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Oracle v. Google - Oracle Rejects Google Expert Responses; Judge Driving Damages
Wednesday, March 07 2012 @ 12:05 PM EST

If nothing else is clear in this case at this time, one thing is perfectly clear - Judge Alsup is driving the issue of damages. In his latest order, issued yesterday, he instructs the parties to be prepared to answer further questions he has about the methodologies used and the specific results identified. (770 [PDF; Text]) Using the figures cited in Dr. Cockburn's report, Judge Alsup seeks clarification that the five patents still asserted have a value of $32 million.

Clearly, if the parties agree on that number, then the question becomes what each of the remaining 25 asserted claims is worth. If Oracle (Cockburn) is found to not have allocated value to the claim level, will the value of each asserted and unasserted claim be deemed equal? If that were the case, the asserted claims would only be worth $6.5 million (25 claims asserted of 123 total claims in the five asserted patents). And then what happens if all but the '520 claims get knocked out (as all have at this stage in reexamination). Why then we are down to just $1 million. Of course, that assumes the parties agree on the $32 million and the court finds Cockburn failed to allocate among the claims.

In any case, the judge's order certainly raises some issues for today's hearing.

In two other filings yesterday Oracle takes further exception to the supplemental reports of Drs. Cox and Leonard and Google's defense of those reports. (771 [PDF; Text] and 773 [PDF; Text]) A key thrust of Oracle's criticism of Dr. Cox is Google's reliance on Cream Records, Inc. v. Joseph Schlitz Brewing Co., 754 F.2d 826 (9th Cir. 1985) (Cream I. Oracle asserts that not only did Google misinterpret Cream I, more importantly, Google failed to cite the follow-on decision in Cream Records, Inc. v. Joseph Schlitz Brewing Co., 864 F.2d 668 (9th Cir. 1989) (Cream II). Recall that Google cited Cream I for the proposition that:

  • [W]here "it is clear . . . that not all of the profits are attributable to the infringing material," there is a duty to apportion damages so long as "'. . . the evidence suggests some division which may rationally be used as a springboard'" for apportionment.
  • The district court found that the infringement was "minimal," that the passage did not substantially add to the value of the commercial, but that the commercial must have sold some beer, and the music must have played some role in those sales. ... The district court reached this conclusion even though the defendant offered no evidence on apportionment. ... The Ninth Circuit affirmed this portion of the judgment.
  • The Copyright Act does not require perfection in apportioning profits. "As to the amount of profits attributable to the infringing material, 'what is required is . . . only a reasonable approximation.
  • The Cream Records standard—under which the Ninth Circuit affirmed a 0.1% apportionment that was based on no apportionment evidence—not only is binding law, but good policy. Apportioning profits with precision between infringement and other factors will generally be the most difficult where, as Dr. Cox opines is the case here, the infringement played only a small role in generating profits. In such a situation, the margin of error could sometimes be larger than the actual value one is trying to calculate. Recognizing this issue, Cream Records requires apportionment even where the evidence in support arguably allows only an imperfect calculation of damages. Here, Dr. Cox has opined that little or none of Google's profits are attributable to the alleged infringement. And, relying on evidence that Oracle has itself sponsored, he has offered alternative ways of calculating the profits attributable to the alleged infringement. Dr. Cox's evidence and methodologies easily meet the Cream Records standard, under which the Ninth Circuit affirmed an apportionment of 99.9% of profits to noninfringing factors that was based on no apportionment evidence at all, but only a common-sense "interpolation" by the finder of fact.

Oracle truncates these citations and arguments to:

... Google is actually not required to offer any apportionment evidence at all.
So which of these is correct. Well, let's go to Cream I and read it for ourselves. With respect to the defendant Schlitz in Cream I the opinion states:

Cream offered proof that Schlitz's profit on malt liquor for the period during which the infringing commercial was broadcast was $4.876 million. Cream sought to recover $66,800 as the portion of Schlitz's profit attributable to the infringement, arguing that the expenditure for the infringing commercial constituted 13.7% of Schlitz's advertising budget for the year, the infringing music was responsible for 10% of the commercial's advertising power, and, therefore, 1.37% of the profit on malt liquor were attributable to the infringement.

The district court concluded that the infringement "was minimal," consisting principally of a ten-note ostinato, and that the infringing material did not add substantially to the value of the commercial. The court also concluded, however, that the commercial was successful, that "it sold some beer," and "that the music had a portion of that." The court continued, "So I have to find some profit of the defendants which is allocable to the infringement, but, as I say, I think it's miniscule. I have interpolated as best I can. They made a profit of $5 million. One-tenth of 1 percent is $5,000, so I will add that. . . ."

Cream argues that since it established Schlitz's total profits from the sale of malt liquor, the burden was placed on Schlitz to prove any portion of the profits not attributable to the infringement, and since the defendants put on no evidence, Cream was entitled to recover the part of Schlitz's profits it sought. The court's lesser award, Cream argues, was wholly arbitrary, and supported by no evidence in the record.

Defendants respond that Cream failed to establish that any part of the profits from the sale of malt liquor were attributable to the commercial, much less to its infringing portion, and was therefore entitled to no share of the profits at all. One of the court's formal findings, prepared by defendants, might be read as stating that no causal connection had been shown between the infringement and defendants' profits. It is clear from the court's statements, including those quoted above, however, that the court concluded from the jury's verdict and from the evidence that some of the profits from malt liquor sales were in fact attributable to the use of plaintiff's copyrighted music in the commercial. The court determined the share of the profits attributable to the infringing material as best it could and awarded Cream 1/10th of 1% of those profits. Defendants have not cross-appealed the judgment, and may not challenge the determination of causation upon which it rests.

We also reject Cream's contention. Go to the description of this Headnote.Although the statute imposes upon the infringer the burden of showing "the elements of profit attributable to factors other than the copyrighted work," 17 U.S.C. § 504(b), nonetheless where it is clear, as it is in this case, that not all of the profits are attributable to the infringing material, the copyright owner is not entitled to recover all of those profits merely because the infringer fails to establish with certainty the portion attributable to the non-infringing elements. "In cases such as this where an infringer's profits are not entirely due to the infringement, and the evidence suggests some division which may rationally be used as a springboard it is the duty of the court to make some apportionment." Orgel v. Clark Boardman Co., 301 F.2d 119, 121 (2d Cir. 1962). As Learned Hand said in Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 51, 42 U.S.P.Q. (BNA) 540 (2d Cir. 1939), aff'd, 309 U.S. 390, 84 L. Ed. 825, 60 S. Ct. 681 (1940):

But we are resolved to avoid the one certainly unjust course of giving the plaintiffs everything, because the defendants cannot with certainty compute their own share. In cases where plaintiffs fail to prove their damages exactly, we often make the best estimate we can, even though it is really no more than a guess ( Pieczonka v. Pullman Co., 2 Cir., 102 F.2d 432, 434), and under the guise of resolving all doubts against the defendants we will not deny the one fact that stands undoubted.
By claiming only 1.37% of Schlitz's malt liquor profits, Cream recognizes the impropriety of awarding Cream all of Schlitz's profits on a record that reflects beyond argument that most of these profits were attributable to elements other than the infringement. As to the amount of profits attributable to the infringing material, HN4Go to the description of this Headnote."what is required is . . . only a reasonable approximation," Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. at 408; see also Twentieth Century-Fox Film Corp. v. Stonesifer, 140 F.2d 579, 583-84 (9th Cir. 1944); MCA, Inc. v. Wilson, 677 F.2d 180, 186 (2d Cir. 1981), and Cream's calculation is in the end no less speculative than that of the court. The disparity between the amount sought by Cream and the amount awarded by the court appears to rest not so much upon a difference in methods of calculation as upon a disagreement as to the extent to which the commercial infringed upon the copyright and the importance of the copyrighted material to the effectiveness of the commercial. These were determinations for the district court to make.
I don't know about you, but to me the court's position in Cream I appears to be exactly as stated by Google.

