Tuesday, October 4, 2011

Oracle and Google fight over possible partial or complete stay of their lawsuit

On Monday, September 26, Judge William Alsup asked Oracle and Google for input relevant to his determination on whether to go ahead with a near-term trial (possibly as early as Halloween) or to stay the case in whole or in part pending the USPTO's reexamination of the patents-in-suit. He raised several questions and set different deadlines for those answers. On Thursday, September 29, Oracle informed the court of the 26 patent claims (15 unique claims plus 11 "mirrors") it wants to assert. Yesterday (Monday, October 3), Google listed the prior art contentions with which it wants to prove those claims invalid. And today, the parties filed separate arguments concerning the question of a possible stay and the role copyright-related damages play in Oracle's revised damages claims (which would be key to a scenario of a partial stay, in which the copyright part could be tried regardless of any ongoing reexaminations).

The objectives of the two parties were predictable:

  • Google has been advocating a stay all along. It already proposed a stay back in February, but the judge considered the proposal to be premature at the time.

  • Oracle would like to have a trial sooner rather than later. A firm near-term trial date might affect Google's willingness to settle the case on terms acceptable to Oracle. But Oracle doesn't want to pay a price for a near-term trial in terms of reducing its claims too much. Oracle would apparently consider a trial based on narrow claims risky, and even a favorable ruling resulting from that approach could be too narrow to be useful. Oracle's proposal of trying 26 claims (even if only 15 are "unique") showed that Oracle wouldn't consider a stay to be the end of the world.

    I have wondered on several previous occasions whether Oracle might at some point change its strategy and assert its rights aggressively against Android device makers. Back in February, Oracle already accused Google of wanting "to throw its licensees and users under the bus", meaning that Google insisted on Oracle's presentation of evidence concerning the alleged infringement by particular Android devices rather than accepting that certain parts of the Android codebase are found on all officially-licensed Android devices. That issue is also coming up again now with a view to the scope of a trial.

What both parties' arguments have in common is that they don't advocate a partial stay. Google wants the whole case stayed, and Oracle wants the whole case to go to trial as soon as possible.

Case management and settlement-related considerations

The judge can see those motivations but is just concerned with case management as well as with keeping up the pressure on the parties to settle, which would (if it worked out) simplify everything. Let's look at settlement first, then at a couple of case management considerations.

It's hard to tell from the outside where those settlement talks stand. The court held a third settlement conference on Friday -- smaller working groups than before, no outside lawyers, and especially no more personal attendance by the CEOs. The court said that more talks would be scheduled, but no date was specified. This could mean that they are just hammering out details after having reached a philosophical agreement, but it could also mean that the court just keeps insisting on such talks while the parties have given up hope that they can work it out under the current circumstances.

There are two major case management considerations: the amount of trial time needed (apparently the judge has "15 days counting everything" in mind), which is a question of court resources and the burden on the jury, and the risk of wasting time on patent claims that may be invalid anyway, at least in their current form (during reexamination, patent claims are sometimes also reworded).

Required trial time

Google obviously wants to convince the judge that Oracle's claims are so many and so complicated that the required time goes way beyond the available time. Google's filing probably exaggerates the amount of trial time a jury needs to evaluate Oracle's infringement claims. It represents that "Oracle's own proposed verdict form underscores the complexity of the case, since it presently lists some 110 separate questions to be answered by the jury" and, on that basis, claims that "[Google] will need approximately 75 hours, or approximately 15 days at 5 hours per trial day, for its direct and cross examinations". Google will get only about half of the total trial time, and there will be more to talk about than just Google's affirmative defenses. Google also says this about the required trial time:

"For the liability phase of this trial, the 26 separate claims across the 6 unrelated patents asserted in this case will require roughly 6 to 7 weeks (or 150 to 175 trial hours) and the copyright claims will take an additional non-trivial amount of time."

Note that the above, probably grossly-inflated, estimate relates just to the liability phase of the trial, i.e, the part that is about finding out whether Google infringed any valid Oracle intellectual property rights or not. It does not even count the damages phase, which will be needed except in the rather unlikely scenario that a jury does not identify any infringement at all.

Impact of reexaminations

Oracle originally asserted 132 claims from seven Java-related patents. It now proposed 26 claims (15 unique ones) from six patents. The one patent that Oracle has dropped was very closely related to one of the six remaining ones.

Of the six patents that are in play, one (the '520 patent) is on track to be reaffirmed by the USPTO as far as the actually asserted claims are concerned, which will give that one an enhanced presumption of validity. Google still wants to present prior art against that one, but that same prior art already failed to convince the patent office. For another patent, a first Office action has yet to be issued. And all of the asserted claims of four of those six patents have been rejected on a preliminary basis.

While first Office actions have a high rejection rate that is often very different from the final result, it seems unlikely that all of Oracle's asserted claims are still going to be standing at the end of reexamination. As a way for the court to reduce the burden on the jury, it would be an easy decision to let the patent office finish its work before the case goes to trial. But that's not the only consideration. Courts have some discretion and frequently conduct a trial while reexaminations are ongoing.

One key question in this context is whether justice delayed would amount to justice denied, considering that reexaminations can take years. Oracle makes this argument very persuasively:

"Oracle and Google have prepared to try this case, at significant expense. They have exchanged their pretrial materials—motions in limine, exhibit lists, witness lists, proposed jury instructions, and so on. They have also spent a great deal of time with Magistrate Judge Grewal in mediation discussions. It would be wasteful to lose the investment the parties have made in their time, energy, money, and executive attention by now putting the case on hold.

