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Oracle v. Google - Posturing Over Damages - UPDATED
Monday, June 20 2011 @ 09:15 AM EDT

More filings with and orders from the court this past week with respect to the damage claims asserted by Oracle. You may recall that Oracle hired Boston University finance and economics professor Iain Cockburn to serve as its expert witness on damages it is asserting in its patent infringement claims against Google. The report Cockburn prepared has not been made public, but a copy was delivered to Google. Google perceived the report to be inaccurate, grossly overstating the potential damages, and possibly inflammatory. So Google's next step was to challenge Cockburn as an expert (this is referred to as a Daubert motion) and supporting their motion with a précis (a summary of the Cockburn report) explaining their position. At the same time, Google asked the court's indulgence in suppressing a good deal of the précis lest it become public and have the exact inflammatory effect Google was seeking to avoid.

As a first step in this process on June 2nd Judge Alsup ordered [PDF] Google to prepare and file the précis. On June 6 Google filed an administrative motion [PDF] seeking to file the précis under seal along with a redacted version of the précis [PDF].

Having received the Google précis, on June 7 Judge Alsup granted [PDF] Google's request to file a Daubert motion with Google's opening brief to be filed by June 14, Oracle's responsive brief to be filed by June 28, any Google reply brief to be filed by July 5, and a hearing to be held July 21 on the motion. Google then timely filed its opening brief [PDF] on June 14, a copy of which is reproduced below in text form. This brief was accompanied by a declaration [PDF] from King & Spaulding attorney Scott Weingaertner and several supporting exhibits. One particular additional filing of interest is the declaration [PDF] of Gregory Leonard, Senior Vice President at NERA Economic Consulting, commenting on Prof. Cockburn's damage analysis, also reproduced below.

Oracle objected to Google's administrative motion to seal the précis filing in a response [PDF, text below] filed on June 16, and that same day Judge Alsup ordered [PDF] the précis to be filed unredacted and unsealed. Google publicly filed the unredacted version of the précis [PDF, text below] the following day.

What to make of all of this? There is no huge strategic value to the Cockburn report, the fact that Google has been forced to make the précis public, or anything else at this point. The Cockburn report represents Oracle's contentions, and Google will still get a hearing on its Daubert motion to exclude Prof. Cockburn and his testimony. They just don't get to do so under seal. Next play.

************
UPDATE

Just in case you missed it (or simply don't want to spend your time searching for it, there are at least three important takeaways conveyed in the Google brief and related documents:

  • Cockburn ignored prior negotiations between Sun and Google in which Google was offered the opportunity to license these and other patents for a fraction of Cockburn's present estimate;
  • Cockburn ignored other licensing transactions in which Sun licensed these patents for a fraction of Cockburn's present estimate (and these other licensing transactions will almost certainly become a limiting factor on any royalties Oracle may be awarded); and
  • Cockburn bases his estimate on worldwide sales of Android devices and Google revenue, despite the fact that the devices are made and used (and thus the infringement occurs) outside the U.S. and is not subject to a U.S. patent claim.
All of this serves to indicate that the Cockburn report, while sensational, has little or no bearing on a likely outcome of this case.

**************

Google Opening Brief in Support of Daubert Motion

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

ORACLE AMERICA, INC.

Plaintiff

v

GOOGLE INC.

Defendant.

Case No. 3:10-cv-03561-WHA

Honorable Judge William Alsup

GOOGLE INC.'S BRIEF IN SUPPORT OF DAUBERT MOTION
HIGHLY CONFIDENTIAL -ATTORNEYS' EYES ONLY

TABLE OF CONTENTS

I. STATEMENT OF FACTS.......................................................................3
A. Patents-in-Suit............................................................................3

B. Accused Functionality And Alternatives............................................................. 4

C. Valuation Of The Asserted Patents And Java Generally................................................... 5

D. Fragmentation Of Java.................................................... 6

II. LEGAL STANDARDS............................................................... 7

III. ARGUMENT................................................................... 8

A. Cockburn's reasonable royalty calculation rests entirely on improper
categories not recoverable as patent damages.................................................. 9
1. Cockburn improperly includes all of Google's
worldwide advertising revenue from Android
phones in his royalty calculation................................................. 9

2. Cockburn improperly smuggles Oracle's lost
profits in his royalty calculation, with no
attempt to satisfy the stringent Panduit test............................ 10

3. Cockburn improperly includes damages for so-
called "fragmentation" in his royalty base...................................... 11

B. Cockburn also calculates an unreasonable, inflated royalty rate by
refusing to value the patented technology at issue, among other errors............................ 12
1. Cockburn's report makes no effort to base his
royalty rate on the value of the patented technology
C. Cockburn's methodology contains numerous other legal errors..................... 16
1. Cockburn inflates his damages estimate by double
counting, including Oracle's alleged future
damages despite Oracle's request for an injunction..................................16

2. Cockburn improperly includes Google's revenues
from international sales in his damages calculation........................... 16

3. Cockburn improperly sets the date of the hypothetical
negotiation in 2008, when Android phones first launched,
rather than when the Android code was first written............................ 17

D. Cockburn Ignores Record Facts And Undisputed Market Realities........................... 18

i

1. Cockburn ignores the actual market value of Java, as proven
by numerous licenses granted by Sun, Google's negotiations
with Sun, and the value assigned to Java by Oracle.......................... 18

2. Cockburn assumes, without any factual basis, that Sun and
Google would have negotiated an expensive, Java-incompatible
license rather than a cheap, Java-compatible license.......................... 19

i. Far from prohibiting fragmentation of Java, Sun promoted
such fragmentation through its licensing program........................... 20

ii. Even if Cockburn's assumptions about fragmentation
are correct, it is improper to base a damages award
on compatibility with nonpatented features............................. 21

iii. Cockburn relies on fragmentation as a reason to ignore
relevant evidence, including Java-compatible licenses................................. 22

3. Cockburn relies on inapposite licenses and ignores
relevant ones to inflate the damages calculation................................ 23
E. Cockburn Offers No Meaningful Analysis Regarding Copyright Damages................................................ 23
IV. CONCLUSION........................................................... 25

ii

TABLE OF AUTHORITIES

Cases

Cornell Univ. v. Hewlett-Packard Co., 2008 WL 2222189 (N.D.N.Y. 2008) (Rader, J.) 7
Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279 (N.D.N.Y. 2009) (Rader, J.) 15
Fonar Corp. v. General Electric Co., 107 F.3d 1543 (Fed.Cir.1997) 9
Garretson v. Clark, 111 U.S. 120 (1884) 12
Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970) 12, 13
Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371 (Fed. Cir. 2001) 17
Kalman v. Berlyn Corp., 914 F.2d 1473 (Fed.Cir.1992) 9
Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649 (Fed. Cir. 1985) 10
Lucent Tech. Inc. v. Gateway Inc., 580 F.3d 1301, 1325-35 (Fed. Cir. 2009) 12, 13, 15, 16, 23
Minks v. Polaris Indus., Inc., 546 F.3d 1364 (Fed. Cir. 2008) 12
Paice LLC v. Toyota Motor Corp., 504 F.3d 1293 (Fed. Cir. 2007) 16
Panduit Corp. v Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978) 11
Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11 (Fed.Cir.1984) 9
Radio Steel & Mfg. Co. v. MTD Prods., Inc., 788 F.2d 1554 (Fed. Cir. 1986) 10
ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir. 2010) 11, 14, 23
Riles v. Shell Exploration & Production Co., 298 F.3d 1302 (Fed. Cir. 2002) 8, 16
Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011) 8, 9, 15

Statutes

35 U.S.C. § 284 14


PLEASE TAKE NOTICE that on July 21, 2011 at 9:00 a.m., or as soon thereafter as counsel may be heard, Defendant Google Inc. (“Google”) will, and hereby does, respectfully move to exclude the opinions and testimony of Oracle America, Inc.’s (“Oracle”) damages expert Dr. Iain M. Cockburn. This Motion is based on the following memorandum of points and authorities in support, the Declaration of Scott T. Weingaertner (“Weingaertner Decl.”) and accompanying exhibits, the Declaration of Gregory K. Leonard, Ph.D. (“Leonard Decl.”) and accompanying exhibits, the entire record in this matter, and on such evidence as may be presented at the hearing of this Motion.

This Court should exclude the unreliable and results-oriented opinions and testimony of Oracle’s damages expert Dr. Cockburn. Ignoring the settled legal framework for evaluating patent damages and many years of evidence establishing the modest market value of Java technology, Cockburn opines that Google would owe Oracle an amount in the breathtakingly wide range of [redacted] if Google is held to infringe any claim of any of the seven patents at issue in this case. That range is orders of magnitude beyond any reasonable valuation of the intellectual property at issue.[redacted]

Cockburn’s legal errors are fundamental and disqualifying. Although Cockburn purports to calculate a reasonable royalty, he ignores the guidelines established by the Supreme Court and Federal Circuit. He fails to separate out and value the patented technology at issue, instead using the purported value of the entire Java platform as the basis for his damages claim. He also fails to calculate the incremental value of the alleged infringing technology to the Android platform. Instead, he improperly adds together as the basis for calculating a royalty rate: (1) Google’s incremental profit from advertising on all Android devices world-wide, and (2) the purported harm to Sun’s and Oracle’s business from lost profits and alleged “fragmentation” of the Java platform.

