Oracle v. Google: NDCA Rejects Conclusions by Court-Appointed Damages Expert Because They Failed to Account for the Value of the IP in Suit

On April 10, 2012, in Oracle America, Inc. v. Google Inc., No. C-10-03561 WHA (NDCA), Judge Alsup issued an order on Daubert motions against the report and testimony of Court-appointed Rule 706 expert Dr. James Kearl. As an initial matter, the opinion states that Kearl was appointed under Rule 706 to assist the jury in evaluating damages issues because (a) the damages aspect of the case is extremely complex, (b) the parties have extremely divergent views on damages, and (c) the sums at issue are vast.

The Court partially granted defendant Google's Daubert motion to exclude Kearl's opinion that the value of the intellectual property in suit would have been the value of the entire Java Mobil IP portfolio. Kearl focused on a 2006 hypothetical negotiation between the parties, in which he considered the relationship between the value of the IP in suit (2 patents and copyrights to the Java API) and Sun's entire Java mobile platform IP portfolio. The entire IP portfolio included the IP in suit as well as many additional patents and copyrights.

Kearl decided that there were good economic reasons for not apportioning the value of the Java IP portfolio to account only for the value of the IP in suit. Rather, Kearl concluded that the royalty should be based on the entire Java IP portfolio, giving three reasons to support this conclusion. The Court summarized these reasons as follows (citing Kearl's report):

First, he opines that if the parties knew in 2006 that the IP in suit would be the most relevant for Android, then the IP in suit would have "driven the negotiations and the aggregate value of the license in the 2006 negotiations is attributable to this subset" (Rpt. ¶ 100). Second, if the parties in 2006 did not know which subset of IP in the portfolio would be the most useful, then Google would have licensed an "option" to use any subset, to be decided at a later date. ... Third, Dr. Kearl opines that if Google was interested in writing its own operating system but decided that it needed to be written in Java and based on Java mobile-like technology, then Google would have gotten a license to Sun's entire mobile portfolio as "insurance against litigation if it happened that Google" later infringed unintentionally (Rpt. ¶ 102).

The Court found the second and third reasons inappropriate for the hypothetical negotiation scenario because, citing ResQNet, these reasons do not concentrate compensation for the economic harm caused by infringement of the claimed invention. The Court reasoned that Kearl failed to account for the fact that Google would get a license to the IP in suit, and nothing more. Thus, Google would not have received a license to the entire Java IP portfolio, or an option to choose any subset of Java IP to license at a later date, or insurance against future litigation. If Google were liable for the value of the entire IP portfolio each time a piece was infringed, Oracle would be overcompensated.

The Court thus struck paragraphs 101 and 102 of Kearl's report. It also struck other paragraphs to the extent they relied on Kearl's conclusion that the hypothetical negotiation would have been for the entire Java IP portfolio.

As to Kearl's first reason that Sun and Google understood the IP in suit to be the most relevant to their hypothetical negotiations in 2006 the Court denied Google's motion without prejudice. The Court concluded that this reason appropriately presumes that Google would only receive a license for the alleged infringement as part in the hypothetical negotiation. However, because Kearl framed this as a conditional, the Court's denial was without prejudice in case the conditional did not bear out.