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Oracle v. Google: Strike Two On The Cockburn (Revised) Damages Report
Wednesday, January 11 2012 @ 09:15 AM EST

How many times will Oracle get to submit a proper damages report before the court says enough is enough? Apparently, more than two. The court, having now substantially rejected Oracle's (Prof. Cockburn's) second attempt, is asking both parties whether Oracle should be permitted a third attempt. Let's guess how both the parties will respond.

But a third (or fourth or fifth) response by Oracle may be a two-edged sword. Each successive response is almost certain to have an impact on the trial date and will also extend the time available to the U.S. Patent and Trademark Office to continue invalidating the asserted patents. Oracle could end up doing a revised damages report only to find there has been no damage. Maybe Google should tell the court to allow Oracle all the attempts it needs to accomplish what the court asked Oracle (and Prof. Cockburn) to do last July.

In an order [PDF; Text] issued Monday Judge Alsup granted in part and denied in part Google's motion to exclude portions of the Cockburn revised report. The granting part is far more substantial than the denying part. Here are the points on which Google won:

  • Apportionment: The court found that Dr. Cockburn (again) failed to properly allocate damages between the protected technology that is being asserted (patents and copyrights) and that to which Oracle has no claim. Cockburn has repeatedly looked at all value in Android as stemming almost solely from the allegedly infringed patents and copyrights, at least when looking at the 2006 negotiations between Sun and Google.
  • Claim-by-Claim versus Patent-By-Patent: Any patent consists of numerous claims, and it is often the case that in an infringement action only a small handful of those claims are infringed. Such is the case in the action brought by Oracle against Google. Yet Prof. Cockburn has repeatedly (and in the face of the July order directing him to allocate by claim) assigned damages simply to the patents asserted, not the individual claims within those patents. As a consequence, the court has adopted Google's position that Cockburn be precluded from apportioning an asserted patent's value among its claims at trial. As a consequence, should Google be able to establish that at least one asserted claim of each asserted patent is not infringed (or is invalid), Google may avoid liability entirely from that patent.
  • No Divison of Separate Copyright Claims: Similar to the situation above with respect to allocation among patent claims, Prof. Cockburn did not allocate copyright damages between the two class of copyright claims: those based on literal copying of lines of code and those based on the "structure, arrangement, and selection of the Application Programming Interfaces (API) packages." The "order holds that the jury will be instructed that if Google is found not liable for infringing the selection, arrangement, and structure of the API packages, then Dr. Cockburn's copyright damages analysis is inapplicable."
  • Inadequate Calculation of Future Damages: Suffice it to say that once again Prof. Cockburn did not follow the court's July instructions. As a consequence, his report and testimony on future damages will not be allowed. This does not preclude the jury from assigning future damages, just that they will receive no instruction on the subject from Oracle's expert.
  • Referring to Licenses Involving Unrelated Technology and Parties: Two things have worked against Dr. Cockburn here. First, the court finds the Sun-Google negotiations sufficiently well documented and on point that other negotiations of Sun with other parties are not likely to be instructive. Second, such other negotiations are sufficiently removed from the facts of this case as to not be instructive. So all of these other references are stricken, with the exception of the Microsoft-Sun litigation that specifically dealt with the issue of fragmentation, and then solely for the purpose of establishing Sun's concern with fragmentation.

The remaining points (copyright lost license fee, starting point of $100 million, upward adjustment of the starting point, lost profit analysis for copyright) were not decided in Google's favor. That means Prof. Cockburn will be able to submit his report and testify on those points, but Google will also have the right to argue a rebuttal to the jury.

But, of course, that is not the end of the story because Judge Alsup, at the conclusion of his order, asks each party to submit a memoranda on "whether Dr. Cockburn should be allowed a third try." Of course, getting another try means listening to the court's findings and not simply re-arguing the same points as before.

Also submitted on Monday were Google's [PDF; Text] and Oracle's [PDF; Text] replies to the earlier submission of the opposing parties on this whole subject of damages. Both focus on the issue of actual profits made by Google after 2006 on Android and on the issue of apportionment, with each party simply repeating its previous position. Judge Alsup presumably considered these submissions in issuing his order, and he largely found for Google on both topics.

To assure that Oracle doesn't attempt to sneak in the back door on the subject of damages through the report of the Rule 706 Expert (the expert preparing a summary of the damages reports for the court and jury), Judge Alsup has directed [PDF; Text] that the Rule 706 report not issue until, IF EVER, Dr. Cockburn produces a viable report himself. In other words, if a subject is stricken from Dr. Cockburn's report, it will not show up in the Rule 706 expert's report either.

Finally, Judge Alsup granted [PDF; Text] Oracle the right to file under seal a limited amount of Google confidential information in support of Oracle's supplemental brief related to Google's motion to strike portions of the Cockburn report. All other information submitted by Oracle and all information submitted by Google is public.


***********

Docket

683 – Filed and Effective: 1/09/2012
ORDER
Document Text: Response re 682 Response ( Non Motion ) GOOGLE'S REPLY TO ORACLE'S RESPONSE TO COURT'S DECEMBER 27, 2011 REQUEST FOR FURTHER BRIEFING ON DAMAGES byGoogle Inc.. (Van Nest, Robert) (Filed on 1/9/2012) (Entered: 01/09/2012)

684 – Filed and Effective: 1/09/2012
ORDER
Document Text: RESPONSE to re 681 Response ORACLE AMERICA, INC.S REPLY TO GOOGLES JANUARY 5, 2012 RESPONSE TO REQUEST FOR FURTHER BRIEFING ON DAMAGES (DKT. NO. 657) by Oracle America, Inc.. (Holtzman, Steven) (Filed on 1/9/2012) (Entered: 01/09/2012)

685 – Filed and Effective: 1/09/2012
ORDER
Document Text: ORDER GRANTING IN PART AND DENYING IN PART GOOGLE'S MOTION IN LIMINE NUMBER THREE TO EXCLUDE PORTIONS OF DR. COCKBURN'S REVISED DAMAGES REPORT by Hon. William Alsup granting in part and denying in part 670 Motion in Limine.(whalc1, COURT STAFF) (Filed on 1/9/2012) (Entered: 01/09/2012)

686 – Filed and Effective: 1/09/2012
ORDER
Document Text: DIRECTIVE TO RULE 706 EXPERT re 685 Order on Motion in Limine,. Signed by Judge Alsup on January 9, 2012. (whalc1, COURT STAFF) (Filed on 1/9/2012) (Entered: 01/09/2012)

687 – Filed and Effective: 1/10/2012
ORDER
Document Text: ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO SEAL by Hon. William Alsup granting in part and denying in part 571 Administrative Motion to File Under Seal.(whalc1, COURT STAFF) (Filed on 1/10/2012) (Entered: 01/10/2012)


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

Documents

683

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

GOOGLE’S REPLY TO ORACLE’S
RESPONSE TO COURT’S DECEMBER
27, 2011, REQUEST FOR FURTHER
BRIEFING ON DAMAGES

Dept. Courtroom 8, 19th Floor
Judge: Hon. William Alsup

There are three fundamental problems with Oracle’s Response to the Court’s December 27, 2011 Order (“Order”) and its discussion of the proposed damages framework described in that Order. First, Oracle fails to meaningfully discuss governing Federal Circuit case law regarding the limited relevance of future events to a hypothetical patent-royalty negotiation. The case law draws a clear line: future market events may be used only as one factor to check the reasonableness of a hypothetical negotiation at the time of first infringement. A plaintiff may not simply point to future market facts as establishing the starting point or result of the hypothetical negotiation. Although Oracle elides this critical difference in its brief, it plainly understands the limitation. Several months ago, Oracle stipulated to a jury instruction that correctly set forth the law, stating that evidence of future events “can be considered only to the extent that it sheds light on what the parties would have anticipated at the time of the hypothetical negotiation.” In this case there is no need to use future events as a starting point; the parties’ actual negotiations at the time of the alleged first infringement provide concrete evidence of what the parties expected.