None of these are proper components of a royalty calculation for patent damages:

  • Google’s advertising business is not the accused product. The accused product is the Android platform software, which Google does not sell and from which it earns no direct revenue. The value of the Android software and of Google’s ads are entirely separate: the software provides for certain phone functionality, whether or not the user is viewing ads, and Google’s ads are viewable on any software and are not uniquely enabled by Android.
  • Oracle’s lost profits cannot be used to inflate the royalty calculation. Lost profits are a separate category of patent damages, authorized only if the patentee meets a distinct and demanding test that Cockburn does not even attempt to satisfy.
  • Oracle’s purported damages from so-called “fragmentation” of Java relate to theoretical downstream harm to a wholly different Oracle product that is not recoverable as damages in this action.
After inflating his royalty calculation as described above, Cockburn opines that Oracle should be awarded more than 50% of the net benefit he claims Google would receive from licensing the patents and copyrights at issue from Oracle, resulting in a greater than 20% royalty rate. This “methodology” is not authorized by the law or consistent with any real-world negotiations regarding any aspect of the Java technology. Cockburn treats the patents and copyrights at issue as a single, indivisible unit, casually dismissing critical differences among the patents, including expiration dates over a decade apart.[redacted]

Cockburn’s factual errors and omissions are just as fundamental. He disregards market evidence about the value of the Java platform in favor of speculation. He dismisses Sun’s history of licensing Java for a modest royalty and the fact that, during its acquisition of Sun, Oracle assigned a value of [redacted] to the entire Java platform—which includes far more than the Java mobile platform, only part of which is at issue here. He ignores Google’s 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 orders of magnitude less than what Cockburn now says Google would have paid. Even more glaring, he mischaracterizes Sun’s and Microsoft’s 2004 settlement of litigation that involved far more than claims of fragmentation, asserting that Sun demanded and received $900 million to cover the risk of fragmentation to Java, even though Sun and Microsoft settled litigation relating to fragmentation in 2001 and Microsoft paid Sun just $20 million.

Finally, as to copyright damages, Cockburn provides no separate analysis at all.

All of these errors are foundational, and any one of them would be enough to render Cockburn’s report unreliable, misleading, and inappropriate for presentation to the jury. Taken together, they require exclusion of his opinions.

I. STATEMENT OF FACTS

Oracle alleges infringement of seven patents1 and two copyrights. (See Amended Complaint for Patent and Copyright Infringement (“Amended Complaint”) (Dkt. 36) at ¶ 10 (Exs. A-G) and ¶ 11 (Ex. H).) On May 21, 2011, Oracle served the Expert Report of Iain M. Cockburn (“Cockburn Report” or “Cockburn Rep.”) regarding its purported damages on these claims. (See Weingaertner Decl. at ¶ 1 (Ex. A), Cockburn Rep.)

[FN 1.U.S. Patent Nos. 6,125,447 (“the ‘447 patent”); 6,192,476 (“the ‘476 patent”); 5,966,702 (“the ‘702 patent”); 7,426,720 (“the ‘720 patent”); RE38,104 (“the ‘104 patent”); 6,910,205 (“the ‘205 patent”); and 6,061,520 (“the ‘520 patent”).]

A. Patents-in-Suit
The patents-in-suit fall into two technology categories: the ‘447 and ‘476 patents relate to a security framework, and the five remaining patents relate to optimizations for use with a virtual machine. During claim construction, Oracle’s counsel confirmed that the patents-in-suit involve only these technology categories. (See, e.g., Weingaertner Decl. at ¶ 2 (Ex. B), Oracle’s Technology Tutorial Supplement at 1; April 6, 2011 Transcript of Proceedings (Dkt. 110) at 15:6-8.)

The patents-in-suit, either individually or collectively, do not encompass Java as a whole or even a significant part of it. The ‘720 patent provides a concrete example. The purported novelty of the ‘720 patent lies in optimizations useful for multitasking. (‘720 Patent (Dkt. 36, Ex. D) at 1:27-33.) Oracle has asserted that it uses this optimization in only two minor products, not in the Java platform generally. (Weingaertner Decl. at ¶ 3 (Ex. C), Oracle’s Second Supplemental Patent Local Rule 3-1 Disclosure Of Asserted Claims And Infringement Contentions (“Oracle’s Infringement Contentions”) at 11.) Each of the other patents is also directed to a specific, discernible feature. The patents also differ substantially in their remaining life. The ‘104 patent will expire in 2012, and five of the other six patents will expire in just over six years. Only one patent—the ‘720 multitasking patent discussed above—has a longer life.

B. Accused Functionality And Alternatives
According to Oracle, the accused products break down into two groups: a) devices running or containing the Android operating system (“Android Devices”); and b) computers running or containing the Android software development kit (“SDK”). The Android operating system and the SDK are separate sets of code with distinct functionalities, and Oracle has accused the two of infringing different patents.

Because Oracle’s patents relate to either a security framework or virtual machine optimizations, its Infringement Contentions are similarly limited. Oracle alleges that only portions of Android code referring to security infringe the security patents (see, e.g., Weingaertner Decl. at ¶ 4 (Ex. D), Oracle’s Infringement Contentions, Exhibit D at 2-21 (citing code referring to SecurityManager class)) and that only portions of code relating to the Dalvik Virtual Machine infringe the optimization patents (see, e.g., id. at ¶ 5 (Ex. E), Oracle’s Infringement Contentions, Exhibit G at 1-20 (citing Android functionality within Dalvik)).

The accused features of Android frame any damages analysis, yet they comprise only a fraction of Android as a whole. Some of the accused features have never been used and are therefore hardly essential to Android’s functioning or success. “Google does not use SecurityManager, and is not aware of any third party that uses or has ever used SecurityManager”; Google “implemented changes to disable SecurityManager-related functionality for the Gingerbread version of Android (version 2.3)”; and “[i]n the current version of Android, as of December 6, 2010, users and application programs are prevented from even installing an instance of SecurityManager.” (See Weingaertner Decl. at ¶ 6 (Ex. F), Defendant Google Inc.’s Fourth Supplemental Responses to Plaintiff’s Interrogatories, Set One, No. 3 at 28.) In addition, the Android Native Development Kit, (“NDK”) does not use the Java programming language at all, instead allowing Android developers to implement applications using native-code languages like C and C++. (See Weingaertner Decl. at ¶ 7 (Ex. G), http://developer.android.com/sdk/ndk/index.html.)

C. Valuation Of The Asserted Patents And Java Generally
The Java platform and its components are not new. As a result, the record contains evidence of numerous instances when market participants have quantified the value of both Java as a whole and the fraction of that value attributable to the asserted patents, including Sun’s historical Java licensing practices. Sun’s practice was always to license Java when asked to do so.[redacted]

Oracle also made statements to the SEC regarding the value of the entire Java system in connection with its acquisition of Sun.[redacted]

This case does not involve the entire Java platform. It involves only certain features of one small portion of the Java Platform. Sun’s and Oracle’s overall investment in Java was centered in the larger desktop, server, and enterprise markets, not in the mobile space.[redacted]

Even the features of the patents—which are not specific to or required by the Java platform—are capable of valuation based on the documentary record.[redacted]

Finally, there is no need to speculate about the terms Google and Sun might have reached in a hypothetical negotiation because Google and Sun actually engaged in negotiations regarding a license to the entirety of Java.[redacted]

D. Fragmentation Of Java
A substantial portion of Cockburn’s damages calculation is based on so-called “fragmentation” of the Java platform into numerous incompatible sub-standards. Such “fragmentation”—which is the purported downstream harm to a separate Oracle product—is not a recognized category of damages for patent infringement. Cockburn not only includes it, he vastly inflates the value Sun assigned to preventing that alleged harm. In 2002, Sun sued Microsoft for various alleged unfair business practices and trademark infringement, including Microsoft’s attempt to create its own version of Java, which might have led to fragmentation of Java standards and practices. That case eventually settled in 2004. Cockburn focuses on this 2004 agreement, which was a broad business arrangement involving more than settlement of litigation, including covenants not to sue under the parties’ entire patent portfolios. (Ex. A, Cockburn Rep. ¶ 312.) Cockburn completely ignores a 2001 settlement agreement in which Microsoft paid Sun $20 million to settle litigation involving claims related to fragmentation. (Weingaertner Decl. at ¶ 14 (Ex. .N), Microsoft Reaches Agreement to Settle Contract Dispute With Sun Microsystems at 1; Weingaertner Decl. at ¶ 15 (Ex. O), Settlement Agreement and Mutual Limited Release at 2.)

