Source: http://www.groklaw.net/articlebasic.php?story=2012011808555949
Timestamp: 2019-04-24 04:55:01+00:00

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What part of the word NO does Oracle not understand? Why is it that legal counsel for Oracle is incapable of complying with a simple, straightforward request from the court? Why does legal counsel for Oracle believe it must rehash, time and again, arguments that have already failed to satisfy the court? If you have answers for any of these questions, you might want to give Oracle a heads up.
"submit 20-page memoranda on whether Dr. Cockburn should be allowed a third try."
He didn't ask the parties to debate the merits of his findings on the Cockburn report.
He didn't ask the parties to propose a new approach to the trial.
He didn't ask the parties to discuss what would satisfy the Cockburn order.
He didn't ask Oracle to explain how a further Oracle caused delay is damaging to Oracle (although he recognized that Oracle's actions were, no doubt, delaying the trial).
But guess what Oracle decided to cover in its memorandum? (clearly a rhetorical question) Yes, you've got it.
While this case awaits trial, more than 700,000 Android-based devices are activated every day, all fundamentally built around the copyrighted Java APIs and the enhanced performance enabled by Oracle’s patents. Each day’s worth of activations likely generates approximately $10 million in annual mobile advertising revenue for Google.
Who chose to ignore the court's July order and directive on a second damages report only to see that second report largely rejected? Who disclosed a privileged Google email only to see Google seek to reverse the wrong? Who chose to assert patents that are proving to be largely invalid? It certainly wasn't Google or the court, so that leaves Oracle.
In this case, however, Oracle contends that its damages claims and analyses are reasonable and correct in light of the evidence, and are consistent with the Supreme Court and Federal Circuit precedents on the issues of apportionment, claim-by-claim analysis, and calculation of future royalties.
Oracle believes the Court has taken an unduly strict and improperly narrow approach to the analysis of damages in this case, and reserves its right to appeal the Court’s Daubert and in limine orders.
In any event, Oracle does not withdraw Prof. Cockburn’s previous reports or waive its claim for reasonable royalty or lost license fee damages because it believes it would be improper to do so under the statutory and decisional law and unnecessary under the circumstances.
[T]his Court’s application of the Daubert and Federal Circuit standards has been particularly demanding. ... The Court rejected the application of the entire market value rule, despite the fact that Oracle’s technical expert has concluded that Android would be “crippled” without the benefit of the infringed patent claims, and Google’s own copyright expert has conceded that the infringed APIs were “essentially required” once Google decided on Java as the Android programming language. ... The Court rejected use of the Nash bargaining solution, a mathematical model devised by a Nobel prize-winning economist, accepted by economists since the 1950s, advocated by other experts specifically for the calculation of infringement damages, and accepted by other courts as a reliable basis for measuring damages. ... The Court has required calculation of damages on a claim by claim basis, despite the fact that no court apparently has ever imposed such a requirement. ... Oracle does not seek to revisit the Court’s prior rulings on these matters now. But it does contend that Prof. Cockburn’s two prior damages reports were appropriate, well-supported, good faith efforts to address the complexity of damages in this case.
A third Oracle damages report is almost certainly to contain the same defects as the first two. Oracle then spends the bulk of its memorandum suggesting alternative ways for the trial to proceed or how it would go about correcting the Cockburn report. What Oracle doesn't spend much time doing is providing a legal justification as to why it should now, after two failed attempts, be permitted a third attempt to provide a completely viable damages report.
Proceed to trial immediately on both the patent and copyright claims, under the Cockburn report, to the extent it has been allowed, while allowing Oracle to call witnesses to provide the "missing elements of a reasonable royalty and lost license fee."
Oracle suggests that if, and apparently only if, none of these alternatives are adopted, Oracle should be permitted the opportunity to prepare a third damages report, saying that "[a]ny delay works prejudice only on Oracle." I think Google would beg to differ on who is prejudiced by a delay caused by a third report.
Sun had plans and the means to use that intellectual property to develop a smartphone platform that would have generated hundreds of millions of dollars in revenues. These plans were undermined by Google’s release of an incompatible Android for free.
What evidence supports this theory? Mobile Java had been around for some time before Android ever came along. Where was Sun's execution on this strategy? What has Oracle done to execute on this strategy other than sue Google? Android's emergence certainly hasn't stopped other competitors, such as Microsoft, from at least attempting to enter the smartphone market with an alternative platform.
Please be forewarned: the next bite will be for keeps. If the next and final report fails to measure up in any substantial and unseverable way, including ways this order did not have time to reach, then it may be excluded altogether without leave to try yet again.
The writing on the wall was unmistakable, but Oracle failed to read it. On September 12, 2011, Oracle served Dr. Cockburn’s revised damages report. If the second report was less objectionable than the first, it was only superficially so. Dr. Cockburn still ignored governing damages law and filled his analysis with unsupportable logical leaps designed to inflate Oracle’s recovery.
The Court should not give Oracle a third chance. The Court made clear to Oracle in striking most of Dr. Cockburn’s first report that its second chance was its last. Dr. Cockburn’s second report completely and deliberately disregarded several of the Court’s instructions in its first Daubert order. Permitting Dr. Cockburn a third try would significantly burden Google and its experts. And Dr. Kearl’s testimony could mitigate Dr. Cockburn’s absence. The Court should not reward Oracle at Google’s expense for Oracle’s disregard of the Court’s instructions.
