At times I wish I knew everything about the cases I follow that the litigators working on them know, but it's possible that at times they wish they had the liberty to be as consistent in their positions on policy as an independent blogger--more independent than ever since I started the blog--can afford to be.
There's an interesting parallel between Apple v. Samsung (meaning their first case, with respect to which the Supreme Court has granted certiorari) and the Oracle v. Google Android-Java copyright litigation: in both cases, most of the damages at issue are based on the theory of a disgorgement of infringer's profits, and at first sight, the amounts claimed by the right holders appear very high. There are even more similarities. For example, in both cases, the defendants are key Android players. But there are also some important factual differences, not limited to the fact that design patents and copyright are different types of intellectual property.
The Supreme Court will take a look (at a hearing most likely to take place in the fourth quarter) at the question of whether an unapportioned disgorgement of infringer's profits is justified when a highly multifunctional product potentially embodies a number of design patents and a far greater number of technological inventions, as well as innovative elements protected by copyright and trade secrets. As for Oracle v. Google it has now become known that Oracle's damages expert from the well-known IP valuation firm of Ocean Tomo has arrived at a total damages claim of $9.3 billion, consisting of actual damages (in terms of lost Java licensing revenues) of roughly half a billion dollars and $8.8 billion in "profits apportionted to infringed Java copyrights." James Niccolai of the IDG News Service uploaded to Scribd both the relevant excerpt from Oracle's damages report and a Google motion portraying Oracle's damages claim as (in different words) the craziest thing anybody ever asked for in a U.S. court.
The notion of a disgorgement of profits is inherently somewhat Draconian. It has a strong punitive element, besides being meant to serve as a major deterrent. But even legal systems in which there is no such thing as punitive damages, such as the German case law on patent damages, enable right holders to base claims on this concept.
In U.S. copyright law there appears to be no dispute that the infringer's profits to be disgorged cannot be unapportioned, while statutory law on U.S. design patents has been interpreted in different ways. In Apple v. Samsung, both the trial court and the appeals court said the law of the land was that there should be no apportionment, but I still have hopes that the Supreme Court will thread the needle and let reasonableness prevail over utter irrationality. Just for the sake of the argument, let's assume now that apportionment is warranted in both cases, and take things from there.
On the same basis, let's assume that the asserted intellectual property rights are valid and enforceable. In Oracle v. Google, there is no more doubt about it: the appeals court decided so, and the Supreme Court denied cert. In Apple v. Samsung, this assumption is actually exceedingly Apple-friendly given the state of affairs of the D'677 iPhone design patent.
A reasonable apportionment of infringer's profits relating to the visual appearance of a smartphone and the layout of one of numerous screens can't result in a huge amount of money. I have tremendous respect for great designers, but to put this into perspective, a tech product is still predominantly a tech product. In the fashion or furniture industries, I'm sure many companies have been acquired at high prices because the acquirer wanted to own their unique designs (and the brands those designs are associated with). But in this industry, I'm not aware of any case where a software company was bought because it has a nice screen layout or where a phone maker was acquired at a high price because it had great designs. Instead, Google bought Motorola Mobility a few years ago at a price of $12.5 billion to get control of its utility patent portfolio, including its standard-essential patents. Not because of its designs.
In the Android-Java case, the ultimate result must also be a reasonable apportionment, and at first sight, the $8.8 billion figure (just the disgorgement part, not the lost licensing revenues) is staggering. It exceeds what Oracle paid six years ago for Sun Microsystems ($7.4 billion, with an enterprise value component of $5.6 billion), which made Java but also owned a hardware business and MySQL, which clearly was a key part of the reason Oracle bought Sun.
But that comparison alone doesn't make the number unreasonable. It could very well be that Java's reasonable market value in 2010 (when Android already existed but wasn't the world's #1 operating system) was close to $2 billion but market developments have since made it several times more valuable. I'm not arguing that this is the case, but it's far from an illogical position to take.
It's instructive to look at the strategic situation Google faced when it developed Android. Google's management foresightfully understood that the mobile revolution was going to come and that platform owners could displace Google by creating their own search engines or doing deals with a Google rival such as Microsoft's Bing search division. In order for Android to get traction, Google knew it would need app developers (Google presumably realized this even before Steve Jobs did). Attracting app developers to a new operating system from a company that never made one before was going to be hard enough, but it was going to be downright impossible with a totally new API (application programming interface) no one would have been familiar with initially. Java was already very popular on mobile devices (a fact that Google's filings in the Oracle case generally fail to recognize). Then there were Apple, which had Objective C (Mac software developers already knew it) and wouldn't have considered for a tenth of a second to license it to Google (though Google is now free to adopt Swift on open-source terms), and Microsoft, which certainly wouldn't have been interested in strengthening a new platform at the expense of Windows (which, like Java, also existed on mobile devices before the iPhone and Android).
Java was the obvious choice for Google at the time. It was not just an obvious choice: there really was no viable alternative.
Instead of letting Oracle buy Sun, Google would have had every opportunity to outbid the Ellison company. Everybody in Silicon Vally knew about Sun's dire straits, and maybe Sun's executives or investment bankers even contacted Google when shopping Sun around. Sure, Sun was about more than Java. I actually would have liked Google to own MySQL and think it could have proved reasonably valuable to Google. Google wouldn't have liked the excess baggage of Sun's hardware business, but it could have just divested that part to someone else or even just closed it down. Excess baggage didn't prevent Google from doing the Motorola deal, and that kind of excess baggage even created potential conflicts with its device maker partners. So, in retrospective, Google should have bought Sun to keep Java and MySQL, should have somehow gotten rid of the hardware part, and then this whole Oracle v. Google litigation would never have happened. With the benefit of being wise after the fact, the Sun deal would also have made it unnecessary for Google to buy Motorola Mobility later: Sun had lots of patents that Google could have used to countersue the likes of Apple and Microsoft.
Google didn't do what it could have done, and now the price may be a lot higher. That's the way things work.
How high the price should be is, of course, another question. I'm not saying that a disgorgement of $8.8 billion is the right number: this is just the position Oracle's expert takes. What I do wholeheartedly believe is that this is by far and away the economically biggest copyright infringement case in the history of the world, and that even a $1 billion award would be far too small when considering the value Google has extracted from Java. From a perspective of market capitalization, it's possible that Alphabet (Google's corporate parent) would be worth less than half of what it is worth without Android (because its core business might have lost a lot of ground). Google pays Apple $1 billion a year for having its search engine on Apple's devices, and that price would be far higher if Apple were the only game in town (or the only one besides Windows).
Oracle's claim is very, very high, but it's not nearly as absurd as Google's lawyers' argument that the infringed program code amounts to a fraction of a percent of the entire Android code base. In the potato business, that kind of ratio would probably be meaningful. Here, it's more like arguing that the human heart only has a mass of 250 to 350 grams and then argue that its value is roughly that of 250 to 350 grams of sand or water.
Google took the essence of Java, built Android on that basis, and yes, a multi-billion dollar disgorgement would appear perfectly reasonable to me.
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