Even prior to the Microsoft litigations, Sun tolerated and even promoted fragmentation of Java through its own licensing program.[redacted]

II. LEGAL STANDARDS

Trial judges serve as gatekeepers for both the relevance and reliability of expert testimony. Federal Rule of Evidence 702 permits a trial court to admit only expert “testimony that is (1) based upon sufficient facts or data, (2) the product of reliable principles and methods, and (3) delivered by a witness who has applied the principles and methods reliably to the facts of the case.” Cornell Univ. v. Hewlett-Packard Co., 2008 WL 2222189, *1 (N.D.N.Y. 2008) (Rader, J.) (citing Fed. R. Evid. 702). The Federal Circuit and district courts have excluded expert testimony on damages that fails to meet these criteria. See Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir. 2011); Cornell, 2008 WL 2222189, at *4.

Oracle bears the burden of proving damages. Here, Cockburn calculated damages by employing the commonly used “hypothetical negotiation” approach to determining a reasonable royalty. That approach attempts to determine what a willing licensor and a willing licensee would have agreed “just before infringement began.” Id. The hypothetical negotiation must be based in “sound economic and factual predicates.” Riles v. Shell Exploration & Production Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002).

III. ARGUMENT

Cockburn’s opinion is unreliable and should be excluded because he (1) ignored settled legal standards; (2) relied on assumptions that are uniformly contradicted by the record; and (3) offered no analysis whatsoever with respect to copyright damages. The predictable result is a hyper-inflated [redacted] damages calculation.

Cockburn’s errors are several:

  • he fails to tie his royalty calculation to sales of the allegedly infringing product (the Android platform software);
  • [redacted]
  • he inflates his royalty rate to 20 percent, ignoring the time-honored Georgia-Pacific analysis;
  • he does not even try to value the technology embodied in the asserted claims of the patents-in-suit, the relative contribution of that technology to the overall Android platform, or the value of individual patents, or to apportion the value of patented and non-patented features; and
  • he ignores all of Sun’s actual licenses, which establish a relatively modest value for Java as a whole and even more minuscule values for the Java components embodied by the patents-in-suit, crediting instead a handful of licenses for wholly unrelated technologies between other companies.
The [redacted] from advertising on all Android Devices. No one has ever paid anywhere near this amount for even the entire Java platform, much less the minor components of that platform system that relate to the patents-in-suit.
A. Cockburn’s Reasonable Royalty Calculation Rests Entirely On Improper Categories Not Recoverable As Patent Damages.
Cockburn’s first task in his reasonable royalty analysis was to identify the allegedly infringing product and determine how much revenue Google, as the alleged infringer, earned from sales of that product. Cockburn fails even this simple initial step, stuffing his royalty calculation with numerous unreliable, inflated, and improper components.
1. Cockburn improperly includes all of Google’s worldwide advertising revenue from Android phones in his royalty calculation.
First, Cockburn has no basis for including in his royalty base Google’s worldwide revenue from advertising displayed on Android phones. The accused product here is the Android software, which Google does not sell, and from which Google receives no direct revenue. Google receives no payment, fee, royalty, or other remuneration for its contributions to the Android platform. Only in specific circumstances is it proper to include revenues derived from downstream sales of non-infringing products, like advertising on Android phones, in a royalty base. The royalty base may include non-infringing components when those infringing components are the basis for customer demand for the entire machine, Fonar Corp. v. General Electric Co., 107 F.3d 1543, 1552 (Fed.Cir.1997); when physically separate products are sold together as a functional unit or parts of a complete machine, Paper Converting Machine Co. v. Magna-Graphics Corp., 745 F.2d 11, 23 (Fed.Cir.1984); and when separate components are analogous to a single functioning unit, Kalman v. Berlyn Corp., 914 F.2d 1473, 1485 (Fed.Cir.1992). Cockburn’s analysis ignores all these limitations.

Because Google’s advertising is not sold with the Android software and does not consist of a single functioning unit along with that software, Google advertising revenue could be included in the royalty base only if Oracle could satisfy the requirements of the entire market value rule—i.e., that the patented features of the Android software drive demand for Google’s advertising or that Google’s advertising create the value of the software. See Uniloc, 632 F.3d at 1318-20. Cockburn neither analyzes these questions nor answers them. In fact, the value drivers of the Android software and of Google’s ads are entirely separate: the software provides for certain phone functionality, whether or not the user is viewing ads; and Google’s ads are viewable on any software and are not uniquely enabled by Android.

Because he fails to address the entire market value rule, Cockburn increases the reasonable royalty by recovery of Oracle’s purported lost profits even though “[t]he determination of a reasonable royalty . . . is based not on the 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). At most, an infringer’s profits from the infringing product are a factor to be considered in the royalty analysis. See Kori Corp. v. Wilco Marsh Buggies & Draglines, Inc., 761 F.2d 649, 655 (Fed. Cir. 1985). Here, Cockburn’s analysis is even farther afield of what the law allows, because he bases his damages estimate on Google’s profits from non-infringing products.

Cockburn also increases damages by laying out, at considerable effort, speculative theories as to direct and indirect revenue that Google purportedly attained or could have anticipated with respect to Android. That shows what Oracle is really after—any revenues that could be associated with advertising on Android Devices. Cockburn assumes that all of Google’s advertising revenues associated with Android Devices would have been fair game to Sun and that Google would have given Sun “an even split” of its incremental profits from advertisements, plus compensated Sun for half of what Sun lost. (See Ex. A, Cockburn Rep. ¶¶ 283-284.) Out of the myriad actual licenses Sun granted to Java and its components, Cockburn fails to point to a single one that adopted a structure whereby a licensee paid Sun any percentage of its profits on downstream products associated with the use of the product that included Java technology.

2. Cockburn improperly smuggles Oracle’s lost profits in his royalty calculation, with no attempt to satisfy the stringent Panduit test.
Second, Cockburn improperly includes a lost profits recovery in his royalty calculation. (See Leonard Decl. at ¶¶ 14-15.) He assumes that “Sun would have required a relatively high royalty rate to compensate it for the immediate losses” allegedly related to Android. (Ex. A, Cockburn Rep. ¶ 303.) He thereby conflates a reasonable royalty recovery with a lost-profits recovery, and bypasses the separate and well-developed legal framework for computing lost profits in patent cases. See, e.g., Panduit Corp. v Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978). If Cockburn’s technique were valid, it would render the Panduit doctrine pointless. Patentees would have no need to try to prove lost profits in a “but-for” world or to meet the high standards of Panduit when they could, instead, simply assert a reasonable royalty would compensate for purported lost profits. It would also open the door, as it has here, to an increased recovery that would punish infringers instead of compensating patentees.
3. Cockburn improperly includes damages for so-called “fragmentation” in his royalty base.
Third, Cockburn includes as a component of his royalty calculation money Sun purportedly would have demanded as compensation for so-called “fragmentation” of the Java platform into multiple, competing sub-standards. These payments are unconnected to any allegedly infringing product (or any product, for that matter) sold by Google, or any product sold by Sun or Oracle embodying the patents-in-suit. They relate only to theoretical harm to a separate product that is not even at issue in this case. This is neither a reasonable patent royalty nor lost profits, and is not a patent damages theory at all; it is a general tort damages theory. Oracle has not asserted any tort claims in this case. Cockburn does not justify his inclusion of fragmentation in his royalty calculation by reference to any case law. In fact, he admits that the “fragment or fork [of] Java generally” is “an effect going beyond the use of the specific [purportedly] infringed intellectual property itself.” (E.g., Ex. A, Cockburn Rep. ¶ 157; see also id. at Ex. C-2 (citing same for Georgia-Pacific Factor 3 regarding “scope of the license”).) The only conclusion is that he explicitly seeks royalties for compatibility with something other than the intellectual property at issue.

Nothing in the Patent Act or case law supports an award for such attenuated “damages.” To the contrary, an award unrelated to the patented technology “punishes beyond the reach of the statute.” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869 (Fed. Cir. 2010). As will be discussed further below, there is also no factual basis for Cockburn’s approach, as Sun regularly approved of and encouraged the sort of fragmentation it now claims would be fatal to Java.