Oh, but wait a minute, Google failed to cite Cream II. Why? Because Cream II did not in any way, shape or form change the court's decision in Cream I. If it did, you would have the 9th Circuit overruling itself in the same case. Not going to happen. Cream II deals with a different defendant playing a different role related to the same infringement. In fact, it is with respect to this second infringer that the court in Cream I remanded. The district court's follow-up decision with respect to this second infringer, the ad agency, was then appealed and resulted in Cream II. What was considered de minimis infringement by Schlitz was, by the 9th Circuit, not considered to be de mininimis infringement by the ad agency.

This in no way overturned the court's findings with respect to Schlitz in Cream I, and it is to that determination and the ruling by the 9th Circuit with respect to Schlitz that Google cites. Shame on Oracle and its counsel for misconstruing the follow-on case and attempting to confuse the issue.

Unfortunately, we can't assess the value of Oracle's arguments in its reply on the Leonard report (773) because so much information has been redacted or is not available to us. We suspect these arguments will all get sorted out today. Or at least we can hope that is the case.


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

Docket

03/06/2012 - 770 - REQUEST FOR DISCUSSION AT TOMORROW'S HEARING. Signed by Judge Alsup on March 6, 2012.. (whalc1, COURT STAFF) (Filed on 3/6/2012) (Entered: 03/06/2012)

03/06/2012 - 771 - REPLY (re 734 MOTION to Strike EXCLUDE PORTIONS OF THE SUPPLEMENTAL EXPERT REPORT OF DR. ALAN J. COX ) filed byOracle America, Inc.. (Holtzman, Steven) (Filed on 3/6/2012) (Entered: 03/06/2012)

03/06/2012 - 772 - Administrative Motion to File Under Seal filed by Oracle America, Inc.. (Attachments: # 1 Declaration DECLARATION OF ANDREW TEMKIN REGARDING GOOGLE, INC.S ADMINISTRATIVE MOTION TO FILE UNDER SEAL (DKT. NO. 750) AND ORACLE AMERICA, INC.S FILINGS OF MARCH 6, 2012, # 2 Proposed Order)(Holtzman, Steven) (Filed on 3/6/2012) (Entered: 03/06/2012)

03/06/2012 - 773 - REPLY (re 729 MOTION to Strike PORTIONS OF GREGORY LEONARDS SUPPLEMENTAL REPORT ) filed byOracle America, Inc.. (Holtzman, Steven) (Filed on 3/6/2012) (Entered: 03/06/2012)


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

Documents

770

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

REQUEST FOR DISCUSSION AT
TOMORROW’S HEARING

_________________________________________

Please work out the answer to the following and be prepared to present the results tomorrow. If we allowed only the 10% line on Exhibit 34 of Dr. Cockburn’s report, then the top ten percent of the portfolio would be worth 88% (rough average) of the patent part of the $598 million. Using the formula accounting for copyrights at paragraph 414, this would mean that the top ten percent of patents would have a combined value of $366 million. Ten percent of 569 patents is 57 patents. If those 57 are averaged or of equal value, any five in this group of 57 would be worth about $32 million in total. Please check this math and logic and be prepared to discuss tomorrow.

IT IS SO ORDERED.

Dated: March 6, 2012.

/s/ William Alsup
WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE


771

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 IN
SUPPORT OF ITS MOTION TO STRIKE
PORTIONS OF DR. ALAN J. COX’S
SUPPLEMENTAL REPORT

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


TABLE OF CONTENTS


I. INTRODUCTION 1
II. ARGUMENT 2
A.Google’s Pretextual Excuse For Amending The Cox report Should Be Rejected 2
B.Dr. Cox’s Application Of The Apportionment Percentage In The 2006 License Bundle To Real-
World Infringer’s Profits And Lost Profits Calculations Is Irreparably Flawed
3
C.The Ninth Circuit Daubert Standard Has Always Applied To The Admissibility Of Expert
Testimony In This Case, Whether For Patent Or Copyright
5
D.Google Misconstrues Cream I And Fails To Cite Cream II – The Ninth Circuit Opinion That
Rejected Google’s Interpretation Of The Copyright Apportionment Requirement
5
E.Google’s Defense Of Dr. Cox’s “Alternative” Way To Calculate Infringer’s Profits Is
Unsupportable Under This Court’s Previous Rulings
8
F.Google’s Revised Lost Profits Arguments Are Fatally Flawed 8
III. CONCLUSION 10


TABLE OF AUTHORITIES


Cases
Cream Records, Inc. v. Joseph Schlitz Brewing Co.,
754 F.2d 826 (9th Cir. 1985)
passim
Cream Records, Inc. v. Joseph Schlitz Brewing Co.,
864 F.2d 668 (9th Cir. 1989)
1, 5, 6, 7
Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc.,
772 F.2d 505 (9th Cir. 1985)
7
Micro Chem., Inc. v. Lextron, Inc.,
317 F.3d 1387 (Fed. Cir. 2003)
5
New Hampshire v. Maine,
532 U.S. 742 (2001)
4
Polar Bear Prods., Inc. v. Timex Corp.,
384 F.3d 700 (9th Cir. 2004)
9
Three Boys Music Corp. v. Bolton,
212 F.3d 477 (9th Cir. 2000)
7
United States v. Silverman,
859 F.2d 1352 (9th Cir. 1988)
4


I. INTRODUCTION

Google previously argued to the Court, and the Court agreed, that it was improper to equate the percentage of Android revenues attributable to the patented and copyrighted inventions with the percentage of the 2006 Sun-Google license fee attributable to those inventions. (Dkt. No. 685 at 8.) Now, Google seeks to defend its own expert’s unprovoked use of the exact same methodology in reverse, and in the process expressly belittles the distinctions between real-world Android and the 2006 license bundle that it previously emphasized. Google’s arguments fail to justify Dr. Cox’s new foray into infringer’s profits and lost profits, are inconsistent with this Court’s previous rulings on apportionment, and are based on a distortion of Ninth Circuit law.

