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Google Granted Leave to File a Daubert Motion; Says Oracle's Damages Report is Unreliable, Misleading - by pj
Wednesday, June 08 2011 @ 05:38 AM EDT

Google has filed a letter [PDF] with the court in Oracle v. Google asking for permission to file a motion for a Daubert hearing, and setting forth its reasons. It says Oracle expert Iain Cockburn's damages report is "unreliable, misleading, and inappropriate for presentation to the jury." The judge has already granted Google's request. Here's the schedule from the order [PDF]:
The opening brief shall be filed by NOON ON JUNE 14, 2011, noticing a hearing for JULY 21, 2011. The responsive brief shall be filed by NOON ON JUNE 28. Any reply brief shall be filed by NOON ON JULY 5. Counsel must make a strenuous effort to keep the length of the briefs and the volume of the record to a minimum.
I've done the letter as text for you, and I'll explain a bit what a Daubert hearing is.

First, here are the documents:

06/06/2011 - 164 - Administrative Motion to File Under Seal filed by Google Inc.. (Attachments: # 1 Affidavit, # 2 Proposed Order)(Sabnis, Cheryl) (Filed on 6/6/2011) (Entered: 06/06/2011)

06/06/2011 - 165 - Letter from Google re precis requesting leave to file a Daubert or Other Motion. (Sabnis, Cheryl) (Filed on 6/6/2011) (Entered: 06/06/2011)

06/07/2011 - 166 - ORDER GRANTING LEAVE TO FILE DAUBERT MOTION re 160 Stipulation filed by Google Inc., 165 Letter filed by Google Inc.. Signed by Judge Alsup on June 7, 2011. (whalc1, COURT STAFF) (Filed on 6/7/2011) (Entered: 06/07/2011)

If you followed the SCO v. Novell trial, you know what a Daubert hearing is. But for those who are new, here's an article where I explained it. A snip:
Let's start with concepts: the concept is that you don't want the jury to hear things that they can't handle, that might confuse or prejudice them, or simply things that are not useful to them. Judges have heard it all, and they know the law, so they can hear anything and if it's not relevant, they know it. But juries might not. Usually they don't know the law, and it can sway them unduly if they hear a witness, particularly an expert witness, say something that might be totally untrue but *sounds* or *feels* true, or is just phrased in so much technical gobbledygook that they can't see that it's nonsense....

Daubert is about experts, not just about whether certain testimony will be allowed but even if a certain expert really is one.

In this instance, the issue is whether he has followed proper calculations, in harmony with usual norms and the latest case law, and Google claims he has not, resulting in grossly inflated numbers:
Cockburn’s legal errors are fundamental and disqualifying, and allowing him to testify about his conclusions to a jury would prejudice Google. Although he purports to be calculating a reasonable royalty, he fails to offer any meaningful analysis of the Georgia-Pacific factors that would require him to separate out and define the value of the patented technology to both Google and Oracle. [redacted] This “methodology” bears no resemblance to anything authorized by the law or occurring in any real-world negotiations regarding any aspect of the Java technology.
Here's a list [PDF] of the Georgia-Pacific factors, so you know what Google is talking about, and here's an article Gene Quinn wrote in 2008 explaining them. Since then, there have been cases that also are now considered, and here's a Morrison & Foerster article [PDF] from 2011, Overview of Significant Recent Cases on Patent Damages, that talks about that. It mentions the "death" of the 25% rule, and you'll see that Google references that rule, mocking the 50% figure that the Oracle expert proposes. And I think, after reading it, you'll wonder why Oracle's expert didn't follow the new cases mentioned in this article, in that Morrison & Foerster represent Oracle and they surely know the law. Of course, we've only heard one side so far. When Oracle responds, we'll get to hear their side of this story.

Here's a chapter that explains the kinds of things a judge looks for in reaching a decision. And here's the famous case that set forth the standard, Daubert v. Merrell Dow Pharmaceuticals , which held in part that the Federal Rules of Evidence apply to expert testimony: "The Rules--especially Rule 702--place appropriate limits on the admissibility of purportedly scientific evidence by assigning to the trial judge the task of ensuring that an expert's testimony both rests on a reliable foundation and is relevant to the task at hand." Here's Rule 702:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise, if (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and methods reliably to the facts of the case.
Here what is at issue is whether the expert followed reliable principles and methods and whether they have been applied reliably to the facts.

Experts are hired by the parties. The parties hire them to say helpful things. There are all kinds of experts, some more reliable and independent than others. Do you remember when one of SCO's proposed experts came to Groklaw and in a comment admitted that he took on the assignment to get paid and hopefully to attract more such work? So courts are not as much in awe of experts as the title might lead one to believe.

