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Oracle v. Google - The "Final" Damages Figures
Tuesday, March 20 2012 @ 08:35 AM EDT

Oracle and Google have now responded to the directive issued by Judge Alsup pertaining to the valuation of the remaining patents at issue. In the order striking much of Dr. Cockburn's third attempt at a damages report, Judge Alsup stated:

At the hearing, the undersigned judge raised the question of whether Dr. Cockburn's report provides a way for the jury to calculate damages in the event that Oracle prevails on fewer than all patents in suit. Now the only two remaining patents in suit are the '520 and the '104 patents. The Court understands how Dr. Cockburn's group-and-value methodology could arrive at a value for the '104 patent. But in light of the rulings in this order, it seems to the Court that there is no remaining methodology to place a value on the '520 patent. While this was briefly discussed at the hearing, the parties shall also address how this affects, if at all, the copyright allocation, and how the one-half formula will be presented to the jury if Oracle only asserts one-third of the original denominator, the three patents in suit. By NOON ON MARCH 19, each side shall submit ten-page statements on this issue.


First up is Google. (817 [PDF]; Text]) Google suggests there are only two methods to be applied to determine the individual patent values and one of those is inherently wrong. The right method, according to Google, is provided by Exhibit 35 of the Cockburn report. According to Google, this methodology, which attributes equal value to the top 22 patents in the Sun/Oracle "mobile" portfolio is consistent with the Court's overall order pertaining to the Cockburn report, i.e., all patents are to be valued equally among that top 22.

The alternative approach, which Google suggests is inconsistent with the Court's order, would be based on Exhibit 36 of the Cockburn report. This approach attributes greater value to the six patents that were in contention than the other 16 from among the top 22 patents. It then values each of those six patents equally. The problem is, there are only two patents, not six, being asserted. Google believes this approach is inconsistent with the Court's earlier order.

Given that the copyright valuation is a function of the patent valuation, as suggested by Dr. Cockburn, these two approaches yield the following alternative royalties:

Alternative 1 (the "correct") approach

'104 Patent$4.7 million
'205 Patent$0.2 million
Copyrights$32.6 million
Total$37.5 million
Alternative 2 (the "incorrect") approach
'104 Patent$12.5 million
'205 Patent$0.5 million
Copyrights$32.6 million
Total$46.6 million
As you can see, in either case we are far from the $6 billion in damages figure that was being tossed around by some patent "experts" a year ago as a virtually certain recovery by Oracle.

So what does Oracle say. (816 [PDF; Text]) Of course, Oracle starts off by quibbling with the $561 million starting figure. In fairness to Oracle, there does appear to be some question as to whether the judge used the right number. So Oracle offers three possible right numbers ($561 million, $566 million, or $554 million) and then uses the most conservative of the three, $554 million.

Oracle then applies the same approach as Google (the Exhibit 35 approach, which Google states is the correct one) and arrives at the following:

'104 Patent$4.1 million
'205 Patent$0.5 million
Copyrights$27.7 million
Total$32.3 million
Oracle, however, equivocates a bit on the copyright valuation saying that $27.7 is the lowest it could be. It is not clear to this writer exactly how Oracle would determine that number or whether Oracle would adopt an approach much like that of Google. It is also important to remember that these numbers, both those of Google and Oracle, presume that Google wins on the issue of patent marking. Oracle presumes the marking factor reduces the royalties by about 20%, so there would be some upward adjustment if the marking issue is decided in Oracle's favor.

In any case, we are looking at a total past damage figure that is likely under $100 million, not $6 billion.

In the only other material filing of the day, Oracle sets forth its request to amend the infringement contentions arising from the '205 patent. (814 [PDF; Text]) Oracle concedes this request may be moot if the court proceeds to trial on schedule in April, but it wishes to preserve its motion should, for whatever reason, the trial date slips to a much later date. Much of the Oracle rationale for this motion hinges on its belief, a belief that appears to be inconsistent with the facts, that the judge's interpretation of "at runtime" varies in some material way from the interpretation Google advocated. As we have stated before, that appears to be an astonishing leap. This motion will, in all likelihood, be moot because this trial is not going to get delayed.


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

Docket

03/19/2012 - 814 - REPLY (re 782 MOTION to Amend/Correct Oracle's '205 Patent Infringement Contentions and Supplement Expert Reports ) filed byOracle America, Inc.. (Jacobs, Michael) (Filed on 3/19/2012) (Entered: 03/19/2012)

03/19/2012 - 815 - Declaration of Marc Peters in Support of 814 Reply to Opposition/Response, 782 MOTION to Amend/Correct Oracle's '205 Patent Infringement Contentions and Supplement Expert Reports filed byOracle America, Inc.. (Attachments: # 1 Exhibit D)(Related document(s) 814 , 782 ) (Peters, Marc) (Filed on 3/19/2012) (Entered: 03/19/2012)

03/19/2012 - 816 - Statement re 785 Order on Motion to Strike ORACLE AMERICA, INC.S STATEMENT RESPONDING TO THE COURTS ORDER CONCERNING DR. COCKBURNS THRID REPORT [DKT. NO. 785] by Oracle America, Inc.. (Holtzman, Steven) (Filed on 3/19/2012) (Entered: 03/19/2012)

