SAN FRANCISCO (CN) – Third time was not the charm for a damages expert who estimated that Google could owe $1 billion for the unlicensed use of Oracle’s patented Java technology in Android operating systems.
U.S. District Judge William Alsup on Tuesday tossed most of the third expert damages report submitted by Boston University finance professor Iain Cockburn.
Google and Oracle have spent years debating this issue as they crawl toward a jury trial to determine whether the Android used unlicensed Java technology. Google failed to negotiate a license from Java creator Sun Microsystems in 2006, but it claims that it found another way to create the Android operating system. After Oracle acquired Sun, and its Java patents, in 2010, it filed suit against Google.
In rejecting the two earlier damages reports, Alsup had found they “advanced improper methodologies obviously calculated to reach stratospheric numbers.”
Cockburn had first estimated that Google could owe Oracle up to $6 billion in damages, but Alsup tossed most of that report in July 2011. After Alsup struck a revised report in January 2012, Oracle agreed to take another swing.
The third damages report opens with a $598 million starting point in royalty payments if Google and Sun had entered into a 2006 licensing agreement for Java mobile patents and copyrights, promotion of the Java brand and trademark, and the benefit of Sun’s engineering resources in developing Android.
Cockburn claimed that Google would not have placed any value on Sun’s source code under a proposed 2006 licensing agreement, in addition to the value of work of Sun engineers. The court, however, took another view.
“Dr. Cockburn is wrong on this one,” Alsup wrote. “If, during a hypothetical negotiation in 2006, Sun had taken its engineering know-how off the negotiation table, then Google would have subtracted $86 million from its adjusted starting-point offer, per Dr. Cockburn’s calculation. There would, however, have still been value associated with the source code and other copyrighted items that Google would have received the option to use.”
After deducting $37 million for the value of unasserted copyrights, the parties are looking at a total value of $561 million for the asserted copyrights and 569 patents in the Java portfolio, according to the 20-page decision.
Cockburn also failed to support his claim that three of the patents in suit are the most valuable of the top 22 Sun Microsystems patents, raising the damages calculation from $59 million to $191 million.
Alsup balked at Cockburn’s reasoning that the three asserted patents must have been the most valuable in 2006, since they are the ones that Google allegedly used.
“This logic is too thin to support the huge weight piled thereon,” he wrote. “There is nothing in Dr. Cockburn’s report to show that Google planned in 2006 to incorporate those particular functionalities covered by the three patents into Android.”
In a more successful claim, Oracle said, “numerous studies of patent value establish that most of the value of a group of patents is attributable to a very small number of patents in the group. Those studies calculate curves that allow one to estimate the percentage of portfolio attributable to the most significant patents in the portfolio.”
Google also “failed to show a systemic bias” in its challenge to Cockburn’s sample set for the distribution curve, based on 569 of Sun’s thousands of patents. The argument “will perhaps persuade the jury and it may persuade others trained in such matters but it is not enough to exclude the analysis from trial,” Alsup wrote.
Since Cockburn selected only three portfolios in determining the distribution curve, and the value of the top 1 percent in those portfolios differed greatly, Alsup said his confidence in “their predictive power” is “not very high.”
Google did not adopt Alsup’s criticism when he raised it at the March 7 hearing, accepting Cockburn’s suggested estimate.
Cockburn’s independent-significant approach to calculating royalties failed as well. The approach considered factors such as Cockburn’s “experience,” documents from 2006 on the importance of processing speed and memory to Android, and the availability of Java alternatives.
“The fatal flaw in the independent-significant approach is that the universe of know-how included in Android during 2008-2011 was different from the universe of know-how included in the 2006 offer” that Google made to Sun, Alsup wrote.
The court similarly struck part of a conjoint survey analysis that estimated Android’s increase in market share based on infringement. Economics professor Steven Shugan submitted this report for Oracle.
Alsup agreed with Google that the results were unreliable because Shugan selected only seven Android features to be surveyed. Google claimed those selections were “purposefully few in number and omitted important features that would have played an important role in real-world consumers’ preferences,” which “inappropriately focused consumers on artificially-selected features and did not determine real-world behavior.”
Shugan fared better with his analysis of the relative preference between “application startup time” and “availability of applications,” finding consumers were unlikely to infer implicit attributes onto the two features.
Cockburn was less successful with his econometric estimate of Android’s increased market share, which compared the normal Android sale price with the prediction of what consumers would pay for the a slower Android that presumably did rely on Java.
“The flaw in the analysis was that the sales price should also have been adjusted because the sales price in Dr. Cockburn’s counterfactual was determined by the second highest bidder, whose willingness to pay would also have decreased if Android were slower,” Alsup wrote.
“By not adjusting the sales prices for Android, Dr. Cockburn likely overestimated the decrease in Android market share and thus, overestimated the revenue impact to Google of an Android smartphone without the patented features,” he added.
The trial is scheduled to begin April 16.
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