Pressure in 9th Circuit to Revive Big Oracle Verdict

     (CN) – Oracle urged the 9th Circuit on Tuesday to reinstate $1 billion that a federal judge stripped from the largest award ever in a copyright case four years ago.
     Saying the jury had relied on “objective evidence” about the fair-market value of software that German company SAP AG had already admitted to taking, attorney Kathleen Sullivan said Oracle deserves the full $1.3 billion award.
     Oracle had sued SAP in 2007, claiming the Germany’s software company’s American unit made thousands of illegal downloads and copies of Oracle software to duck licensing fees and to steal customers. The jury found the company had stolen Oracle’s copyrighted data and used “hypothetical license” damages to set the huge award.
     But U.S. District Judge Phyllis Hamilton ruled the next year that the jury had been “invited … to engage in guesswork.” She said Oracle must accept $272 million or she would order a new trial for damages.
     “Rather than offering objective evidence to assist the jury in determining a fair market value for the license that even Oracle admitted its expert could not quantify, Oracle’s counsel invited the jury in his closing argument to engage in guesswork and simply pick a number between $1.66 billion and $3 billion,” she wrote.
     The $272 million figure solely reflected the lost profits made by SAP’s infringement.
     At issue at the appellate hearing Tuesday was whether Hamilton made a legal error in reducing the award. To answer this question, the three-judge panel asked both Sullivan and SAP’s attorney, Greg Lanier, to explain how they would calculate the fair-market value of a license that never existed and that everyone agreed Oracle would never grant.
     The appeals court first challenged Oracle’s Sullivan about her view that the original award was soundly based on objective evidence.
     Judge Susan Graber asked for “evidence of what the fair market value of a license would be to an arm’s length purchaser?”
     Sullivan replied that SAP executives had an “attack strategy” that was aimed at converting the customers of PeopleSoft, a then-recent Oracle acquisition, over to SAP maintenance contracts and software. SAP’s projections showed managers expected that poaching Oracle customers would bring in $897 million in new revenues over a three-year period, the lawyer said.
     Graber called the response “fascinating,” but said she feared Sullivan and the court were “talking past each other.”
     “This is hypothetical revenue information, which is not the same as hypothetical licensing,” Graber said. “Licensing is the expense a company pays in order to achieve the revenue stream, and it isn’t the same as the revenue stream and may be a vastly different value.”
     The Oracle lawyer got some traction with Judge William Fletcher, who agreed with her that the trial judge made a legal error in ruling that hypothetical licensing damages could never be awarded if a company, like Oracle, had never been willing to license a copyright.
     “That doesn’t necessarily win the case for you, but I agree with you on that point,” Fletcher said.
     Sullivan repeated that she thought SAP’s internal calculations were objective evidence.
     But Fletcher said, “I don’t know how trustworthy these numbers are.”
     They may have been “pie-in-the-sky” business projections that represented “dreaming” on the part of SAP managers, he added.
     Calling the nearly $900 million figure “speculative,” Fletcher said, “maybe we should look at how much SAP paid to acquire TomorrowNow?”
     SAP’s purchase of that company gave it both Oracle software and maintenance contracts. Fletcher described TomorrowNow as the instrument that SAP used to gain access to the copyrighted software.
     Sullivan said she would need to do research to find the transaction price, but Fletcher helped out, saying it was about $10 million.
     Fletcher said most cases that use hypothetical licensing fees to arrive at damage amounts have established markets or other examples of what he called “more standard evidence in terms of the fair-market value of such a license.”
     Sullivan replied that the 9th Circuit should use this case to establish the right of copyright holders like Oracle to decide not to license their property.
     “It would be perverse to deprive the copyright holder that wants to keep exclusive control of its license of the opportunity to show fair market value through objective evidence,” she said.
     SAP’s attorney, Greg Lanier of Jones Day in Palo Alto, said the award had been slashed solely as a matter of law and that Oracle’s valuation evidence was unduly speculative.
     Even if SAP’s internal revenue projections could be considered objective evidence, they still fail to provide a valid fair-market value, Lanier said.
     The key issue in the appeal was that the internal SAP projections that Oracle showed the jury were “not evidence at all of what a willing buyer and a willing seller would pay,” he added.
     Judge Fletcher countered that the projections had to reflect at least of what SAP executives thought the TommorowNow deal was worth.
     Lanier called the figures the “hopes, expectations, even projections of what might happen” if SAP were to implement an overall plan” to lure Oracle customers to its software. Buying TomorrowNow was just a part of that plan, he continued.
     “This case properly comes down to lost profits for [Oracle’s lost] maintenance [contracts] and infringers’ profits for getting [Oracle] customers over to SAP,” Lanier said.
     Hypothetical license damages should not have been considered in the first trial, he said, adding that, if a new trial were held to re-decide the damages, the District Court has ruled that evidence hypothetical license damages would not be allowed.
     On rebuttal, Sullivan, who is a partner with Quinn Emanuel Urquhart & Sullivan in New York, asked the panel to reinstate the original jury verdict.
     If the judges decide to remand the case for a new trial award, she asked that the District Court be instructed to allow evidence of hypothetical license damages.

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