Google is unaware of any case in which an expert has been given a third shot at producing a viable damages report. See, e.g., Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 283-90 (N.D.N.Y. 2009) (Rader, J.) (granting JMOL to defendant when plaintiff’s second damages report, “[r]ather than present a damages case accounting for this court’s order, . . . relied on the same evidence and reasoning that proved insufficient” the first time and plaintiff “stuck to its guns, aiming for the highest royalty base still available after the court’s exclusion order”); Rolls- Royce PLC v. United Technologies Corp., No. 1:10-cv-457 (LMB/JFA), 2011 WL 1740143, at *9 (E.D. Va. May 4, 2011) (precluding much of plaintiff’s damages-related evidence or argument at trial where plaintiff’s expert had more than ten months to develop “a concrete and economically sound damages theory,” but served a report that “reads more like a lawyer’s brief advocating for the highest conceivable damage award rather than an expert trying to assist the trier of fact reach a reasonable damages figure” and was based on “misstatements of the law, a lack of sound evidence, and unsupported economic assumptions”); Emerald Investments Ltd. P’ship v. Allmerica Fin. Life Ins. & Annuity Co., 516 F.3d 612, 617-18 (7th Cir. 2008) (affirming district court’s decision to exclude second expert report after first expert report “demonstrated a willingness to abandon the norms of [expert’s] profession in the interest of his client”).
Although Oracle does cite to a few cases where a follow-up report was allowed, those cases are distinguishable primarily with respect to the degree to which the original report (or second report) failed to comply with the court's directive. That is, unlike this case where the second report contained virtually the same substantial deficiencies as the first report, in those other cases the succeeding damages reports showed either less egregious damages claims or some progress toward compliance in the subsequent attempts.
Google makes clear that any third bite at the apple by Oracle would prejudice Google. Google has repeatedly complied with the court's directives. Google has had to waste at least one of its motions in limine arguing the Daubert deficiencies of the second Cockburn report. Google would be forced to share the increased expense of Oracle's failure to timely comply.
Basically, Google is calling for an end to this circus, and Oracle shows up again as a clown. Time to bring the tent down.
At the same time it issued its express warning to Oracle, the Court took an additional and unusual measure to safeguard against distorted presentations on damages issues. On July 5, 2011, the Court announced its tentative intention to retain a court-appointed damages expert to testify to the jury on damages issues, under Federal Rule of Evidence 706. On August 30, 2011, the Court retained Dr. James Kearl as its Rule 706 expert. On November 9, 2011, the Court entered a further order explaining that appointing an independent damages expert was necessary because of “the parties’ extremely divergent views on damages and the unusual complexity of the damages aspect of this case.” Nov. 9, 2011 Order [Dkt. No. 610] at 3.
accepted Sun’s demand. Jan. 9, 2012 Order [Dkt. No. 685] at 7-9.
Barred Dr. Cockburn from offering any testimony on a reasonable royalty, either as to patent or copyright damages, because of his failure to apportion the value of the patents and copyrights at issue. Id.
Precluded Dr. Cockburn from apportioning the value of Oracle’s patents among the asserted claims of those patents—something Dr. Cockburn has never attempted to do in either iteration of his report. Id. at 9-10.
Ruled that, because Dr. Cockburn had never valued the handful of code files that Oracle alleged Google to have literally copied, he may not offer damages testimony on those files at trial. Id. at 10.
Struck Dr. Cockburn’s testimony on future damages because Dr. Cockburn failed to calculate damages past the end of 2012 and failed to account for the varying expiration dates of the asserted patent claims. Id. at 10-11.
Excluded evidence of certain licenses and settlements of litigation between Sun and Microsoft, along with any testimony from Dr. Cockburn (or, presumably, any other Oracle witness) about that evidence. Id. at 11-12.
The Court could not have been clearer in its July 22, 2011 order that Oracle’s “next [report] will be for keeps,” driving the point home further by referring to Dr. Cockburn’s “next and final” report. July 22, 2011 Order [Dkt. No. 230] at 15 (emphasis added). The Court even raised the possibility that, if Dr. Cockburn committed errors in that final report that were significant enough that they tainted the full report “in any substantial and unseverable way,” the Court might even strike the entire report and preclude any testimony by Dr. Cockburn at trial “without leave to try again.” Id. (emphases added). Google asks the Court to follow through with its earlier order and impose the consequences it told Oracle it would.
The consequences with which the Court threatened Oracle are reasonable. Google is unaware of any case in which an expert has been given a third shot at producing a viable damages report. See, e.g., Cornell Univ. v. Hewlett-Packard Co., 609 F. Supp. 2d 279, 283-90 (N.D.N.Y. 2009) (Rader, J.) (granting JMOL to defendant when plaintiff’s second damages report, “[r]ather than present a damages case accounting for this court’s order, . . . relied on the same evidence and reasoning that proved insufficient” the first time and plaintiff “stuck to its guns, aiming for the highest royalty base still available after the court’s exclusion order”); Rolls- Royce PLC v. United Technologies Corp., No. 1:10-cv-457 (LMB/JFA), 2011 WL 1740143, at *9 (E.D. Va. May 4, 2011) (precluding much of plaintiff’s damages-related evidence or argument at trial where plaintiff’s expert had more than ten months to develop “a concrete and economically sound damages theory,” but served a report that “reads more like a lawyer’s brief advocating for the highest conceivable damage award rather than an expert trying to assist the trier of fact reach a reasonable damages figure” and was based on “misstatements of the law, a lack of sound evidence, and unsupported economic assumptions”); Emerald Investments Ltd. P’ship v. Allmerica Fin. Life Ins. & Annuity Co., 516 F.3d 612, 617-18 (7th Cir. 2008) (affirming district court’s decision to exclude second expert report after first expert report “demonstrated a willingness to abandon the norms of [expert’s] profession in the interest of his client”).
B. Dr. Cockburn’s second report ignored the explicit direction of the Court.
Dr. Cockburn’s second report ignored the explicit direction set forth in this Court’s July 22, 2011 order and—like his stricken first report—did so with the obvious intent of inflating Oracle’s damages recovery. See Jan. 12, 2012 Order [Dkt. No. 694] at 1 (noting that “twice now [Oracle] has advanced improper methodologies obviously calculated to reach stratospheric numbers”). Neither Oracle nor Dr. Cockburn have even attempted to explain their failure to follow the July 22, 2011 order.
that Dr. Cockburn needed to apportion both the total value of Android between specific infringing features versus the rest of Android and the value of the asserted claims from the rest of the Java platform (i.e. the other items in the 2006 offer). Id. Dr. Cockburn’s second report ignored the Court’s order. Dr. Cockburn didn’t make any attempt to value the claimed intellectual property, either as a percentage of Sun’s $100 million demand in 2006 or any other starting point. Instead, Dr. Cockburn purported to measure the market value in 2011 of the Android features allegedly enabled by those inventions—e.g., increased processing speed. This approach was analytically incoherent and had no foundation in the law, as the Court found last week in rejecting it. Dr. Cockburn ignored the fact that the claimed Sun inventions at issue here are not the same as the features of Android the inventions supposedly enable; those features also reflect Google’s own intellectual property and thousands of hours of work by Google engineers. And, because a reasonable royalty must be calculated through a hypothetical negotiation taking place at the time of first infringement, Dr. Cockburn further erred in substituting the 2011 value of the Android features for the 2006 value of the claimed inventions. Finally, after measuring the wrong thing—the 2011 values of features for which Sun was only partially, if at all, responsible—Dr. Cockburn further mixed apples and oranges, by applying his 2011 apportionment to Sun’s $100 million demand from 2006. Even disregarding the analytical flaws just described, Dr. Cockburn conceded that the $100 million offer “represented thousands of Java-related features,” Jan. 9, 2012 Order [Dkt. No. 685] at 8, but he admittedly made no attempt to value (or even learn the extent of) any of these other components. As the Court rightly explained, “[f]or all that is shown, the thousands of other items in the 2006 offer might have deserved far more than 55 percent of the total pie.” Id. at 8. In other words, despite the Court’s rejection of his first report, Dr. Cockburn made the exact same mistake the second time around, continuing to “evade[ ] the question he was statutorily charged with answering.” July 22, 2011 Order [Dkt. No. 230] at 6.
Order [Dkt. No. 230] at 7 (“determining the date of first infringement requires a claim-by-claim analysis” (emphasis added)). Despite this warning, Dr. Cockburn failed to offer any patent damages analysis at the claim level or any opinion about copyright damages purportedly resulting from Google’s alleged literal copying of code files. Oracle then proceeded to argue, directly in conflict with this Court’s order, that “neither the law nor this court’s prior order requires apportionment down to a granular claim-by-claim basis.” Oracle’s Supplemental Brief [Dkt. No. 688] at 16 (emphasis added). Dr. Cockburn deliberately chose to focus on larger figures for patent-by-patent damages and copyright damages relating to the “structure and arrangement” of Sun’s application programming interfaces. And, even though the Court made clear that “any projection of future damages must take into account the varying expiration dates of the asserted patent claims,” July 22, 2011 Order [Dkt. No. 230] at 11, Dr. Cockburn calculated only an aggregate future-damages amount. “It is a mystery why Oracle and Dr. Cockburn deliberately choose to disregard this aspect of the July order.” Jan. 9, 2012 Order [Dkt. No. 685] at 10. Every time he had the chance, Dr. Cockburn ignored the Court’s clear instructions in favor of shortcuts designed to put a bigger number on the board.
Oracle received and read the July 22, 2011 order. It made no effort to object to or ask the Court to reconsider or clarify any aspect of that order. It then submitted a second damages report that entirely ignored key aspects of that order. Oracle never provided any excuse concerning why it simply ignored the Court’s instructions. In the absence of any excuse, neither Oracle nor Dr. Cockburn have given the Court any reason to believe that a third report by Dr. Cockburn would adhere to the Court’s orders, or to the law, any more closely than the first two did. Particularly because Oracle and Dr. Cockburn’s failure to follow the July 22, 2011 order uniformly resulted in larger asserted damages numbers, the Court should assume Oracle again made a deliberate choice to “see[ ] how much it could get away with.” July 22, 2011 Order [Dkt. No. 230] at 15. When Oracle has refused to follow the Court’s instructions without any explanation of that refusal, two bites at the apple is enough.
Permitting Dr. Cockburn a third try to draft a viable damages report would impose significant and unreasonable burdens on Google and its experts. If Dr. Cockburn is permitted to start over, that would effectively force yet another re-do of the entire damages expert discovery process from square one. If Dr. Cockburn is permitted to draft an entirely new damages report, Google must be allowed the chance to redraft its own responsive damages reports. After all reports—presumably including new rebuttal reports from Dr. Cockburn—are served, both Google and Oracle would be entitled to take further depositions of each other’s experts on the new reports. And Google must be allowed the opportunity to file a new Daubert motion, especially given Dr. Cockburn’s apparent and repeated inability to produce a viable report. Google has already been forced to commit a substantial amount of time and money because of Oracle’s moving damages target and inability to follow the rules. It should not have to commit any more. See McCool v. Bridgestone/Firestone N. Am. Tire, LLC, 222 F. App’x 847, 856 (11th Cir. 2007) (affirming district court’s denial of continuance for plaintiff to introduce new expert report in part because of prejudice to defendants from having “to invest more time and effort to determine the reliability of this newly designated expert, reviewing a second Rule 26 report, deposing the new expert, and perhaps having to file and defend a second Daubert motion”).
Allowing Dr. Cockburn another do-over now would also impose additional costs on the Court’s appointed expert Dr. Kearl—and consequently on Google, which is sharing the cost of Dr. Kearl’s work. Until recently, Dr. Kearl’s report was due in mid-January. Part of Dr. Kearl’s assignment is to critique both Oracle’s and Google’s damages reports, so Dr. Kearl presumably has undertaken significant work preparing an analysis based in part on Dr. Cockburn’s untenable current report. If Dr. Cockburn were permitted to start over, Dr. Kearl would be forced to start over as well and conduct a new analysis of the further revised Cockburn report.
Oracle should not be rewarded, at Google’s expense, for its deliberate choice to disregard the Court’s instructions.
When the Court announced its intention to retain an independent damages expert, it candidly informed the parties that it was doing so, among other reasons, as a check on the parties’ litigation instincts, to ensure that reasonable damages testimony was presented to the jury. July 27, 2011 Order [Dkt. No. 236] at 2 (“This assistance will be particularly useful because both sides have taken such extreme and unreasonable positions regarding damages in this action.”). Although the considerations discussed above are more than sufficient reason to deny Dr. Cockburn a third try, Dr. Kearl’s testimony at trial would make it further unnecessary to give Dr. Cockburn yet another try. Dr. Kearl has access to all the evidence Oracle deems relevant to its damages case, and his opinion will presumably be shaped in part by that evidence. Google has no objection to Dr. Kearl conducting a full, independent analysis of damages in this case, particularly since that analysis is likely well underway.
When the Court gave Dr. Cockburn a second and “final” chance to revise his damages report, he responded by ignoring the Court’s order and repeating his mistakes, unabashedly continuing with his “goal of seeing how much [he] could get away with.” July 22, 2011 Order [Dkt. No. 230] at 15. Allowing him a third try would be both unnecessary as well as significantly and unreasonably prejudicial to Google.
1 This revenue does not even include all the other value Android generates for Google, ranging from Android Market revenue, to other Android-related services, to ensuring that Google will not be locked out of the mobile business, to lucrative relationships with manufacturers of myriad devices on which Android can and does run, to the inordinately valuable access Android provides to customers for its new social network service, Google+. Indeed, Android has enabled Google to wield such power with regard to search and other services that its Android distribution and licensing practices – far from the “open” practices Google has proclaimed it lives by – are under investigation by competition law agencies in the United States, Europe and elsewhere.
Oracle by diverting the Java developer ecosystem to the free, incompatible Android platform and fragmenting the Java platform. The longer trial is delayed, the greater that irreparable harm.
Oracle respects the Court’s rulings and skepticism regarding large intellectual property damages claims. Indeed, Oracle often finds itself on the opposite side of such claims. In this case, however, Oracle contends that its damages claims and analyses are reasonable and correct in light of the evidence, and are consistent with the Supreme Court and Federal Circuit precedents on the issues of apportionment, claim-by-claim analysis, and calculation of future royalties. Given the astounding magnitude of Google’s Android business and the infringement on which it is based, Prof. Cockburn’s damages calculations are far from the “stratospheric numbers” the Court assumes (Dkt. 694 at 1). Oracle believes the Court has taken an unduly strict and improperly narrow approach to the analysis of damages in this case, and reserves its right to appeal the Court’s Daubert and in limine orders.
The Court’s orders present Oracle with a choice. Oracle can seek leave to file a third damages report, with a resulting delay that could push the trial of this matter to as late as next year (Dkt. 694 at 1), while Oracle suffers increasing and irreparable injury. Or Oracle can stand on the damages analyses that the Court has permitted thus far, agree not to use the Lindholm email if the Federal Circuit has not ruled by the conclusion of the trial, and renew its request that this Court set this case for trial on the merits at the first possible date.
To expedite trial, Oracle requests that the Court proceed as follows: Oracle requests that the Court sever and stay the patent claims, and set the trial of the copyright claims without the benefit of a third report for the first possible date in the winter or spring of 2012, subject to continuance if the Federal Circuit does not rule on Google’s mandamus petition before the scheduled trial date. If, however, the Court declines to set such a trial date or if the patent or copyright phase of the trial will be delayed beyond spring 2012 for any other reason, Oracle requests that it be given leave to prepare and submit a third damages report on reasonable royalty damages. We provide the reasons why such an approach is appropriate, and the specific details of Oracle’s proposals, in the sections below.
Trial On Copyright Liability And Copyright Damages.
First, Oracle respectfully requests that the Court remove the expert report obstacle to trial by severing and staying the patent claims for nine months,2 and setting a date certain for the trial of copyright liability and copyright damages at the earliest possible opportunity – March 19, 2012 or another date during the winter or spring of 2012 – followed by a hearing on Oracle’s request for a copyright injunction, should Oracle prevail on liability. This approach would enable trial to be completed in less than three weeks, applying the time limits previously set by the Court.
During the pendency of the stay of the patent claims, Prof. Cockburn would prepare and submit a third damages report, which should be permitted for the reasons stated in Part II of this brief, below. If the Court were to accept this proposal, Oracle understands that it would sacrifice the opportunity to prove copyright damages with the benefit of a third report, but believes that this sacrifice to obtain a winter or spring trial date is necessary, given the mounting, irreparable injury caused by Google’s infringement.
2 Oracle proposes that at the end of the nine-month stay the Court would assess the status of the reexaminations and other aspects of the litigation and decide whether the stay should be continued or the patent claims should be tried, in which case Oracle should be allowed to submit a third damages report as discussed below.
mandamus petition one week before the copyright trial is to commence, Oracle would agree to a continuance.
Second, if the Court will not sever and stay the patent claims, Oracle respectfully requests that the Court dismiss the patent claims without prejudice and set a date certain for the trial of copyright liability and copyright damages for spring 2012, followed by a hearing on Oracle’s request for a copyright injunction if Oracle prevails on liability. If the Court were to accept this proposal, the issue of a third damages report would be moot. As in the above proposal, Oracle would sacrifice its opportunity to prove lost copyright damages with the benefit of a third report. This approach would also prevent delay and enable trial to be completed in two to three weeks, applying the time limits previously set by the Court.
[T]he district court expressed an inability to calculate damages after excluding the testimony of Dow’s damages expert. Dow does not appeal the district court’s exclusion of its expert’s reasonable royalty testimony. Rather Dow urges that reasonable royalty damages can be awarded even without such testimony; that there is a presumption of damages where infringement has been established; and that there is other evidence in the record, including the evidence supporting Perc’s excluded opinions, that the district court must consider. We agree.
The statute is unequivocal that the district court must award damages in an amount no less than a reasonable royalty. Id.; see also Lindemann Maschinenfabrik GmbH v. Am. Hoist & Derrick Co., 895 F.2d 1403, 1406 (Fed.Cir.1990) (“In patent law, the fact of infringement establishes the fact of damage because the patentee’s right to exclude has been violated.”) (citing 5 Chisum on Patents § 20.03, at 20-142 (1986)). Further, section 284 is clear that expert testimony is not necessary to the award of damages, but rather “may [be] receive[d] ... as an aid.” 35 U.S.C. § 284 (2000) (emphasis added).
Dow Chem. Co. v. Mee Indus., Inc., 341 F.3d 1370, 1381–82 (Fed. Cir. 2003) (holding that plaintiff was entitled to prove reasonable royalty damages without the benefit of expert testimony).
Adopting any of these approaches would remove the problem of waiting for further expert damages analysis. Consistent with the schedule previously set by the Court, Oracle expects that Dr. Kearl could complete his own report, responding to the remaining elements of Prof. Cockburn’s analysis, in the next two months. In any event, Oracle does not withdraw Prof. Cockburn’s previous reports or waive its claim for reasonable royalty or lost license fee damages because it believes it would be improper to do so under the statutory and decisional law and unnecessary under the circumstances.
If the Court will not start the trial of this matter by the spring of 2012, it appears that it will be months before any damages phase could commence. If trial of the entire matter will not begin by spring 2012, Oracle seeks leave to submit a third damages report by Prof. Cockburn that includes a revised calculation of reasonable royalty (and lost license fee damages, if the copyright trial also will not begin in the spring). A third report would be warranted in light of the complexity of calculating damages in this case, the evolving and uncertain requirements for doing so in light of recent Federal Circuit decisions, the particularly demanding requirements imposed by this Court in this case, the fact that Oracle’s existing analysis has largely withstood scrutiny, and the fact that exclusion of Prof. Cockburn’s reasonable royalty testimony would prejudice Oracle and could result in a windfall for Google.
The essential portions of Prof. Cockburn’s reasonable royalty analysis have either survived challenge or gone unchallenged except in one respect – apportionment of the 2006 license portfolio. As explained below, Prof. Cockburn can promptly prepare a report that applies the Court’s recent guidance and addresses the Court’s concerns on that issue. Any delay works prejudice only on Oracle, which has made clear that it needs an early trial date and a prompt injunction to stop Google’s infringement. Google has no principled objection to delay, as it has repeatedly sought to stay these proceedings in their entirety.
It is common practice for courts to permit parties submit revised expert reports. See, e.g., In re Ephedra Products Liab. Litig., 04 M.D. 1598, 2007 WL 4643885, at *1 (S.D.N.Y. Apr. 3, 2007); Kroger v. Legalbill.com LLC, CIV A 04-2189 ESH, 2007 WL 4730719, at *1 (D.D.C. Feb. 5, 2007). It is particularly reasonable to do so where, as here, the damages report has largely withstood scrutiny. This Court has permitted supplemental damages studies in just such an instance. In Gutierrez v. Wells Fargo & Co., C07-05923 WHA, 2010 WL 1233810 (N.D. Cal. Mar. 26, 2010), the Court ruled that the plaintiffs’ first damages study was “woefully inadequate,” and the Court ordered the plaintiffs to prepare and serve a new report. Id. at *2–3. The plaintiffs’ revised damages report largely withstood Daubert scrutiny, but parts of the new study were again inadmissible. Id. at *8–*12. Nonetheless, concluding that an “additional damages analysis” remedying the flaws “would greatly assist the factfinder in the upcoming bench trial,” the Court ordered plaintiffs’ counsel to complete an additional damages analysis promptly enough to allow the defendant a fair opportunity to review it and respond before trial. Id. at *14.
There are compelling reasons to allow a third report in this case as well if any part of the trial is postponed past the spring of 2012.
First, the measure of damages in this case is unusually complex, particularly with regard to apportionment. Sun licensed its patents (or patent claims) and copyrights only on a portfolio basis. The unsuccessful 2005-2006 negotiations between the parties involved a complex intellectual property portfolio, as well as related business arrangements. Moreover, in those negotiations, Sun expected to be compensated largely through convoyed sales related to Android, in addition to a direct license fee; the incompatible nature of Google’s infringing use significantly compounded the relevant harm; the accused product (an open source mobile smartphone platform) was a new product in a dynamic industry; Google claims to have made almost no business projections for Android; and Google primarily monetized the accused product through advertising rather than through direct sales.
Second, the legal standards governing the measure of damages are in flux. In the last few years, the Federal Circuit has discarded what had been accepted methods of calculating patent damages, and has imposed different requirements and standards. See, e.g., Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1311–18 (Fed. Cir. 2011) (rejecting “25% rule of thumb” despite its “widespread acceptance” and the Federal Circuit’s having previously “passively tolerated” the rule). Experts in the valuation of intellectual property have observed that “the case law in this area now appears to be developing at a comparatively rapid pace” and “many questions and problems remain involving the calculation of reasonable royalty damages in patent infringement cases.” John N. Zarian, Uniloc and the Developing Law of Patent Damages: Is There Still A Need for Reform?, 54 ADVOCATE 22, 24 (2011). With respect to patent damages, we are in a “changing legal and technological landscape.” Patricia Dyck, Beyond Confusion—Survey Evidence of Consumer Demand And The Entire Market Value Rule, 4 HASTINGS SCI. & TECH. L.J. 209, 210 (2012). As the law changes, economists— including Google’s own damages expert, Dr. Leonard—have noted the difficulties of apportioning complex products and have questioned whether it can be done at all with precision. See, e.g., Damien Geradin & Anne Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products, 27 SANTA CLARA COMPUTER & HIGH TECH. L.J. 763, 772–77 (2011). Indeed, this Court has noted the absence of authority governing the apportionment analysis in the circumstances presented in this case. (Dkt. 642 at 8:25–26 (“There is no controlling law on point to guide this inquiry into the reliability of Dr. Cockburn’s [apportionment] methodology.”).) Google’s own experts have not even tried to apportion. In their reports, Google’s experts just assume Prof. Cockburn’s apportionment percentages of 30% for patents and 15% for copyrights, while critiquing the measurements that support those numbers, and adjust other aspects of his analysis.
the success of Android, as Oracle’s technical expert and other witnesses would testify. (Dkt. 56 at 4:19; Dkt. 230 at 5:11–16.) The Court rejected the application of the entire market value rule, despite the fact that Oracle’s technical expert has concluded that Android would be “crippled” without the benefit of the infringed patent claims, and Google’s own copyright expert has conceded that the infringed APIs were “essentially required” once Google decided on Java as the Android programming language. (Mitchell Patent Infringement Report ¶¶ 42, 49, 53, 62; Astrachan Copyright Infringement Report ¶ 130.) The Court rejected use of the Nash bargaining solution, a mathematical model devised by a Nobel prize-winning economist, accepted by economists since the 1950s, advocated by other experts specifically for the calculation of infringement damages, and accepted by other courts as a reliable basis for measuring damages. See Amakua Dev. LLC v. Warner, 05-C-3082, 2007 WL 2028186, at *20 (N.D. Ill. July 10, 2007); Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991, 1995–96 (2007) (using Nash bargaining; noting that “[w]e believe our model is the simplest possible game-theoretic model rich enough for this purpose.”). The Court has required calculation of damages on a claim by claim basis, despite the fact that no court apparently has ever imposed such a requirement. Cf. Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1201, 1205, 1208–11 (Fed. Cir. 2010) (affirming damages award in its entirety, despite fact that damages were calculated on a per patent basis, every patent included method and non-method claims, and the court reversed jury’s infringement judgment as to all method claims). Oracle does not seek to revisit the Court’s prior rulings on these matters now. But it does contend that Prof. Cockburn’s two prior damages reports were appropriate, well-supported, good faith efforts to address the complexity of damages in this case.
of dollars in revenues. These plans were undermined by Google’s release of an incompatible Android for free. The damages that Oracle has sought in this case are a small fraction of Sun’s losses and a still smaller fraction of Google’s gains from the infringement, and would not prevent Android from still being enormously profitable for Google.
Fourth, the bulk of Prof. Cockburn’s analysis has withstood Google’s Daubert challenges or has not been challenged. The only portion of the analysis essential to the reasonable royalty that has been stricken is the apportionment of the 2006 license bundle. As explained below, Prof. Cockburn can prepare a report that adds an apportionment approach employing guidance from the Court in its January 9 Order. At the same time, he can incorporate an analysis based on the “Alternate Approach” that the Court described in its December 27 Order (Dkt. 657), and which also builds on analyses that have already been disclosed and have withstood challenge or gone unchallenged by Google.
Fifth, to deny Oracle a third report could grant Google a windfall, even though Google’s experts concede the fact of patent damages, and measure those damages in the tens of millions of dollars (Leonard Report at 71-72). The Patent Act provides that, “Upon finding for the claimant the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.” 35 U.S.C. § 284. If Prof. Cockburn’s testimony on reasonable royalty is excluded, and Google is found to be liable for patent infringement, there is a danger that Oracle would be left without an adequate monetary remedy.
Court’s Recent Guidance And Other Rulings in This Case.
Oracle can provide a third damages report that would satisfy the requirements of Daubert and Federal Circuit law, as construed by this Court’s prior rulings.
Oracle has identified at least three approaches to calculating reasonable royalty damages that would comply with this Court’s directions and rulings, each described below. Prof. Cockburn could submit a report that employs any or all of these three approaches, each of which would provide an independent basis for the calculation of a reasonable royalty. The building blocks for these alternative methodologies either remain unchallenged or have been explicitly approved by the Court.
Prof. Cockburn has already submitted a report that seeks to implement the method described in the Court’s order of July 22, 2011, focusing on the 2006 negotiation. (Dkt. 230.) All of the essential steps of that analysis, save one, have withstood Google’s Daubert challenges or have gone unchallenged by Google. In a third report, Prof. Cockburn would replace the one step that the Court has rejected – the downward adjustment required to apportion to the specific patent claims and contributions in suit – while leaving the remainder of the analysis unchanged. The third report would retain the starting point and upward adjustment analyses that have already survived Google’s challenge as well as the unchallenged overall discussion of the Georgia-Pacific factors and downward adjustments for the limitation of accused products, limitation of the hypothetical license to the United States, and concerns about patent marking. It would then add two independent methods of resolving the apportionment issue, based on the additional guidance included in the Court’s January 9 Order.
3 The already disclosed technical benchmarking data, conjoint survey, and econometric analyses would remain in Prof. Cockburn’s third report, and would still be relevant and admissible on both the apportionment issue and as direct evidence of the importance and value of the patent claims and copyrights in suit, under Supreme Court cases, Federal Circuit cases, and Georgia Pacific itself. See Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 697 (1933) (“The use that has been made of the patented device is a legitimate aid to the appraisal of the value of the patent at the time of the breach.”); Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333–34 (Fed. Cir. 2009) (“Consideration of evidence of usage after infringement started can, under appropriate circumstances, be helpful to the jury and the court in assessing whether a royalty is reasonable. Usage (or similar) data may provide information that the parties would frequently have estimated during the negotiation.”). However, using the approach described here, Prof. Cockburn would not be dependent on the benchmarking data, conjoint survey, and econometric analyses.
Second, the contemporaneous evidence – Google emails, presentations, and internal memoranda – of the importance that Google placed on the features enabled by the patents and copyrights provides a sufficient basis for Prof. Cockburn to opine as to the fraction of the 2006 bundle represented by the patent claims and copyrights in suit. See Finjan, 626 F.3d at 1208-11; see also Dkt. No. 642 (Dec. 6, 2011 Tentative Order) (“based on internal documents calling the patented features important, the jury could infer that a substantial fraction of the accused product’s profits stemmed from the patented invention”). In Finjan, the only evidence that the patents represented a “substantial fraction” of the value of the accused product for the purpose of determining “the portion of the realizable profit that should be credited to the invention” under Georgia Pacific was (i) the plaintiff’s expert’s opinion that the defendant’s documents established that the feature enabled by the patents was “fundamentally important to the product”; (ii) the defendant’s expert’s concession that the technology was “important” and “perceived as the next wave”; and (iii) the defendant’s promotional materials emphasizing its ability to provide the functionality afforded by the patents. See Finjan, 626 F.3d at 1211. Notably, the plaintiff’s expert in Finjan did not need to measure the value of the other elements of the accused product to conclude that the patented functionality represented a “substantial fraction” of its value. The contemporaneous evidence, including numerous internal Google documents emphasizing the importance of the specific functionality these patent claims contribute to Android, is considerably more extensive and objective than that cited by the plaintiff’s expert in Finjan. Indeed, Prof. Cockburn’s September report already cites that contemporaneous evidence as an input to his apportionment analysis and discloses his reasoning.
In short, the only new analysis would be to apportion the patent claims and copyrights in suit vis-à-vis the other benefits on the table in the 2006 negotiation. All other analyses and materials have been fully disclosed in prior reports, and have gone unchallenged or have withstood challenge under Daubert.
The Court’s December 27, 2011 Order described an approach to calculating reasonable royalty damages that used, as a starting point, the economic value of the contribution of the patent claims and copyrights in suit, as demonstrated by econometric analyses and a conjoint survey using 2008 to 2011 data. For the reasons stated in its January 5, 2012 brief (Dkt. No. 682), Oracle believes that such an approach is generally consistent with Federal Circuit law and could be accomplished in this case subject to a small number of caveats. In particular, Prof. Cockburn could calculate reasonable royalty damages by employing the following steps, almost all of which have been fully disclosed and have withstood Google’s Daubert challenges or have gone unchallenged. The analysis represented by these steps would be an independent or alternative measure of damages, but also complement the 2006 negotiation-based methodology described above.
The September report also quantified the actual incremental benefit to Android from its exploitation of the specific patent claims and copyrights in suit. (Cockburn Report ¶¶ 264–84, Exhibits 4–13, & App’x C–D.) This analysis had three components: technical analysis of the actual performance benefits afforded by the patent claims, econometric analysis of the value of those benefits, and conjoint analysis of the value of those benefits.
Prof. Cockburn then used two independent quantitative analyses to determine the extent to which Google’s market share would have been affected if it had gone to market with a version of Android that lacked the speed and memory benefits provided by the patent claims and/or lacked the full number of applications enabled by use of the copyrighted APIs. One of those quantitative analyses, the econometric analysis, examined transaction data from 20,000 auctions of smartphones on eBay to determine the frequency with which consumers would switch to a non-Android phone if Android’s performance with respect to speed alone were reduced to the extent indicated by the benchmarking and technical analyses. This data allowed Dr. Cockburn to calculate the reduction in Android market share, and the resulting effect on Android advertising revenues, if Android did not have the improvements to speed provided by the specific patent claims.4 Google did not challenge that econometric analysis, which was described in detail in Appendix D to Prof. Cockburn’s September report, on Daubert grounds.
4 Prof. Cockburn does not assume that a 1% reduction in Android market share would result in a 1% reduction in Android revenues. Rather, he assumes that for a significant percentage of consumers who switch away from Android, Google would still earn advertising dollars from those consumers using Google search on different platforms. He then measures the incremental benefit to Google of such revenue being generated on Android phones versus alternatives.
an established method of measuring the relative value to consumers of various attributes of a multifeatured product. In conjoint analysis, survey participants are not asked to simply rank order or score the attributes that they say they find valuable. Rather, they are shown a set of products with different combinations of attributes (in this case, one of several brands; one of several operating systems; a high, low or middle price; high, low or middle speed expressed in terms of seconds to launch an application; large or small screen size; and the number of available applications for that particular phone). The participants are then asked to choose which particular combination, in the set provided, they would purchase. Each participant is shown multiple sets of differing combinations, numerous times, and asked to choose the most desirable one. The resulting data set from these simulated purchases allows for a robust statistical analysis of the relative value that consumers place on particular attributes. As with the econometric analysis, these data allow Prof. Cockburn to determine how many consumers would switch to a non-Android phone if Android lacked the attributes afforded by the specific patent claims and copyrights, to calculate the resulting effect on market share, and the resulting effect on revenues. Google did not challenge Prof. Cockburn’s and Dr. Shugan’s analysis on Daubert grounds. Indeed, one of Google’s own experts, Dr. Alan Cox, has written articles describing this type of choice modeling analysis as a “rigorous” method of calculating damages in intellectual property infringement cases. See Dr. Alan Cox & Louis Guth, “Survey Techniques for Rigorous Measurement of Damages in Trade Dress Confusion Cases” (Jan. 8, 2007), available at http://www.nera.com/extImage/PUB_Trade_Dress_Confusion_NPL-FINAL.pdf; see also Dr. Alan Cox, “A Better Consumer Survey for Better Damages” (April 11, 2003), available at http://www.nera.com/extImage/5958.pdf.
2. Consider the contemporaneous, 2005 and 2006 evidence of the importance and value of the features, augmented and confirmed by the technical and quantitative analyses, to reach a conclusion as to the actual value that the parties would have placed on the patent claims and copyrights in suit as of 2006. For the reasons explained in Oracle’s January 5 and January 9 submissions, it is appropriate under Federal Circuit law to consider auction data, survey data, and the actual value of the specific patent claims and copyrights to Android after infringement began, to inform the measure of a reasonable royalty. (Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1333 (Fed.
3. Adjust downward to account for any additional know-how inputs that were required to achieve the incremental benefits. As explained in Oracle’s January 5 submission (Dkt. 682 at 3–6), it is not necessary here to make any additional reduction in the value of the contributions by the patent claims and copyrights because the quantitative analyses measure only the incremental benefits from infringement. Google’s counsel has argued that the software code that Google wrote to enable the infringement has some independent intrinsic value (Dkt. 683 at 1), but it cited no evidence in support of that argument, and its own technical and economic experts have never made that claim. But to the extent that Google’s engineering efforts or software code contribute to the measured performance benefit, Prof. Cockburn would account for the value of that additional know-how input from Google.
4. Use the Georgia-Pacific factors to analyze a negotiation, at the time of the infringement, for the incremental value contributed by the patent claims and copyrights. Having identified and quantified the value to Android of the performance and other enhancements provided by the patent claims and copyrights, in terms of increased advertising dollars, Prof. Cockburn would then estimate a reasonable royalty, using the Georgia-Pacific factors.
accused devices to specific products, using the same unchallenged approach that he used in his October reply report.
7. Adjust patent damages downward provisionally, in the event that the jury finds a failure to mark. Prof. Cockburn’s third report would adjust damages downward in the event that the jury determines that Sun or Oracle was required to mark products that infringe the patents, but failed to do so. This work also was already done in Prof. Cockburn’s October reply report, and would require only slight adjustment in a third report.
Reasonable Royalty Damages Calculation On A Claim-By-Claim Basis.
In a third report, Oracle would state the value of each distinct claim, as the Court has required. Oracle continues to contend that this requirement is unnecessary in this case, as the value of each asserted claim of a patent in this case is the same as the others, because all provide the same value to Android.
In his September report, Prof. Cockburn lists each asserted patent claim, identifies the Android functionality that the technical experts say is provided by those claims, and then values that specific functionality. (Cockburn Report Exhibits 6–12.) That valuation is based on a number of disclosed inputs.
Oracle’s technical expert, Prof. Mitchell, asserts that every asserted claim of a given patent is infringed by the same aspect of Android. Google disputes infringement, but Google does not challenge that particular component of Professor Mitchell’s analysis. In addition, Prof. Mitchell asserts that the purported alternatives to every asserted claim of a given patent are the same. Here, again, Google has not challenged Prof. Mitchell’s assessment. As a result, the Android functionality provided by infringement of each claim of any patent is the same, and its value is the same.
Dr. Kearl and Google’s own experts, who would be free to present some alternative calculations on a claim-by-claim basis, if supported by the evidence or previously disclosed technical analysis.
For the reasons stated above, Oracle requests that the Court sever and stay the patent claims, and set the trial of the copyright claims for the first possible date in the winter or spring of 2012, subject to continuance if the Federal Circuit does not rule on Google’s mandamus petition before the scheduled trial date. If the Court declines to set such a trial date or if the patent or copyright phase of the trial will be delayed beyond spring 2012 for any other reason, Oracle requests that it be given leave to prepare and submit a third damages report on reasonable royalty damages.
A prior order had given the parties until noon on Friday to submit five-page replies to the recent filings (Dkt. Nos. 697, 698). It would be of assistance to the Court if the parties could instead file the replies by FOUR P.M. ON THURSDAY, JANUARY 19. This earlier deadline will be the order of the Court unless an objection is timely made.

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