Second, after glossing over that problem, Oracle then adopts the approach in the Order in full—except for the single, critical step that would actually require it to do a meaningful apportionment of the allegedly infringing features of Android between its intellectual property and all the other work Google did to implement those features—for example, thousands of lines of source code written over hundreds of hours by dozens of engineers. Contrary to the assertion in its brief, Oracle has never even attempted to calculate the value of Google’s contributions to any Android feature. Moreover, as Google pointed out previously, an approach that starts with the full current value of any Android feature (necessarily measured as a percentage of Google’s profits), followed by a deduction of Google’s contribution, would violate the decades-old ban on measuring patent damages by an infringer’s profits—a calculation that is rarely even possible.

Third, Oracle yet again attempts to inflate its damages award by claiming entitlement to Google’s profits from a slew of non-Android products. This request has nothing to do with the Court’s Order and has no legal or factual basis. Oracle cannot prove any connection between Android and other Google products, and its expert has never offered any opinion, in either of his reports, as to how such ancillary, downstream damages could be calculated.

1

A. Oracle fails to acknowledge the difference between “peering into” the future and
substituting future events for expectations at the time of infringement.

Oracle fails to engage in any meaningful analysis of the relevant legal standard, offering only the vague statement that the “Federal Circuit has repeatedly held that the jury may in appropriate circumstances consider evidence that came into existence only after the actual negotiation.” Oracle Resp. at 3 (citing Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333-34 (Fed. Cir. 2009); Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 698 (1933)). But this does not answer the relevant question. As Google explained in its opening brief, Google Resp. at 3-6, although evidence of post-negotiation events is admissible, the Federal Circuit has repeatedly made clear that such evidence can only be used as a check on what the parties would have agreed to at the time of negotiation, not as a substitute for the parties’ expectations at the time of alleged first infringement. See Integra Lifesciences I, Ltd v. Merck KGaA, 331 F.3d 860, 870 (Fed. Cir. 2003) (if hypothetical negotiation took place in 1994, negotiators would not be allowed to consider expectations of FDA approval arising in 1995); Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1373 (Fed. Cir. 2001) (royalty must be based on parties’ “sales expectations at the time when infringement begins … as opposed to an after-the-fact counting of actual sales”); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1081 (Fed. Cir. 1983) (reasonable royalty should “be determined not on the basis of a hindsight evaluation of what actually happened, but on the basis of what the parties to the hypothetical license negotiation would have considered at the time of the negotiation”).

Oracle knows this. It quotes from the parties’ stipulated joint jury instructions, where it agreed that evidence of things that happened after the alleged infringement first began “can be considered only to the extent that it sheds light on what the parties would have anticipated at the time of the hypothetical negotiation. You may not limit or increase the royalty based on the actual profits Google made.” Oracle Resp. at 3 (quoting Jury Instruction No. 56, Dkt. No. 539) (emphases added). This is the correct rule: the 2008-11 value of the Android features that allegedly practice Oracle’s patents (which can only be calculated as a percentage of Google’s actual Android profits) is relevant only to the extent it sheds light on what the parties would have

2

expected in 2006, at the time of the hypothetical negotiation. As Google already explained, the difficulty with the approach in the Order is that it does not merely use future profits to “shed light” on what the parties would have expected; it directly substitutes the present value of the patented features for what the parties would have agreed to in 2006. In addition to the legal problems described above, as a factual matter this approach ignores the parties’ actual negotiations, which are direct evidence of how the parties valued Sun’s IP at the time of alleged first infringement. See Stickle v. Heublein, Inc., 716 F.2d 1550, 1556-61 (Fed. Cir. 1983).1

B. Oracle improperly resists the only meaningful damages limitation in the Order.

The one aspect of the Order’s approach that Oracle rejects is the only aspect that would force Oracle to do meaningful, rigorous work in apportioning damages, rather than simply claiming the entire pie for itself. Oracle objects to the requirement in Step 3 of that Order that Oracle separate out all the contributions Google has made to the allegedly infringing features of Android—copyrighted source code, other intellectual property, and engineering know-how—for which Oracle deserves no credit. Oracle Resp. at 3-6. According to Oracle, Dr. Cockburn has already done this work by calculating the incremental difference between how those features work with the claimed inventions and the purportedly lesser functionality that would exist without those inventions. Id. at 4. This is wrong; Dr. Cockburn has never looked at any feature of Android and separated the value of the claimed inventions from all the things Google did to incorporate those inventions into the android software. Oracle’s brief simply repeats Dr. Cockburn’s fundamental analytical mistake—equating the value of a feature of Android with the value of the intellectual property allegedly partially responsible for enabling that feature.

One of Oracle’s claims in this case is that Google has used its patented methods to boost the processing speed of Android phones. But although the patents may describe a method that contributes to increased processing speed, they do not, by themselves, enable anything. Even

________________________________

1 Oracle’s assertion that “[e]vidence of the value consumers place on the patented functionality and copyrighted expression as of 2011 corroborates what Google itself anticipated in 2006,” Oracle Resp. at 3 (emphasis added), is pure ipse dixit unsupported by any evidence. Similarly, Google has never conceded that it lacked alternatives to the claimed inventions, or that its only viable alternative was abandoning the Java language, as Oracle says. Oracle Resp. at 4. Google has only confirmed that one significant alternative was to use a different programming language.

3

Oracle does not assert Google engineers could, and did, merely enter the text of the patents into a programming interface and come up with a faster smartphone. Even assuming Google engineers used a patented method related to speed, those engineers also had to spend many hours writing thousands of lines of source code, then many more hours testing and refining that code, to make the patented method operational. That source code is Google’s copyrighted work. Even then, the operational patented method, by itself, would not result in increased processing speed. It could do so only in combination with numerous other Android components, such as the Linux kernel operating system and other features of the virtual machine, none of which are alleged to infringe. Whether Google developed these features itself or licensed them from others, either way Oracle can have no claim to them. Oracle is asserting that Android utilizes a patented method, and that all those many lines of code, which certainly did not write themselves, and all the other, complementary features of the software, have no independent value. That is nonsense.