Google claims that Dr. Cox’s use of the hypothetical-license apportionment figure in apportioning infringer’s profits and lost profits is acceptable because Cox supposedly explains why his conflation of the 2006 Bundle and the value of real-world Android is reasonable and conservative. But the only supposed explanation in Dr. Cox’s supplemental report is indistinguishable from Prof. Cockburn’s earlier explanation, which the Court rejected both on the merits and for lack of sufficient explanation.

To try to suggest that Dr. Cox may testify to what Prof. Cockburn may not, Google claims that, under Ninth Circuit copyright law, Google is not required to have any evidentiary basis for its expert’s apportionment opinion. Google relies entirely on a single Ninth Circuit case, Cream Records, for this proposition, even though Cream I does not support its argument and—worse still—was distinguished by a subsequent Ninth Circuit opinion in the same case (Cream II).

Undeterred, Google argues that because Dr. Cox opines that “the infringement played only a small role in generating profits” in this case, apportioning profits is “difficult” and therefore may be approached leniently. (Dkt. 759 at 5.) This argument – that Dr. Cox’s apportionment opinion should be held to a low standard of reliability because Dr. Cox himself says the appropriate apportionment percentage is low – is mere tautology, and has no support in Ninth Circuit or any other law.

Google has not explained why Dr. Cox’s revised methodology is either economically sound or warranted by the plain language of this Court’s order regarding supplemental reports. Oracle respectfully requests that the Court grant Oracle’s motion to strike.

1


II. ARGUMENT

A. Google’s Pretextual Excuse For Amending The Cox report Should Be Rejected.

Pursuant to the Court’s January 20, 2012 order, Prof. Cockburn’s third report revises only his hypothetical license methodology. Dr. Cox now purports to respond to Prof. Cockburn’s revised hypothetical license measure of copyright damages by reducing two wholly different calculations— copyright infringer’s profits numbers and lost profits—by more than 90% and 60%, respectively. Dr. Cox’s newly disclosed revisions are not authorized by the Court’s order.

The Court’s order authorizing Prof. Cockburn to submit a third report allowed him to “revise only those items stricken by the recent order [on Google’s motion in limine] and the [econometric and conjoint] studies[.]” (Dkt. 702 at 2.) Accordingly, Prof. Cockburn was forbidden from revising his calculations of copyright infringer’s profits and lost profits, and he made no changes to those opinions. (Dkt. 685 at 13 (holding that “calculations of copyright unjust enrichment and copyright lost profits are not stricken”).) Neither Prof. Cockburn nor Prof. Shugan made any changes at all to the conjoint study. The Court’s limits on Google’s experts mirrored the limits on Prof. Cockburn: “Only revisions directly responsive to new material by Dr. Cockburn will be allowed.” (Dkt. 702 at 2.)

Google nonetheless claims that the Court’s order did not limit Google’s experts to supplemental opinions on the “categories of damages” that Prof. Cockburn revised, but rather authorized its experts to change anything they wanted to so long as they characterized the new opinions as “responsive” to any “new material” included in Prof. Cockburn’s third report, even if it concerns a completely different topic. (Dkt. 759 at 1.) Neither the plain words nor the purpose of the Court’s order can be reconciled with Google’s logic. Google dances around the Court’s orders by claiming that Dr. Cockburn offered new “methodologies to calculate damages” and that “Dr. Cox directly responded to those newly disclosed methodologies” as to “calculations of damages, including damages based on lost profits and infringer’s profits.” (Id. at 2.) If Google’s argument were correct, its experts could revise their opinions on any “methodology” having to do with “damages.” The Court’s limitation of the scope of Google’s expert’s revisions would be meaningless.

Dr. Cox disclosed an opinion as to infringer’s profits and lost profits last October. Prof. Cockburn responded to, and rebutted, those opinions in the proper course by timely serving a reply

2


report, also in October. Oracle and Prof. Cockburn would have no such opportunity to rebut Dr. Cox’s new opinions on infringer’s profits and lost profits. (See Dkt. 702 at 2.) By having Dr. Cox revise his lost profits and infringer’s profits calculations now, even though Prof. Cockburn has not touched his analysis of lost profits and infringer’s profits, Google would have the Court insulate Dr. Cox’s ultimate analyses from attack at trial. Google’s foray beyond the boundaries of the Court’s order permitting revisions would be highly prejudicial and should be rejected. Google nowhere addresses this concern.

B. Dr. Cox’s Application Of The Apportionment Percentage In The 2006 License
Bundle To Real-World Infringer’s Profits And Lost Profits Calculations Is
Irreparably Flawed.

Dr. Cox’s new calculations treat apportionment of the 2006 bundle as equivalent to apportionment of Android profits. In moving to strike Prof. Cockburn’s second report, Google argued that this very apportionment approach was impermissible under Daubert. The Court held that the 2006 bundle cannot be conflated with the real-world Android:

  • “[T]he 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.” (Dkt. 685 at 8.)
  • “But Android is not equivalent to the value of the license bundle discussed during the 2006 negotiations. The value of Android could [have] been more or less.” (Dkt. 642 at 8 (Tentative Order).)

Google now argues that its own expert can make the same assumption that the Court previously rejected: that Dr. Cox may use Prof. Cockburn’s estimate of the lowest possible percentage of value for the asserted copyrights in the 2006 offer (5.1%) to calculate the percentage of Android’s real-world profits attributable to those copyrights, even though Dr. Cox himself admits that this comparison is inapt (Dearborn Decl. Ex. B (Supplemental Cox Report) ¶¶ 32, 36), and even though Google must recognize that infringer’s profits is an ex post, not an ex ante, analysis.

Google’s only substantive attempt to explain Dr. Cox’s disregard of the Court’s ruling is its argument that “even though the 2006 bundle of intellectual property rights is not the same as the actual 2011 Android platform, that does not mean there is no relationship between them.” (Dkt. 759 at 8 (emphasis in original, citation omitted).) But neither Google nor Dr. Cox makes any attempt to explain what that relationship is, how significant or reliable it is, or even in what direction it points. Indeed, the

3


Court rejected exactly this argument when it held that Prof. Cockburn “failed to account for [the] disconnect” between the 2006 offer and Android’s profits. (Dkt. 685 at 8; see also Dkt. 642 (Tentative Order) at 7–8 (noting that the value of Android could have been “more or less” than the value of the 2006 license bundle).) There is no principled reason in Daubert or in copyright law why this holding should apply differently to Dr. Cox.

