Oracle-Google Dispute Reaches Court
Tech giants Oracle (ORCL) and Google (GOOG) are set to lock horns in a legal battle upon their failure to reach an amicable settlement. The first hearing pertaining to a couple of Java patent infringements is scheduled for April 16. U.S. Magistrate Judge Paul Grewal, who was supervising the settlement procedure for more than six months, cited irreconcilable differences between the two companies for the failure.
To date, the patent lawsuit has seen a number of ups and downs for both the companies. The dispute started when Oracle filed a lawsuit against Google alleging violation of several patents. The main conflict was regarding Google’s Dalvik process virtualization machine (“VM”), which was developed using Java and serves as the backbone of the Android operating system.
Oracle claimed damages worth billions of dollars and appealed for the annihilation of all the infringed products. However, Google denied any infringement and argued that some files it copied from Java are insignificant as test files. Google also said that the copying was required for compatibility because there was not any other language it could use.
Oracle argued that Google infringed only the desirable parts and created many other application programming interfaces (API), incompatible for Android. As a result, many programs written in Java for other platforms were incompatible with Android, and many programs written for Android will not run on other Java platforms and devices.
Oracle also claimed that no court had found that the API for software like Java ineligible for copyright protection. Oracle further argued that program names, even subroutine names, should have the same copyright protection as the underlying code. Oracle also stated that Google’s actions have made it impossible for the company to enter the mobile market in the future, primarily due to the strong competition from android.
In such a scenario, Google requested the US Patent and Trademark Office (PTO) to re-examine the patents that Oracle alleged to be in violation. Google received some favorable judgment, which forced Oracle to tone down its patent and copyright violation claims to 2 from at least 6 filed earlier.
The battle tilted somewhat in favor of Oracle, when the company got hold of an e-mail sent by a Google executive to the head of Google's Android division, which showed that Google recognized that it needed a license for Java. Google asked the judge to withdraw the e-mail, saying it was supposed to remain confidential and that Oracle wrongly revealed it.
The judge not only overruled Google’s request but also dismissed Google’s claim that its advertising revenue was not related to the value of Android and should therefore not be a part of Oracle's damages. Google’s argument centered on the fact that it offers Android for free and so it’s advertising revenue should not be used to pay for damages.
However, Oracle’s upper hand did not last long, as the US district Judge agreed with Google’s argument that the company’s $6.1 billion damage claims were unwarranted. The Judge noted that the “starting point” of the damages should be approximately $100.0 million, depending on various factors. Oracle initially lowered its damage claims to $2.0 billion and after much dilly-dallying submitted a revised maximum damage claim of $226.0 million, which included $57.1 million for patent violations and $169.0 million related to copyright.
However, Google also found the revised amount too high and proposed to pay approximately $2.8 million for the 2 patents covering the period through 2011. Google also proposed to pay Oracle 0.5% of future Android revenue on one patent, which will expire on December 2012 and 0.015% on the second patent till its expires on April 2018. Oracle rejected the offer citing it to be undervalued and thus closed all the routes for further negotiations.
Recently, Google has asked the court to shorten the case duration from its currently scheduled eight weeks. Google also said that it would prefer to appear in front of U.S. Judge William Alsup instead of a Jury. Since, both the companies have already been reprimanded for wasting the court’s time and jury trials tend to linger long; we would not be surprised if the court grants Google’s appeal.
Although it is very difficult to point out an outright winner, we believe that Google has nudged ahead of Oracle. Oracle’s backtracking in terms of the number of patent violations allegations and also the much lower damage claims somewhat reflected Oracle’s apprehension, in our view.
However, an Oracle win will have far-reaching consequences for companies such as Google, which depends heavily on open source. Interoperability within different software will be practically impossible without the clear permission and royalty payments to the copyright holders. On the other hand, it would benefit companies like Oracle, Apple Inc. (AAPL) and Microsoft Corp. (MSFT) who are extremely zealous in protecting their copyrights.
We have a Neutral recommendation on both Oracle and Google over the long term. Currently, Oracle has a Zacks #2 Rank, which implies a Buy rating in the near term. Google has a Zacks #3 Rank, which implies a Hold rating in the near term.
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