Oracle is fighting the hypothetical in the Order, just as it has consistently fought the legal limitations on patent damages at every stage of this case. As Google explained in its Response, Google objects to the approach set forth in the Order because it bases damages on an apportionment of Google’s profits—a measure of patent damages rejected by Congress decades ago, the logic of which rejection was summarized in Georgia-Pacific Corp. v. United States Plywood Corp., 243 F. Supp. 500, 519, 521-22, 525 (S.D.N.Y. 1965). But even if one accepts the validity of the approach in the Order, it would be legally improper to give Oracle credit for Google’s work. See Order at 2 (because non-patented “know-how may also be required to practice the feature … the fact that a license to practice an Oracle patent claim is essential to the feature does not justify appropriating the full market value of the feature to the claim.”). Prior to the change in the law, courts never entertained the sort of argument Oracle is making. To the contrary, they required apportionment because they always understood that, even where a product uses a patented method, the infringer also added value to a patented product through its own work. See Georgia-Pacific, 243 F. Supp. at 525. It was the “insoluble” difficulty involved in apportioning between patented and nonpatented contributions that caused Congress to change the patent damages statute in the first place. Id. at 521-22.

4

Even Oracle seems to understand this. Although it initially asserts that it deserves 100% of the credit for the allegedly patented features, it then argues, as a fallback, that apportionment would be too difficult. Oracle is right about that, but in making the argument it necessarily concedes that Google must have done something substantial to make Android what it is today.2

C. The Court should reject Oracle’s latest effort to lay claim to downstream damages.

Finally, Oracle suggests that the parties should be assumed to have known, back in 2006, all the details of Google’s current business lines, including Google+, Google’s music and digital content services, and Google’s 2011 acquisition of Motorola. Oracle Resp. at 7. The reference to the Motorola acquisition is yet another attempt to put a multi-billion dollar number in front of the jury—exactly what the Court precluded in barring Oracle from offering evidence of Sun’s settlement of its litigation with Microsoft. Further, none of the cases Oracle cites suggest that a patentee can recover damages based on purported “synergies” between an allegedly infringing product and other products that company happens to sell five years after the hypothetical negotiation. More importantly, in neither of his two expert reports did Dr. Cockburn offer any opinion calculating a reasonable royalty including Google’s other product lines. Even if it were legally permissible or logically sound, it would be far too late in the day for Oracle to shoehorn these new damages amounts into the case. This is another brazen attempt by Oracle to boost its damages. The Court should reject it.

Dated: January 9, 2012

KEKER & VAN NEST LLP

By: /s/ Robert A. Van Nest
ROBERT A. VAN NEST
Attorneys for Defendant
GOOGLE INC.

________________________________

2 The three cases that Oracle cites to bolster its proposed abandonment of step 3 are inapposite. Funai Elec. Co., Ltd. v. Daewoo Electronics Corp., 616 F.3d 1357, 1375-76 (Fed. Cir. 2010), and Bose Corp. v. JBL, Inc., 274 F.3d 1354, 1361 (Fed. Cir. 2001), involved application of the entire market value rule, which Dr. Cockburn has never even argued, much less demonstrated, applies here. Funai did not even involve a royalty calculation; it was a lost-profits case. See 616 F.3d at 1375-76. In Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010), the Federal Circuit merely concluded that the jury’s damages award did not violate Georgia-Pacific, because there was evidence that the patent was fundamental to the product. Nothing in any of these cases justify what Oracle wants to do here—awarding the entire value of a product feature to a claimed invention, notwithstanding the obvious contribution of substantial added, alleged-infringer-owned intellectual property to that feature.

5

6


684

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

ORACLE AMERICA, INC.
Plaintiff,
v.
GOOGLE, INC.
Defendant.

Case No. CV 10-03561 WHA

ORACLE AMERICA, INC.’S REPLY TO
GOOGLE’S JANUARY 5, 2012
RESPONSE TO REQUEST FOR
FURTHER BRIEFING ON DAMAGES
(DKT. NO. 657)

Dept.: Courtroom 8, 19th Floor
Judge: Honorable William H. Alsup

I. The Actual Value Of Google’s Use After Infringement Began Can Be Used To Confirm The
Parties’ Expectations About The Value Of The Infringement To Google

Google’s main objection to the Alternate Approach is that it places too much weight on evidence of the market value of the claimed inventions after infringement began. Google argues that such evidence can only be used as a “check on the reasonableness of conclusions reached through other means, not to arrive at those conclusions in the first instance.” (Google Response at 2.)

Google’s objection is misplaced. Neither the Alternate Approach nor Prof. Cockburn’s analysis would use infringement-period evidence to supplant the parties’ contemporaneous expectations. Rather, the actual sales and revenue data from the period of infringement corroborates the evidence of the parties’ 2006 expectations as to the importance of the attributes provided by the patents and copyrights in suit. For example, in 2005 and 2006, Google emphasized that “speed matters,” Google “should focus on speed first,” and Google should measure performance in “milliseconds” (see Cockburn Report ¶ 261), and that attracting Java developers through use of the copyrighted library APIs was important to the success of Android (see id. ¶¶ 451–60).

Tellingly, Google nowhere argues that the projected value the parties placed on the enhancements enabled by infringement in 2006 was any different than Prof. Cockburn’s analysis of the actual data. Instead, Google contends only that it did not have any “predictable” projections of Android success as a whole in 2006. (Google Response at 2, 7–8.) This contention is irrelevant to the key question: whether the ex post evidence corroborates ex ante evidence of the importance of the patents and copyrights in suit. But even as to the adoption of Android, the evidence contradicts Google’s contention.1 For example, Google expected in 2005 and 2006 that Android would “enable Google to be viewed from 100’s of millions of handsets” and be “widely adopted.” (See, e.g., Cockburn Report ¶ 347.) Similarly, in its March 2006 Project Armstrong Business Model, Sun projected that 234.5 million

_________________________________

1 Google never addresses Sun’s contemporaneous Project Armstrong projections of convoyed sales, which the Tentative Order would approve. It also never offers any of its own projections to support its argument about the revenue expectations in 2006, much less the expectations regarding the importance of the attributes provided by the patents and copyrights in suit. Instead, Google cites James Gosling’s statements from late 2008 and its expert’s citation to a purported online publication referencing analyst report projections of Android’s prospects in late 2008 as purported evidence of what the parties expected in 2006. (Google Response at 8.) Google’s own supposed ex ante evidence is actually not ex ante at all.

1

Android units would be distributed in the third year following Android’s release. (See id. ¶ 299.) In comparison, in March 2011, IDC estimated that approximately 179 million Android units would be distributed in calendar year 2011, approximately the third year following Android’s October 2008 release. (IDC, “Worldwide Smartphone 2011–2015 Forecast and Analysis”, #227367, March 2011; see also Cockburn 10/10/11 Reply Report to Leonard, ¶ 43(d) (citing Gartner, IDC, and Strategy Analytics forecasts).) Use of actual results here would provide a conservative check on ex ante projections.