All you have to do is think about the typical scenario in any courtroom -- in come the parties, and each side has been able to hire experts to agree with them. Yet only one side prevails. Extrapolate, and you'll be able to understand why courts don't assume experts know what they are talking about and can test out such experts, on request of one of the parties, in what is called a Daubert hearing, after the famous Supreme Court case, and while the standard isn't super strict, judges at least want to make sure it's not junk science being offered to the jury and that it's relevant to the case at hand. As Daubert points out, an expert would not be allowed to testify about phases of the moon to explain motivation for a crime, but maybe could testify about it to determine when exactly a crime took place:

The study of the phases of the moon, for example, may provide valid scientific "knowledge" about whether a certain night was dark, and if darkness is a fact in issue, the knowledge will assist the trier of fact. However (absent creditable grounds supporting such a link), evidence that the moon was full on a certain night will not assist the trier of fact in determining whether an individual was unusually likely to have behaved irrationally on that night. Rule 702's "helpfulness" standard requires a valid scientific connection to the pertinent inquiry as a precondition to admissibility.

In this case, Google's letter was received and approved -- Google has been given leave to file the motion. After that, Oracle will get to oppose, and there will be oral argument at the hearing on it, followed by a decision. Usually, judges are inclined to snip out materials, rather than block an expert altogether, but it can happen. The MoFo article mentions that in the IP Innovation v. Red Hat case, an expert was excluded. We'll have to wait to read Google's motion to find out what relief they will ask for specifically, but from the precis, it's clear they think the report is so full of errors and miscalculations, it should not even be presented to the jury.

After you read Google's letter, ask yourself if articles like this one or this one match what you read in Google's letter. I mean the point of Google's letter is that it thinks this expert's report shouldn't even be allowed to be presented to the jury, because it doesn't follow the law on how to figure out damages.

It's hilarious to read Florian "Android is Doomed" Mueller, as I now call him, providing journalists with breathless hyperbole that this Google filing means Google will have to pay astronomical sums. That has the issue before the court precisely backwards. Here's a sample of what Mueller wrote, as quoted by several journalists:

"I have analyzed the situation and I can tell you up-front: the word 'demanding' is an understatement," Mueller said in a blog post Tuesday. "The position on damages for past infringement taken by an Oracle expert appears to be such that Oracle would want Google to pay damages for past infringement that would in the worst case far exceed any money Google has made with Android so far -- and would likely expect Google to pay even more going forward."
It's the same with bloggers as it is with experts: if you don't use the right facts and follow proper standards of analysis, the end result is unreliable. The hilarious part to me, as Google just told the judge in this letter, is that Google doesn't make money from Android. It's free, as in no charge.

Here's another article that gets some facts wrong, also relying on Mueller:

The filing also says Google was in negotiations with Sun to buy the necessary Java mobile licenses, but balked at Sun's terms. Bad move.

A lot of this is probably negotiation through the courts -- plaintiffs always try to make the damages look as bad as possible as a negotiating tactic. But Mueller points out that trial is less than five months away and there's so far no settlement in sight.

First, the filing refers to negotiations, yes, but it seems to point to Sun refusing to license to Google for mobiles. It's redacted, so you can't be sure, but seriously -- look at the Java licenses and you'll see who was more likely the bottleneck. Or take a look at Google's answer to Oracle's complaint, where Google tells the court about Sun -- and later Oracle -- refusing to license to Apache:
6. Upon information and belief, Sun also released the specifications for Sun’s Java platform, including Sun’s Java virtual machine, under a free-of-charge license that can be found at http://java.sun.com/docs/books/jls/third_edition/html/jcopyright.html and http://java.sun.com/docs/books/jvms/second_edition/html/Copyright.doc.html, respectively. The license allows developers to create “clean room” implementations of Sun’s Java specifications. If those implementations demonstrate compatibility with the Java specification, then Sun would provide a license for any of its intellectual property needed to practice the specification, including patent rights and copyrights. One example of a “clean room” implementation of Sun’s Java is Apache Harmony, developed by the Apache Software Foundation. The only way to demonstrate compatibility with the Java specification is by meeting all of the requirements of Sun’s Technology Compatibility Kit (“TCK”) for a particular edition of Sun’s Java. Importantly, however, TCKs were only available from Sun, initially not available as open source, were provided solely at Sun’s discretion, and included several restrictions, such as additional licensing terms and fees. In essence, although developers were free to develop a competing Java virtual machine, they could not openly obtain an important component needed to freely benefit from Sun’s purported open-sourcing of Java.

