SAP’s TomorrowNow had a program which allowed for the automation of software downloads from Oracle’s customer-service websites, which, according to some of the evidence heard at trial, even once caused Oracle’s computer systems to crash.

The Californian jury awarded Oracle a whopping $1.3 billion in damages after an 11 day trial, which according to Bloomberg was not only the largest award ever given for copyright infringement and the largest given by any US jury in 2010, but also equal to the Q4 net income of SAP.

Excessive?

Many would say it was, and that most IP infringement awards generally are, and it would seem that U.S. District Judge Phyllis Hamilton has reached the same conclusion as those on the less-dramatic side of the damages line, saying that “The verdict grossly exceeded the actual harm to Oracle” and the award was “contrary to the weight of the evidence, and was grossly excessive.”

I tend to agree with Judge  Hamilton. (And I will do my best to refrain from making any comments about the pragmatism of her decision being anything to do with the fact that she’s a ‘she’… although it may well deserve a small mention?)

The reason for Judge Hamilton’s decision to reduce the maximum figure SAP has to pay to $272 million makes a lot of sense. It was found that the previous award was not proportionate to the actual damage to Oracle, and that based on the evidence, Oracle was seeking damages for lost licensing royalties. In reality, though, would Oracle have ever granted SAP a licence had it asked for one, bearing in mind that SAP is one of its biggest competitors in business-management software?

I’ll leave that as a rhetorical question. It suffices to say that Oracle has never really been known for its philanthropic nature, but then again it would have to be a strategic decision to license core business to a competitor, so one could easily forgive Oracle in these circumstances for not doing so (in the theoretical world where SAP actually approached Oracle seeking a licence). But it follows naturally that SAP should not have to pay damages based on a hypothetical licence.

Oracle now has until the end of September to accept Judge Hamilton’s ruling. Whether this will this mark the beginning of a more pragmatic and realistic approach by the courts to infringement damages, only time will tell, but the significant reduction by Judge Hamilton from the original award of $1.3 billion to a maximum of $272 million is a good step in the right direction.

I wonder what a telco with 405m users would be worth? That is an awful lot of relationship capital to work with.

A short Timeline

2001 – Kazaa, a p2p filesharing technology, released (which went on to some IP legal problems of its own).

2002 – Skype founded by Kazaa creators

2003 – initial release of Skype

2005 – eBay buys Skype in a $2.6bn deal (totaling 3.1bn through to today)

2009 – eBay announces that Skype will IPO and be valued at over $2bn. Joltid, a company set up by Skype founders claims that eBay/Skype only has a license to a core technology used by Skype to work. eBay must pay money for a continuing license or face rewriting its core code while keeping its millions of users happy (no small task).

The stakes

Skype has 480 million registered users its revenues in the last quarter were $170m. eBay was thought to be able to use Skype to produce gains with its auction site on high end items, but any added benefits to the eBay site have not materialized.

The Guardian states that the Joltid/eBay dispute is driven by Niklas Zennström – one of Skype’s creators and owner of Joltid – as a negotiation strategy in an effort to buy the company back.

The technology

Skype’s founders and key developers know p2p. They helped develop Kazaa before tackling VoIP with Skype and then went on to found Joost. The core piece of code at stake between Skype and Joltid is a product called Global Index:

Global Index™. Global Index is the world’s most technologically advanced, scalable and field-tested peer-to-peer technology. Global Index creates a self-organizing and self-healing distributed storage, transport and data object management system that does away with the costs of traditional datacenter solutions and enables a range of applications from communications to broadcasting and beyond.

The biggest implementation of Global Index to date has been Skype where Global Index enables peer-to-peer voice, video and chat communications.

They are also patent holders as well:

Joltid also holds a comprehensive portfolio of intellectual property including US patent 7,480,658, covering distributed database systems and co-ordinated decentralized peer-to-peer computing.

I did a quick search of esp@cenet and the USPTO website (including assignments database) but only found one Joltid patent, which is the 7,480,658 patent mentioned above. It was granted in January of 2009, and if that’s the core of their litigation on the patent side of things, they should hope it’s a good one.

The dispute

Joltid claim that they only licensed their technology to Skype, and that the license has terminated.  This means that eBay paid billions for Skype without sorting out the licensing issues or having any sort of strategy around re-writing the core Skype code. The funny thing is that this is not the first time that there has been an ownership dispute over this same technology.

The end result is that eBay is stuck litigating in the English courts while it scrambles around for a solution to this ownership problem. It is much like facing down a patent troll or a competitor when going to IPO. The immediate parallel that comes to mind is Wolfson.

Edinburgh based Wolfson Electronics was set to go for IPO in 2003 in the middle of a down market for tech stocks. The previous year it posted £20.2m in turnover, with £2.4m coming from the US and expected to float for £213 million. Only days before Wolfson prepared to go public with its CEO book-building across Europe, Wolfson’s competitor in the US, Cirrus Logic, files a patent infringement suit. The suit delays the IPO, but only slightly as a result of a quick response and a clear presentation of the IP risks by Wolfson. They achieve a high price despite a tough climate for tech stocks.

It seems to me that even if eBay found out they made a mistake after their initial purchase of Skype by not securing a formal license and ownership of the relevant IP, they should have at least been planning quite heavily for a dispute later on, particularly at IPO. Like Wolfson, they should have had an answer waiting.

Free and open source software has had a radical impact on how we – both individuals and businesses – use and develop software. At this event, three speakers will discuss open source software from three different perspectives. We will hear an introduction to the subject from an IP and IT barrister (ed note – David Harris mentioned below). This introduction will be followed by commentaries by two speakers from very different places in the IT world: Mark Lange of Microsoft and Gerry Gavigan of the Open Source Consortium.

The event will also feature blogger, IP/IT barrister, and Open Rights Group board member David Harris and former IMPACT blogger (now at Shoosmiths) Alex Newson will chair the event.

The event will be at Withers LLP, 16 Old Bailey, London, EC4M 7EG. Cost for LES Members is £20.00, non-members is £40.00. An optional dinner will follow (venue to be confirmed) for £35.00

Posting information about IP events will be a regular feature here on Tangible IP.  I’m looking into how we will get it set up so that we can have a well integrated calendar with the site. Let me know if you have any suggestions.