Looking to actual ex post data to check or give quantitative precision to ex ante qualitative considerations is consistent with a wealth of appellate authority. The Supreme Court and the Federal Circuit have repeatedly and explicitly recognized, and even encouraged, referring to data from the period after infringement began, as Google acknowledges. (Google Response at 5.) The proper use of that evidence is not as narrow as Google contends. The use that an infringer has made of the patented invention and the profits realized through that use are admissible as evidence of the anticipated value of the patents at the time of the hypothetical negotiation. See Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 697 (1933) (“The use that has been made of the patented device is a legitimate aid to the appraisal of the value of the patent at the time of the breach.”); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333–34 (Fed. Cir. 2009) (“Consideration of evidence of usage after infringement started can, under appropriate circumstances, be helpful to the jury and the court in assessing whether a royalty is reasonable. Usage (or similar) data may provide information that the parties would frequently have estimated during the negotiation.”). In Lucent, the Federal Circuit endorsed use of the type of data Oracle relies on here, such as consumer surveys, to provide a quantitative measure where parties do not have precise data at the time of the hypothetical negotiation. The court held it is appropriate to rely on evidence such as:

sales projections based on past sales, consumer surveys, focus group testing, and other sources. Even though parties to a license negotiation will usually not have precise data about future usage, they often have rough estimates as to the expected frequency of use. This quantitative information, assuming it meets admissibility requirements, ought to be given its proper weight, as determined by the circumstances of each case. Id. at 1533.
In Trans-World, the Federal Circuit held it was error for the court to exclude evidence of the infringer’s actual profits because they could have been used to show the value of the patented invention:

2

Evidence of the infringer’s actual profits generally is admissible as probative of his anticipated profits. By supplying the patented racks for displaying the eyeglasses, Nyman used “the patented [invention] in promoting sales of” the nonpatented eyeglasses. Trans-World may be able to prove that Nyman’s infringing use of the displays played an important role in the retail sales of Nyman’s eyeglasses. Furthermore, the extent of the profits from such sales could be relevant in determining the amount of a reasonable royalty. If, for example, sales were increased because of the infringing use of the displays, that fact could affect the amount of royalties a potential licensee would be willing to pay.
Trans-World Mfg. Corp. v. Al Nyman & Sons, Inc., 750 F.2d 1552, 1568 (Fed Cir. 1984) (citations omitted). Under the Alternate Approach, actual Android revenues similarly show the importance of the patented features. They are also probative of anticipated revenues and are clearly admissible.

Neither Hanson nor Interactive Pictures, on which Google relies (see Google Response at 3, 4, 6, and 7), holds that it is impermissible to consider actual results as part of the reasonable royalty analysis. Google’s argument based on Hanson is the same argument that Microsoft made unsuccessfully in Lucent, in which the Federal Circuit held (after expressly noting Hanson and the ex ante nature of the hypothetical negotiation) that “neither precedent nor economic logic requires us to ignore information about how often a patented invention has been used by infringers. Nor could they, since frequency of expected use and predicted value are related.” Lucent, 580 F.3d at 1333. As discussed above, the court then held that the reasonable royalty analysis may properly consider ex post consumer surveys and similar evidence. Id. Interactive Pictures held only that it was proper to consider the defendants’ contemporaneous profit projections, even though actual sales failed to meet them, and declined to reduce the plaintiffs’ damages award as a result. Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001). Like Hanson, it does not preclude evidence of the actual performance benefits of the infringed inventions at the damages stage. To the contrary, in Interactive, the court stated that “an actual infringer’s profit margin can be relevant to the determination of a royalty rate in a hypothetical negotiation.” Id. (citation omitted). Indeed, Google itself relies on Radio Steel, where the Federal Circuit approved use of both the forecasted profits at the time (6%) and actual profits (10% plus or minus two points) in arriving at a 10% royalty rate. Radio Steel & Mfg. Co. v. MTD Products, Inc., 788 F.2d 1554, 1557 (Fed. Cir. 1986).

Seeking to prevent the use of any ex post evidence at all, Google argues that the 2006 negotiations “placed a defined upper limit on the aggregate value of the complete Sun package,” and

3

that this “upper limit” is either $100 million or $28 million. (Google Response at 2.) This argument ignores what this Court has already held regarding upward adjustments to the 2006 offer (see Dkt. 230 at 8–9, 10, 15 (rejecting “Soviet-style” ceiling on damages and suggesting upward adjustments)), and Google’s own experts’ use of an upward adjustment of that offer (see, e.g., Leonard Report at 64). The Federal Circuit has repeatedly rejected artificial caps on damages, including the amount of a portfolio license qualitatively different than the actual infringement. Finjan Inc. v. Secure Computing Corp., 626 F.3d 1197, 1211–12 (Fed. Cir. 2010). It has held that the infringer’s net profit margin is not a cap. Golight, Inc. v. Wal-Mart Stores, Inc., 355 F.3d 1327, 1338 (Fed. Cir. 2004) (“There is no rule that a royalty be no higher than the infringer’s net profit margin.”) (quoting State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1580 (Fed. Cir. 1989)); Monsanto Co. v. Ralph, 382 F.3d 1374, 1384 (Fed. Cir. 2004). And most recently, it has held that the patentee’s expected profits are not a cap. Powell v. Home Depot U.S.A., Inc., --- F.3d ----, 2011 WL 5519820, at *11–12 (Fed. Cir. Nov. 14, 2011).

Finally, Google asserts that the Alternate Approach would “violate federal law by substituting Google’s profits for Oracle’s damages.” (Google Response at 2, 6.) But the Alternate Approach uses these profits as only one input into the reasonable royalty analysis, as federal law permits, not as a substitute for damages. Google itself cites Federal Circuit decisions that explicitly endorse use of the defendant’s actual profits to inform what its anticipated profits were (id. at 5, quoting Trans-World), and it is well-settled that the defendant’s anticipated profits from the infringing device are a proper input to the damages analysis. See, e.g., Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1577 (Fed. Cir. 1995) (“Kelley is not guaranteed a profit, of course, but anticipated profit is a factor in hypothetical negotiations.”). Both the Alternate Approach and Prof. Cockburn’s analysis are consistent with these principles. Moreover, both approaches use incremental advertising revenues, not, as Google suggests, “the present value of the entire Android platform.” They would not award Oracle Google’s profits.

II. Google’s Apportionment Arguments Are Inconsistent With The Facts

Remarkably, Google now argues that apportionment of infringer’s profits – the very thing that the Tentative Order found has a “reliable basis” (Dkt. 642 at 8) – is “insoluble.” (Google Response at 8.) Google does not explain how this squares with either its blithe insistence that apportionment of the value of a portfolio should be routine (despite the fact that its own economic expert says it is

4

impossible), or its previous complete failure to attack the econometric, performance and conjoint analyses on which Prof. Cockburn’s apportionment of Android’s incremental value is based. Ironically, Google now asks (Google Response at 10) for another chance to construct a Daubert challenge to these analyses. Google’s failure to do so was not the result of any limitation on the number of available motions in limine. Google could have covered whatever issues it felt were important to raise in its initial motion regarding Prof. Cockburn, and it in fact raised multiple issues in that motion. But Google expressly declined to challenge the analyses, explaining that it would be appropriate to do so “at trial.” (Google Supplemental Br. (Dkt. 549) at 5–6 n.1.)