7. Sun came under significant criticism from members of the open source community, including Oracle Corp., for its refusal to fully open source Java. For example, in August of 2006, the Apache Software Foundation (“ASF”), a not-for-profit corporation that provides organizational, legal, and financial support for open source software projects, attempted to obtain a TCK from Sun to verify Apache Harmony’s compatibility with Java. Although Sun eventually offered to open source the TCK for Java SE, Sun included field of use (“FOU”) restrictions that limited the circumstances under which Apache Harmony users could use the software that the ASF created, such as preventing the TCK from being executed on mobile devices. In April of 2007, the ASF wrote an open letter to Sun asking for either a TCK license without FOU restrictions, or an explanation as to why Sun was “protect[ing] portions of Sun’s commercial Java business at the expense of ASF’s open software” and violating “Sun’s public promise that any Sun-led specification [such as Java] would be fully implementable and distributable as open source/free software.” However, Sun continued to refuse the ASF’s requests.

8. Oracle Corp., as a member of the Executive Committee (“EC”) of the Java Community Process (“JCP”), the organization tasked with managing Java standards, voiced the same concerns regarding Sun’s refusal to fully open source the Java platform. Later that year, in December of 2007, during a JCP EC meeting, Oracle Corp. proposed that the JCP should provide “a new, simplified IPR [intellectual property rights] Policy that permits the broadest number of implementations.” At that same meeting, BEA Systems – which at the time was in negotiations that resulted in Oracle Corp. purchasing BEA – proposed a resolution that TCK licenses would be “offered without field of use restrictions . . . enabling the TCK to be used by organizations including Apache.” Oracle Corp. voted in favor of the resolution.

9. Just over a year later, in February of 2009, Oracle Corp. reiterated its position on the open-source community’s expectation of a fully open Java platform when it supported a motion that “TCK licenses must not be used to discriminate against or restrict compatible implementations of Java specifications by including field of use restrictions on the tested implementations or otherwise. Licenses containing such limitations do not meet the requirements of the JSPA, the agreement under which the JCP operates, and violate the expectations of the Java community that JCP specs can be openly implemented.”

10. Only a couple of months later, in April of 2009, Oracle Corp. announced that it would be acquiring Sun (renamed Oracle America after the acquisition was completed in January of 2010). Since that time, and directly contrary to Oracle Corp.’s public actions and statements, as well as its own proposals as an executive member of the JCP, Oracle Corp. and Sun (now Oracle America) have ignored the open source community’s requests to fully open-source the Java platform.

So that's the context that I thought of when I read Google's letter about negotiations breaking down.

And the trial, as Chris Kanaracus accurately points out could be years away:

It could be quite some time before such a scenario could play out, as the judge overseeing the case recently said it may be necessary to delay a trial until U.S. officials complete the re-examination of some of Oracle's patents. That process could take years.
How could Mueller not know that? And everyone knows that even if Google were to lose at the district court level, it will certainly appeal, and that takes even more time. People often appeal in patent cases, because patent law in the US is so sickly and confused, appeals are often successful.

Plus, any damages assumes that any of Oracle's patents are valid and infringed. That's not in evidence, and I questioned their validity in the In re Bilski sense as soon as I saw Oracle's list. And Google, in its answer to Oracle's amended complaint seemed to agree:

Each of the Patents-in-Suit is invalid under 35 U.S.C. § 101 because one or more claims are directed to abstract ideas or other non-statutory subject matter.
That's not the only reason Google thinks they are invalid, but deeper, Google says none of the patents "can be properly construed to cover any of Google’s products". You know how much you get in damages for invalid patents? Zero. Nada. Zilch. You know how much you get if you haven't infringed any patents? The same. Plus Google has a defense of misuse, alleging that Oracle, and Sun before it, has "impermissibly expand[ed] the scope of the Patents-in-Suit by requiring licensees to license items not covered by Oracle’s alleged intellectual property in order to receive a license to Oracle’s alleged intellectual property." That too might give us a clue to the breakdown in negotiations. And if proven, that too would impact any damages figure.

Plus even if the patents were found to be valid, the expert calculated based on all the patents, but as you know the court has cut Oracle's claims back drastically, and even if the expert had followed proper procedures and even if the calculations were therefore reliable, how many claims survived the cut would impact any damages figures, one would have to assume.

Now, none of us have read the expert's report, so we don't know who is right and who isn't. But then, neither does Mueller or anyone else know how this will turn out. So it's premature, at this point, to predict victory or doom. This is complex litigation, with extremely talented legal teams on both sides. As I always tell you, you have to wait and see. It's way too early to form a solid prediction of the outcome.

