Saturday, June 25, 2011

Composition of Oracle's damages claims against Google becomes clearer

Google filed a few documents late on Friday, one of which contains additional and really useful information on the theories behind Oracle's $1.4-6.1 billion damages claims against Google.

In particular, it's now clear that the concepts of "lost profits" and "fragmentation of the Java platform" amount to additional hundreds of millions of dollars (for each of those concepts), but royalty claims account for the bulk of the numbers Oracle's expert arrived at. Also, previous filings were misleading with respect to the royalty rate. They gave the impression that Oracle wanted 50% of Google's Android-related advertising revenues. However, that number now appears to be closer to 20%.

The document that provided clarity on those items isn't even particularly new. It was originally filed on June 14, but yesterday's version reveals more of its content: some of the redactions originally made by Google were undone at Oracle's request. As IT journalist Maureen O'Gara recently put it, Oracle generally felt that Google had been "way too scissor-happy redacting documents".

I have been trying for a while to gather and infer as much information as possible even from redacted documents. On June 7, 2011 I already suspected that we were "talking about, potentially, billions." On June 15, I had no more doubt. A day later, an Oracle filing stated explicitly that "Oracle’s damages claims in this case are in the billions of dollars." Another two days later, the range of 1.4-6.1 billion dollars was finally made public.

Now some items I was wondering about in previous postings have been clarified:

  • In my June 7 posting I quoted Google's representation that Oracle's expert allegedly proposed to apply a 50% royalty to a base that was unclear due to redactions. I cautioned that the damages report itself was (and still is) inaccessible and that the royalty base could but need not relate to Google's entire Android-related advertising revenues. And I said: "Should that really be the position taken by the Cockburn report, then I do understand why Google argues vehemently against it."

    A passage that has meanwhile become unredacted states, however, that "[t]he result is an opinion that Google willingly would have paid Oracle over 20 percent of its gross revenues from advertising on all Android Devices."

    Google still believes no actor in this market would voluntarily pay Oracle that rate. But certainly 20% is far more reasonable than 50%.

  • Another now-unredacted passage shows that Oracle's expert based the royalties part of his damages claims on a very long period of time, apparently until 2025:

    "Yet Cockburn incorporates billions of dollars into his reasonabl[e] royalty calculation for the time period between 2018 and 2025, when the '720 patent would be the sole remaining patent."

    This also shows that royalties are the primary basis of Oracle's damages claims, a fact that the latest filing would have disclosed even without that particular passage.

  • Many observers of the process wanted to know what amount of money Oracle seeks on the grounds of Google's alleged "fragmentation of the Java platform". Previous documents didn't specify, but they contained references based on which one couldn't rule out that this concept alone would have been the basis for billions of dollars of additional damages.

    The (most likely correct) order of magnitude has now been stated:

    "[Oracle's damages expert] includes lost profits in his royalty determination and adds hundreds of millions of dollars more to compensate Oracle for purported 'fragmentation' of the Java platform"

    That quote relates to the two non-royalty components of Oracle's damages claims. As for "lost profits", a previous filing disclosed that the amount was "over 200 million dollars". Now we know that fragmentation is also in the hundreds of millions of dollars.

    I previously thought -- due to limited access to information -- that fragmentation might even cost billions of dollars. The problem was that I had to interpret a passage of a partly-redacted filing without the benefit of the knowledge that the court and the parties had. An unclear wording like "several times that amount" is easily interpreted if you know what the relevant amount is. If you don't, it's tricky. It's like the work performed by archeologists or by those scientists who take the archeologists' findings and try to, for instance, derive a complete version of the Odyssey from pieces found in different locations. Fortunately, there's now clarity.

    Now that the pieces of the puzzle appear to have come together, it looks like royalty claims are in the billions (based on 20%+X of an amount relating to a long period of time, presumably from the launch of Android until 2025), while lost profits and fragmentation account for hundreds of millions (each).

  • In addition to answering important questions concerning the composition of Oracle's damages claims, the latest filing also makes reference to another spectacular patent case:

    "Both Cockburn's calculation and the Qualcomm–Nokia agreement run into the billions, but that by itself is an illegitimate basis for relying on the agreement."

    Qualcomm v. Nokia was also a huge dispute. Nokia hasn't always come out on the winning side.

Finally, I'd like to mention that I am well aware of the ongoing reexaminations of Oracle's seven patents-in-suit. There have been first United States Patent and Trademark Office actions concerning some of those patents, and there may be "first actions" concerning other patents in the weeks or months ahead. First Office actions are preliminary. Those processes take much longer.

I am in touch with two experienced U.S. patent lawyers who have considerable expertise in litigating patents while they are being reexamined. They work for different firms in different parts of the United States. I will soon comment on the potential impact of those reexamations. It would be a mistake to ignore those developments, but other bloggers have misled the public by failing to emphasize the preliminary nature of those first Office actions and other important circumstances that put this into perspective. When I comment on this, I will do so comprehensively and holistically, and I'll try hard to convey the information in an understandable form.

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