Tuesday, December 14, 2010

Google ally Myriad Group and Oracle sue each other over Java licensing: so much for Swiss neutrality

Bloomberg was first to report that "Myriad Group AG, a Swiss software developer, sued an Oracle Corp. unit in the U.S. for at least $120 million in restitution for allegedly charging excessive license fees for the Java programming language."

I have reviewed the complaint, which was filed on Friday with the US District Court for the District of Delaware. This matter is clearly connected to the ongoing patent litigation between Oracle and Google and the wider conflict concerning Oracle's Java licensing policies in connection with mobile platforms. What we are seeing here is a phalanx formed against Oracle by Google, Apache and Myriad. Myriad Group is advised by King & Spalding, the law firm that defends Google against Oracle.

Earlier today I wrote about two things that happened last week and don't bode well for Google: a Federal Circuit ruling makes it unlikely that Google can invalidate Oracle's Java patents on subject matter grounds, and the Apache Software Foundation's divorce from the Java Community Process shows that Oracle won't make concessions only to appease the open source community.

My prima facie assessment of Myriad's case is that it may make Oracle look bad -- especially in light of Oracle's "open standards" lobbying -- but I don't believe it will ultimately tilt the scales in Google's favor. This case may be more than a tempest in a coffee cup. However, for now I have doubts about its merits, and its potential impact appears to be limited at any rate. This secondary theater of war certainly isn't a substitute for countersuing for patent infringement, which is what Google would really have to do (but apparently can't).

In the following I'll share my first observations on Myriad's complaint.

[Update] I have now received a copy of the complaint Oracle filed against Myriad on the same day with the US District Court for the Northern District of California. Oracle alleges that Myriad fails to comply with its royalty obligations and makes unauthorized use of the Java trademark, including the Java logo.

Myriad's Java business

On Twitter, Myriad claims to be "Europe's largest mobile software company". On its corporate website, it calls itself "a global leader in mobile technology having shipped over 3.7 billion applications on over 2.2 billion phones" and to be "#1 in browser, messaging and Java."

Apparently it generates little revenue on a per-unit basis. For the first nine months of 2010, Myriad reported revenues of $84.3 million. At yesterday's (13 December 2010) closing of the Swiss stock exchange, Myriad Group's market capitalization amounted to 210 million Swiss francs, the equivalent of about $215 million. By demanding $120 million from Oracle for itself and its customers, the company asks for more than half of what it's worth in its entirety.

Java is only one of several business areas but appears to be a relatively important one for Myriad. Myriad offers Jbed Advanced, a Java ME platform for which it claims "superior performance, features, portability and development tools." Myriad also offers a product named Myriad Dalvik Turbo, "a seamless, high performance replacement for the Android Dalvik Virtual Machine increasing application execution speed by up to five times", and Myriad J2Android, "a simple and efficient converter for MIDlets" that it claims allows "phone manufacturers, mobile operators and mobile application stores can bring thousands of existing Java applications to Android devices." MIDlets are Java ME applications that use an embedded Java specification named Mobile Information Device Profile. According to Wikipedia, typical MIDlet applications "include games running on mobile devices and cell phones which have small graphical displays, simple numeric keypad interfaces and limited network access over HTTP."

Myriad claims unFRANDly conduct by Oracle/Sun

This is only the latest in a series of lawsuits related to mobile technologies and FRAND licensing commitments. FRAND ("fair, reasonable and non-discriminatory") -- sometimes also referred to as RAND -- is a widely used set of criteria for licensing terms. The first suit (of several) filed by Nokia against Apple related to patents concerning which Nokia had made a commitment to grant licenses on FRAND terms, and the two companies disagree on what that means in their specific case. FRAND is also at issue between Microsoft and Motorola.

Countless deals in the industry are concluded in the context of FRAND commitments, but in a small number of cases there are disagreements. Myriad Group's complaint against Oracle is largely based on the allegation that Oracle (as the acquirer of Sun) "has consistently failed to honor [...] licenses" under which Myriad believes to to be entitled to use Java-related intellectual property rights "either royalty free or on fair, reasonable and non-discriminatory (FRAND) terms."