While asserting that Dr. Cox’s use of apportionment of the 2006 bundle to measure apportionment of Google’s real-world profits is acceptable because Dr. Cox “explained why the approach he used was conservative” whereas Prof. Cockburn did not (Dkt. 759 at 3 (emphasis in original)), all Google has in support of that assertion is paragraph 32 of Dr. Cox’s supplemental report. Paragraph 32 recites the bare assertion that the 2006 bundle necessarily included less total value than “the value of the [actual] platform as a whole.” (Dearborn Decl. Ex. B (Supplemental Cox Report) ¶ 32.) This is the very same explanation Prof. Cockburn provided as to why applying the percentage of the value of the whole platform as a proxy for the percentage of the 2006 bundle was proper and conservative. (See Dkt. 652 (Oracle response to tentative order on Google Motion in Limine # 3) at 1.) Nothing about Dr. Cox’s supposed “explanation” distinguishes it from what Prof. Cockburn explained, and what the Court rejected.1

Dr. Cox’s use of apportionment of the 2006 bundle to apportion after-the-fact profits simply cannot be reconciled with Google’s previous arguments or this Court’s previous orders. Google should not be permitted to profit from such directly contradictory positions; the law of the case should control. See New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (“‘[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position”) (internal quotation marks and citation omitted); Cf. United States v. Silverman, 859 F.2d 1352, 1353 n.1 (9th Cir. 1988) (“Under the ‘law of the case’

4


doctrine a court is generally precluded from reexamining an issue previously decided by the same court, or a higher court, in the same case.”).

C. The Ninth Circuit Daubert Standard Has Always Applied To The Admissibility Of
Expert Testimony In This Case, Whether For Patent Or Copyright.

Google implies that the difference in standards between the law of the Ninth Circuit (which governs procedural matters and substantive issues of copyright law) and Federal Circuit (which governs substantive issues of patent law) requires that Dr. Cox’s apportionment analysis be held to a different standard than Prof. Cockburn. (Dkt. 759 at 4.) That is incorrect. When the Court held that “the 2006 bundle does not bear any relationship to the rest of modern Android, for all the record shows,” the Court did not cite any Federal Circuit law peculiar to patent analysis, nor did it confine its holding to any principle of patent law. (Dkt. 685 at 8.) Instead, its holding was based on Daubert and the Federal Rules of Evidence, and it applied to both the patent and copyright damages.

The Federal Circuit applies Ninth Circuit law in reviewing an evidentiary decision to admit or exclude expert testimony. See Micro Chem., Inc. v. Lextron, Inc., 317 F.3d 1387, 1390–91 (Fed. Cir. 2003) (“Whether proffered evidence should be admitted in a trial is a procedural issue not unique to patent law, and therefore we review the district court's decision whether to admit expert testimony under the law of the regional circuit[.]”). Thus, this Court’s Daubert rulings, for both copyright and patent damages, consistently are, and have been, subject to Ninth Circuit Daubert law. The Rules of Evidence and principles of fairness and logic that governed the Court’s prior decision govern here, too.

D. Google Misconstrues Cream I And Fails To Cite Cream II – The Ninth Circuit
Opinion That Rejected Google’s Interpretation Of The Copyright Apportionment
Requirement.

Google relies exclusively on the Ninth Circuit’s decision in Cream Records, Inc. v. Joseph Schlitz Brewing Co., 754 F.2d 826 (9th Cir. 1985 (“Cream I”) to argue that it does not matter how defective Dr. Cox’s analysis is because Google is actually not required to offer any apportionment evidence at all. (Dkt. 759 at 4–8.) But neither Cream I, on which Google relies, nor the Ninth Circuit’s follow-up decision in Cream Records, Inc. v. Joseph Schlitz Brewing Co., 864 F.2d 668 (9th Cir. 1989) (“Cream II”), which Google inexplicably fails to cite, supports such an absurd result.

5


Google’s omission of Cream II is particularly problematic because that opinion, not Cream I, controls on these facts.

In Cream I, the plaintiff, Cream Records, sought infringer’s profits from two defendants for use of a ten-note motif from its song, The Theme From Shaft, in a beer commercial. After a jury verdict on infringement, the parties agreed to a bench trial on damages, Cream argued that infringer’s profits were equal to 1.37% of the total profits that one defendant, Schlitz, earned on all malt liquor for the entire period when the infringing commercial ran. 754 F.2d at 827–28. Cream’s reasoning was that the commercial represented 13.7% of Schlitz’s advertising budget, and the infringing use represented 10% of the “advertising power” of the commercial. Id. The district court, acting as fact-finder, concluded that the evidence showed that the contribution of the infringing use to beer sales was “miniscule,” and thus supported an apportionment percentage of only 0.1% of Schlitz’s malt beer profits. Id. at 828. The Ninth Circuit affirmed, noting that the district court’s reasoning was supported by evidence and was “no less speculative” than Cream’s reasoning. Id. at 829.

Google relies on Cream I to assert—falsely—that the Ninth Circuit affirmed an apportionment award that was “based on no apportionment evidence at all.” (Dkt. 759 at 5 (emphasis Google’s).) That is not the holding of Cream I, which specifically rejected the argument by Schlitz that no apportionment evidence supported the district court’s award:

Defendants respond that Cream failed to establish that any part of the profits from the sale of malt liquor were attributable to the commercial, much less to its infringing portion, and was therefore entitled to no share of the profits at all. One of the court's formal findings, prepared by defendants, might be read as stating that no causal connection had been shown between the infringement and defendants' profits. It is clear from the court's statements, including those quoted above, however, that the court concluded from the jury's verdict and from the evidence that some of the profits from malt liquor sales were in fact attributable to the use of plaintiff's copyrighted music in the commercial. The court determined the share of the profits attributable to the infringing material as best it could and awarded Cream 1/10th of 1% of those profits.
Cream I, 754 F.2d at 828. Thus, Google’s misstates the holding of Cream I.

Moreover, Google completely fails to address Cream II. In Cream I, the Ninth Circuit held that the district court had failed to make a separate award against a second defendant (the advertising firm Benton & Bowles, which produced the infringing TV commercial), and remanded. Cream claimed all of Benton’s profits from the infringing TV commercial. 754 F.2d at 829. On remand, the district court

6


determined that 1% of those profits were attributable to the infringement. Cream II, 864 F.2d at 669– 70. Cream appealed and the Ninth Circuit reversed, holding that the district court’s determination of the proportion of profits attributable to the infringement was “clearly erroneous.” Id.

In Cream II, the Ninth Circuit rejected the district court’s finding that the infringing commercial contributed 1% of Benton’s profits, just as it had contributed 1% of Schlitz’s. Id. The Ninth Circuit explained that the evidence of Benton’s profits was limited to the $175,872.78 that the firm earned from the infringing commercial, in contrast to “total profits Schlitz earned from its nationwide sale of malt liquor.” Id. at 669–70 & n.2. Accordingly, the evidence that had supported the apportionment of Schlitz’s profits was plainly insufficient to support apportionment for Benton. Id. Cream I and Cream II thus foreclose Google’s argument that copyright apportionment requires no evidence. Indeed, other Ninth Circuit cases also reject the argument that Google has no evidentiary burden for apportioning infringer’s profits. See Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 518–19 (9th Cir. 1985); Three Boys Music Corp. v. Bolton, 212 F.3d 477, 487 (9th Cir. 2000).