03/19/2012 - 817 - Brief re 785 Order on Motion to Strike filed byGoogle Inc.. (Related document(s) 785 ) (Van Nest, Robert) (Filed on 3/19/2012) (Entered: 03/19/2012)

03/19/2012 - 818 - Declaration of Dr. Gregory K. Leonard in Support of 817 Brief filed byGoogle Inc.. (Related document(s) 817 ) (Van Nest, Robert) (Filed on 3/19/2012) (Entered: 03/19/2012)


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

Documents

814

MORRISON & FOERSTER LLP
MICHAEL A. JACOBS (Bar No. 111664)
[email]
MARC DAVID PETERS (Bar No. 211725)
[email]
DANIEL P. MUINO (Bar No. 209624)
[email address telephone fax]

BOIES, SCHILLER & FLEXNER LLP
DAVID BOIES (Admitted Pro Hac Vice)
[email address telephone fax]
STEVEN C. HOLTZMAN (Bar No. 144177)
[email adress telephone fax]

DORIAN DALEY (Bar No. 129049)
[email]
DEBORAH K. MILLER (Bar No. 95527)
[email]
MATTHEW M. SARBORARIA (Bar No. 211600)
[email address telephone fax]

Attorneys for Plaintiff
ORACLE AMERICA, INC.

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 MOTION TO
AMEND ’205 PATENT
INFRINGEMENT CONTENTIONS
AND SUPPLEMENT EXPERT
REPORTS

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


After Oracle filed its motion to amend its infringement contentions and supplement its expert reports with respect to the ’205 patent, the Court set the case for trial to begin on April 16. (ECF No. 786.) It does not appear likely that the ’205 examiner will address the ’205 patent further before the patent phase of trial begins. Today, Oracle files its response to the ’205 examiner’s rejection, and the deadline for Google to file its comments is April 18. Given Oracle’s offer to dismiss with prejudice the claims of the ’205 patent that remain rejected as of the time of a spring trial (ECF No. 777 at 3), the Court may well decide to deny this motion as moot. If the Court does so, it should be without prejudice. If, for some unforeseen reason, the trial does not go forward in the spring, the yardsticks by which diligence and prejudice are measured change substantially, and Oracle should be permitted to re-file its motion.

If the Court wishes to address the merits of Oracle’s motion at this time, it should allow Oracle to amend its infringement contentions and supplement its expert reports to identify the specific virtual machine instructions that are executing when Android dexopt tool generates new virtual machine instructions, thereby infringing the asserted claims of the ’205 patent. Oracle’s amendments do not alter its theory that dexopt’s inline substitution functionality infringes the asserted claims of the ’205 patent. Oracle’s theory has always included the time when dexopt is running. The infringement contentions disclose that dexopt can be run “at runtime” by the Android installer as well as in a “just-in-time” fashion on a development device.

Google’s selectively quotes from Prof. Mitchell’s reports to remove context and argue that what he said means something different. For example, Google quotes (using bold italics, no less) Prof. Mitchell’s statement that Android’s dexopt obtains needed information “by initializing a Dalvik VM and loading all the classes from an application’s .dex file into the VM.” (Google Opp. at 2-3.) That is a true statement. But it has nothing to do with whether the application is running. Neither does the full paragraph from which Google plucked its sentence:

Prof. August fails to consider the evidence that dexopt runs at runtime. As Google wrote: “[t]he solution is to invoke a program called dexopt, which is really just a back door into the VM. It performs an abbreviated VM initialization, loads zero or more DEX files from the bootstrap class path, and then sets about verifying and optimizing whatever it can from the target DEX. On completion, the process exits, freeing all resources.” (See http://android.git.kernel.org/?p=platform/dalvik.git;a=blob;f=docs/dexopt.html.)

1


The optimizations that dexopt performs (such as replacing symbolic references with vtable offsets) are ones that require information that is only available at runtime (such as a vtable offset), and that information is obtained by initializing a Dalvik VM and loading all the classes from an application’s .dex file into the VM. Google confirms it: “[s]ome of [the optimizations performed by dexopt] require information only available at runtime, others can be inferred statically when certain assumptions are made.” (See id.) The way Google wrote dexopt, rewriting the DEX method invocation instructions with EXECUTE_INLINE and EXECUTE_INLINE_RANGE instructions is one of the former kind of optimizations.
(Francis Decl. Ex. B (Mitchell Reply Report) ¶ 60.) Prof. Mitchell’s argument here is that one can tell that dexopt runs at runtime because it requires information available only at runtime, as Google admits in its dexopt documentation. He did not argue that dexopt runs at runtime because it then proceeds to run the application it just optimized. Prof. Mitchell acknowledges the opposite, in fact, when he quotes Google’s dexopt documentation to the effect that dexopt loads the application into a Dalvik VM but then exits upon completion of the optimization. (Id.)

Google’s quotations from Prof. Mitchell’s deposition likewise take his testimony out of context and—worse—fail to quote testimony that directly contradicts its argument. With respect to the testimony that Google did quote, Google’s elisions disguise the fact that Prof. Mitchell was not testifying with respect to the ’205 patent about dexopt running on an Android phone but was instead testifying with respect to the ’104 patent about an experiment he performed using Android’s development environment in which he compiled an application and then installed and ran it on the Android SDK’s emulator:

Q. BY MR. KAMBER: Professor Mitchell, I just want to ask a few questions to finish up on the ’104, because we need to move to the ’205 patent. You would agree with me that the output of running dexopt on a .dex file is a .odex file; correct?