Similarly, Google’s suggestion that “there is no reason why, in preparing its damages expert reports, Oracle could not have apportioned [the 2006] package to account for each of its components” (Google Response at 2, 9) ignores that Google’s own expert has opined publicly that the apportionment exercises it advocates cannot accurately be done. (See Dkt. 682 at 6 n.3 (quoting Leonard).)

Finally, Google is incorrect in arguing that Oracle must reduce the incremental value attributable to the patents and copyrights in suit to account for “other know how” and then again due to the existence of “alternative solutions.” (Google Response at 9.) Contrary to Google’s suggestion, the cost of writing source code that implements protected features and thereby creates the infringing work should not be deducted from a reasonable royalty. And Google’s argument that Prof. Cockburn incorrectly measured the value of “features” rather than the value of the “intellectual property” (id. at 10) is wrong on the law and the facts. Apportionment requires isolation of the economic benefit of the patented feature. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1318 (Fed. Cir. 2011); Finjan, 626 F.3d at 1211; Lucent, 580 F.3d at 1327. Here, the feature is the precise difference in performance that the patents provide over non-patented alternatives. As described in Oracle’s initial Response, no further apportionment is necessary, appropriate, or workable.

Dated: January 9, 2012

BOIES, SCHILLER & FLEXNER LLP

By: /s/ Steven C. Holtzman
Steven C. Holtzman

Attorneys for Plaintiff
ORACLE AMERICA, INC.

5


685

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA

ORACLE AMERICA, INC.,
Plaintiff,
v.
GOOGLE INC.,
Defendant.

No. C 10-03561 WHA

ORDER GRANTING IN PART
AND DENYING IN PART
GOOGLE’S MOTION IN
LIMINE NUMBER THREE TO
EXCLUDE PORTIONS OF
DR. COCKBURN’S REVISED
DAMAGES REPORT

_____________________________________

INTRODUCTION

In this patent and copyright infringement action involving Java and Android, defendant challenges plaintiff’s revised expert damages report. For the following reasons, the motion is GRANTED IN PART and DENIED IN PART.

STATEMENT

The background was set forth in previous orders (see Dkt. Nos. 137, 230, 433). A July 22 order rejected Dr. Cockburn’s first damages report for failing to apportion the value of the asserted claims and instead using the total value of Java and Android in calculating damages, among other reasons (Dkt. No. 230).

In his substitute damages report, Dr. Cockburn calculated damages in total, through the end of 2012, to be approximately two and a half billion dollars. This was broken down as follows. He estimated damages from 2007 through 2011, to be $201.8 million for patent infringement, $823.9 million in unjust enrichment for copyright infringement (not deducting for expenses or apportionment), and $136.2 million in lost profits or $102.6 million in lost licensing

fees for copyright infringement (Cockburn Report ¶¶ 47, 467, 496, and 474; Exhs. 3, 22, 23).

Dr. Cockburn calculated patent damages using a hypothetical negotiation method: as had been suggested in a prior order, he began with a $100 million starting value that was based on a real-world negotiation between the parties in 2006. He then adjusted downward for patent apportionment, then adjusted upward for lost revenue that was expected from the licensing agreement (Rpt ¶ 19). The same methodology was used to calculate a hypothetical lost license fee for copyright infringement (Rpt Exhs. 23–24). Unjust enrichment was calculated by adding together Android’s ad revenue, the hardware revenue from selling Nexus phones, and applications sales in the Android Market store (Rpt ¶ 466). Lost profits were calculated by adding together lost revenue from licensing Java, ancillary revenue from back-end services, and revenue from a smartphone operating system (Rpt ¶ 475). Using similar methodology, Dr. Cockburn also estimated future damages through the end of 2012 to be $1.2 billion in unjust enrichment for copyright infringement, $102.6 million in lost license fees for copyright infringement, and $205.2 million for patent damages (Cockburn Rpt Exhs. 22, 25, 18). Again, the grand total came to approximately two and a half billion dollars.

Following motion practice directed at the new substitute report, a tentative order issued on December 6, 2011 (Dkt. No. 642). Parties submitted critiques of the tentative order (Dkt. Nos. 651, 652), and arguments were heard at the final pretrial conference on December 21, 2011. Post-hearing briefs and responses were submitted on January 5 and 9. This order is the final order and it strikes major portions of the substitute report.

ANALYSIS

An expert witness may provide opinion testimony “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.” FRE 702. District courts thus “are charged with a ‘gatekeeping role,’ the objective of which is to ensure that expert testimony admitted into evidence is both reliable and relevant.” Sundance, Inc. v. DeMonte Fabricating Ltd., 550 F.3d 1356, 1360 (Fed. Cir. 2008).

2

Google raises several objections to Dr. Cockburn’s report. Each of Google’s arguments will be addressed below.

1. COPYRIGHT LOST LICENSE FEE.

Dr. Cockburn calculated actual damages for copyright infringement using the lost license fee approach. He did so by determining what Google would have paid to license the use of the copyrights at issue in a hypothetical negotiation with Sun at the time of infringement. Google now argues that the hypothetical negotiation approach cannot be used to calculate the lost licensee fee. Google contends that any hypothetical negotiation would be excessively speculative under Daubert because Sun never licensed an incompatible version of Java to competitors, and would not have done so with Google at the time of infringement. Therefore any calculation of actual damages based on a hypothetical negotiation must be excessively speculative (Br. 4, Supp. Br. 11–14). This order disagrees.

In the context of copyright infringement, the hypothetical lost license fee can be based on the fair market value of the copyright at the time of infringement. Polar Bear Productions, Inc. v. Timex Corp., 384 F.3d 700, 709 (9th Cir. 2004). “To determine the work’s ‘market value’ at the time of the infringement, we have endorsed a hypothetical approach: what a willing buyer would have been reasonably required to pay to a willing seller for the owner’s work.” Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002) (citations omitted). This standard is similar, if not the same, as the standard for calculating a reasonably royalty in the context of patent damages. For a reasonable royalty for patent infringement, the hypothetical negotiation also requires the court to envision the terms of a licensing agreement reached as the result of a supposed meeting between the patentee and the infringer at the time infringement began. Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554 (Fed. Cir. 1995).

Google argues that because Sun never licensed its Java copyrights in agreements that also allowed the licensee to develop an incompatible version of Java, any calculation of the hypothetical lost license fee would be incurably speculative under Daubert. This argument fights the hypothetical. In order to calculate the lost licensing fee, the hypothetical licensing agreement must be reached as the result of a hypothetical meeting between the parties. See Rite-Hite Corp.,

3

56 F.3d at 1554 (patent reasonable royalty). Although our court of appeals has not explicitly held so, the Second Circuit has held that whether the parties might in fact have negotiated is irrelevant to the purpose of the lost licensing fee calculation for copyright damages. On Davis v. The Gap, Inc., 246 F.3d 152, 171–72 (2nd Cir. 2001). The hypothetical negotiation is only a means for calculating the fair market value. It is the fair market value that must not be speculative under Daubert.