But if we are going to just make up possible outcomes, here's mine. Let's imagine that the sticking point between the parties was in fact Oracle's refusal to let Google use Java in an Open Source mobile. That would place Google in the position of being perfectly willing to license and pay for the license, right? So if the outcome of this litigation turned out to be that Oracle were forced to provide such a license on fair terms, then Google would be no worse off than when it started and actually much better off, because with that license comes patent immunity. And then it would be Oracle having to change its business practices, not Google. See what I mean? If we are going to just make up stuff, that's my entry. But honestly, why make things up? There are many possible endings to this story. Let's just wait and see. But my suggestion is every bit as possible as any other, at this early point, and it might even explain Google's willingness to take this case to court. Here's the latest on the Java story, from Apache's Stephen Coleburn, titled "Java SE 7 passes in the zombie JCP", by the way. He writes:

You cannot claim to be an Open Standards body if you do not allow implementations of the specification....

Specifically, the comments note that Oracle's promises to have open and transparant JSRs have not been fulfilled.

More broken promise then. Why am I not surprised.

As I said, there used to be a Deal. Where the owner of Java makes a large investment and the community makes it relevant. By constantly thumbing its nose at the Java community, Oracle is harming its own interests. But I don't think they care anymore.

And yet, it could still be fixed - Apache OpenJDK anyone?

There are some cases mentioned in Google's letter that you might like to read. Here's ResQNet.com v. Lansa and here's Lucent Techs., Inc. v. Gateway, Inc.. The case that rejected the 25% rule is Uniloc USA, Inc. v. Microsoft Corp.. And finally, here's Radio Steel & Mfg. Co. v. MTD Prods., Inc. and Panduit Corp. v. Stahlin Bros. Fibre Works, Inc..

Here is the Google letter as text, which has been partially redacted:

[King & Spalding LLP letterhead]

June 6, 2011

The Honorable William Alsup
U.S. District Court, Northern District of California
450 Golden Gate Avenue
San Francisco, California 94102

Re: Oracle America, Inc. v. Google Inc., No. C 10-3561 WHA

Dear Judge Alsup:

In accordance with Your Honor’s February 9 and June 2 Orders, Google requests leave to file a Daubert or other motion directed at the damages report of Oracle’s expert Iain Cockburn.

The Court’s November 19, 2010 Case Management Order recognized that an early damages report and early Daubert motion at this stage would substantially advance the case. The order provides that, after receiving Oracle’s opening damages report, Google “must file any Daubert or other motion directed at the methodology, reliability or other defect” within fourteen days. (Dkt. No. 56 at ¶ 9 (emphasis added)). This is consistent with the recent trend, by the Federal Circuit and other courts, to exclude under Daubert speculative and arbitrary damages testimony. See, e.g., Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011); Cornell Univ. v. Hewlett-Packard Co., 2008 WL 2222189, *1 (N.D.N.Y. 2008) (Rader, J.).

Cockburn opines that Google, if found to infringe, would owe Oracle [redacted]

Contains Confidential and Highly Confidential - Attorneys’ Eyes Only Information

The Honorable William Alsup
June 6, 2011
Page 2

[redacted]

Cockburn’s legal errors are fundamental and disqualifying, and allowing him to testify about his conclusions to a jury would prejudice Google. Although he purports to be calculating a reasonable royalty, he fails to offer any meaningful analysis of the Georgia-Pacific factors that would require him to separate out and define the value of the patented technology to both Google and Oracle. [redacted] This “methodology” bears no resemblance to anything authorized by the law or occurring in any real-world negotiations regarding any aspect of the Java technology.

First, Cockburn has no basis for including all of Google’s revenue from Android phones into the base of his royalty calculation. The accused product here is the Android software platform, which Google does not sell (and Google does not receive any payment, fee, royalty, or other remuneration for its contributions to Android). Cockburn seems to be arguing that Google’s advertising revenue from, e.g., mobile searches on Android devices should be included in the royalty base as a convoyed sale, though he never articulates or supports this justification and ignores the applicable principles under Uniloc and other cases. In fact, the value of the Android software and of Google’s ads are entirely separate: the software allows for phones to function, whether or not the user is viewing ads; and Google’s ads are viewable on any software and are not uniquely enabled by Android. Cockburn’s analysis effectively seeks disgorgement of Google’s profits even though “[t]he determination of a reasonable royalty . . . is based not on the

Contains Confidential and Highly Confidential - Attorneys’ Eyes Only Information

2

The Honorable William Alsup
June 6, 2011
Page 3

infringer’s profit, but on the royalty to which a willing licensor and a willing licensee would have agreed at the time the infringement began.” Radio Steel & Mfg. Co. v. MTD Prods., Inc., 788 F.2d 1554, 1557 (Fed. Cir. 1986).

