctional products.

If you'd like to be updated on the smartphone patent disputes and other intellectual property matters I cover, please subscribe to my RSS feed (in the right-hand column) and/or follow me on Twitter @FOSSpatents and Google+.

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Tuesday, June 21, 2016

Airbus (the COMPANY, not a plane) hijacked by patent extremists, joined trolls' lobbying entity named IP Europe

With respect to standard-essential patent licensing, my preferred European voice of reason(ableness) is the Fair Standards Alliance, an organization Google recently joined and which I'd like to see Apple and Samsung team up with at some point. On the other end of the spectrum, there's a lobbying group named IP Europe. While I personally know and respect two of the individuals working for that one, I fundamentally disagree with its policy positions and object to its false claim of supporting "innovatives SMEs." IP Europe advances the cause of patent trolls and of businesses that failed in the mobile phone business for a lack of innovation and increasingly resort to patent licensing as a revenue source.

Looking at IP Europe's member list, it's generally easy to see why each of those organizations expects to gain something from overpatenting and from an overcompensation of patentees, with a couple of exceptions, however.

Orange (France Telecom) is a carrier. In the U.S., mobile carriers are usually on the reasonable side (and sometimes go too far even for my taste when making public-interest arguments in amicus curiae briefs). Does the former France Teleom plan to engage in patent trolling like its British counterpart? I don't know, but it was most likely a mistake that Orange joined IP Europe.

The other, better-known and even more surprising member is Airbus Group. The only explanation I have for Airbus's decision to join IP Europe is that an IP-incompetent senior management has allowed the patent professionals running Airbus's IP department to hijack the company in order to advance the interests of their profession rather than defend the interests of their current employer.

In the airplane business, Airbus only stands to lose from excessive patent royalties. In the defense and space businesses, patents won't protect Airbus either. In 2012, Elon Musk already explained why SpaceX (which in a few years of existence has already achieved technically more impressive feats than Airbus in its much longer history) generally doesn't file for patents.

I want my Munich area-based startup to be very innovative in its niche, but generally speaking, Europe has a huge innovation gap versus Silicon Valley. California has Elon Musk. Europe has Tom Enders. Tom who? Well, the CEO of Airbus studied politics, started his career in politics, and at a heavily-subsidized intergovernmental joint venture like Airbus, political connections are more important than anything else. Elon Musk, despite all of his amazing talents, would never get a top job at an organization like Airbus. Fortunately, he doesn't need it.

When the CEO of a company that should be technology-driven is absolutely not a technologist (but a political scientist/historian), it just takes a self-serving IP department to make the company sign up with a lobbying group like IP Europe, thereby teaming up with highly litigious patent assertion entities (PAEs)/non-practicing entities (NPEs).

One of IP Europe's key priorities--if not its number one priority--is to fight against the "smallest saleable unit" approach to FRAND license fees. Do the bureaucrats in charge of Airbus even know what that means for their business? Presumably they don't. What if someone made a Motorola-like patent royalty claim and demanded a percentage of the sales price of an entire Airbus plane over a few WiFi, video or whatever patents?

Do those decision-makers realize that the number of potentially patented "inventions" in an Airbus that third parties hold account for a vast majority of all patentable "inventions" in a modern airplane? It has been estimated that 250,000 patents are embodied in a smartphone. In practical terms, the digital entertainment and communications technology installed in today's planes is increasingly like that, and actually much bigger.

To many of you this may seem obvious, but let me explain this for the rest: there is no such thing as a software patent that guarantees stability and security. The reason: no matter what a patent may describe (with or without specificity), it can always be implemented in an unstable and insecure fashion.

Airbus has a software quality problem. Last year Airbus even admitted that a software configuration error caused the crash of a military transporter, and I vaguely remember a crash of a commercial Airbus plane many years ago that some experts attributed to a software issue. In terms of success factors in the airplane business, that is what Airbus should be focusing on. It has nothing to do with patents. Any code that is stable or unstable, secure or insecure, is protected by copyright (and trade secrets). Any configuration that is stable or unstable, secure or insecure, is a matter of quality assurance.

If Airbus focused on software quality, it wouldn't have to fear copycats. If someone copied great code, copyright (not patent) law would protect Airbus.

Airbus is the craziest example now of a company that builds highly multifunctional products and opposes the "smallest saleable unit" approach to patent license fees. But maybe Airbus is not really a company. It's more of an intergovernmental organization that is detached from economic realities because taxpayers will have to foot the bill if anything goes wrong.

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