Dr. Cockburn had a non-speculative factual basis to value a license for an incompatible version of Java. Dr. Cockburn did so by starting with the real-world negotiations between Sun and Google for a compatible Java, and then adjusting that amount up to compensate for the incompatibility. The amount of the upward adjustment was based on Sun’s own revenue projections at the time for the value of compatibility. Dr. Cockburn’s calculation was sufficiently based on real-world facts. This calculation was not speculative under Daubert. Google’s objections are overruled.

2. STARTING POINT OF $100 MILLION.

For both copyright lost license fee and patent reasonable royalty calculations, Google argues that Dr. Cockburn erred by using $100 million as his starting point for the hypothetical negotiation instead of $28 million, which was the amount in a draft agreement proposed by Sun dated April 19, 2006, for a “broad technology partnership” between the parties (Br. 2). This order disagrees.

Dr. Cockburn’s decision not to use the $28 million draft agreement as the starting point was within the bounds of reason, although a jury may eventually reject the premise and therefore everything that depends from it. Contrary to Google’s assertion that Dr. Cockburn ignored the agreement, he actually addressed it over two pages in his report (Rpt ¶¶ 211–16). Dr. Cockburn opined that important terms of the $28 million draft agreement were still being negotiated (Rpt ¶ 212). As a factual basis for his opinion that terms were not finalized, Dr. Cockburn cited the “Go To Market Plan” section of the agreement, which had the following text: “Need to discuss. We propose agreement to the price in return for Sun’s hosting & ISV leadership” (Rpt ¶ 211) (emphasis added). Dr. Cockburn also cited emails from Sun executives suggesting

4

that management had not decided on the final terms of the agreement (Rpt ¶¶ 213–16). Google has not rebutted those citations. Having reviewed the available record, this order finds that Dr. Cockburn reasonably relied on sufficient facts when rejecting the $28 million draft agreement as a starting point. This does not, of course, mean reasonable experts could not have honest differences of professional opinion on this point and it will be up to the jury to reach its own judgment after hearing both opinions.

This order also finds that Dr. Cockburn did not err in using $100 million as the starting point. Dr. Cockburn extensively reviewed the entire licensing history between the parties (Rpt ¶¶ 191–221). The $100 million offer was actually on the table during real-world negotiations between Google and Sun in February and April 2006 (Rpt ¶¶ 196, 207). Dr. Cockburn decided on a $100 million fee for “a worldwide [Java] license” (Rpt ¶ 228). Although not entirely clear from Dr. Cockburn’s report, this license would likely have included “all Sun owned CD JavaME technologies, unencumbered rights” and “engineering and back-end support and services,” and “joint promotion of the Java brand” (Rpt ¶¶ 230–31). Dr. Cockburn also opined that this $100 million amount would have been structured as $60 million in fixed payments and the remainder as ad-revenue sharing (Rpt. Exh. 14). This deal was very similar to the opening draft agreement by the parties in February 2006, and could reasonably be the basis for a hypothetical negotiation. Google’s arguments must be directed to the jury.

3. UPWARD ADJUSTMENT OF THE STARTING POINT.

For both copyright lost license fee and patent reasonable royalty calculations, Dr. Cockburn adjusted his starting point upward to account for lost convoyed sales that was expected from real-world negotiations (Rpt Exh. 3). Google argues that this upward adjustment was speculative because Dr. Cockburn relied on “a single internal Sun presentation that roughly sketch[ed] a projection of the money Sun might earn from a partnership with Google,” (Br. 5). Google argues that this presentation reflected “Sun’s optimistic hope, without any grounding in experience or past practice, that it might be able to earn money by partnering with Google” (Br. 5); and that Dr. Cockburn improperly ignored the fact that this would have been a new line of

5

business, he did not vet the reliability of the projections with anyone at Oracle, and he did not see any other documents to support the lost-profits projection (Br. 10).

A patent owner may be able to recover directly for loss of collateral sales on a lost-profits theory. But lost convoyed sales also remain relevant to a reasonable royalty even where the patent owner’s proof is insufficient to show lost profit. Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1121, 1128–1130 (S.D.N.Y. 1970); see also Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 1538, 1554–55 (Fed. Cir. 1995) (same).

Dr. Cockburn based his upward adjustment on three factors: first, “harm to Sun, in the form of foregone licensing revenues and convoyed sales that Sun expected to generate pursuant to” licensing its technology to Google; second, “the effect of fragmentation on non-mobile Java revenues portended by [alleged] infringement;” and third, a “litigation premium” reflecting the fact that the hypothetical negotiation must assume that the patents are valid and infringed (Rpt ¶¶ 35–40). Although noting that the harm from fragmentation would have been great, Dr. Cockburn opined that only lost convoyed sales had a reasonably certain value (ibid.; Cockburn Dep. at 176:12–16).

This upward adjustment was not improper under Daubert. From the parties’ discussions during the 2006 negotiations and Sun’s business model, it was clear that Sun expected convoyed sales after licensing a compatible version of Java to Google. Sun’s expectations were catalogued qualitatively in a variety of documents (see, e.g., Rpt ¶¶ 297–99) and quantitatively in financial projections (Rpt ¶¶ 298–302; Purcell Exhs. 18–19). The jury could reasonably find that Google’s infringement led to an Android that was incompatible with Java and precluded Sun from receiving convoyed sales “through licensing royalty bearing commercial implementations, using TCK licenses to maintain the integrity of the Java platform, and providing backend services and potentially other revenue opportunities” (Rpt ¶ 288). If so, then the hypothetical negotiation should take that lost revenue into account and upwardly adjust the licensing fee Sun would have required to license an incompatible version of Java. Dr. Cockburn had a sufficient factual basis for this calculation to allow it to be in play before the jury.

6

While the amount of adjustment involves an element of uncertainty, Dr. Cockburn’s quantitative analysis was based on sufficiently reliable financial projections. The Federal Circuit has upheld a hypothetical royalty based on a contemporaneously created business plan projecting revenue. Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1385 (Fed. Cir. 2001). The convoyed-sales projections were contemporaneously calculated by Kathleen Knopoff, a senior director of business operations at Sun. Google does not explain why Ms. Knopoff would have projected an overly optimistic amount. Google’s objections to the upward adjustment are overruled.

4. APPORTIONMENT OF THE STARTING VALUE AND UPWARD ADJUSTMENT.

The July order stated a strong view that the patent hypothetical negotiation should use the $100 million offer in 2006 as the starting point and then make appropriate adjustments. The order, however, expressly stated that it did not rule out other formats of analysis.

Dr. Cockburn elected to use the $100 million offer as a starting point for both copyright lost license fee and patent reasonable royalty calculations. But, this order holds, he failed to apportion that $100 million offer properly between the 26 claims in suit versus all other items in the 2006 offer. He did make a stab at an apportionment but his apportionment methodology was flawed.

His method was to review future 2008–2011 data to estimate the impact of certain features in the 2008–2011 marketplace. One such feature, for example, was faster processing time. The features tested were those allegedly enabled by the claims in suit. His method ran many eBay transactions collected between January 2010 and June 2011 through a statistical analysis and estimated the importance of the feature to consumers. This in turn led to an estimate of the extent to which the feature contributed to 2008–2011 demand for Android. Overall, he estimated that the claimed functionalities accounted for 30 percent of the overall Android revenues, that is, revenues for Android would have been 30 percent less had the claimed functionalities been deleted from Android. This is for the patent claims only. Another 15 percent was attributed to the alleged copyright violations.

