Wednesday, April 11, 2012

Oracle and Google are still $700 million apart on claims based on past infringement

At close of business on Tuesday, Judge William Alsup ruled on Oracle's and Google's different objections to a damages report authored by Dr. James Kearl, the court-appointed damages expert whose opinions will likely bear far more weight with the jury (by virtue of his independence from the parties) than those of the parties' own experts. The order is generally more helpful to Google than to Oracle, but Google still faces considerable uncertainty in a couple of important respects.

As I usually do when I talk about Oracle v. Google damages, I repeat myself by stressing that this case is not primarily about damages. The most important question is whether Oracle will win a technically-impactful injunction, and in my opinion, the two remaining patents won't have that effect, but Oracle's API-related copyright infringement claims could still give Oracle huge leverage that would have business implications going beyond even the multi-billion-dollar damages award that Oracle was once hoping for and isn't realistically going to get.

Not only in connection with an injunction against further infringement but also with a view to damages for past infringement, the patent part of this case is in ruins and this is now essentially a copyright case. If any valid patent is ultimately deemed infringed, the related damages won't be significant if compared to the commercial value of what's at stake. Patent damages would hardly even match the parties' litigation expenses. Even copyright damages, if the word "damages" is defined narrowly, won't be huge, but under copyright law, an infringement finding would entitle Oracle to a disgorgement of Google's Android-related profits to the extent that Google can't prove such profits to be attributable to factors other than the copyright infringement identified. If you read reports on "damages" in this case, they didn't always include those disorgement claims as part of damages because the court and the parties tend to make a distinction between disgorgement and damages. But from a practical point of view, disgorgement is the only item left that could still result in a sizable award. (The far greater opportunity for Oracle would still be a copyright injunction -- that one could still be worth billions of dollars.)

Last month, Judge Alsup noted that Oracle's damages expert estimated "copyright disgorgement to be $824 million (not accounting for noninfringing apportionment, which step Google has the burden to prove)". And yesterday's order says that Oracle's request to "preclude both [court-appointed expert] Dr. Kearl and [Google expert] Dr. Cox from offering any testimony about Google's Android-related expenses in the copyright-disgorgement analysis [...] would result in a difference of approximately $700 million for disgorgement damages". Oracle argued that Dr. Kearl should not be allowed to rely on Google's own Android-related P&L (profit and loss) statements, largely because of the question of who was on the witness list to testify on those accounts. But Judge Alsup concluded that the exclusion requested by Oracle "would be highly prejudicial to Google because then the jury would not have any information regarding deductible expenses for Android".

The judge denied Oracle's motion "without prejudice", i.e., Oracle is not precluded from raising any objections against the proposed deductions later, but the very next step will be for Google's damages expert (on whose information the court-appointed damages expert relied) to "submit a supplement report revising only the foundational interviewee(s) for the P&L statements". Also, "[t]he new interviewee(s) must already be on Google's witness list and their disclosed testimonial topic must be related to Android expenses". The deadline for this amendment is April 16 -- the day on which the trial happens to start. This month Oracle gets to depose "each new foundational interviewee(s) for three hours".

The $700 million difference here is going to narrow once Oracle accepts certain Android-related costs as proven. But it's not Oracle's job to say what the right amount of deductions is: Google has to propose them, and Oracle gets to criticize them. That's why there's technically still a $700 million gap between the two.

Yesterday's order also adjudicated Google's key objection to Dr. Kearl's report: Google didn't like several statements that suggested the hypothetical license fee (a key component of the damages claim) would be based on the value of all of Oracle's Java-related IP as opposed to just the particular copyrights and patents at issue in this litigation. Even though the damages figures Dr. Kearl arrived at weren't threatening to Google, I guess Google was uncomfortable with the idea of this highly influential witness leading the jury to think that a substantial damages award might be justified.

Judge Alsup threw out from Dr. Kearl's report a couple of paragraphs Google complained about but allowed a passage saying that "if Sun and Google understood that the subset of Sun's Java ME IP portfolio most relevant to their negotiations was composed of the now in suit patents and copyright, the 2006 value of the Java ME IP portfolio is the value of the in suit IP". Judge Alsup considered this sentence to be legally appropriate because it "presumes that Google would receive only a license for the alleged infringement in the hypothetical negotiation". Even though Google made some headway by having other, somewhat similar, statements stricken from the report, it's hard to predict how the jury will interpret that sentence. It may not make the kind of subtle semantic distinction Judge Alsup made in his order.

This apportionment issue is also relevant to the potential disgorgement of the copyright infringer's profit. As the passage I quoted above says, that one must also be apportioned (after making deductions for Google's Android-related costs, the remaining amount must still be apportioned to reflect that not all of Google's Android-related profits are attributable to Oracle's copyrights).

Between now and the start of the trial, I'll also do a post on the fundamental question of technology law that the copyright part of this dispute is about: the ways in which programming languages and APIs can or cannot be protected. I'm not going to take a position on which party is right or wrong on those questions. I'll just explain the different technical and conceptual aspects of "programming language" and "API", and what it means for a creator's access to intellectual property protection.

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