A. I believe that may be one option. When I installed the SDK and used this to run code, I didn’t generate an output like that. It’s just part of the process of running the application that I compiled and translated to Dalvik. And then the run process of executing that in the Dalvik Virtual Machine, I believe, was what -- where the dexopt got invoked.

Q. So did you only run this by way of the SDK?

A. That’s the -- an experiment that I did. Anytime you run an Android phone, you may also run this, so that’s another example.

(Francis Decl. Ex. C (Mitchell Dep.) at 342:7-22 (portions quoted by Google highlighted).) (The

2


word “this” in the second answer refers to dexopt, which indeed may run anytime one runs an Android phone, according to the source code in PackageManagerService.java.)

The testimony that Google should have quoted in its opposition is when Prof. Mitchell testified that dexopt’s “install time” qualifies as “runtime,” and that an example of why that is so could be found in the portion of his report that discusses the ’205 patent:

Q. How did you determine that dexopt was at runtime?

A. Through statements from Google describing the way that this operates. There are slides, again, and quotations and sections from documentation, I believe. And also looked at the code and understood how this behaves and the nature of the steps and the information required in order to complete those steps.

Q. Let’s look at some of that documentation. Take a look at page 90. You have a clip of a slide and then a quote from Mr. Bornstein’s presentation here on page 90; correct?

A. This certainly is a slide and a quote. I believe it’s from one of Dan Bornstein’s presentations. It may be the one we identified earlier.

Q. And the quote, you say that -- you give at 21:54 under, quote, “install time work.” Do you see that?

A. Yes.

Q. Okay. So what Mr. Bornstein is talking about that you cite to relates to install time on a device; correct?

A. That’s the way he’s characterized this portion of the operation, yes.

* * *

Q. Why do you think that this work that’s being done at install time qualifies as runtime under the terms of the patent?

A. I think what Dan Bornstein is trying to emphasize is things that are done once. Although, there are other documentation information that’s explicit on the runtime nature. I believe, for example, the documentation that I reproduced on page 178 and 179, that explains it in slightly more technical terms.

Q. Well, what you said on 178 and 179 relates to the ’205 patent; correct?

A. It’s presented there. It’s an explanation of how -- it’s an explanation of dexopt from the Android website. It’s the same dexopt in both patents. I don’t know if it’s also -- that same section is also cited here in connection with ’104. That’s just one place that I knew I had put that information. So that’s why I pointed to it now.

(Peters Supp. Decl. Ex. D (Mitchell Dep.) at 329:25-332:12.) Note that paragraph 402 of the Mitchell report (which spans pages 178 and 179) includes the paragraph about the installer that

3


Google quotes on page 3 of its opposition. (Compare Google Opp. at 3 with Francis Decl. Ex. A (Mitchell Report) at ¶ 402.) There can be no question that Prof. Mitchell advanced an infringement theory based on the “install time work” performed by dexopt, because it is right there in his testimony and his report. Oracle’s original contentions, which identify dexopt as performing the step of “generating, at runtime, a new virtual machine instruction” when it performs inline substitutions, likewise quote Google’s admission that dexopt performs these optimizations “either in the build system or by the installer. On a development device, dexopt may be run the first time a DEX file is used and whenever it or one of its dependencies is updated (‘just-in-time’ optimization and verification).” (Peters Decl. Ex. A at ¶ 13.) In its infringement contentions, Oracle accused non-build-system, non-development devices (such as the Droid) of infringement—for these devices, how could Google reasonably believe that Oracle was basing its dexopt infringement theory on anything but the installer?

In its opposition, Google fails to address the key fact that pops the balloon of its argument: the Android installer, which runs dexopt, is itself an application that runs in a Dalvik virtual machine. As Prof. Mitchell lays out in detail in his supplemental report, the virtual machine instructions of the installer are the ones executing when dexopt optimizes an application during its installation. (Peters Decl. Ex. B at 8-14.) As Google knows better than anyone, and as Prof. Mitchell testified, “install time” on an Android device is runtime. This is why Google’s documentation (disclosed in both Oracle’s infringement contentions and Prof. Mitchell’s reports) states that dexopt requires information “only available at runtime.” (Francis Decl. Ex. B (Mitchell Reply Report) ¶ 60.) In truth, Google’s argument about what Oracle’s position “has always been” is based on either Google’s misunderstanding or wishful thinking colored by its non-infringement position, rather than on an objective assessment of Oracle’s infringement contentions.

As stated in its opening brief, Oracle has good cause to amend because the Court’s construction of “at runtime” was not only different from Oracle’s proposal but also quite different from Google’s ambiguous construction. Oracle provided the proposed amendment and supplemental reports to Google about a month after the Court construed the phrase “at runtime.”

4


Oracle did so in less time than other parties did that were found to be diligent. Schindler Elevator Corp. v. Otis Elevator Co., No. 06 Civ. 5377 (CM)(THK), 2010 U.S. Dist. LEXIS 110313, at *11-12 (S.D.N.Y. Oct. 6, 2010) (allowing plaintiff’s expert to disclose revised infringement theory seventy-four days after issuance of claim construction order because expert “needed some time to digest the court’s rulings and revisit the file wrapper”). If, for some reason, the trial does not take place in the spring, Google will not be prejudiced by the Court allowing this amendment, for Google will have ample time to prepare its non-infringement analysis and expert report.