Google compounds its error by arguing that its burden is reduced because its own expert claims that the copyrights were unimportant to the success of Android. (Dkt. 759 at 5 (“Apportioning profits with precision between infringement and other factors will generally be the most difficult where, as Dr. Cox opines is the case here, the infringement played only a small role in generating profits.”); id. at 6 (arguing that Dr. Cox’s analyses “comport with Cream Records” because he “has opined that none or close to none of Google’s profits are attributable to the alleged copyright infringement”).) This argument is pure tautology: Google claims its expert’s opinion on apportionment of infringer’s profits meets the Daubert standard because the Daubert standard is reduced based on that same expert’s opinion that there is little or nothing to apportion. Google’s argument is wrong legally, factually, and logically.

7


E. Google’s Defense Of Dr. Cox’s “Alternative” Way To Calculate Infringer’s Profits
Is Unsupportable Under This Court’s Previous Rulings.

In his supplemental report, Dr. Cox plucks one term from the draft 2006 license negotiations— the proposal that Google share 10% of its Android revenues with Sun—and claims that this 10% figure, multiplied by the 5.1% lower bound apportionment for copyright, measures the percent of the Android’s real-world profits attributable to the copyright infringement. Google devotes a single paragraph to defending Dr. Cox’s use of the 2006 license agreement between the parties as a “different way” to apportion profits (Dkt. 759 at 8), relying again on its argument that although it is true that the revenue-share provision of the license that the parties contemplated in 2006 does not “directly measure the exact portion of Google’s profits that are attributable to the alleged infringement,” it is an “estimate” and that there must be some relationship between that single term in the negotiations of the 2006 bundle of IP rights and actual Android revenues. (Id. (emphasis in original).)

As discussed above, Google does not attempt to explain the direction of the “relationship” between the license fee and profits; indeed, Google fails to address Oracle’s argument that a license fee cannot be a proper proxy for the actual profits a defendant earns through its infringement because a rational bargaining party will necessarily offer less for a licensing fee than it expects to earn from that license. (See Dkt. 733 at 10–11 (explaining these and other flaws).) Google cites no case that suggests, much less holds, that a proposed, ex ante revenue share term operates as a cap on ex post, real-world infringer’s profits. Google offers no response to Oracle’s argument that such a rule would create an incentive to willfully infringe. Dr. Cox’s new approach does not meet the standards for expert testimony.

F. Google’s Revised Lost Profits Arguments Are Fatally Flawed.

Google’s defense of its lost-profits apportionment (Dkt. 759 at 2–4) is also meritless.

First, Google argues that Oracle should not be able to challenge Dr. Cox’s application of the 5.1% apportionment figures to lost profits now, because Dr. Cox tried to apportion lost profits in a prior report. (Id.) But if the apportionment of lost profits in Dr. Cox’s Supplemental Report is new, then Oracle should be permitted to challenge it. (Dkt. 702 at 2.) If it is not new, then it is procedurally improper under the Court’s orders permitting revisions. (Id.)

8


Second, Google claims that Dr. Cox’s application of the 5.1% apportionment figure to Oracle’s lost profits is intended to “limit any claimed damages to those allegedly caused by the infringement.” (Dkt. 759 at 2.) But Google provides no explanation why taking 5.1% of Oracle’s lost profits is a proper proxy for causation. Google has elsewhere conceded that lost profits are a straight measure of the “amount of profits the plaintiff would have earned absent the defendant’s unauthorized use of the plaintiff’s work.” (Dkt. 539 at 151 (Google proposed jury instruction regarding actual damages for copyright).) This is not an apportioned figure: it simply measures “the copyright holder’s losses.” Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 707–08 (9th Cir. 2004). Indeed, it is well-established that of the plaintiff’s losses should not be mechanically apportioned to account for causation. It is commonly the case that infringement of less than all of the copyrighted work destroys all of the copyright holder’s ability to earn any profit from that work. In Cream I, for example, the evidence showed that Schlitz’s use of the ten-note motif—considerably less than all of the song— in a television commercial “destroy[ed] its value to other advertisers for that purpose.” 754 F.2d at 827. Neither Dr. Cox, nor Google, explains why multiplying Oracle’s lost profits by 5.1% accurately calculates the amount of profits Oracle would have earned absent the defendant’s unauthorized use of the Java copyrights at issue.

Third Google has failed to explain why Dr. Cox’s choice to borrow the 5.1% is proper. Just as the percentage of the 2006 license bears no necessary relationship to the percentage of Google’s actual profits from Android, the percentage of Google’s actual profits due to the infringement bears no necessary relationship to Oracle’s actual losses. Google has offered no explanation at all as to why this selection does not suffer from the oranges-to-apples problem that Oracle identifies. (See Dkt. 733 at 12–13.) And for all of the reasons explained above, this argument cannot withstand Daubert scrutiny.

//

//

//

9


III. CONCLUSION

For the reasons explained herein and in Oracle’s Motion to Strike, Oracle requests that the Court grant its Motion to Exclude Portions of the Supplemental Expert Report of Dr. Alan J. Cox.

Dated: March 6, 2012

BOIES, SCHILLER & FLEXNER LLP

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

Attorneys for Plaintiff
ORACLE AMERICA, INC.

10


1 In any event, Google cannot credibly claim that Dr. Cox’s methodology is actually conservative. Dr. Cox cannot claim that 5.1% understates the proportion of Google’s infringer’s profits due to the copyrights simply by asserting that the percentage overstates the amount of the bundle due to copyrights, which is the only explanation Google offers in support of its claim of “conservatism.” (Dkt. 759 at 3.) As Oracle argued in its opening brief, Dr. Cox’s use of this number is not conservative at all. (Dkt. 735 at 10.)

2 Moreover, although neither opinion helps Google, this case is factually consistent with Cream I: Prof. Cockburn did not simply identify Google’s gross revenues, from all products and services, during the infringement period, but instead calculated Google’s revenue that is directly attributable to Android. (Cockburn Report ¶¶ 94, 643–49 (noting that infringer’s profits figure includes only the “gross revenue earned from Android-based advertising, sales of Nexus smartphones, and sales of applications on Android Market.”).)


