July 2011

Having had to finally leave the excitement of the Nortel patent auction behind (sort of), I have turned my attention to another big IP story which also managed to grab the attention of the mainstream press.

As many will already know, there is currently a high-profile fight going on between the biggest players in the smart-phone arena, Apple, Google and HTC being the most publicised of the group. In August 2010, we saw Oracle enter the ring and take its first swing by issuing proceedings against Google over its Android OS.

Oracle claims that Google not only copied Java code (assigned to Oracle through its acquisition of Sun Microsystems in 2010) but also knowingly and wilfully infringed patents relating to the Java technology. The claim relates to a third of Android’s Application Programming Interfaces (APIs) — which Oracle says are “derivative of Oracle’s copyrighted Java API packages.” Specifically, there are seven patents in question.

At first, Google hit back by denying outright any infringement. The USPTO then issued non-final rejections against four of the claims. Two of the claims are up for re-examination, and one claim has already been validated by the USPTO.

Sun Microsystems offered to license its Java technology to Google for $100 million prior to its acquisition by Oracle, but Google graciously declined. More recently, Google has been hinting that it is considering settlement negotiations. This is hardly surprising given that the estimated damages payout, if Google is found to have infringed, is suggested by the lawyers to range from $1.4 to $6.1 billion. Whether in reality this figure would be realised is another matter: in a hearing on 21 July the judge is said to have told the parties that they were both “asking for the moon” and “should be more reasonable” when calculating the damages award. The parties have now been ordered to go back to the drawing board to come up with a less dramatic figure. Dramatic or not, this case helps to highlight to the world the actual and strategic value of  IP.

Oracle arrived at its figure of $6.1 billion on a per unit basis, and given that Google makes less than $10 per HTC Android device, according to Florian Mueller, (which is, by the way, only twice the amount made by Microsoft on each HTC Android handset sold! – more on this later) a damages pay out structured in this way will have a substantial impact on Android’s bottom line.

This will be an interesting case to follow for many reasons:

1. We learned recently that Google heavyweight, Larry Page, has been asked to appear in court to give a deposition on the basis that he was instrumental in Google’s acquisition of Android when it was only a start-up.
2. Further revelations this week have presented some interesting legal questions surrounding the history of Sun Microsystems and Android: when Android first hit the market, Sun Microsystems CEO Jonathan Schwartz apparently waxed lyrical on his blog about Android’s launch, offering his “heartfelt congratulations” to Google. The blog has since been taken down by Oracle, but thankfully it has been reproduced here for our reading pleasure.
3. Google is known to be a lightweight as far as its IP portfolio is concerned, a fact which was highlighted through the recent Nortel patent auction (I’m trying to leave it alone, I really am). Google failed to acquire any of Nortel’s assets, and has since been rumoured to be in talks to acquire InterDigital (more on this later, too). If Oracle succeeds in this case, which, for what it’s worth, I doubt it will, Google will have a substantial chunk taken out of its cash reserves. Not that this will be enough to hurt Google, a company with cash reserves so large it would most likely wipe out third world poverty, but it will weaken further its position in the IP arena, especially given the fact that HTC and other Android customers are currently embroiled in patent litigation. I’ll come back to this point in another post as well.

Returning for a second to Schwartz’s blog post (posted online on 5 November 2007), there is no doubt that he was not only endorsing Google’s Android, but also supporting the platform with development tools. This is where things get very interesting, and potentially, rather uncomfortable for Oracle.

It cannot be said that a blog post can represent a licence, by no stretch of the imagination. Blog posts, after all, are not enforceable legal instruments. But… and this is such a big but that it could knock Oracle clean out of the ring… can Schwartz’s endorsement be taken by Google as a statement that it will not be pursued for infringement of Java-related IP? And if so, can this statement be relied upon by Google, and go on to bind Java’s new owner, Oracle?

If the answer is yes to the above, and Google acted to its detriment in reliance on Schwartz’s statement, then it is possible that the legal doctrine of estoppel could apply. This is a very fragile argument, and one which is likely untested in the courts as the statement was made in a blog (which, it should be noted, was Schwartz’s personal blog, not that of Sun Microsystems)…

But it is an interesting question nonetheless, and as many would like to see this case binned (let’s face it, Oracle does not have too many fans when it comes to litigation), one that may well be thrown into the mix. It could also be said that if Sun Microsystems was supporting Android with development tools that this activity alone eradicates the potential for Android to be found to infringe on Java’s IP. I would imagine that a counter to this argument would be that Google subsequently declined Sun Microsystem’s offer of a licence to Java, implying that a licence would be needed in order to use the technology in the development of Android.

But who knows.

What is clear from this set of questions, however, is that more prominence needs to be given to IP at times of product development and throughout the M&A process. Contracts should stipulate what IP exists, who owns it, what is to happen to jointly-created IP, who is to own it and what is to happen upon assignment. As these cases unfold and attract more and more mainstream press attention, hopefully this message will spread.

For Oracle, whose motivation is likely to be money, this case is opportunistic. For Google, this case is a pain. Google is trying to navigate its way through a crowded smart-phone market, and so far has been doing rather well despite its lack of IP weaponry. If Oracle succeeds in this case, all sorts of implications arise for Google’s Android and its customers (not to mention the fact that Apple is suing HTC for patent infringement relating to Android – more to come on this in a later post).

For IP, this case could be instrumental, when viewed together with the smart-phone patent wars, the Nortel auction (it keeps coming up), and activity surrounding InterDigital (whose share price shot up a massive 50% upon news that Google would be bidding for it), in grabbing the attention of the masses and focusing it firmly on IP.

Alternatively, maybe it won’t be, and those of us who advocate an IP focus will be left to await the next big IP story that has the potential to convert the unconvinced majority.

Only time will tell.

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