7

Dr. Cockburn then assumed that this outcome would have been foreseeable in 2006 at the time of the hypothetical negotiation and thus 30 percent of the value of the actual 2006 offer should be attributed to the patent claims in suit and another 15 percent to the copyright claims in suit, leaving 55 percent to be spread over the many thousands of other know-how items included in the 2006 offer.

The main flaw in this method is that the universe of know-how included in Android during 2008–2011 was different from the universe of know-how included in the 2006 offer. Put differently, Android today undoubtedly represents some Java know-how, some technology owned by strangers to this litigation (presumably licensed), and a fair dose of Google’s own engineering. The 2006 offer, in constrast, represented thousands of Java-related features, many of which never made it into Android but nonetheless would have had value. Dr. Cockburn failed to account for this disconnect. For all that is shown, the thousands of other items in the 2006 offer might have deserved far more than 55 percent of the total pie. Dr. Cockburn made no attempt to evaluate the remainder of the items offered for license in 2006.

It is no answer to say, as Dr. Cockburn did in his footnote 327, that his approach is “conservative.” The meaning of the turbid footnote is bewildering. It does not escape the apples-and-oranges problem. While the after-the-fact studies arguably show that the claims in suit eventually contributed strongly to the success of Android, and while those studies possibly show that a reasonable negotiator in Google’s position in 2006 would have been willing to assign a disporportionate share of the $100 million to the claims in suit, the fact remains that the rest of the 2006 bundle does not bear any relationship to the rest of the modern Android, for all the record shows. Reasonable parties in 2006 might well have viewed the rest of Java as worth far more than the claims conveniently selected for litigation after the fact. This order assumes without deciding that the after-the-fact studies are valid enough to go to the jury.

If the $100 million offer in 2006 is used as the starting point, as the July order suggested (but did not require), then a fair apportionment of the $100 million as between the technology in suit and the remainder of the technology then offered must be made. One way this might be done would be to divide the thousands of items into coherent groups and to evaluate the relative

8

importance of the groups and to apportion the $100 million across the groups in proportion to their relative importance. The group or groups including the 26 claims in suit would further need to be apportioned as between these claims versus the rest of the group members. Other methods might be viable as well. Dr. Cockburn’s method, however, does not withstand scrutiny. His damages opinions on apportionment and calculations based on apportionment (including patent damages and copyright lost license fee) are STRICKEN.

It is important to state that this order does not strike Dr. Cockburn’s opinion on the unjust enrichment from copyright infringement. Under copyright law, the burden is on Google to allocate Android profit based on the copyrights in suit versus other non-infringing contributions. See 17 U.S.C. 504(b). Possibly, that allocation will substantially whittle down the claimed unjust enrichment. This order does not disturb that portion of Dr. Cockburn’s opinion. Similarly, this order does not disturb Dr. Cockburn’s lost profit analysis for copyright. These calculations were not based on Dr. Cockburn’s apportionment and have not been challenged under Daubert.

5. CLAIM-BY-CLAIM INSTEAD OF PATENT-BY-PATENT ANALYSIS.

Google argues that Dr. Cockburn should have conducted a claim-by-claim analysis of damages instead of a patent-by-patent analysis (Br. 9). As such, Google requests that Dr. Cockburn be precluded from apportioning an asserted patent’s value among its claims at trial (ibid.). This order agrees.

The July 22 order stated that a claim-by-claim analysis of damages was needed: “determining the date of first infringement requires a claim-by-claim analysis” (Dkt. No. 230 at 7). There are a number of reasons. First, a single patent can include many distinct variations of an invention, each represented by its own claim. Some may be apparatus claims. Some may be method claims. A single patent may include many apparatus claims, again each represented by its own claim. The same is true for methods. An infringer of one claim is compelled by law to pay for a license, via the hypothetical negotiation, for the specific invention represented by that claim but it is not required to pay for a license for the other specific inventions not infringed. Therefore, the hypothetical negotiation must be focused only on negotiating a compulsory license for each claim infringed, not for the entire patent.

9

Second, some of the asserted claims might be less valuable, or easier to design around, than other claims contained within that same patent.

Third, the jury may find liability on some claims but not others in the same patent, or some claims may be rejected by the USPTO on re-examination.

Fourth, if liability is found on a claim, it may be possible to extend the royalty rate found by the jury on that claim into the future as a condition of not granting an injunction.

Oracle does not deny that Dr. Cockburn treated each patent as an indivisible whole (see Rpt Exhs. 2, 4–13). It is a mystery why Oracle and Dr. Cockburn deliberately choose to disregard this aspect of the July order.

6. NO DIVISION OF SEPARATE COPYRIGHT CLAIMS.

In a parallel manner, Google argues that Dr. Cockburn erred by not separating copyright damages for the two categories of copyrighted material asserted in this action: the lines of Android source code and the structure, arrangement, and selection of the Application Programming Interfaces (API) packages. This order agrees.

Dr. Cockburn’s discussion of copyright damages focused almost entirely on the value of the APIs (see Rpt Part XI). But if the structure, arrangement, and selection of the APIs is not copyrightable or if Google engaged in fair use with respect to APIs, then Oracle’s copyright claim would be limited to only a dozen code files. Dr. Cockburn has not adequately valued that code in his report and cannot do so at trial. This order holds that the jury will be instructed that if Google is found not liable for infringing the selection, arrangement, and structure of the API packages, then Dr. Cockburn’s copyright damages analysis is inapplicable.

7. INADEQUATE CALCULATION OF FUTURE DAMAGES.

In the context of patent infringement, Google argues that Dr. Cockburn erred by calculating future damages only for one year after past damages and not taking into account the varying expiration dates of the asserted patent claims (Br. 7–8). Oracle does not deny that Dr. Cockburn only calculated damages through the end of 2012 and did not calculate damages for unexpired patents after that date. Nor did Dr. Cockburn calculate damages or a royalty rate past the end of 2012 for copyright infringement.

10

If liability is established at trial, the jury will be asked to make a finding of the reasonable royalty rate for each infringed patent claim and copyright. If an injunction is not granted, then the royalty rate found by the jury will be used to award supplemental damages on a year-to-year basis, this for ongoing damages after the last damages period calculated. If an injunction is granted, there will be no need for future damages. Either way, Dr. Cockburn will not be allowed to testify about damages after the end of 2012.

8. REFERRING TO LICENSES INVOLVING UNRELATED TECHNOLOGY AND PARTIES.

Google argues that Dr. Cockburn should be precluded from referring to noncomparable licenses and settlements involving other companies (Supp. Br. 16). Specifically, Google seeks to preclude Dr. Cockburn from testifying regarding past licenses involving Nokia, Qualcomm, and Apple, and settlements between Sun and Microsoft (Br. 9–10).