773

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 IN
SUPPORT OF ITS MOTION TO STRIKE
PORTIONS OF GREGORY K. LEONARD’S
SUPPLEMENTAL REPORT

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


TABLE OF CONTENTS


I. INTRODUCTION 1
II. ARGUMENT 2
A.Dr. Leonard’s Forward Citations Analysis Is Profoundly Flawed And His Results From That
Analysis Are Unreliable And Irrelevant
2
1.Dr. Leonard Fails To Correctly Count Citations For The Re-Issued ’1042
2.Dr. Leonard’s Fails To Correctly Account For Different Issue Dates4
3.The Articles Cited By Google Provide No Support For Dr. Leonard’s Calculations In
This Case
6
B.Dr. Leonard’s Calculations Based On An Accounting Document Prepared For Oracle In
2010 Are Misleading And Irrelevant
7
C.Dr. Leonard’s Claim That Google’s Expected Gains Are Determinative With Respect To The
Amount Of Any Reasonable Royalty Awardable To Oracle Is Wrong And Improper
9
III. CONCLUSION 10

i


TABLE OF AUTHORITIES


Other Authorities
Bronwyn H. Hall, et al. “The Market Value of Patents and R&D: Evidence From European Firms,”
National Bureau of Economic Research Working Paper Series, Working Paper No. 13426, available
at http://www.nber.org/papers/w13426.pdf, at 18 (Sept. 2007)
5
Bronwyn H. Hall, et al. “The NBER Patent Citations Data File: Lessons, Insights and Methodological
Tools,” National Bureau of Economic Research Working Paper Series, Working Paper No. 8498,
available at http://www.nber.org/papers/w8498.pdf, at 10, 26 (Oct. 2001)
5
Dietmar Harhoff et al., ,
Review of Economics and Statistics (Aug. 1999) at 513
6
James Besson, The value of U.S. patents by owner and patent characteristics,
Research Policy 37 (2008) 932–45 at 940 (working paper available at
http://ssrn.com/abstract_id=949778)
4, 6

ii


I. INTRODUCTION

Dr. Leonard’s “forward citations” analysis is fundamentally flawed and unreliable. Google would have Dr. Leonard present calculations to the jury that misleadingly understate the value of the patents-in-suit, secure in the knowledge that Prof. Cockburn will not be allowed to rebut that testimony directly. In its opposition, Google tries to explain away the flaws in Dr. Leonard’s analysis, but its explanations can neither provide a foundation for Dr. Leonard’s analysis – a foundation that exists nowhere in his supplemental report or elsewhere in the record – nor justify what he did even if they were admissible. For example, Google completely distorts the relationship between the ’104 patent and its predecessors in an attempt to rationalize Dr. Leonard’s failure to properly account for the fact that the ‘104 patent is a reissue. The wild variation in results depending on how citations to the ‘104 and its predecessors are counted shows that Dr. Leonard’s methodology lacks factual foundation or scientific support. Indeed, Google cites no case in which the forward citations approach has been used to demonstrate or quantify the value of patents in litigation, much less used in the way Dr. Leonard proposes.

Similarly, Google fails to explain how an allocation reflected in a 2010 Oracle accounting document is relevant to assessing the reasonable royalty in a 2006 hypothetical negotiation between Sun and Google. [REDACTED].

Finally, nothing in Google’s opposition would warrant permitting Dr. Leonard to confuse the jury by testifying that, instead of Sun’s expected gains, “[i]t is the value that Google was expecting to receive that matters for he reasonable royalty analysis.” Google makes no serious effort to defend this statement, which is plainly wrong as a matter of law. At the same time, however, Google’s opposition makes clear that Dr. Leonard intends to argue at trial that Google had a “bottom line” (Dkt. 762 at 12) that necessarily limits the reasonable royalty. That testimony is contrary to Federal Circuit law, and

1


would mislead the jury.

II. ARGUMENT

A. Dr. Leonard’s Forward Citations Analysis Is Profoundly Flawed And His Results
From That Analysis Are Unreliable And Irrelevant
Dr. Leonard’s analysis suffers from two fundamental flaws, each of which renders Dr. Leonard’s calculations unreliable and misleading. Neither Google’s opposition nor Dr. Leonard’s declaration provides any basis to ignore those errors and permit Dr. Leonard to present his analysis to the jury.

Dr. Leonard’s supplemental report does not claim any experience with forward citations analysis, in litigation or otherwise, and Dr. Leonard’s declaration neither claims any prior familiarity with the literature in this area nor claims to have ever attempted a forward citations analysis before. Google provides utterly no basis for the Court to conclude that Dr. Leonard’s analysis has sufficient reliability or foundation to be admissible, or that Dr. Leonard has sufficient expertise to perform such an analysis. Indeed, Google’s lawyers’ evidentiary arguments for why Dr. Leonard’s citations analysis is actually sound cannot rescue it because Dr. Leonard has no expertise in the underlying factual assertions (for example, with regard to the relationship between claims of the ‘104 patent and its predecessors) and no other Google expert has disclosed testimony on the relevant issues. There is simply no admissible foundation on which the analysis, particularly as qualified and explained by Google’s opposition brief, can rest.

1. Dr. Leonard Fails To Correctly Count Citations For The Re-Issued ’104
Google does not dispute that Dr. Leonard does not include citations to predecessor patents in his forward citations analysis. (Dkt. 762 at 1-7.) Dr. Leonard never addresses this issue, either in his report or his declaration. With his declaration, Dr. Leonard had the opportunity to disclaim that this was an oversight, and to explain why he did not include citations for predecessor patents in his analysis. Dr. Leonard did not do so. As a result, the record contains no evidence on this issue other than Prof. Cockburn’s declaration, which explains that Dr. Leonard’s omission of those citations is a substantial error that makes the results unreliable. (Dkt. 730 (Cockburn Decl.) ¶¶ 4-6.)

According to Google’s counsel, Dr. Leonard’s omission or exclusion of citations to the predecessors of the ’104 is appropriate because the “claims in the predecessors are entirely distinct from

2


the claims in the ’104.” (Dkt. 762 at 1.) This argument is misleading, and based on a misreading of the patents. More importantly, this post-hoc justification provides no foundation for Dr. Leonard’s analysis.

Google claims that Sun “forfeited” the ten claims in the original ’685 patent (Dkt. 762 at 4), but that is false. All ten claims originally in the ’685 patent continue to exist in the reissued ’204 patent. (Compare Dkt. 763-1 (Zimmer Decl. Exh. B (’204 patent)) with Dkt. 763-3 (Exh. C (’685 patent)) (first ten claims in the ’685 patent and the ’204 patent are identical).) The fact that those ten claims are not asserted again in the ’104 patent is irrelevant because the ’104, ’204, and ’685 all describe the covered invention using exactly the same specifications, figures, and abstracts. (Compare Dkt. 763-1 at 2, 5–9 (Zimmer Decl. Exh. A (’104 patent)) with Dkt. 763-2 at 2, 4–8 (Exh. B (’204 patent)) and Dkt. 763-3 at 2, 3–7 (Exh. C (’685 patent)).1) Thus any citation to the ’685 or the ’204 necessarily covers what is included in the ’104, and should be included in any citations analysis, assuming arguendo that such an analysis is appropriate at all.

Neither Google nor Dr. Leonard provide any basis on which the Court or the jury can find that the PTO cites patents for particular claims, as opposed to for the fundamental inventions, specifications, figures, or abstracts they provide. In a common-sense approach, forward citations to the’685 original patent and ’204 reissue patent would be attributed to the ’104, because all three patents disclose the same invention. Common sense strongly suggests that citations to patents sharing identical specifications should be counted together, irrespective of any differences with respect to particular claims. It is a fundamental error for Dr. Leonard to exclude the predecessor patents from his counts.