With respect to Google’s request for leave to amend its invalidity contentions, Google has not provided the Court or Oracle with its proposed amendments or even specifically identified the prior art that would be included in the amendment.1 Oracle cannot evaluate whether the Court’s construction of “at runtime” would justify Google’s amendment under Patent Local Rule 3-6 or whether Oracle would be prejudiced by it.

Dated: March 19, 2012

MICHAEL A. JACOBS
MARC DAVID PETERS
DANIEL P. MUINO
MORRISON & FOERSTER LLP

By: /s/ Michael A. Jacobs

Attorneys for Plaintiff
ORACLE AMERICA, INC.

___________________________________________

1 Google’s mention of a Deutsch & Schiffman publication is particularly hard to understand. Google submitted a ’205 anticipation contention based on a Deutsch & Schiffman article in its original invalidity contentions in January 2011, but withdrew the contention in June 2011. Google moved the Court to amend its invalidity contentions to add an obviousness contention based on a combination of the Deutsch & Schiffman article with a Magnusson article in July 2011, which the Court granted (ECF No. 281 at 7-8), but Google withdrew the contention in October 2011. (ECF No. 475.) Google submitted a claim chart based on the Deutsch & Schiffman article in the inter partes reexamination, but the examiner concluded that the article did not raise a substantial new question of patentability, and so it was excluded from the reexamination. Google may have a different Deutsch & Schiffman reference in mind.

5



816

MORRISON & FOERSTER LLP
MICHAEL A. JACOBS (Bar No. 111664)
[email]
MARC DAVID PETERS (Bar No. 211725)
[email]
DANIEL P. MUINO (Bar No. 209624)
[email address telephone fax]

BOIES, SCHILLER & FLEXNER LLP
DAVID BOIES (Admitted Pro Hac Vice)
[email address telephone fax]
STEVEN C. HOLTZMAN (Bar No. 144177)
[email adress telephone fax]

DORIAN DALEY (Bar No. 129049)
[email]
DEBORAH K. MILLER (Bar No. 95527)
[email]
MATTHEW M. SARBORARIA (Bar No. 211600)
[email address telephone fax]

Attorneys for Plaintiff
ORACLE AMERICA, INC.

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 STATEMENT
RESPONDING TO THE COURT’S ORDER
CONCERNING DR. COCKBURN’S THRID
REPORT [DKT. NO. 785]

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


Oracle America, Inc. submits this statement in response to the Court’s order concerning Prof. Cockburn’s third report. (Dkt. 785.) The Court directed the parties to address three issues: (1) how Prof. Cockburn calculates the value of the ’520 patent, (2) whether Oracle’s dismissal of patents other than the ’104 and ’520 affects the copyright allocation, and (3) how the allocation of the value of the copyrights in the 2006 bundle will be presented to the jury if Oracle asserts only the ’104 and ’520 patents at trial. (Id. at 18-19.)

I. Request For Clarification of Starting Point Adjustment

In order to provide calculations along with the explanations requested by the Court, Oracle requests a clarification of the Court’s required adjustment to the starting point.

In the group and value approach described in his Report, Prof. Cockburn deducted $86.15 million from the 2006 starting point to reflect expenses that Sun expected to incur in connection with Project Armstrong, including expenses to develop and implement additional class libraries and to develop a virtual machine to Android’s specifications. (Cockburn Third Report ¶¶ 363, 371, 382.) In its Order, the Court directed Prof. Cockburn to make an additional deduction: to “adjust his group-andvalue calculation by deducting $37 million, his calculated value of the unasserted copyrights, from the adjusted starting point of $598 million. Accordingly, $561 million shall be the total value of the copyrights in suit and 569 patents in Sun’s Java mobile patent portfolio.” (Dkt. 785 at 10-11.)

Oracle seeks clarification of how the Court calculated the $37 million figure. Prof. Cockburn determined that the cost of writing code to develop and implement all of the class libraries in Android, including class libraries that did not yet exist, was no greater than $32.4 million. (Cockburn Third Report ¶ 379 & Exh. 30.) Separately, Prof. Cockburn determined that the value to Google of taking an already-written virtual machine from Sun could be no greater than $11.3 million, which is Google’s entire actual cost of developing the Dalvik VM. (Id. ¶ 366.) The $37 million measure does not appear in Prof Cockburn’s report as the value of any unasserted copyrights.

The Court may have calculated the $37 million by adding the $3.8 million that appears in Exhibit 29 (all Google engineering internal engineering costs for all APIs) and the $32.41 million that appears in Exhibit 30 (Google cost of developing Android packages, libraries, and APIs), of Prof. Cockburn’s third report. (These two figures add up to $36.2 million.) However, it would be incorrect

1


to add those together because the relevant portion of $3.8 million calculated in Exhibit 29 is already included in Exhibit 30. The total engineering expense associated with API packages that Google possibly could have avoided by partnering with Sun is $32.4 million, not $37 million. (Id. ¶¶ 379-80.)