A central allegation is that Myriad felt forced to enter into "a Master Support Agreement ('MSA') [with Oracle/Sun], pursuant to which Myriad is (and in certain circumstances its customers are) obliged to pay unreasonable, unfair and discriminatory annual fees."

Myriad then makes the following claims:

"43. Since 2004 Myriad has paid $20 million in such royalties to Sun. On information and belief, Myriad's customers have paid in excess of $100 million in royalties to Sun.

44. The non-FRAND nature of the royalties is evident in that Sun is selling products similar to Myriad's, and has attempted to win away Myriad’s current and potential customers by representing that Sun's price for the finished product is lower than the licensing royalties it charges Myriad."

So Myriad claims it is disadvantaged in the market place: the royalties it must pay Oracle/Sun for implementing the Java standard are allegedly too high for Myriad to offer competitive prices. Myriad's complaint cites some examples of Myriad, according to its representation, finding itself unable to do business with certain prospective customers when competing with Oracle/Sun. Myriad claims that Oracle/Sun offered a prospect named Cyberlink "a price lower than the per-unit royalty Myriad was forced to pay Sun" and told another prospect, a company named Alticast, "that Oracle (Sun’s corporate parent) could sell Alticast a finished Java implementation for the same price that it charges to Myriad to license the code, thus making it impossible for Myriad to recover the royalty cost imposed by Oracle."

Myriad makes allegations that go beyond pricing. Item 48 of its complaint accuses Oracle/Sun of "launching a comprehensive campaign designed to exclude Myriad from the downstream market for implementations of the relevant Java specifications." It adds:

"49. As part of this campaign, Sun has repeatedly, and erroneously, told current or potential customers of Myriad that Myriad is no longer licensed to produce Java-compliant implementations, implying that they should purchase similar Sun products instead."

Myriad cites different theories as to why Oracle/Sun was allegedly wrong. One key argument Myriad makes is that under the Java standard-setting agreement (to which both Oracle/Sun and Myriad are parties) Myriad believes it is entitled to a license on FRAND terms.

To underscore the economic impact of this, Myriad claims it has presumably "lost a number of major potential customers due to Sun's actions, including Sharp, Pioneer, Vividlogic, and Mitsubishi." The use of the word "lost" in this context confuses me. You can lose an existing customer, or you can fail to sign up a prospective new customer, but you can't lose something you've never had. But the message is clear: Myriad says Oracle/Sun engages in unfair practices, all of them ultimately coming down to the question of FRAND terms, to disadvantage Myriad and potentially shut it out of the market for Java implementations.


Myriad stresses in its complaint that it "does not and never has used Sun’s HotSpot code in its products." HotSpot is Oracle/Sun's primary Java virtual machine for servers and clients. Allegedly, "Sun insisted that Myriad enter into 'Sun Community Source Licenses' (SCSLs) for HotSpot code" regardless of that code not being used by Myriad. So the company wants access to certain royalty-free or FRAND licenses available for independent Java implementations.

The Apache Software Foundation similarly complains that Oracle/Sun doesn't grant a Java license on such terms to its Harmony project. In both cases, I believe the primary reason for disagreement between Oracle and those third parties is that Oracle's Java licenses have a field-of-use restriction concerning mobile devices. Clearly, that is a business area in which Oracle wants to monetize Java and is less generous about independent implementations.

But field-of-use restrictions come with many FRAND licenses, so one cannot claim categorically that such restrictions constitute a failure to honor FRAND licensing commitments. It really depends on the specifics of the case.

A phalanx consisting of Google, Apache and Myriad

The nature of Myriad's complaint is very similar to Google's and the Apache Software Foundation's disagreements with Oracle over Java licensing. All three cases are about Java on mobile devices.

Maureen O'Gara therefore wonders whether Myriad is "pinch-hitting for Google?" and writes:

"Conspiracy theorists might suspect that Myriad is a stand-in for Google."

Actually, the connection is unconcealed. Myriad is represented by the Delaware law firm of Potter Anderson & Corroon, but there's also an "of counsel" involvement by King & Spalding. That firm defends Google against Oracle. In fact, one of the two King & Spalding lawyers mentioned at the end of Myriad's complaint, Scott T. Weingaertner, is the first King & Spalding attorney to be listed below Google's answer to Oracle's amended complaint.