B. Cockburn Also Calculates An Unreasonable, Inflated Royalty Rate By Refusing To Value The Patented Technology At Issue, Among Other Errors.
“A determination of the royalty stemming from a hypothetical negotiation is often made by assessing factors such as those set forth in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970).” Minks v. Polaris Indus., Inc., 546 F.3d 1364, 1372 (Fed. Cir. 2008). Not all of the 15 Georgia-Pacific factors are relevant in every case, and the Federal Circuit has recently weighed some factors more heavily than others. See Lucent Tech. Inc. v. Gateway Inc., 580 F.3d 1301, 1325-35 (Fed. Cir. 2009) (discussing factors 2, 10, 11, and 13). Cockburn has not analyzed these factors in any meaningful way. He buries a cursory analysis of the factors in an appendix, but essentially reduces the analysis to the catch-all factor 15—the hypothetical negotiation between Sun and Google—thereby giving himself maximum freedom to maximize damages.
1. Cockburn’s report makes no effort to base his royalty rate on the value of the patented technology.
The most glaring of Cockburn’s departures from the Georgia-Pacific standard is his express refusal to tie his calculation to the value of the patented technology at issue, both to Sun and Oracle as part of the overall Java platform and to Google in the context of the broader Android platform. (See Leonard Decl. at ¶¶ 8-11.)

The Supreme Court held nearly 130 years ago that

[t]he patentee . . . must in every case give evidence tending to separate or apportion . . . the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative; or he must show, by equally reliable and satisfactory evidence, that the profits and damages are to be calculated on the whole machine, for the reason that the entire value of the whole machine, as a marketable article, is properly and legally attributable to the patented feature.
Garretson v. Clark, 111 U.S. 120, 121 (1884). Just two years ago, the Federal Circuit drove home that point by reversing a $357 million damages award because of “the glaring imbalance between infringing and non-infringing features” in the accused product. Lucent, 580 F.3d at 1333; see also id. at 1337 (quoting Garretson). Cockburn has not even attempted to distinguish between the relevant claims of the patents-in-suit and the rest of either Android or Java.

The principle of Garretson and Lucent is embodied in two Georgia-Pacific factors and has figured prominently in recent Federal Circuit cases. Georgia-Pacific factor 10 looks to “[t]he nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention.” Georgia-Pacific, 318 F. Supp. at 1120. Factor 13 looks to “[t[he portion of the realizable profit that should be credited to the invention as distinguished from nonpatented elements” or other improvements. Id. The point of these factors is “to elucidate how the parties would have valued the patented feature during the hypothetical negotiation.” Lucent, 580 F.3d at 1332 (emphasis added). Yet Cockburn essentially ignores the patented features entirely, both by failing to consider the patents’ claimed technology on a claim by claim basis and in view of the expiration dates, and by assuming all Java and Android revenues are attributable to the patented features.

Cockburn treats the patents-in-suit—and the copyrights, too—as a single, indivisible unit, casually dismissing critical differences in the patents by deeming them all “essential.” (See, e.g., Ex. A, Cockburn Rep. ¶¶ 130-132.) Continuing to build this house of cards, he then equates the value of the patents-in-suit with the value of Java as a whole. He never states a basis for that conclusion, points to any evidence in the record, or explains how his aggregate analysis could possibly satisfy Garretson and Lucent. The closest he comes to analyzing any patented feature is to state that “five of the seven patents-in-suit relate to improved performance, including efficient memory utilization and optimized execution speed, of the virtual machines.” (Id. at ¶ 19.) He jumps from that simple, descriptive statement to the conclusion that “the patents-in-suit are wholesale enablers of the Java architecture on a smartphone,” without explaining why. (Id. at ¶ 24). [redacted] Accordingly, just as was the case in Lucent, the ‘720 patent is “but a tiny feature of one part of a much larger software program.” Lucent, 580 F.3d at 1332. As a matter of law, Cockburn’s conclusion that the ‘720 patent accounts for all of Java’s value is unreasonable.2 [FN. 2 - Cockburn briefly analogizes to patents required to practice an industry standard. (Ex. A, Cockburn Rep. ¶ 131.) With a standards essential patent, however, demonstrating essentiality is simple: one can compare the claim with the published standard and, if it matches, the patent is essential to practice the standard. Cockburn cites no published reference standard, and instead vaguely asserts the patents are essential to “Java on a smartphone.” (Id. at ¶ 24.)] His silence regarding the other patents means there is no basis to conclude that those patents are essential to enabling Java architecture on a smartphone either.

On the other side of the ledger, Cockburn also assumes the asserted patents are “essential to the device,” which is an apparent reference to Android Devices (see, e.g., Ex. A, Cockburn Rep. ¶ 130), but does not explain how they could possibly account for the entire value of Android. Even though the Federal Circuit has declared Georgia-Pacific factor 13—which looks at the value of the patented features to the infringing product—as one of the most important factors for purpose of calculating a royalty rate, Cockburn refuses to apply that factor at all. Buried in an Appendix to his report, he states that there is “no clear economic basis at this time for apportioning the total value of Android into value attributable to the patents and copyrights in suit and any additional value added by Google.” (Ex. A, Cockburn Rep., Appx. C, at C-5 - C-6.) That conclusion alone renders Cockburn’s report unreliable as a matter of law because “the trial court must carefully tie proof of damages to the claimed invention’s footprint in the market place.” ResQNet.com, 594 F.3d at 869 (emphasis added). Instead, Cockburn has admitted to endorsing a damages calculation that includes royalties for features beyond the scope of the claimed invention and, therefore, inherently beyond what is “adequate to compensate for the infringement.” 35 U.S.C. § 284.

Finally, Cockburn’s refusal to separate out each patented feature, either from the broader Java system or from each other, leads to another obviously wrong conclusion: that Oracle should recover the same damages whether it proves complete infringement of all seven patents and both copyrights or only infringement of a single claim of a single patent. (Ex. A, Cockburn Rep. ¶ 347 (“[A]lthough an adjustment could be made to my calculations to the extent Oracle succeeds on some but not all of its claims, it is not necessary to do so.”).) Even apart from the inherent differences in value in the patented features, the patents have widely disparate expiration dates. The ‘720 patent expires nearly eight years after every other patent-in-suit. If Google does not infringe that patent, there is no basis to extend damages liability to 2025. Similarly, if Google is found to infringe only the ‘104 patent, there is no basis to extend liability beyond 2012. Yet Cockburn concludes that damages run throughout the life of the ‘720 patent no matter what. (See, e.g., id. at ¶ 215, n.284.) He attempts to justify that approach by asserting “that Oracle generally offered portfolio licenses” for Java (Id. at ¶ 347), but the question in a hypothetical negotiation is what deal a willing licensor and licensee would strike for the patent-in-suit—not whether the licensor generally tried to license a larger portfolio. Valuing each patented feature individually, as the law requires, would burst Cockburn’s overinflated damages estimate. After all, Oracle has admitted the incremental value of the ‘720 patent is $0. See p. 6, supra. If Google is found to infringe only that patent, the damages award may well be only a nominal figure. Yet Cockburn incorporates [redacted] into his reasonably royalty calculation for the time period between 2018 and 2025, when the ‘720 patent would be the sole remaining patent. (See Ex. A, Cockburn Rep., Appx. C, at C-4 (citing 2025 as cutoff date in support of Georgia-Pacific Factor 7).) There is no plausible way that a feature admittedly without any commercial value could “constitute[ ] a substantial portion of the value” of either Java or Android. Lucent, 580 F.3d at 1332.

Cockburn’s use of the Nash Bargaining Solution is not appropriate because he has not tied its use to the particular value of the patented features. It makes no difference that the Nash Bargaining approach has been widely used. (Ex. A, Cockburn Rep. ¶¶ 281-82.) It is not appropriate to apply the Nash Bargaining Solution in a way that does not reflect the reality the parties would have confronted in an actual real-world negotiation. The real question is “whether [Cockburn] has justified the application of a general theory to the facts of the case.” Uniloc, 632 F.3d at 1316. He has not.

There is no “credible and sufficient economic proof that the patented invention drove demand for” Android, and Cockburn offers none. Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, (N.D.N.Y. 2009) (Rader, J.). (See also Leonard Decl. at ¶¶ 18-19, 21.) The accused SecurityManager has never been used by Google and almost certainly never will be. See pp. 5, supra. There are indisputably a host of “significant features or improvements added” to Android. (See, e.g., Weingaertner Decl. at ¶¶ 22-24 (Exs. T-V).) These other features of Android “account for the overwhelming majority of the consumer demand” of Android smartphones. Lucent, 580 F.3d at 1333. Cockburn’s “model [does not support the award because it] does not associate [the] proposed royalty with the value of the patented method at all, but with the unrelated cost of the entire” Android platform. Riles, 298 F.3d at 1312.

C. Cockburn’s Methodology Contains Numerous Other Legal Errors.
1. Cockburn inflates his damages estimate by double counting, including Oracle’s alleged future damages despite Oracle’s request for an injunction.
Cockburn boosts his damages number by straight-up double counting. He includes “future damages from May 20, 2011 through the different terminal dates I use in my hypothetical license calculations: October 2018 (ten years from the date the infringement began), December 2021 (six years following the date of the longest projections for which I currently have data, and based on the assumption that sales would decline to zero over an approximately six-year period after that point), and December 2025 (following the expiration date of the last-to-expire patent).” (Ex. A, Cockburn Rep. ¶ 320.) That calculation is error because future damages amount to double counting in view of Oracle’s request for an injunction. See, e.g., Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1314 (Fed. Cir. 2007) (ongoing royalty may be appropriate “in lieu of an injunction”). (See also Leonard Decl. at ¶¶ 28-29; Amended Complaint (Dkt. 36) at ¶ 46, ¶ B.)
2. Cockburn improperly includes Google’s revenues from international sales in his damages calculation.
Cockburn makes no attempt to exclude extraterritorial—and therefore noninfringing—activities. (See Leonard Decl. at ¶¶ 22-23.) In discussing Java’s purported value, Cockburn references the total number of Java-enabled phones, operators and developers without regard to where they are located. (Ex. A, Cockburn Rep. ¶ 26.)[redacted]

3. Cockburn improperly sets the date of the hypothetical negotiation in 2008, when Android phones first launched, rather than when the Android code was first written.
Cockburn also inflates his calculation by arbitrarily setting the date of the hypothetical Google-Sun negotiation very late in time, after Android was allegedly commercially viable and Google was purportedly locked in to using certain technology. (See, e.g., Ex. A, Cockburn Rep. ¶ 233 (“with the window of opportunity closing”); ¶ 263 (“[Google] could not get to market in time with a product to justify the expense of the undertaking”).) This is another error. The relevant date is much earlier, when there was no guarantee Android would ever gain a foothold in the market and before its development was locked in to any particular path.

The appropriate date of a hypothetical negotiation is “the time infringement began.” Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001) (emphasis added). Without explanation, Cockburn “chose” October 22, 2008—the date that the “first Google phone shipped”—as the date of the negotiation. (Ex. A, Cockburn Rep. ¶ 119.) But Oracle’s infringement contentions allege that Google’s infringement began long before that date. Oracle accuses the Android SDK, which, according to the same web page cited by Cockburn, (see Weingaertner Decl. at ¶ 19 (Ex. S), http://www.android.com/timeline.html), was released on November 12, 2007, almost a year before the G1 phone first shipped. Cockburn’s date of hypothetical negotiation is, at a minimum, eleven months later than it should be for the SDK. Cockburn completely ignored his client’s own allegations in setting an artificially late date.

Cockburn magnifies the impact of this error by attributing so much significance to the 2008 date and the purported “window closing” or need to come to market so quickly that allegedly existed as of that date. Most obviously, Cockburn uses the advanced date to justify his inflated damages number by asserting that Google knew Android would be successful and thus would pay anything to protect it. Cockburn also uses the advanced date to posit a hypothetical negotiation between Google and Oracle, an unwilling negotiator who is seeking [redacted] rent in litigation, rather than between Google and Sun, which always licensed Java and its components on reasonable terms. (Ex. A, Cockburn Rep. ¶ 134.) This is another critical error, because Cockburn claims that the value of Oracle’s Java-based products supports a higher royalty rate. (Id. at ¶¶ 143-156.) But Google and its proper negotiating counterparty Sun never would have negotiated license terms based on the value of Oracle’s, or any third party’s, products, in 2008 or at any other time.

D. Cockburn Ignores Record Facts And Undisputed Market Realities.
1. Cockburn ignores the actual market value of Java, as proven by numerous licenses granted by Sun, Google’s negotiations with Sun, and the value assigned to Java by Oracle.
[redacted]Not coincidentally, the real world values Java much less dearly than Oracle would prefer. (See Leonard Decl. at ¶¶ 12-13.)

Cockburn acknowledges that Oracle valued Sun’s assets prior to acquiring Sun, but he ignores the implications of that valuation. [redacted] Instead, Cockburn argues that these figures should not place a “cap” on the damages award. (Ex. A, Cockburn Rep. ¶ 327). Of course they should. Hypothetically, Google would be negotiating for U.S. rights to a portion of the JavaME subset of the Java platform. Essentially, Cockburn is telling the Court that it is reasonable to value a single thread in a carpet at three times the price of the entire carpet. That does not pass any test, and certainly not Daubert.

Moving on to Java specifically, Oracle’s own public filings disclose concrete numbers valuing the entire Java platform at a fraction of the figure Cockburn’s assigns to the asserted [redacted]

[redacted]

2. Cockburn assumes, without any factual basis, that Sun and Google would have negotiated an expensive, Java-incompatible license rather than a cheap, Java-compatible license.
As noted above, one of the fundamental premises of Cockburn’s analysis is that Sun desperately feared, and wanted to avoid, any fragmentation of the Java standard. According to Cockburn, avoiding fragmentation was so critical to Sun that it would have insisted on an effective 50% royalty rate for the right to fragment Java.
i. Far from prohibiting fragmentation of Java, Sun promoted such fragmentation through its licensing program.
Cockburn’s major premise, that Sun vigorously fought Java fragmentation, is false. As discussed below, Sun promoted fragmentation through its own licensing program. [redacted] and paid a modest TCK fee to Sun. In particular, JavaME—the subset of Java at issue here—was fragmented for several years before Android had even been conceived. (See, e.g., Weingaertner Decl. at ¶¶ 24-29 (Exs. X-CC).) In other words, Sun was willing to live with some amount of fragmentation as long as it was compensated at fairly modest levels.

Cockburn also wrongly assumes that an “incompatible Android implementation . . . fragments and undermines not only Oracle’s Java licensing business but also the value of Java as a whole.” (E.g., Ex. A, Cockburn Rep. ¶ 336.) Treating “Java” as one overarching technology for purposes of fragmentation is contrary to reality and would make no sense. JavaME is just one of several branches of the overall Java platform. Most of Java encompasses implementations for desktop, servers, or enterprise systems. Even if Android fragmented JavaME, it would have no effect on desktop- or server-based implementations of Java.

Cockburn makes one other effort to argue that fragmentation would have been the central issue driving Sun in a hypothetical negotiation. As discussed above, he analogizes to Sun’s settlement with Microsoft in a legal dispute over Java in the early 2000s. (See p. 11, supra.) As Cockburn notes, the case itself concerned trademark infringement, false advertising, breach of contract, and similar unfair competition claims—none of which are at issue here. (Ex. A, Cockburn Rep. ¶ 178 n.245.) Cockburn focuses on the $900 million settlement of the case in 2004 even though the case involved far more than fragmentation and the agreement was a broad business arrangement that involved more than settlement of litigation (i.e., included covenants not to sue under the parties’ entire patent portfolios). At the same time, Cockburn completely ignores a 2001 settlement in which Microsoft paid Sun just $20 million to settle litigation involving claims related to fragmentation. (Exs. N & O.) In any event, the Sun–Microsoft settlements relate to all of Java, not JavaME. Cockburn gives no reason why the recovery here, related only to JavaME, should be several times that amount.

ii. Even if Cockburn’s assumptions about fragmentation are correct, it is improper to base a damages award on compatibility with nonpatented features.
Cockburn opines that Sun would have charged Google a premium for “an incompatible implementation of the intellectual property” because of its great fear of fragmentation. (Ex. A, Cockburn Rep. ¶ 157.) As discussed above, Sun was more than willing to live with fragmentation for a modest licensing fee. But in any event, Cockburn has no basis for assuming that Sun and Google hypothetically would have negotiated an “incompatible” license that would have caused purported problems for JavaME. By definition, a license to the patents-in-suit by a willing licensor to a willing licensee would be “compatible” with those patents. In any event, Cockburn never explains what exactly is “incompatible” about the hypothetically negotiated product.

Remarkably, Cockburn does not even consider a “compatible” product as a potential “next-best alternative” in his analysis. (See, e.g., Ex. A, Cockburn Rep. ¶¶ 230-263.) In other words, Cockburn ignores that this is supposed to be a hypothetical negotiation between willing parties, instead assumeing that Sun would have been unwilling to license a compatible product, notwithstanding its longstanding TCK program. (See Leonard Decl. at ¶ 20.) [redacted]

Cockburn’s emphasis on fragmentation, and his conclusion that fear of fragmentation would have caused Sun not to license the patents-in-suit, contradicts his comparison of the patents-in-suit to essential standards patents. If indeed Oracle’s patents are analogous to such patents, then Oracle has an obligation to license them on Fair Reasonable And Non-Discriminatory (FRAND) terms. Cockburn dismisses that obligation in a footnote. He acknowledges that FRAND obligations arise because of “the significant bargaining power their [essential] patents may provide,” but concludes “[o]f course, in the context of a hypothetical license for an implementation of a set of technologies that is by definition incompatible, those considerations do not apply.” (Ex. A, Cockburn Rep. ¶ 130 n.196.) Cockburn wants to have it both ways—he gives Oracle all of the benefits of essential standards patents while refusing the obligations inherent in such patents. No sound economic principle supports that approach.

iii. Cockburn relies on fragmentation as a reason to ignore relevant evidence, including Java-compatible licenses.
[redacted]

Cockburn offers contradictory statements that illustrate the unreliability of his entire analysis on this issue. He states that “Oracle’s practice is not to license particular patents, but rather to license Java.” (Ex. A, Cockburn Rep. ¶ 23.) That suggests that prior Java licenses were for compatible products, and contradicts his refusal to consider the possibility that Sun and Google would have negotiated a Java-compatible license. Sun’s earlier Java licenses, which were for the entire Java platform, not just specific patents, would be highly instructive to a reasonable royalty. Again, Cockburn tries to have it both ways. On the one hand, he refuses to value the patented technology at issue here, instead valuing Java as a whole. [redacted]

3. Cockburn relies on inapposite licenses and ignores relevant ones to inflate the damages calculation.
After discarding Java licenses actually entered into by Sun, Cockburn trumpets various “Other Mobile IP-Related Agreements.” (Ex. A, Cockburn Rep. ¶ 342.) Those agreements include a license between Qualcomm Inc. and Nokia Corp. for what Cockburn vaguely characterizes as “various wireless technologies.” (Id. at ¶ 342.) Using this contract as an exemplar while ignoring Sun’s agreement with Nokia for Java technology is methodologically unsound, especially given the Federal Circuit’s “vigilance when considering past licenses to technologies other than the patent in suit.” ResQNet, 594 F.3d at 869 (emphasis in original) (citation omitted). Cockburn offers no reason that mere wireless technology “kinship imparts enough comparability to support” his damages estimate. Lucent, 580 F.3d at 1328. Cockburn’s purpose in citing Qualcomm’s agreement with Nokia while ignoring Sun’s agreement with Nokia for Java technology serves only “to inflate the reasonable royalty analysis with conveniently selected licenses without an economic or other link to the technology in question.” ResQNet, 594 F.3d at 872. [redacted]

Cockburn also purports to look to “Other Mobile Operating Systems.” (Ex. A, Cockburn Rep. ¶ 341.) [redacted]

E. Cockburn Offers No Meaningful Analysis Regarding Copyright Damages.
Cockburn’s analysis with respect to the asserted copyrights is even more cursory and unreliable. (See Leonard Decl. at ¶ 30.) Cockburn begins with the general premise that copyright-protected expression may be “essential or important to a product’s success” and that such success may allow the copyright owner to “charge accordingly.” (See, e.g., Ex. A, Cockburn Rep. ¶ 133.) Yet he does not explain how the asserted copyrights are essential to Java’s so-called success, leaving that critical issue to be filled in by “other witnesses.” (Id. at ¶¶ 21-22.)

Nor does Cockburn explain how any copyrighted features of the Java platform have benefited Google. He merely describes Google’s decision to “focus on a single programming language: Java” to leverage the “large Java developer community” to allow Android to quickly and seamlessly “enter the existing mobile ecosystem.” (See, e.g., id. at ¶ 124.) How the asserted copyrights allowed Google to leverage this community goes unexplained. To the extent Cockburn relies on developers’ ability to write applications in the Java programming language, Oracle has renounced any rights in the language itself. (See February 9, 2011 Transcript of Proceedings (Dkt. 87) at 8:16-18 (“[T]he Java Programming Language, we’re not asserting that we own that programming language for purposes of this case.”).) The rest of the report simply conflates copyright and patent damages. (See, e.g., Ex. A, Cockburn Rep. ¶ 9.2 (“a reasonable royalty for the infringement in this case would reflect the key enabling virtues of the patents and copyrights at issue”); see also id. at ¶ 9.3; ¶ 112; ¶ 113; ¶ 131; ¶ 232; ¶ 340.)

Cockburn offers no other copyright damages analysis. He summarizes Oracle’s entire basis for copyright damages in a single, conclusory sentence at the very end of his report: “I understand that, because Android infringes the expression embodied in Oracle’s copyrighted class libraries or APIs, Oracle may also be entitled to receive Google’s profits attributable to the infringement to the extent that they are not taken into account in computing actual damages.” (Id. at ¶ 349.)

IV. CONCLUSION

For all the above reasons, the Court should exclude Cockburn’s report under Daubert.

DATED: June 14, 2011

KING & SPALDING LLP

By: /s/ Scott T. Weingaertner

SCOTT T. WEINGAERTNER (Pro Hac Vice)
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ROBERT F. PERRY
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BRUCE W. BABER (Pro Hac Vice)
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DONALD F. ZIMMER, JR. (SBN 112279)
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KING & SPALDING LLP
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IAN C. BALLON (SBN 141819)
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GREENBERG TRAURIG, LLP
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ATTORNEYS FOR DEFENDANT GOOGLE INC.

***********

Declaration of Gregory Leonard

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

ORACLE AMERICA, INC.

Plaintiff

v

GOOGLE INC.

Defendant.

Case No. 3:10-cv-03561-WHA

Honorable Judge William Alsup

DECLARATION OF GREGORY K. LEONARD, PH.D.

I, Gregory K. Leonard, Ph.D., declare as follows:

I. QUALIFICATIONS

1. I am a Senior Vice President at NERA Economic Consulting, 1 Front Street, Suite 2600, San Francisco, CA 94111. I received an Sc.B. in Applied Mathematics-Economics from Brown University in 1985 and a Ph.D. in Economics from the Massachusetts Institute of Technology in 1989. Prior to joining NERA, I was a senior vice president with Lexecon Inc.; prior to that, I was a founding member and director of Cambridge Economics, Inc.; prior to that, I was an assistant professor at Columbia University.

2. My specialties within economics are applied microeconomics, the study of the behavior of consumers and firms, and econometrics, the application of statistical methods to economics data. I have published a number of articles in scholarly journals, which are listed on my curriculum vitae, attached as Exhibit A.

3. I have extensive experience with the economics of intellectual property. I have published papers about intellectual property issues in the Journal of Econometrics, the Berkeley Journal of Technology and Law, and les Nouvelles, among others. I co-edited a book entitled Economic Approaches to Intellectual Property: Policy, Litigation, and Management and coauthored several of its chapters, one of which was recently cited by the Court of Appeals for the Federal Circuit in its Uniloc v. Microsoft opinion. In February 2009, I served as a panelist by invitation at a hearing on intellectual property issues held by the Federal Trade Commission (FTC). In March 2011, the FTC issued a report, entitled The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition (March 2011), which cites my comments and publications extensively.

4. I have served as referee for numerous economic journals, and am currently an associate editor of the American Bar Association publication Antitrust Law Journal. I have given invited lectures at the FTC, the United States Department of Justice, the Fair Trade Commission of Japan, and the Ministry of Commerce and Supreme People’s Court of the People’s Republic of China. In 2007, I served as a consultant to and testified before the Antitrust Modernization Commission, which was tasked by Congress and the President with making recommendations for revising the antitrust laws of the United States.

5. I have served as an expert witness in a number of cases and have provided live testimony at trial in nine cases. A complete list of cases in which I have testified (in deposition or at trial) is provided in my curriculum vitae. NERA charges at an hourly billing rate of $625 for my work on this matter.

II. ASSIGNMENT

6. I have been asked by counsel for Google, Inc. (“Google”) to review and comment upon the methodologies employed in the Expert Report of Dr. Iain Cockburn (“Cockburn Report”) for the patents-in-suit and copyrights-in-suit. I understand that Rule 702 of the Federal Rules of Evidence state that

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.
7. I have been asked to comment on the extent to which Dr. Cockburn’s report meets the requirements of Rule 702, particularly the requirements that the report be based on sufficient facts and the report apply the principles and methods of economics reliably to the facts of the case. In addition to the Cockburn Report, I have reviewed the material cited by Dr. Cockburn, the material cited in my declaration, and the exhibits to the Declaration of Scott T. Weingaertner in Support of Google Inc.’s Daubert Motion, and I rely on my education and experience, in coming to these conclusions.

III. DR. COCKBURN BASES HIS DAMAGES ANALYSIS ON THE VALUE OF THE ENTIRE JAVA PLATFORM, NOT THE PATENTS IN-SUIT AND COPYRIGHTS-IN-SUIT

8. Dr. Cockburn bases his analysis on the value of the entire Java platform even this matter. His calculation of a reasonable royalty for all of the intellectual property associated with the Java platform is not relevant to determining the damages associated with the alleged infringement of the patents-in-suit and copyrights-in-suit.

9. Furthermore, Dr. Cockburn states that his damages analysis would not change even if some of the patents-in-suit or copyrights-in-suit are found to be invalid or not infringed. Such a statement is economically unjustified, absent a showing that each individual patent-in-suit and copyright-in-suit was essential to the development of Android. However, neither Dr. Cockburn nor Oracle makes such a showing. Dr. Cockburn only asserts without support that the intellectual property in this case is “significant or essential” (Cockburn Report, Paragraphs 9.1, 126, 129-133).

10. Dr. Cockburn goes on to inappropriately compare his bundling of the entire Java platform with the practices of a patent pool which generally licenses patents essential to meeting standards, which is not a relevant consideration here. It is also notable that patent pools often allow licensees to license individual patents rather than the entire bundle.1 [FN.1 - Statement of Baryn S. Futa, CEO and Manager, MPEG LA, LLC, Before the United States Department of Justice Antitrust Division and the Federal Trade Commission Joint Hearings on Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy, pp. 4-6.]

11. Dr. Cockburn’s assertion that it is Oracle’s practice though his role is to estimate the damages related to the infringement of only the seven patents and the limited set of copyrights that have been asserted by Oracle America, Inc. (“Oracle”) in [redacted] is not a reliable basis for asserting that only the entire Java platform will be licensed. Moreover, regardless of Oracle’s practices, it is inappropriate to calculate damages on the basis of the entire Java platform when the matter at hand concerns only the limited number of patents and copyrights that have been asserted.

IV. DR. COCKBURN’S ANALYSIS IS INCONSISTENT WITH ACTUAL MARKET TRANSACTIONS INVOLVING THE INTELLECTUAL PROPERTY AT ISSUE IN THIS CASE

12. Dr. Cockburn ignores, misinterprets, or fails to give appropriate weight to relevant market transactions that indicate a much lower value for the intellectual property at issue in this case. Economists recognize that arm’s length market transactions generally provide important indicators of value. License agreements and transactions that involve the intellectual property at issue in this case are available and are among the facts upon which Dr. Cockburn should have relied, [redacted] and other measures of value mentioned in Google, Inc.’s Brief in Support of Daubert Motion, such as the purchase price of Sun and Sun’s annual revenues. [redacted]

13. Economists also recognize that valuations undertaken by third parties in the regular course of business can provide important indicators of value. In the documents Dr. Cockburn has reviewed, there are valuations of assets that include the intellectual property at issue in this case. These valuations differ substantially from the value estimated by Dr. Cockburn. [redacted] The very large disparity between this value and Dr. Cockburn’s results for a small subset of the overall portfolio of Sun’s intellectual property indicates that his analysis is not consistent with the facts in this case.

V. DR. COCKBURN ATTEMPTS TO RECOVER LOST PROFITS AS PART OF A REASONABLE ROYALTY ANALYSIS

14. [redacted]

15. In addition, based on my experience in testifying on patent damages matters, lost profits are explicitly awarded only after a showing that certain economic conditions are satisfied, conditions described in the Panduit, Mor-Flo, and other decisions.4 [FN.4 - “The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition,” Federal Trade Commission, March 2011, p. 151.] Dr. Cockburn does not undertake the economic analysis required to show that these conditions are satisfied. Indeed, he attempts to avoid having to conduct such an analysis and instead get lost profits “in the through the back door” of the reasonable royalty analysis.5 [FN.5 - See “The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition,” Federal Trade Commission, March 2011, p. 20:

First, compensatory damages for the strict liability offense of infringement are not meant to be punitive. Second, arguments that the patentee would have rejected the maximum amount the infringer would have paid are based on assumptions that the patentee could have made more by not licensing. The patentee may have been better if selling the invention or a competing product exclusively. In that case, however, the patentee should be entitled to damages based on lost profits. The law must be flexible in allowing the patentee to prove its lost profits in order to provide adequate compensation. But a patentee who has failed or chosen not to do so should not be allowed to use unproven arguments of direct losses to inflate a reasonable royalty award beyond what a willing licensee would pay.]
16. Dr. Cockburn’s report is made additionally unreliable by his failure to examine other possible reasons [redacted] then there is no basis for a lost profits claim.

VI. DR. COCKBURN FAILED TO ADEQUATELY CONSIDER NONINFRINGING ALTERNATIVES THAT GOOGLE COULD HAVE CONSIDERED

17. To economists, a crucial element in determining the appropriate reasonable royalty is the availability of non-infringing alternatives. However, Dr. Cockburn does not consider any non-infringing alternatives to the individual patents and copyrights at issue in this case.

18. Even if he is correct that the hypothetical negotiation would be over the entire Java platform, Dr. Cockburn fails to undertake a comprehensive analysis of the full range of alternatives to utilizing the entire Java platform. He does not, for instance, undertake an analysis of non-infringing alternatives to the use of Java such as C++, C, or other platforms.6 [FN.6 - [redacted]] In fact, he hardly mentions these alternatives.

19. Among the reasons that Dr. Cockburn claims Google needed a license to the Java platform is that Android would have operated at a lower speed, although he does not indicate the size of the purported reduction in speed. Dr. Cockburn does no analysis to show that a “slower” non-infringing Android would have been commercially unacceptable or even been faced with decreased consumer demand. An important principle of economics is that consumers will make trade-offs in deciding what products to buy or services to use. There is evidence that users of the Android platform make such trade-offs. For example, the Android platform has historically had fewer applications or “apps” than the iPhone available to consumers, yet consumers still have chosen to buy Android phones in large numbers.7 [FN.7 - The number and ability to run such applications have become increasingly important to consumers. See, for example, “Smart Phone Wars: Is It the Device or The Apps that Matter Most?” The Globe and Mail, October 19, 2009: “For smart phone makers – and, indeed, for an increasing number of electronics makers designing everything from radios to televisions – the emphasis is quickly shifting away from hardware design and toward the type and variety of applications that users can download and run.”] Ultimately, many characteristics drive demand for Android phones.8 [FN.8 - For example, in 2009, JD Power and Associates surveyed consumers based on a number of factors, including: (1) operation; (2) physical design; (3) features; and (4) battery function of various smart phones. (“As Customer Satisfaction with Feature-Rich Smartphones Continues to Increase, Satisfaction with Traditional Mobile Phones Declines,” JD Power and Associates Press Release, October 9, 2009, available at http://businesscenter.jdpower.com/news/pressrelease.aspx?ID=2009224.)] Dr. Cockburn has not shown how much just one of these characteristics, speed, would have been sacrificed or how such a sacrifice in speed would have affected end-user demand. Economists have available a set of tools that can measure the importance of these trade-offs and the size of the impact of an alleged change in speed.

20. Another relevant alternative scenario that is not considered by Dr. Cockburn would be for Google to license a Java-compatible Android. In that case, Dr. Cockburn’s damages would be significantly reduced [redacted] Dr. Cockburn’s heavy reliance on his assumption that the hypothetical negotiation would have been for a license that allowed an allegedly Java-incompatible Android further renders his conclusions unreliable.

21. There is other relevant evidence that Dr. Cockburn ignores in his claim that Google “needed” to base Android on Java. As Steve Jobs said in 2007, “Java’s not worth building in. Nobody uses Java anymore. It’s this big heavyweight ball and chain.”9 [FN.9 - “Ultimate iPhone FAQs List, Part 2,” David Pogue’s Blog on the New York Times, January 13, 2007, available at http://pogue.blogs.nytimes.com/2007/01/13/ultimate-iphone-faqs-list-part-2/.] Apple’s iOS does not support Java, and Apple has been immensely successful without Java. There is no reason that Google could not have taken a similar path. Dr. Cockburn’s entire analysis is contrary to this basic market fact.

VII. DR. COCKBURN FAILED TO CONSIDER THAT A LARGE PROPORTION OF ANDROID HANDSETS ARE SOLD AND USED OUTSIDE OF THE UNITED STATES

22. Documents that Dr. Cockburn reviewed indicate that a large proportion of Android handsets are sold and used outside the United States.10 [FN.10 - redacted] I understand that the patents-in-suit and copyrights-in-suit only apply within the United States, so that Google would have been able to supply Android for handsets outside the United States without infringing.

23. Dr. Cockburn undertook no analysis of the implications of this for his damages analysis and, instead, appears to have assumed that the intellectual property at issue extends beyond the United States.

VIII. DR. COCKBURN IMPROPERLY APPLIED THE MOR-FLO METHODOLOGY

24. Dr. Cockburn improperly applied a “Mor-Flo” methodology to determine smart phone market shares in a “but for” world without Android. Even if all of Android’s worldwide sales were found to infringe the patents at issue, Dr. Cockburn failed to recognize important differences in market shares across geographies that invalidate the use of the Mor-Flo methodology. These market share differences are driven by, among other things, different tastes of consumers for the products offered by different vendors in various markets.11 [FN.11 - See, for instance, “Nokia and RIM bleeding smartphone share while Android cleans up,” April 18, 2011, available at http://www.guardian.co.uk/technology/2011/apr/18/smartphone-market-android-win-nokia-rim-lose, showing extensive differences in the market shares of distinct mobile operating systems in different countries throughout the world.]

25. Dr. Cockburn improperly assumes that, in the but-for world without Android, sales of Android phones would have been allocated based on worldwide market shares. In particular, he assumes a large portion of the sales of Android phones would have gone to Nokia’s Symbian-based phones. For example, Dr. Cockburn’s estimates imply that 34.6 percent of Android sales in 2011 would have gone to Symbian-based phones.12 [FN.12 - See Exhibit 16 and 23 of Cockburn Report. Dr. Cockburn allocates the Android installed base for each year to non-Android platforms based on sales for the same year. For 2011, the percentage of Symbian sales is calculated from Exhibit 16 as sales of Symbian-based phones divided by all non-Android phones (94,621,500) ÷ (94,621,500 + 67,202,900 + 24,835,600 + 71,047,100 + 15,856,300) = 34.6 percent.]

26. Dr. Cockburn’s calculations ignore the substantial variation across regions in the market shares of smart phone manufacturers. [redacted] [FN.13 - See, for example, GOOGLE-00305222 at 229.] In March 2011, Symbian’s market share was reported to range from 11.4 to 46.9 percent in four European countries.14 [FN.14 - “Nokia and RIM Bleeding Smartphone Share While Android Cleans Up,” guardian.co.uk, April 18, 2011, available at http://www.guardian.co.uk/technology/2011/apr/18/smartphone-market-android-win-nokia-rimlose/ print.] At the same time, Symbian’s market share was reported to be less than 2 percent in the US market.15 [FN.15 - “Nokia and RIM Bleeding Smartphone Share While Android Cleans Up,” guardian.co.uk, April 18, 2011, available at http://www.guardian.co.uk/technology/2011/apr/18/smartphone-market-android-win-nokia-rimlose/ print.] Dr. Cockburn’s methodology improperly allocates too large of a share to Symbian phones in the US. Because the majority of Google’s Android phones are sold in the US,16 [FN.16 - redacted]this methodology necessarily leads to the incorrect calculation of the incremental profit associated with Android, even leaving unchanged the rest of Dr. Cockburn’s assumptions.

27. By over-allocating Android sales to Symbian, Dr. Cockburn substantially overstates the incremental profit that Google earns from Android phones. This is because, by Dr. Cockburn’s own estimates, Google earns far less per device on Symbian phones than it does on Android and Apple iOS phones. [redacted] [FN.17 - Cockburn Exhibit 22, “Net revenue per device (after TAC).”] [FN.18 - See Android’s net revenue per device, see “Net Revenue per Device (after TACs)” for 2011 for Exhibit 19 to the Cockburn Report. For Apple iOS’s net revenue per device, see Cockburn Exhibit 22, “Net revenue per device (after TAC).”] Allocating a large share to Nokia’s Symbian phones thus improperly results in large losses to Google when, in fact, using US market shares would substantially reduce the incremental losses to Google.19 [FN.19 - Note also that, Dr. Cockburn’s analysis is unlikely to “average out” such that Google would earn a higher incremental profit outside of the US that would cancel out the lower incremental profit in the US. [redacted] where Nokia’s sales are low and the largest portion of Nokia’s sales occur in Asian countries (see Nokia 20-F, for period ending December 31, 2010, filed on March 11, 2011, p. 104) where Android’s sales are low (see “AdMob Mobile Metrics,” May 2010, GOOGLE-00305222 at 243.)]

IX. DR. COCKBURN INCLUDES FUTURE DAMAGES IN HIS “PAST” DAMAGES CALCULATION, THEREBY LEADING TO DOUBLE RECOVERY

28. Dr. Cockburn concludes that the hypothetical negotiation would have resulted in a combined lump sum/running royalty structure. He includes the entire lump sum payment as “past” damages, even though a portion of this lump sum corresponds to future sales. Thus, Dr. Cockburn improperly shifts what are actually future damages into his “past” damages calculation.

29. Since Oracle has stated that it will seek an injunction if it prevails on liability, Dr. Cockburn’s lump-sum damages award based upon future damages will result in double recovery for Oracle. It will receive an award for damages based upon future sales at a time that Google will be forced out of the market by an injunction.

X. DR. COCKBURN DOES NOT PERFORM ANY ANALYSIS OF THE COPYRIGHT INFRINGEMENT DAMAGES

30. Dr. Cockburn does not separate out damages due to copyright infringement from damages due to patent infringement. I understand that, in a copyright matter, it is the copyright owner’s responsibility to identify its lost profits and the alleged infringer’s gross revenue due to infringement. It is the alleged infringer’s responsibility to deduct appropriate expenses and profits attributable to factors other than copyrighted material. Dr. Cockburn provides inadequate basis for reviewing unjust enrichment or lost profits claims due to copyright infringement. Dr. Cockburn’s placement of copyright infringement into the same hypothetical negotiation as all of the patents-in-suit in this case makes this an inappropriately difficult egg to unscramble.

Executed on June 14, 2011 in San Francisco, California.

/s/Gregory K. Leonard
Gregory K. Leonard

Exhibits to Declaration not included in this text version.

***********

Oracle Response

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

ORACLE AMERICA, INC.

Plaintiff

v

GOOGLE INC.

Defendant.

Case No. 3:10-cv-03561-WHA

Honorable Judge William Alsup

ORACLE AMERICA, INC.’S RESPONSE TO DEFENDANT’S ADMINISTRATIVE MOTION TO SEAL ITS DAUBERT PRÉCIS

Plaintiff Oracle America, Inc. (“Oracle”) opposes Google’s Administrative Motion to Seal its précis, and requests that the Court deny that motion and file Google’s précis in the public record.

Google claims that filing under seal is warranted by summary references to, or mischaracterizations of, Oracle “attorneys’ eyes only” (“AEO”) material included in the précis. Google does not limit its proposed redactions to references to materials that Oracle designated AEO. Instead, Google’s redactions include:

a. Information that is clearly in the public domain (for example, its general reference to the overall value of Oracle’s acquisition of Sun); b. Google’s erroneous or distorted descriptions of the facts (for example, its incorrect assessment of the value of one of the patents-in-suit); c. Google’s misrepresentation of aspects of Professor Cockburn’s damages analysis (for example, the misrepresentation that Professor Cockburn included all Google advertising revenue from all Android devices and all harm from fragmentation of Java in his valuation calculations, the misrepresentation that he applied a 50% royalty rate as part of his analysis—a misrepresentation that Google admits in its full Daubert motion—and the misrepresentation of the amount of Professor Cockburn’s ultimate damages opinion); d. Isolated words such as “multi-billion” and “valueless”; and e. Any and all references to the fact that Oracle’s damages claims in this case are in the billions of dollars.
As Oracle will explain in its Opposition to Google’s Daubert motion, Oracle’s damages claims are based on both accepted methodology and a wealth of concrete evidence. They should not be hidden from public view.

Consequently, Oracle does not object to making the summary information supposedly—though inaccurately and misleadingly—extracted from confidential/AEO documents public.

By opposing Google’s administrative motion to seal, Oracle America does not intend to waive its ability to claim confidentiality over the documents on which Google’s representations and misrepresentations are based.

Dated: June 16, 2011

BOIES, SCHILLER & FLEXNER LLP

By: /s/ Steven C. Holtzman Steven C. Holtzman
Attorneys for Plaintiff
ORACLE AMERICA, INC.

***********

Google Précis

KING & SPALDING

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 between 1.4 and 6.1 billion dollars -- a breathtaking figure that is out of proportion to any meaningful measure of the intellectual property at issue. Even the low end of Cockburn’s range is over 10 times the amount that Sun Microsystems, Inc. made each year for the entirety of its Java licensing program and 20 times what Sun made for Java-based mobile licensing. Cockburn’s theory is neatly tailored to enable Oracle to finance nearly all of its multi-billion dollar acquisition of Sun, even though the asserted patents and copyrights accounted for only a fraction of the value of Sun. 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. Instead, he simply adds all of Google’s revenue from advertising on all Android devices world-wide to the purported harm to Sun’s and Oracle’s business from lost profits and alleged “fragmentation” of the Java standard, and then proposes awarding Oracle half of that total amount (i.e., a 50% royalty rate). 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 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, 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—is only a small piece of Java that is not even included in every Java ME sale and is given away as a free add-on. There is simply no basis to conclude that such a feature without any real commercial value could constitute “a substantial portion of the value” of Java (or Android, for that matter), let alone its entire value. Lucent, 580 F.3d at 1332.

Fourth, Cockburn cavalierly asserts that infringement of a single claim of a single patent would result in the same multi-billion dollar award as infringement of all of the asserted claims. The ‘720 patent, for example, not only has a demonstrated commercial value of zero dollars, 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 billions of dollars onto his calculation for the eight years during which the valueless ‘720 patent would be the sole remaining patent.

All these basic legal errors are essential to Cockburn’s bottom-line conclusion of a multibillion dollar 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.

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 $36.7 million for 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 $60 million over three years plus an additional amount up to $25 million per year in revenue sharing. 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, whereas Sun is believed to have actually allocated just $20 million to fragmentation. 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 these 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,

/s/ Scott T. Weingaertner
Scott T.Weingaertner
Counsel for Defendant Google Inc.


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