It is thus unclear to Oracle whether the Court intended to require

(1) a deduction for the cost of implementing all class libraries (both existing and to be developed), which would be $32.4 million;

(2) a deduction for the cost of implementing all class libraries (both existing and to be developed) and for the full cost of developing the Dalvik virtual machine, which would be $43.7 million; or

(3) some other deduction or combination of deductions that equal $37 million.

Absent further guidance, Oracle will assume that the Court intended the second set of deductions described above, amounting to $43.7 million.1 All calculations below assume a further deduction of $43.7 million, and consequently adjust the relevant starting point to $553.8 million. If the Court orders Prof. Cockburn to use some other amount, Prof. Cockburn can re-calculate these amounts.

II. Calculation of Patent Damages Pursuant to the Court’s Order

The Court ruled that Prof. Cockburn would be permitted to offer a reasonable royalty opinion based only on his lower bound calculation, “in which each patent in his top 22 has equal value to each other.” (Dkt. 785 at 5.) Using the adjusted starting point of $553.8 million, and after allocating $27.7 million of the 2006 Bundle to the copyrighted APIs,2 the 569 patents in the Sun mobile Java portfolio would have a total value of at least $526.1 million (based only on Google’s anticipated payments to Sun and Sun’s Project Armstrong projections, and only for the first three years). Applying the same patent value distribution curve used in the third report, the top 22 patents in the portfolio of 569 would have an

_______________________________________

1 Oracle still contends that no such further adjustment is appropriate, for the reasons described in Prof. Cockburn’s report and Oracle’s briefing to the Court. Nonetheless, Oracle understands that the Court has ruled, and will of course abide by that ruling. Oracle seeks clarification solely to ensure that Prof. Cockburn is able to explain to the jury the specific bases for, and amounts of, all adjustments to the 2006 starting point.

2 To apply the apportionment approach allowed by the Court, Prof. Cockburn would have to assume that each of the patents in the top 22 of the 569 has equal value, and that the top 22 patents represent at least 77.1% of the value of the patents in the 2006 Bundle. As previously disclosed, Prof. Cockburn would further assume that the value of the copyrights in the Bundle is one half the combined value of the ’104, ’205, and ’720 patents. A formula expressing this relationship, which can be solved to provide numbers for the patents and copyrights, is (22x / 0.771) + (3x / 2) = $553.8 million, in which x is the average value of each patent in the top 22.

2


aggregate value of $406 million, and an average value of $18.4 million per patent. Thus, under the only approach permitted by the Court’s order, the value of the ’104 patent, before any other adjustments, would be at least $18.4 million for the first three years.3 The other potential adjustments are identified below:

Value of ’104 patent:$18.4 million
US only damages:$18.1 million
US only damages and reduced for marking:$15.3 million
US only damages, reduced for marking, limited to accused devices:$4.1 million

Prof. Cockburn can calculate the three-year value of the ’520 patent, under the only approach permitted by the Court, based on the average value of the 547 patents in the portfolio that are not included in the top 22. Again, the 569 patents in the Sun mobile Java portfolio had a total value of $526.1 million over the first three years; the top 22 patents in the portfolio of 569 would have an aggregate value of $406 million. Accordingly, the 547 lower-ranked patents would be worth $120 million ($526 – $406) in aggregate, and the average value of those patents, under the only approach permitted by the Court, would be at least $0.22 million. Because the engineers’ rating of the ’520 patent and its technology block indicated that it was more important, in terms of its technological significance, than most of the patents in the portfolio, using this average would likely understate the value of the ’520 patent. Thus, the value of the ’520 patent, before any other adjustments, would be at least $0.22 million for the first three years. The other potential adjustments are:

Value of ’520 patent:$0.22 million
US only damages:$0.22 million
US only damages and reduced for marking:$0.18 million
US only damages, reduced for marking, limited to accused devices:$0.05 million

These calculations are consistent with the methodology approved by the Court. If necessary, Prof. Cockburn could serve a one-page supplement to his report that includes these calculations.

________________________________________

3 Oracle uses the term “value” in this statement to be consistent with the Court’s order. (Dkt. 785 at 18- 19.) As explained in Prof. Cockburn’s report, these calculations do not account for substantial unquantifiable losses to Oracle (including fragmentation) and gains to Google. These calculations do not represent the actual value of the intellectual property or the full measure of damages, but rather represent the minimum value for the two patents and copyrights based on the lower bound of the groupand- value method for a three-year license.

3


III. Calculation of Copyright Damages Pursuant to the Court’s Order

The Court directed the parties to address how the order on Prof. Cockburn’s third report “affects, if at all, the copyright allocation, and how the one-half formula will be presented to the jury if Oracle only asserts one-third of the original denominator, the three patents in suit.” (Dkt. 785 at 19 (emphasis in original).)

In his third report, Prof. Cockburn concluded that if the lower bound of the group and value apportionment method must be applied, the copyright lost license fee is at least $34.7 million through the end of 2011. (Cockburn Third Report ¶ 6.) This amount, like the patent apportionment, was based only on Google’s anticipated payments to Sun and Sun’s Project Armstrong projections for the first three years, and does not fully account for the substantial harm that Sun would have reasonably expected from an incompatible Android. This amount must be re-calculated based on the Court’s Order and the requirement of an additional reduction of the starting point. Removing $43.7 million (assuming this is the required reductions for the value of unasserted copyrights) from the starting point and assuming that each of the ’104, ’205, and ’720 patents have an equal value, this amount becomes at least $27.7 million. (See footnote 2, above.)

Other than that adjustment, the Court’s order does not disturb Prof. Cockburn’s allocation between the copyrights and the rest of the 2006 Bundle. At the March 7 hearing, both counsel for Google and counsel for Oracle agreed that even if the patents were invalid or not infringed, the value attributed to the copyrights would still be the same. (See 3/7/2012 Tr. at 107:16-108:3 (Google counsel agreeing that if Prof. Cockburn were allowed to use the 2:1 ratio indicated by the conjoint survey, “that would allow for a patent by patent liability determination” “[w]ith the copyright, still, I think being half of what the broader number would have been had all those patents been invalid and infringed.”); 3/7/2012 Tr. at 108:25-109:21 (Oracle counsel agreeing that the “copyright API number remains the same regardless, regardless of which patents are valid or not”).)

The conjoint survey did not directly measure the value of copyrights or patents. It measured the consumer demand for particular Android attributes enabled by Google’s copyright and patent infringement. As previously disclosed, Oracle engineers disabled the Android features that are enabled by infringement of the ’104, ’205, and ’720 patents, alone and in various combinations. When they did

4


so, application launch speed was adversely affected. (Cockburn Third Report ¶¶ 24, 428, 456, Exhs. 4- 5). The conjoint survey measured the demand for the incremental increase in application launch speed enabled by those infringing Android features (as well as the features that infringe only the ’104 and ’205 patents). The conjoint survey also measured consumer demand for having a large number of available applications, an attribute associated with the infringing use of the copyrighted APIs.

As Prof. Cockburn has explained, the data yielded by the survey indicates that consumers value the incremental speed benefits twice as much as they value the incremental number of applications. That relationship exists independent of any particular claim of infringement. Moreover, using the group and value approach in the manner permitted by the Court, a minimum value for the ’104, ’205, and ’720 patents can be established. That minimum value is derived by apportioning the 2006 Bundle in the manner permitted by the Court, using the Java engineers’ analysis and the PatVal distribution curve. Consequently, that minimum apportioned value for those three patents, for a three-year license, is independent of any claim that the ’104, ’205, and ’720 patents are in fact valid or infringed.

At trial, Prof. Cockburn can (1) explain to the jury the relationship between the value of incremental speed and incremental applications as demonstrated by the conjoint analysis, (2) explain that the combination of the ’104, ’205, and ’720 patents would be expected to provide, and in fact has been demonstrated to provide, performance enhancements equivalent to the application launch speed benefit tested in the conjoint analysis, and (3) testify as to the combined value of those three patents as indicated by the lower bound group and value approach permitted by the Court. This testimony would allow the jury to conclude that the value of the copyrighted APIs in the 2006 bundle would be worth at least one half of the apportioned value of the ’104, ’205, and ’720 patents, using the lower bound group and value approach permitted by the Court. This would be the case regardless of the number of patents that Oracle asserts are infringed.

It should be unnecessary, in that testimony, to discuss whether the ’205 or ’720 patent was ever asserted against Google, is valid, or is infringed. If, nonetheless, it became necessary to explain that patents had been asserted and withdrawn, that fact can be explained to the jury without explaining why they were withdrawn, and in a way that prevents any prejudice to either party. Indeed, any reference to the reasons for withdrawal should be excluded, as irrelevant to the merits of the claims that remain in

5


suit, and unduly prejudicial to Oracle. See Fed.. R. Evid. 401, 403; Cardiovention, Inc. v. Medtronic, Inc., 483 F. Supp. 2d 830, 838-39 (D. Minn. 2007).

Dated: March 19, 2012

BOIES, SCHILLER & FLEXNER LLP
By: /s/ Steven C. Holtzman
Steven C. Holtzman
Attorneys for Plaintiff
ORACLE AMERICA, INC.

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817

KEKER & VAN NEST LLP
ROBERT A. VAN NEST - # 84065
[email]
CHRISTA M. ANDERSON - # 184325
[email]
DANIEL PURCELL - # 191424
dpurcell@kvn.com [email address telephone fax]

KING & SPALDING LLP
SCOTT T. WEINGAERTNER
(Pro Hac Vice)
[email]
ROBERT F. PERRY
[email]
BRUCE W. BABER (Pro Hac Vice)
[address telephone fax]

KING & SPALDING LLP
DONALD F. ZIMMER, JR. - #112279
[email]
CHERYL A. SABNIS - #224323
[email address telephone fax]

IAN C. BALLON - #141819
[email]
HEATHER MEEKER - #172148
[email]
GREENBERG TRAURIG, LLP
[address telephone fax]

Attorneys for Defendant
GOOGLE INC.

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN FRANCISCO DIVISION

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

Case No. 3:10-cv-03651 WHA

GOOGLE INC.’S BRIEF RE
CALCULATION OF REASONABLE
ROYALTY FOR REMAINING PATENTS
AND COPYRIGHTS IN RESPONSE TO
COURT’S DAUBERT ORDER [DKT. NO.
785]

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


I. INTRODUCTION

In its Order Granting in Part and Denying in Part Google’s Daubert Motion to Exclude Dr. Cockburn’s Third Report [Dkt. No. 785], the Court requested that the parties advise the Court concerning how Dr. Cockburn’s report could be used to calculate a reasonable royalty for each remaining patent in light of the items stricken by the Order. Dkt. No. 785 at 19. Dr. Cockburn’s report provides two potential ways of calculating a reasonable royalty for the remaining patents.1

First, Dr. Cockburn could adjust the calculations in Exhibit 35 of his Report to reflect that (1) he will only be permitted to opine that the entire bundle is worth $560.5 million rather than $597.5 million, and (2) Oracle has dropped all patents other than the ’104 and ’520 from the case. This adjustment would allow Dr. Cockburn to testify to an unadjusted reasonable royalty for the ’104 patent of $18.5 million and an unadjusted reasonable royalty for the ’520 patent of $0.7 million. Declaration of Dr. Gregory K. Leonard (“Leonard Decl.”) ¶ II.A.6. This accords with the Court’s conclusion regarding what Dr. Cockburn believes to be the top set of patents that “Dr. Cockburn can only opine on this ‘lower bound’ calculation ($20 million per patent before offsets), and not the ‘upper bound’ calculation.” Dkt. No. 785 at 7-8 (emphasis in original).

Second, Oracle may argue that Dr. Cockburn can value the patents based on the figures in Exhibit 36 of Dr. Cockburn’s report. In Exhibit 36, Dr. Cockburn purports to list the proportion of the value of all six patents attributable to each individual patent. This would yield an unadjusted reasonable royalty for the ’104 of $48.5 million and an unadjusted reasonable royalty for the ’520 of $2.1 million. Leonard Decl. ¶ II.B. But this approach is not only inconsistent with the more robust analysis set forth in Exhibit 35, it does not account for the critical fact that there are now only two patents left in this case, rather than six. Furthermore, this approach contradicts the logic of the Court’s most recent Daubert Order. Accordingly, and as is explained in more detail in the declaration of Google’s expert Dr. Gregory Leonard, filed with this brief, the only reliable approach under Dr. Cockburn’s methodology is to use Exhibit 35.

_________________________________________

1 In submitting this statement, Google does not intend to support the correctness of what remains of Dr. Cockburn’s analysis, or the damages figures discussed herein, all of which Google intends to contest at trial. This brief only provides Google’s position concerning what testimony Dr. Cockburn’s may offer at trial in light of the Court’s recent Daubert Order.

1


Dr. Cockburn’s copyright valuation also must be adjusted to account for the Court's adjustment to his valuation of the overall 2006 Sun intellectual property bundle, which established a new cap of $560.5 million, down from the previous total of $597.5 million. Making that adjustment, Dr. Cockburn’s value of the copyrights-in-suit should be adjusted from $34.7 million to $32.6 million. Leonard Decl. ¶ II.A.5.

II. DISCUSSION

A. Valuation of the remaining patents-in-suit (’104 and ’205)
Dr. Cockburn’s report provides two potential ways Dr. Cockburn could calculate the value of the two remaining patents-in-suit.

First, and most logically, Dr. Cockburn could adjust his calculations in Exhibit 35 of his report to account for the Court’s Order and Oracle’s decision to drop all patents other than the ’104 and ’205. This adjustment would require the following steps.

  • Dr. Cockburn initially calculated the total value of the Sun intellectual property bundle at $597.5 million. The bundle included the six Sun patents and the handful of copyrights asserted in this case, along with hundreds of other patents and copyrighted works. If the value of the unasserted copyrights in the bundle is $37 million, deducting that amount from the total leaves a value of $560.5 million for the asserted copyrights and all the Sun patents in the bundle. Dkt. No. 785 at 19; Leonard Decl. at ¶ II.A.1.
  • Dr. Cockburn then separated out the value of the six asserted patents from the rest of the bundle, beginning with an estimation of the value for the 22 purportedly most valuable patents in the portfolio. Relying on the PatVal study, Dr. Cockburn concluded that those 22 patents are worth 77% of the total portfolio. As the Court recognized, the record contains no information that would allow Dr. Cockburn to opine that any of what he considers to be the top 22 patents is more valuable than any other. Using the logic of Dr. Cockburn’s lower bound,2 Dr. Cockburn can testify that the ’104 is worth 1/22 of the total value of what he calls the top 22 patents. Thus Dr. Cockburn can testify that the ’104 is worth (1/22)*(0.77), or 3.5%, of all of the patents. Leonard Decl. ¶ II.A.2.
  • Using the same methodology Dr. Cockburn used in Exhibit 35, Dr. Cockburn can testify that the value of the ’520 patent is 3/75 of the value of the ’104 patent. Leonard Decl. ¶ II.A.3.
_______________________________________

2 The Court ruled that Dr. Cockburn could value what he calls the top patents, including the ’104, by using his “lower bound” calculation, in which each of those patents have equal value. Dkt. No. 785, at 7. It then concluded that “Dr. Cockburn can only opine on this ‘lower bound’ calculation ($20 million per patent before offsets), and not the ‘upper bound’ calculation.” Dkt. No. 785, at 7-8.