On a web page, Myriad lists its "industry partners", and its role as "founding member of the OHA [Open Handset Alliance]" is first of the list, followed by Symbian and the Java Community Process.

Myriad is particularly close to HTC. It's involved as a "non-party" with the ITC's investigation of Apple's patent infringement claims against HTC. On 11 November 2010, Myriad (represented by King & Spalding) opposed an Apple motion (Apple sought to enforce a subpoena directed to Myriad Group). For an overview of Apple's patent disputes with Android device makers HTC and Motorola, please see this recent post that includes a visualization of the different cases.

It's easy to see how Myriad's complaint is in Google's interest. If Myriad succeeded, it might lower the license fees Oracle is allowed to charge for Java, and even though Oracle might still have legitimate reasons for denying Google a license on such terms or on any terms, a potential settlement between Oracle and Google would not be entirely detached from what Oracle charges other Java licensees. But whether Myriad can win this remains to be seen. Like I said further above, field-of-use restrictions aren't necessarily at odds with FRAND licensing commitments.

A request for "at least" $120 million (to compensate for allegedly excessive royalties) also isn't going to scare the living daylights out of Oracle (apart from appearing extremely high anyway, given the size of Myriad's business).

I guess what the Google-Apache-Myriad alliance really tries it to tackle Oracle's Java licensing policies from different angles. There's Google, which claims as part of its defense against Oracle's patent infringement suit that it's entitled to do what it does. There's Apache, an open source entity. A non-profit that represents a part of the community. And now there's Myriad, which raises unfair competition issues and claims that it has suffered economic harm.

Google and Apache coordinated their voting at last week's meeting of the Executive Committee overseeing the Java Community Process. Google and Myriad work with the same lawyers, so at the very least there's coordination in place and given that Google has so much of an interest in this issue and far deeper pockets than Myriad, this complaint may very well be subsidized. Just so I'm not misunderstood: should Google fund Myriad's lawsuit, that wouldn't be objectionable per se. I wouldn't call it a conspiracy. I wouldn't consider Myriad a mere proxy because this is a company that demonstrably has a business interest in a Java license.

But for now I'm not convinced that Oracle fails to honor its FRAND commitments relating to Java. I would have to see real evidence -- not just Myriad's allegations -- to arrive at that conclusion. For example, Myriad claims that its customers were overcharged to the tune of $100 million or more, but none of those allegedly harmed customers joined Myriad in suing Oracle.

Also, there can be all sorts of technical and commercial reasons for which certain customers did business with Oracle/Sun rather than with Myriad.

Oracle's answer to Myriad's complaint will be very interesting, and when it becomes available, I'll be sure to comment on it here on this blog.

[Update] Oracle's suit against Myriad, filed on the same day, shows that Oracle believes Myriad competes unfairly by infringing the Java trademark. Oracle also asserts copyrights for its Java TCKs (Technology Compatibility Kits). According to Oracle's complaint, Myriad lost any Java licenses it had because its Master Support Agreement expired on 29 June 2010 (which automatically made Myriad's TCK license expire). Oracle says that Myriad demanded a royalty-free Java license. Apparently the parties already disagreed in the fall of 2009 on whether Myriad was entitled to a royalty-free license, and around that time Myriad stopped paying royalties that Oracle/Sun believed it still owed.

[Update 2] Four days after the two suits were filed, Myriad Group issued this statement. It reiterates the position that the Java standard-setting agreement, to which it has been a party for a while, allows what Myriad does and that Oracle makes allegedly false claims. Concerning the amount of damages, Myriad mentions that it seeks the repayment of $120 million of excessive royalties (to itself and its customers) in addition to "punitive damages". That concept exists under US law but the hurdle for that is high. Even if a court came down closer to Myriad's than Oracle's position on the question of what the license terms are or should have been, it's hard to see any behavior on Oracle's part that would be so egregious as to justify punitive damages.

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.

Share with other professionals via LinkedIn: