Oracle v. Google: The Battle Over Android Continues as Google Seeks to Exclude Oracle's Damage Expert for the Third Time

March 28, 2012

The district court had previously stricken certain parts of Oracle's damage expert report on two separate occasions. First, the district court struck Oracle's expert report for failing to apportion the value of the asserted claims and instead using the total value of Java and Android in calculating damages. Second, the district court partially excluded Oracle's expert's revised report for using a flawed apportionment methodology. In the new report, Oracle's expert set forth a new apportionment theory, which Google moved to strike again.

The district court summarized the third report as follows: " First, Dr. Cockburn starts with Sun's February 2006 demand of $99 million to defendant Google Inc. Second, he upwardly adjusts by $557 million to account for lost convoyed sales Sun projected to make through its licensing partnership with Google. Third, he adds $28 million by removing a revenue-sharing cap, resulting in a subtotal of $684 million. This is the pie he then apportions between the intellectual property in suit and the intellectual property not in suit. Fourth, he allocates part of this number to the patents and copyrights in suit, using two alternative methodologies -- the so-called "group and value" and "independent significance" approaches (Rpt ΒΆΒΆ 37-68). Based on these alternative apportionment methodologies, reasonable royalties for patents and copyrights in suit, through the end of 2011, are (1) between $70 and $224 million under the group-and-value approach, and (2) at least $171 million under the independent-significance approach. Fifth, he downwardly adjusts for extraterritorial infringement, failure to mark, and non-accused devices. With all the downward adjustments subtracted, Dr. Cockburn calculates patent damages to be between $18 and $57 million, and a copyright lost license fee to be between $35 and $112 million."

The district court first analyzed the expert's "Group-and-Value Approach." As explained by the district court, "[u]nder this approach, Dr. Cockburn first identifies the components that would have been licensed from Sun to Google in the 2006 bundle. This would have included a license to Sun's Java mobile patents and copyrights, promotion of the Java brand and trademark, and the benefit of Sun's engineering resources in developing Android."

Although the district court did not take issue with lower value of this approach, the district court found fault with the upper value of this approach because the upper value range had no reliable basis. "A different concern, however, arises in Dr. Cockburn's methodology for determining the 'upper bound' of the ranking, and therefore the reasonable royalty analysis. Not satisfied that three of the patents in suit were among the top 22 patents selected by Oracle engineers, Dr. Cockburn further opines that those three patents in suit -- the '720, '205, and '104 patents -- are the most valuable of the top 22 patents, thus propelling the three to ever higher damage calculations (from $59 million to $191 million). This further 'top three' ranking lacks a reliable basis and must be stricken."

The district court then analyzed the "Patent-Value Studies" in which the expert calculated the dollar vale of the ranked patents. Ultimately, the district court agreed with the expert that the expert fairly selected 569 patents as the sample set for plotting a distribution curve and permitted the lower bound calculation based on an average of the 569 patents. " With the relative values of the 569 patents and the dollar amount of the adjusted start point, Dr. Cockburn uses an algebraic formula to calculate the dollar value of the patents. Under his 'lower bound' calculation -- in which, as discussed earlier, each patent in his top 22 has equal value to each other -- each of the 22 top patents has a reasonable royalty of approximately $20 million (calculated by averaging or spreading evenly the total value, approximately $440 million, across the top 22 patents), before discounting for downward adjustments due to marking, non-accused devices, and extraterritorial infringement. As discussed in the previous section, Dr. Cockburn can only opine on this 'lower bound' calculation ($20 million per patent before offsets), and not the 'upper bound' calculation."

The district court also analyzed the methodology of patent-by-patent instead of claim-by-claim. As the district court had previously noted, the damage expert's report did not break out the value of the unasserted claims of the patent versus the asserted claims and the district court's concerns with that approach. Nonetheless, the district court concluded that a claim-by-claim apportionment was not required under current patent law. " The reasonable royalty statute requires that the patentee is awarded "a reasonable royalty for the use made of the invention by the infringer." 35 U.S.C. 284 (emphasis added). Under current USPTO guidelines, there is a presumption that each issued patent contains only one independent and distinct invention. MPEP 802; see 35 U.S.C. 121, 37 C.F.R. 1.141. If each patent covers only one invention, then each claim represents merely different shades of the same invention and it is reasonable to require -- in the hypothetical negotiation -- that the infringer license the entire patent. Thus, Dr. Cockburn is not required to apportion damages on a claim-by-claim basis."

Oracle's expert also used an independent-significance approach as an alternative method for calculating a reasonable royalty. "Dr. Cockburn advances an alternative method for calculating reasonable royalty. Under the so called independent-significance approach, Dr. Cockburn opines that at least 25% of the 2006 licensing bundle would have been attributable to the patent claims in suit. This opinion is based on "his expertise" and (1) documents in 2006 on the importance of characteristics such as processing speed, memory, and number of applications to Android, (2) documents in 2006 on the availability of non-infringing alternatives to a Java license, (3) opinions of Oracle's technical expert on the importance of the patent claims to Android, and (4) benchmarking studies conducted in 2011 to determine the performance benefits of the patent claims on Android's performance."

The district court rejected this approach and struck it. "While the evidence considered by the independent-significance approach arguably shows that the patents in suit would eventually contribute to the success of Android, the fact remains that the rest of the 2006 bundle does not bear any relationship to the rest of the Android. Reasonable parties in 2006 might well have viewed the rest of the 2006 bundle as worth far more than the patents and copyrights asserted in this action."

After analyzing a couple of other methodologies, the district court concluded by stating: "For the reasons stated, the independent-significance approach is STRICKEN. The econometric analysis is STRICKEN. The conjoint analysis' determination of market share is STRICKEN in both Dr. Shugan's and Dr. Cockburn's reports. However, the conjoint analysis' determination of relative importance between application startup time and availability of applications is not stricken. The 'upper bound' calculation in the group-and-value approach is STRICKEN. The 'lower bound' calculation in the group-and-value approach shall be adjusted by deducting $37 million for the value of the unasserted copyrights from the adjusted starting point of $598 million. Therefore, $561 million shall be the total value of the copyrights in suit and 569 patents in Sun's Java mobile patent portfolio."

Oracle America, Inc. v. Google Inc., Case No. C 10-03561 WHA (N.D. Cal. March 13, 2012)

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