2


  • With these adjustments, combined with the revised valuation of the asserted copyrights at $32.6 million, it is possible to solve for the value of the ’104 patent using the equation in paragraph 414 of the most recent Cockburn Report. Cockburn Report ¶ 414. Solving the equation results in a reasonable royalty for the ’104, prior to any downward adjustments for foreign sales, non-accused devices, or failure to mark, of $18.5 million. Leonard Decl. ¶ II.A.6.
  • Again applying the rule that the ’520 is worth 3/75 as much as the ’104, Dr. Cockburn can testify that a reasonable royalty for the ’520, prior to any downward adjustments, is $0.7 million. Leonard Decl. ¶ II.A.6.
  • When downward adjustments for foreign sales, non-accused devices, and failure to mark are made, Dr. Cockburn can testify that the adjusted reasonable royalty is $4.7 million for the ’104 and $0.2 million for the ‘520, resulting in a total adjusted royalty of $4.9 million for the two remaining patents. Leonard Decl. ¶ II.D.
Second, Oracle may argue that Dr. Cockburn can testify that the reasonable royalty for the remaining individual patents could be calculated using Dr. Cockburn’s Exhibit 36, which purports to apportion the value of the individual patents based on the proportion of the value of the sixpatent bundle attributable to each of the individual six patents. See Cockburn Report Ex. 36. As Dr. Leonard explains in his Declaration, adjusting the calculations in Exhibit 36 to account for the lower total value of the 2006 bundle results in an unadjusted valuation of the ’104 patent of $48.5 million and an unadjusted valuation of the ’520 patent of $2 million. Leonard Decl. ¶ II.B. When downward adjustments are made, the adjusted reasonable royalty for the ’104 is $12.5 million, and the adjusted reasonable royalty for the ’520 is $0.5 million, resulting in a total adjusted reasonable royalty of approximately $12.9 million. Leonard Decl. ¶ II.D.

But, as Dr. Leonard notes, there are several logical problems with valuing the ’104 and ’520 based on the figures in Dr. Cockburn’s Exhibit 36, rather than the calculations in Exhibit 35. See Leonard Decl. ¶ II.B. Most seriously, the percentages in Exhibit 36 reflect the value of each individual patent as a percentage of the total value of the six-patent bundle that Oracle was asserting at the time of Dr. Cockburn’s report. With four of those six patents now out of the case, it would make little sense (and likely confuse the jury) to offer evidence as to the value of the ‘104 or ‘520 as a percentage of a six-patent bundle that is no longer at issue, and about which the jury will presumably hear no testimony at trial.

Exhibit 36 is also inconsistent with the Court’s most recent Order. For example, the Court ordered that Dr. Cockburn can only testify to his “lower bound” calculation, in which, as the

3


Court described it, “each patent in his top 22 has equal value to each other.” Dkt. No. 785 at 7-8. But Exhibit 36 offers calculations at odds with this principle. Although the ’104, ’205, and ’720 patents are all in Dr. Cockburn’s top 22, Exhibit 36 gives different valuations for those patents, listing the ’104 and ’205 as each being worth 75% of the six-patent bundle, but the ’720 as being worth only 40% of the six-patent bundle, about half as much. Cockburn Report, Ex. 36. Similarly, if the ’104 is worth 75% of the six-patent bundle, that one patent alone would be worth 7.1% of the total 2006 bundle. Leonard Decl. ¶ II.B. That is twice the 3.5% value one would calculate if one assumes, as the Court’s Order requires, that each of Dr. Cockburn's top 22 patents (which collectively amount to 77% of the value of the total bundle) is of equal value. Leonard Decl. ¶ II.A.2. Accordingly, to the extent Dr. Cockburn’s Exhibit 36 could be read to support an apportionment that is inconsistent with Exhibit 35, the methodology in Exhibit 35 should control.

B. Valuation of the asserted copyrights
Based on the calculation of relative consumer preferences in Dr. Shugan’s conjoint study, Dr. Cockburn opined that the value of the Sun copyrights at issue was roughly half of the value of the six patents Oracle was asserting at the time of Dr. Cockburn’s third report. Because the set of asserted copyrights has not changed, the value of the copyrights should remain constant despite Oracle’s decision to abandon four of the six patents discussed in Dr. Cockburn’s most recent report. Accordingly, the only adjustment that needs to be made to the copyrights is to account for the Court's adjustment to his valuation of the overall 2006 Sun intellectual property bundle, which established a new cap of $560.5 million, as compared to the previous cap of $597.5 million. Once that adjustment is made, Dr. Cockburn’s valuation of the asserted copyrights drops slightly, from $34.7 million to $32.6 million. Leonard Decl. ¶ II.A.5.

III. CONCLUSION

For all these reasons, the soundest way to apply Dr. Cockburn’s damages methodology in light of the Court’s Order and Oracle’s decision to limit its patent case to just the ’104 and ’205 patents is to adjust the calculations in Exhibit 35 of Dr. Cockburn’s most recent Report. Under the methodology set forth in Exhibit 35, as modified by the Court’s Order, Dr. Cockburn can testify to an unadjusted reasonable royalty of $18.5 million for the ’104 patent and $0.7 million

4


for the ’205 patent, an adjusted reasonable royalty of $4.7 million for the ‘104 and $0.2 million for the ’205, and a total reasonable royalty of $32.6 million for the asserted copyrights.

Dated: March 19, 2012

KEKER & VAN NEST LLP

/s/ Robert A. Van Nest
By: ROBERT A. VAN NEST

Attorneys for Defendant
GOOGLE INC.

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