In addition, Oracle has a compelling case of copyright infringement--Google has all but confessed that portions of Android were derived from Oracle's Java API specifications and source code--that has nothing whatsoever to do with the pending reexamination proceedings. It would be unjust for the Court to stay the case and permit Google to continue to enjoy the fruits of its illegal copying."

The passage quoted above contains a number of strong points, and the last sentence is a very strong argument for "justice delayed is justice denied". But Oracle's problem is that the judge primarily wanted it to narrow its claims and reward such behavior with a greater likelihood of a near-term trial. No argument, however well-crafted and well-reasoned it may be, will ultimately be a replacement for what the judge wants to achieve. I wouldn't be surprised if the judge came back and asked Oracle for a further reduction, and maybe Oracle expects that and wants to make sure it can meet such a demand without reducing its claims to the point at which Oracle would rather accept a stay. Oracle's proposal of 26 (15 unique) claims may already be very close to that point...

Disagreement over impact of jury verdict on reexaminations of the '205 and '720 patents

Oracle and Google disagree on a legal issue relevant to the '205 and '720 patents. The ongoing reexaminations of those patents are "inter partes" reexaminations, meaning that Google actively participates in them as a party, as opposed to "ex parte" reexaminations, which Google requested but in which it is not involved any more as a party. Unlike "ex parte" reexaminations, "inter partes" reexaminations must be dismissed by the patent office with respect to issues decided by a federal court. The point on which Oracle and Google disagree is whether this should dissuade the judge from trying the case.

Google presents a Federal Circuit decision (Bettcher Indus., Inc. v. Bunzl USA, Inc.) just handed yesterday (October 3, 2011), which according to Google says that a first-instance federal court decision does not terminate a USPTO reexamination as long as the relevant party has the right to appeal. It's pretty clear that Google would appeal a federal court decision in Oracle's favor, and in that case, the patent office might conclude its reexamination well ahead of a final, non-appealable, court decision.

If the judge is primarily just interested in having the patent office decide on the validity of those patents so he and his jury don't have to deal with them, the new decision cited by Google wouldn't even make a difference because it only relates to what happens if a court decides prior to the patent office. But the new Federal Circuit decision might give the judge additional ammunition as far as these two patents are concerned.

Copyright and patent damages

A partial stay is a possibility that the judge has been contemplating for some time. In that case, some patent claims would be stayed and others would not. In the event of a partial stay, the copyright part will go to trial ahead of some or all patent infringement claims. But that could complicate a decision on damages. The judge wanted the parties to explain the role of copyright infringement claims in Oracle's new damages calculation just in order to see whether the copyright part could be separated from the patent part of the case. If it can be separated, a partial stay is viable. Otherwise, there would be an all-or-nothing situation.

Oracle argues that "the patent and copyright damages included in Professor Cockburn's September report are independent and not duplicative". In other words, if the judge doesn't accept to try the whole case, Oracle would at least want the copyright part to be decided ahead of some or all patent infringement claims. Oracle also stresses again that this case is not just about damages but especially also about a possible injunction:

"Substantial and irreparable future harm from the patent and copyright infringement, including harm from fragmentation of Java, will also warrant injunctive relief."

As I explained on various occasions, a damages award would ultimately have much less business impact than an injunction that gives Oracle leverage to force Google to settle.

Since Google would rather avoid an early decision on the copyright part of the case, it claims that "Oracle's revised damages expert opinion depends significantly on its copyright claims". The report itself is sealed, so I can't know for sure which of the parties is right. The representations made in the parties' pleadings -- especially those representations that corroborate each other -- show that Oracle's new damages report does contain clear distinctions between patent and copyright damages. It would certainly be easier for a jury to evaluate all damages claims as a whole, but it's probably less burdensome for a jury to take two separate decisions than Google claims.

In this context, Google states the following about how Oracle's damages claims evolved since its first damages report:

"After this Court struck Oracle's initial damages estimate, which offered a median $2.6 billion figure for patent damages and no calculation of copyright damages, Oracle and its expert Dr. Iain Cockburn recalculated, though their bottom-line number is about the same -- a total of $2.7 billion."

From the first time that Google discussed Oracle's new damages claims in a court filing, I have been consistently and tirelessly warning everyone against the baseless assumption that Oracle had "slashed" its demands. I saw some incorrect interpretations out there that added up different numbers that Google quoted from the new damages report without taking into consideration that both reports are quite different in structure and in scope.

It's also problematic to rely on one party's representation of the other party's claims.

Those who falsely concluded from an earlier Google filing that Oracle had reduced its demands can now see that their own source -- Google -- claims Oracle's demands have even increased slightly.

How likely is a stay now?

It's difficult to predict what Judge Alsup will do now, but if he acts consistently with his past positions, he will either order a stay -- maybe a partial rather than a complete one -- or give Oracle one last chance to narrow its claims. I think the latter is more likely than the former, but we'll see soon. I'm quite sure Judge Alsup won't be amused at Oracle's proposal to assert 26 claims, even though Oracle's argument that those are only 15 unique ones (plus 11 "mirrors") is a good one and proven by Google's own prior art contentions, which appear to be the same ones for each asserted claim of a given patent, limiting the number of different pices of prior art the jury actually has to look at.

If the judge orders a partial stay, the copyright part will go to trial along with one or more patents. The one patent that's clearly very trial-ready is the '520 patent. While I was working on this post, I was alerted to the fact that the USPTO yesterday issued a "notice of intent to issue [an] ex parte reexamination certificate" concerning tha patent, all asserted claims of which have been upheld.

If the judge is very optimistic that even a first trial based on copyright, the '520 patent and possibly one or more additional patents greatly increased the likelihood of a settlement (before or after such a trial), he might go for it. In that case, there would be the risk of needing a second trial later, but the increased likelihood of a settlement may make this a gamble that's very likely to save court resources.

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