Google’s emphasis on claims also cannot be reconciled with what Dr. Leonard actually did: count cites to patents. (See Dkt. 731-1 (Richardson Decl. Exh. A (Supp. Leonard Report)) at 7 (“I have examined the number of ‘forward citations’ for each of the 22 patents.”) (emphasis added).) The substantial body of literature on patent citation analysis does not discuss citations to claims. This is because patents and patent examiners do not cite claims. They cite other patents.

Google points to no study, peer-reviewed or otherwise, that values continuation or reissue

3


patents separately from the original patent based upon the individual counts of forward citations. At least one study concluded that “[a] re-issued patent, all else equal, is nearly three times as valuable as other patents.” James Besson, The value of U.S. patents by owner and patent characteristics, Research Policy 37 (2008) 932–45 at 940 (working paper available at http://ssrn.com/abstract_id=949778). That finding indicates, consistent with Prof. Cockburn’s analysis, that the ’104 patent should be one of the most valuable patents in the top 22 in the Sun Java smartphone portfolio. By counting citations only to the ’104, Dr. Leonard ranks the ’104 patent eleventh out of twenty-two patents, when it should be first. He has done so only because he ignores a large number of citations concerning the same technology, identically disclosed in the predecessor patents.

In the end, Google offers nothing to support Dr. Leonard’s counting of citations except its own say-so. Dr. Leonard’s counting omission fatally undermines his analysis. It cannot, as he claims, shed light on the accuracy of Prof. Cockburn’s group and value approach. It can only mislead the jury.

2. Dr. Leonard’s Fails To Correctly Account For Different Issue Dates
Google concedes that a forward citations analysis must control for the age of the patents cited, and argues that Dr. Leonard properly did so. (Dkt. 762 at 5-6.) Google’s arguments are incorrect.

Google does not dispute that Dr. Leonard’s first set of calculations does not account for the different patent issue dates, and acknowledges that those numbers are “based on the simple total of forward patent citations.” (Id. at 5.) But Google then argues that Dr. Leonard’s second set of calculations adequately adjusts for the different issue dates (id.), which Dr. Leonard describes in his report as “the number of forward citations for a patent relative to the average number of forward citations for a patent in the same class as the patent in question.” (Dkt. 731-1 (Richardson Decl. Exh. A (Supp. Leonard Report)) at 7.) This second set of numbers is no more reliable or meaningful than the first.

None of Dr. Leonard’s calculations reliably account for the different issue dates among the patents. In his declaration, Prof. Cockburn explained that he has published a number of articles concerning patent citations analysis. (Dkt. 730 (Cockburn Decl.) ¶ 3 & fn. 1.) Prof. Cockburn noted that it is well-recognized that a “citation truncation” issue must be accounted for in any such analysis. (Id. ¶ 8.) “Truncation” refers to the fact that we only have citations through the current time, and

4


overlaps with the problem caused by the fact that there have been varying degrees of citation intensity at various times.2

Although this citation truncation problem is well known,3 neither Dr. Leonard’s declaration nor Google’s brief explains how Dr. Leonard’s analysis avoids it. He has not. Although at least two approaches to the problem (referred to as the fixed-effects approach and a quasi-structural approach)4 Have been recognized in the literature, Dr. Leonard appears to be as ignorant of those solutions as he is of the underlying problem. Simply counting up the number of citations for patents issued in a fixed window before and after the relevant patent does not do the trick, as Prof. Cockburn’s declaration explains. (Dkt. 730 (Cockburn Decl.) ¶¶ 8-12.)

One obvious problem with Dr. Leonard’s analysis, which Google simply ignores, is that a threeyear window is not even available for all of the patents he evaluated. Dr. Leonard’s analysis includes one patent that was issued on February 1, 2011. (Dkt. 731-3 (Richardson Decl. Exh. C).) Obviously, three years have not passed since the patent issued. As a result, he has an incomplete data set from which to draw any conclusions about the relative value of that patent. Instead, Dr. Leonard makes the nonsensical claim that he looked two years into the future in order to have a basis for comparison on that particular patent. (Dkt. 764 (Leonard Decl.) ¶ 4.)

Dr. Leonard’s new calculations based on two- and one-year windows, disclosed only in his supporting declaration and entirely absent from his supplemental report, suffer from precisely the same defect, as does Dr. Leonard’s division of the number of citations by the age of the patent. (Dkt. 764 (Leonard Decl.) ¶ 5.) Dividing the number of citations by the age of the patent assumes that patents generate the same number of citations in the first year as in the fifth year, an assumption that is both unsupported and wrong.

5


3. The Articles Cited By Google Provide No Support For Dr. Leonard’s
Calculations In This Case
Google cites three different articles in support of Dr. Leonard’s analysis – Harhoff, Webster, and Trajtenberg. (Dkt. 762 at 4 & fn. 2.) Based on those articles, Google argues that Dr. Leonard’s forward citations analysis is reliable because there is a “large body of literature using exactly that analysis for this precise purpose.” (Dkt. 762 at 4.) That statement is false.

None of the articles cited by Google resemble or support Dr. Leonard’s analysis, which focuses on just 22 patents issued as recently as February 2011. The Harhoff article analyzed 4,439 patents with a 1977 priority date, which were then renewed until 1995. (Dkt. 763-4 (Zimmer Decl. Exh. D) at 1348.) The Webster article does not concern patent citations at all, and in fact only mentions “citations” in a footnote. (See Dkt. 762 at 4 & n. 2 (quoting footnote).) The Trajtenberg article was based on an analysis of 456 patents issued in 1971 through 1986. (Dkt. 763-5 (Zimmer Decl. Exh. E) at 175.) As Prof. Cockburn explained at his deposition, citations analysis can be useful when dealing with a large set of patents issued many years ago, as in these studies. (Dkt. 731-2 (Richardson Decl. Exh. B (Cockburn Depo. Tr. excerpts)) at 112:10-114:13.) But the fact is that Dr. Leonard has not applied the methodology employed in those studies, because his sample population is too new and too small—as much as 200 times smaller.

As another Harhoff paper states, use of forward citations as a guide to individual patent value is characterized by a high degree of “noise” (i.e., variation around average results). (See Dietmar Harhoff et al., Citation Frequency & the Value of Patented Inventions, Review of Economics and Statistics (Aug. 1999) at 513 (“The relatively low R2 values for all regressions and the wide confidence bounds reveal that the citation-value relationship is quite noisy.”), available at www.jstor.org/stable/2646773) Some studies call into question the usefulness of citations analysis. (See, e.g., Besson, supra (“the effect of patent citations on patent value is small relative to the effect of other patent characteristics. For example, litigation is associated with an increase in patent value that is over 100 times as much as the increase associated with a patent citation”).). To the extent it is useful at all, that use is reliable only in relation to large sets of older patents. Google and Dr. Leonard simply ignore these inconvenient findings. For a pool of 22 patents issued relatively recently, the noise is highly likely to overwhelm the signal.

6


These issues are not, as Google contends, something that should just be raised “on crossexamination.” (Dkt. 762 at 6.) The Court’s prior order would prevent Prof. Cockburn – who actually has expertise in this area of patent analysis – from providing direct rebuttal testimony that would expose the flaws in Dr. Leonard’s “analysis.” Dr. Leonard’s analysis is unreliable and, particularly under these circumstances, inadmissible under Rule 702.

B. Dr. Leonard’s Calculations Based On An Accounting Document Prepared For
Oracle In 2010 Are Misleading And Irrelevant
Google’s opposition confirms that it wants to use the 2010 allocation document to “place a cap on damages.” (Dkt. 762 at 10.) [REDACTED] .)

Neither Dr. Leonard’s supplemental report nor his declaration includes any discussion of why the 2010 allocation document is relevant to the calculation of a hypothetical license fee negotiated between Sun and Google in 2006. Google’s opposition consists only of post-hoc arguments about and characterizations of the 2010 document, none of which have either any foundation or any merit.

[REDACTED].5 ) As Oracle explained in its motion, the fact that the valuation included in this document was rendered four years after the hypothetical negotiation, and after Google launched Android, makes the document irrelevant to the 2006 license negotiation.

[REDACTED]

7


[REDACTED]

[REDACTED]

Google argues that this is nothing more than an “evidentiary dispute” that boils down to “which evidence deserves the most weight.” (Dkt. 762 at 7-8.) Before there can be a dispute over how much weight to give the document, Google must establish that it is entitled to some weight. It has not done so, and cannot. [REDACTED] The only people who say it represents a valuation of the intellectual property are Dr. Leonard and Google’s lawyers. The document is irrelevant to what the parties might have considered and agreed to in 2006, and Dr. Leonard’s reference to it is therefore also irrelevant.

Google’s attempt to distinguish the Court’s prior ruling regarding the admissibility of the Sun v. Microsoft settlement (Dkt. 762 at 9-10) is also baseless. The accounting figures included in this 2010 document are actually far less relevant than the amount Microsoft agreed to pay in the Sun v. Microsoft settlement. That entire lawsuit focused on Java technology and the settlement occurred in 2004. It is reasonable to assume that Sun and Google would have considered the amount of the Sun v. Microsoft settlement when negotiating in 2006. [REDACTED] The Sun v. Microsoft settlement was the result of a

8


negotiation over patents,6 Given the Court’s order barring testimony regarding the amounts at issue in the Sun v. Microsoft settlement, Dr. Leonard should be barred from offering misleading testimony based on amounts in this document.

Finally, Google contends that Dr. Leonard was trying to “test how robust” Prof. Cockburn’s methodology is and that he should be permitted to present these calculations because they “cast doubt on Dr. Cockburn’s apportionment analysis.” (Dkt. 762 at 10-11 (emphasis added).) Dr. Leonard is not “testing” Prof. Cockburn’s apportionment analysis in any way. Dr. Leonard purports to apply Prof. Cockburn’s apportionment methodology without modification. (Dkt. 731-1 (Richardson Decl. Exh. A (Supp. Leonard Report)) at 9.) The only thing Dr. Leonard changes is the starting point:

  • Prof. Cockburn’s calculations begin with an adjusted starting point of $687.3 million, which is based on the value that Sun would have received as a result of entering into the license agreement that was actually negotiated with Google in 2006. He then identifies the portion of the $687.3 million attributable to the patents in suit relative to the other 569 that might have been included in the portfolio.
  • [REDACTED]

Dr. Leonard’s analysis does not test the robustness of anything, or “cast doubt” on Prof. Cockburn’s apportion analysis. Dr. Leonard uses the same apportionment method and simply applies it to a lower starting amount and then allocates that amount over a much large set of patents. The output is lower because the input is lower. Google is seeking to mislead the jury by presenting irrelevant calculations that it argues should “cap” the amount of any reasonable royalty.

C. Dr. Leonard’s Claim That Google’s Expected Gains Are Determinative With
Respect To The Amount Of Any Reasonable Royalty Awardable To Oracle Is
Wrong And Improper
Oracle seeks to strike the portion of Dr. Leonard’s report that concludes: “Sun may have expected to receive greater value (e.g., through Project Armstrong) than Google was expecting to receive. It is the value that Google was expecting to receive that matters for the reasonable royalty analysis.” (Dkt. 731-1 (Richardson Decl. Exh. A (Supp. Leonard Report)) at 2 (emphasis added).)

In its opposition, Google does not actually seek to defend this statement, which is plainly wrong

9


as a matter of law. Google also ignores the cases cited by Oracle. Google instead argues that this is an economic, not legal, opinion. (Dkt. 762 at 11.) Google’s characterization makes no difference. Whether economic or legal, the statement is wrong. The amount Google expected to receive is not determinative.

Google then seeks to recharacterize Dr. Leonard’s statement, arguing that Dr. Leonard’s point is only that “Google would have decided how much it was willing to pay Sun based on its expectation of value of the partnership to Google ….” (Dkt. 762 at 11 (emphasis added).) This is not what Dr. Leonard said. The question is what Sun and Google would have reasonably agreed to, based on their expected gains and losses. How much Google was “willing to pay Sun based on its expectation of value” is not determinative.

In the end, Google’s opposition demonstrates that Google still wants Dr. Leonard to be able to tell the jury that the bottom line is what Google was willing to pay, and that the reasonable royalty cannot be more than what Google expected to earn. That is incorrect as a matter of law. It would be confusing to the jury to permit that testimony.

III. CONCLUSION

For these reasons, Oracle respectfully requests that the Court strike the specified portions of Dr. Leonard’s supplemental report.

Dated: March 6, 2012

BOIES, SCHILLER & FLEXNER LLP

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

Attorneys for Plaintiff
ORACLE AMERICA, INC.


1 The ’204 includes one typo that does not appear in the ’104 or ’685, stating “compiing” instead of “compiling” in the abstract. In substance, the abstracts are identical.

2 Bronwyn H. Hall, et al. “The NBER Patent Citations Data File: Lessons, Insights and Methodological Tools,” National Bureau of Economic Research Working Paper Series, Working Paper No. 8498, available at http://www.nber.org/papers/w8498.pdf, at 10, 26 (Oct. 2001).

3 See Bronwyn H. Hall, et al. “The Market Value of Patents and R&D: Evidence From European Firms,” National Bureau of Economic Research Working Paper Series, Working Paper No. 13426, available at http://www.nber.org/papers/w13426.pdf, at 18 (Sept. 2007) (“Correcting for citation truncation: Patent citations suffer from several potential sources of biases, the most obvious of which is truncation.”).

4 Hall (2001) at 28.

5 [REDACTED] The point is just that the document is not relevant to assessing damages based on a 2006 hypothetical license, and it is misleading for Dr. Leonard to use the document in that way.

6 See April 2, 2004 Microsoft press release, available at http://www.microsoft.com/presspass/press/2004/apr04/04-02sunagreementpr.mspx.


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