In the most recent ruling in the landmark patent and copyright infringement action involving Java and Android, Oracle America, Inc. v. Google Inc., 3-10-cv-03561 (Dec. 6, 2011), the Judge tentatively sided with the Defendants in precluding a claim-by-claim apportionment of infringement damages after the Plaintiff’s expert had testified to a patent-by-patent analysis.
The Origins
This controversy began when Oracle’s first infringement damages expert witness report in this matter, by Dr. Ian Cockburn, offered an analysis claiming the total value of the Java and Android systems. Subsequently, that expert opinion was refined to reflect estimated damages from 2007 through 2011 for a total of, at least, $1 Billion dollars; $201.8 million for patent infringement and $823.9 million in “unjust enrichment” copyright infringement damages (alternative measures of lost licensing fees and lost profits were also considered). While Android is distributed freely, the unjust enrichment claimed stems from advertising revenue received through Android, the sales of Nexus mobile phones, and app sales in the Android Market. The starting point for the analysis is negotiations between Sun and Google in 2006 for a $100 million license.
The Analysis
The damages analysis relies on the consideration of a hypothetical license agreement that could have been reached as the result of a supposed meeting between the patentee (Sun) and the infringer (Google) at the time infringement began (The Rite-Hite case is the landmark reference here). This part of the analysis is correct according to the most recent order. Also correct is the starting point of the $100 million royalty discussed in actual negotiations in 2006 for a Java “worldwide license.” Finally, adjusting upwards from that starting point to incorporate the so-called “convoyed sales” concept is also proper procedure, according to Judge Alsup.
Dr. Cockburn’s reasonable royalty calculation for both patent and copyright infringement depended on his opinion that the patents-in-suit were worth 30% and the copyrights-in-suit worth 15% of the $100 million starting value and upward adjustment of nearly $600 million. These percentages were used to proportionally adjust the starting-point fee and the upward adjustment in the hypothetical negotiation calculation. Judge Alsup agreed with Google in that the value of the intellectual property under consideration is that of the complete Java system back in 2006 (“…all Sun owned CD JavaME technologies…”), not that of the portions used in Android since then which, Defendants would argue, is likely to be but a fraction of the whole Java system value.
Furthermore, the apportionment problem remains, and is complicated by the fact that there is more than one patent involved, and each has more than one claim. Apportioning value in litigation is a serious and complex proposition (You can download our apportionment case study for an introduction), and the apportionment by patent cannot readily be converted to a claim-by-claim allocation of value. The court has challenged the damages experts by clearly indicating that a claim-by-claim analysis in this case is preferable because of five reasons:
- It is necessary to obtain the correct timeline top calculate past damages
- Some claims may be more valuable, or easier to design around, than others within the same patent
- It is necessary to calculate future damages if Google designs around some claims but not others in the same patent
- The jury may find liability on some claims but not other in the same patent
- Some claims may be rejected by the USPTO on re-examination.
Therefore, the tentative order holds that the jury will be instructed that if they find any asserted claim not infringed, they may assume that the non-infringed claim represented the full value of that patent.
Copyright Damages
Also objectionable, from the Court’s perspective, is the fact that the damages expert erred by not separating copyright damages for the two categories of copyrighted material asserted in this lawsuit: the lines of Android code and the structure, arrangement, and selection of the Application Programming Interfaces (API) packages.
Conclusions
The ruling, although tentative, highlights key problems in arriving at a suitable measure of damages in IP infringement of software:
- Discerning between copyright and patent claims;
- Apportioning value among patents intertwined in a single software product;
- Differentiating the value of individual claims within a patent; and
- Allocating revenue derived from convoyed sales when distributing Free or Open Source Software.
The case, of course, is far from resolved, but along the way it is bringing attention to a very controversial and largely unexplored area of
Intellectual Property Damages.
Source: Court Records available through UScourts.gov at https://ecf.cand.uscourts.gov/cand/index.html.