Damges experts cannot use noncomparable licenses, with little relationship to the claimed invention or parties-in-suit, as a basis for calculating reasonable royalties. See ResQNet, Inc. v. Lansa, Inc., 594 F.3d 860, 870 (Fed. Cir. 2010).

In his report, Dr. Cockburn cursorily discussed licenses involving Nokia, Qualcomm, and Apple (Rpt ¶¶ 104–105). Other than listing the licensing amounts, Dr. Cockburn did little to describe these licenses. The only description given about the technology was that the licenses involved “intellectual property associated with mobile devices and services” (Rpt ¶ 104). Importantly, Dr. Cockburn did not specify whether the referenced licenses related to software or hardware, or how extensive the licenses were. Because there was so little information given about these licenses, this order cannot see how a jury could adequately evaluate the probative value of those agreements. References in Dr. Cockburn’s report to these licenses are STRICKEN.

Dr. Cockburn also referenced the settlement entered into between Sun and Microsoft in 2004, under which Microsoft agreed to pay Sun over one billion dollars to settle ongoing litigation and to enter into license agreements (Rpt ¶¶ 70–71). Dr. Cockburn opined that the settlement exemplified the importance of compatibility to Java because Microsoft was threatening to fragment the Java platform (ibid.).

11

The problem with Dr. Cockburn’s analysis is that he confused two separate litigations between Sun and Microsoft in the late-1990s and early-2000s. Dr. Cockburn used Sun’s complaint from the earlier litigation to describe the importance of the settlement amount from the later litigation (Rpt ¶ 71). More specifically, Sun sued Microsoft in 1997 for $35 million, alleging that Microsoft had breached its contract by trying to extend Java so it would work differently on Windows computers. Sun Microsystems, Inc. v. Microsoft Corp, No. 97-20884 RMW (N.D. Cal). One of Sun’s main arguments in the case was that Microsoft wrongfully advertised that its products were Java-compatible because, in Sun’s eyes, they were not. The two parties settled in 2001 for $20 million. Sun, Microsoft settle Java suit, CNET News, January 23, 2001, accessed at .

In 2002, Sun sued Microsoft for one billion dollars claiming that Microsoft had engaged in anticompetitive actions against Java. Sun Microsystems, Inc. v. Microsoft Corp, No. 02-01150 RMW (N.D. Cal). In 2004, Sun and Microsoft settled that lawsuit (Rpt ¶ 71). The settlement involved payments of $700 million by Microsoft to resolve pending antitrust issues and $900 million to release all possible patent claims. This second settlement was about more than fragmentation, patent and copyright infringement. That litigation featured antitrust issues. It is too dissimilar to be helpful for calculating damages.

The Microsoft-Sun litigation can be used for one very limited purpose, and that is to show that Sun did have a policy to disfavor fragmentation. However, the settlement of that litigation was much broader than the patent claims and copyrights-in-suit, and for that matter, Java. The settlement sums paid by Microsoft would serve no purpose other than laying large numbers in front of our jury. Therefore, the expert will be permitted, pursuant to the rules of evidence and the rest of this order, to use the Microsoft-Sun litigation only to show that Sun took fragmentation seriously. The settlement amounts, or any allusions to settlement amounts, cannot be referenced in front of the jury.

CONCLUSION

For the reasons stated above, Google’s motion in limine is GRANTED IN PART and DENIED IN PART. Any portion of the report based on the apportionment of the patent claims and

12

copyrights-in-suit is STRICKEN. Specifically, references to the $400 million in patent damages through the end of 2012 are stricken. References to the value of each patent are stricken. References to copyright lost licensee fee are stricken. However, calculations of copyright unjust enrichment and copyright lost profits are not stricken.

References to nonparty licenses and settlements are PARTIALLY STRICKEN. Specifically, references regarding past licenses involving Nokia, Qualcomm, and Apple are stricken. The litigation between Sun and Microsoft can only be used for the limited purpose of showing that Sun had a policy disfavoring fragmentation.

Dr. Cockburn will not be able to testify about damages after the end of 2012. There was nothing in his report that calculated damages past 2012. His calculations of the future values of individual patents and copyrights based on apportionment are stricken. His testimony will not be helpful for calculating ongoing royalties if an injunction is not granted.

By JANUARY 17, 2012, AT NOON, both parties may submit 20-page memoranda on whether Dr. Cockburn should be allowed a third try. By JANUARY 20 AT NOON, both sides may submit five-page replies.

IT IS SO ORDERED.

Dated: January 9, 2012.

William Alsup
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

13


686

FOR THE NORTHERN DISTRICT OF CALIFORNIA

ORACLE AMERICA, INC.,
Plaintiff,
v.
GOOGLE INC.,
Defendant.

No. C 10-03561 WHA

DIRECTIVE TO
RULE 706 EXPERT

_________________________________

To eliminate any incentive to exaggerate damages by thinking plaintiff can always fall back on the Rule 706 expert analysis, this order requires that the Rule 706 report not issue until, if ever, Dr. Cockburn produces a viable report himself and the Court then orders release of the Rule 706 report. This order is without prejudice to the possibility that no further opportunity to cure will be given to plaintiff, an issue yet to be decided, in which case the Rule 706 report shall be limited strictly to the matters left standing by motion practice.

IT IS SO ORDERED.

Dated: January 9, 2012.

/s/William Alsup
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE


687

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA

ORACLE AMERICA, INC.,
Plaintiff,
v.
GOOGLE INC.,
Defendant.

No. C 10-03561 WHA

ORDER GRANTING IN PART
AND DENYING IN
PART MOTIONS TO SEAL

______________________________________

Google filed a motion to seal portions of its supplemental brief in support of its motion in limine number three and Exhibits A–E therein (Dkt. No. 548). The motion seeks to seal hundreds of pages with very little confidential information, let alone compelling trade secrets. Much of the information is publicly available as a result of a prior order requiring the public filing of several related documents (Dkt. No. 659). This motion is not narrowly tailored and is DENIED. The exhibits and unredacted brief shall be publicly filed.

Oracle filed a motion to seal portions of its responsive supplemental brief in opposition to Google’s motion in limine No. 3 and Exhibits A, C–F, H, J, L, and M therein (Dkt. No. 571). The request to seal Exhibit J, which contains sensitive, non-public financial data, such as costs, revenues, and profits, and Exhibit M, which contains a personal cell phone number, is GRANTED. These requests are narrowly tailored. Exhibit J contains Google’s sensitive, non-public financial data, such as costs, revenues, and profits associated with Android. The report and underlying documents also contain non-public information about Google’s consideration of and potential

financial impact from alternatives to the intellectual property at issue in this lawsuit. Additionally, the report contains non-public information about licensing arrangements with third-parties, which are protected by confidentiality clauses with those third-parties. Google does not make this information available to the public. Public disclosure of this confidential information would cause great and undue harm to Google, and place it at a competitive disadvantage.

With the exception of Exhibits J and M, the motion to seal is not narrowly tailored and not supported by declarations. Exhibits J and M shall be filed under seal. The remainder of the exhibits and unredacted brief shall be publicly filed.

IT IS SO ORDERED.

Dated: January 10, 2012.

/s/William Alsup
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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