Second, Cockburn includes Oracle’s “lost profits and opportunities” in his purported royalty base. This is an obvious ploy to avoid the more demanding test for recovery of lost profits that Oracle cannot meet. See, e.g., Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978). Most audaciously, Cockburn tries to import into his royalty base the alleged harm Sun and Oracle would have suffered from so-called “fragmentation” of Java into myriad competing standards, opining that Oracle’s damages from the Android software includes theoretical downstream harm to a wholly different Oracle product. This is not a cognizable patent damages theory, and is unsupported by any precedent or analytical reasoning.

Third, after improperly inflating the base of his royalty calculation, Cockburn proceeds to apply an unprecedented fifty percent royalty rate to that base through use of improper short-cuts. In contravention of long-settled precedent, he fails to tie his royalty rate to the value of the patented technology actually at issue in this case. See, e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333 (Fed. Cir. 2009). He treats the patents and copyrights at issue as a single, indivisible unit, casually dismissing critical differences in the patents (such as the technologies they embody and expiration dates over a decade apart) by deeming them all “essential” to Java, without pointing to any facts that could justify that conclusion. Instead of satisfying the Lucent standard, he adopts a presumption that is contrary to Lucent, stating that there is “no clear economic basis” for apportioning the total value of Android into value attributable to the patents and copyrights in suit and any additional value added by Google. Under the case law, however,

Contains Confidential and Highly Confidential - Attorneys’ Eyes Only Information

3

The Honorable William Alsup
June 6, 2011
Page 4

damages must be tied to “the claimed invention’s footprint in the market place.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010) (per curiam) (emphasis added).

Cockburn similarly inflates his royalty rate by calculating Oracle’s loss based on the alleged value of Java as a whole, even though the patented features are only a small part of Java. Indeed, Oracle has conceded that the claimed invention of the ‘720 patent—the only patent discussed in Cockburn’s report—[redacted]

Fourth, Cockburn cavalierly asserts that infringement of a single claim of a single patent would result in the same [redacted] award as infringement of all of the asserted claims. The ‘720 patent, for example, [redacted], it expires nearly eight years after every other patent-in-suit. But according to Cockburn, even if Google does not infringe the ‘720 patent, the damages should still run throughout its life, which extends to 2025. Cockburn therefore tacks [redacted] onto his calculation for the eight years during which the [redacted] ‘720 patent would be the sole remaining patent.

All these basic legal errors are essential to Cockburn’s bottom-line conclusion of [redacted] royalty base and a fifty percent royalty rate. Even without considering these errors, however, Cockburn’s 50% rate is no less arbitrary than the 25% “rule of thumb” methodology the Federal Circuit recently held cannot satisfy Daubert. See Uniloc, 632 F.3d at 1315. The critical question is “whether [Cockburn] has justified the application of a general theory to the facts of the case.” Id. at 1316. He has not.

Contains Confidential and Highly Confidential - Attorneys’ Eyes Only Information

4

Finally, Cockburn also abandons market evidence about the value of the Java platform in favor of speculation and assumption. He dismisses Oracle's own valuation of [redacted] the entire Java platform -- not just Java for mobile applications. He ignores Google's actual negotiation history with Sun regarding a Java license for the mobile space, which would have included far more than the patents-in-suit and during which Google rejected a proposal to pay Sun [redacted]. Even more glaring, he mischaracterizes Sun's settlement with Microsoft, asserting that Sun demanded and received $900 million to cover the risk of fragmentation to Java, [redacted] Cockburn further uses "incompatibility" as a reason to ignore the most pertinent Java licenses, i.e., Java ME licenses, all of which generated revenues that were orders of magnitude lower than Cockburn's damages estimate. And while dismissing Sun's actual Java licenses, Cockburn relies on third-party agreements relating to other wireless technologies and mobile operating systems to inflate his royalty numbers, without any evidence linking those licenses and the claimed invention. See ResQNet, 594 F.3d at 871.

Cockburn's analysis of copyright damages is simply nonexistent -- a single, conclusory sentence -- and conflates the alleged copyright and patent infringement.

Each of these errors is foundational, and renders Cockburn's report unreliable, misleading, and inappropriate for presentation to the jury. Taken together, they are sufficiently critical that the Court should hear a Daubert motion now as originally anticipated.

Respectfully submitted,

[signature]
Scott T. Weingaertner
Counsel for Defendant Google Inc.

Contains Confidential and Highly Confidential - Attorneys’ Eyes Only Information

5



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