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Judge May Scale Back Oracle’s $6 Billion Damage Demand Against Google

Last month, Oracle Corp. wants Google (NSDQ: GOOG) to pay as much as $6 billion-yes, that’s billion with a B-because it says Google’s Android operating system infringes patents the company got when it purchased Sun Microsystems last year. In a hearing today, Google asked the judge to cut that demand down to size and not let Oracle present its “ridiculous” damage claims to a jury.

U.S. District Judge William Alsup, who is overseeing the case, appeared to be open to the idea that Oracle had seriously overshot in its damage report. But he also said that Google’s own damage suggestion-that it owed zero damages even if it infringes Oracle patents-was silly as well. “You’re both asking for the moon and you have to be reasonable,” Alsup told an attorney representing Oracle. And while he might pare back Oracle’s big demands, the scaled-back demands still might be enormous, with the potential damages “in the millions, perhaps the billions,” said Alsup.

However the damage demands come out, the stakes here couldn’t be higher. Not many technology lawsuits get bigger than this. The fast-growing Android operating system has quickly becoming integral to the operation of the entire mobile universe, and has been the only force that can seriously compete with Apple’s iPhone. Oracle wants to put the handcuffs on Google’s system, getting massive royalty payments-or even shut it down with an injunction. And Judge Alsup confirmed today that if Oracle succeeds, Google could easily be facing an injunction if it loses at trial.

Today’s hearing represented an early skirmish, with Google trying to place some limits on what kind of Oracle could inflict if it wins. While the judge criticized both sides, he appeared quite fed up with the tactics of Oracle’s attorneys, and Google may well succeed in limiting Oracle’s outsize damage demand. Alsup didn’t rule from the bench today but said he’ll have an order published soon.

Key points from the hour-long argument today:

»  Google argued that Oracle’s damages expert was way out of bounds when he wrote a report asking for up to $6 billion. Sun always licensed its Java technology and always did so at “de minimis rates,” argued Robert Van Nest, the Keker & Van Nest lawyer representing Google. The totality of the company’s revenue from all handset makers was in the “mid-eight-figures,” said Van Nest, or less than $100 million. On top of that, when Sun and Google were negotiating about creating a licensing partnership, Sun proposed an “all-in” royalty payment of $100 million for three years. “Yet [Oracle’s expert] creates a hypothetical negotiation where Google would have agreed to share 15 to 20 percent of its advertising revenue-ridiculous!” Van Nest told the judge.

Alsup wanted to know why-if Google doesn’t infringe Sun patents-it needed a license at all. Van Nest explained that the negotiations were about a wide-ranging partnership, where a patent license would have been just part of the deal. And, he pointed out, when Android was finally released, it isn’t as if Sun executives exactly stood up and were outraged. In fact, they welcomed Google and Android, seeing Android as something that could “spread the word” about Java. “There was never a threat of litigation, never a waving of patents or copyrights,” said Van Nest. “All of that started only after Mr. Ellison paid $7 billion for Sun and then several months later turned around and sued [Google].”

»  Alsup exhibited real frustration with how Oracle is litigating the case. Alsup strongly suggested that Oracle’s damage report won’t stand as it is, but the company would get a chance to do it over again. “There’s nothing in there but a guy getting paid $700 an hour, who comes up with $6 billion [in damages],” Alsup told Oracle lawyer Steven Holtzman of the Boies Schiller law firm. “You will get another chance… but it was a mistake to do it this way,” He also was annoyed that Oracle hadn’t clarified exactly what it thought was infringed. “You can’t even make up your mind about what’s infringed,” he added. “You were at 123 [patent claims], then you were at 50, now you’re heading to somewhere below 25. You want me to roll the dice…”

»  Oracle presented the judge with an email from a Google engineer that led to some sharp questions for Google. The email was from Google engineer Tim Lindholm to Andy Rubin, head of Google’s Android division, and Alsup actually read part of it aloud from the bench: “What we’ve actually been asked to do by Larry [Page] and Sergey [Brin] is to investigate what technical alternatives exist to Java for Android and Chrome. We’ve been over a bunch of these and think they all suck. We conclude that we need to negotiate a license for Java under the terms we need.” Alsup then said to Google’s lawyer: “You’re going to be on the losing end of this document-with Andy Rubin on the stand. If willful infringement is found, there are profound implications for a permanent injunction.”

Van Nest emphasized that this email was a response to the new circumstances that came into existence after Oracle bought Sun and began making legal threats towards Google. “This is August 2010,” said Van Nest. “This is after the Ellison crew has come in… and says, here are the patents, we think you’re infringing. If Oracle comes in and says, ‘You’re going to have to spend all this money on the lawsuit,’ the question from the [Google] CEO is, is there any way we can avoid this altogether?”

»  The judge made it clear to both sides the whole process is going to be public-very public-whether the two dueling companies like it or not. Considering how often federal judges go along with companies to keep documents and testimony sealed in technology cases, Alsup’s approach was refreshing. “You lawyers are not going to handcuff the public from knowing what goes on,” said Alsup at one point. “This [court] is not a wholly owned subsidiary of Oracle Corporation… If Google has an email in their files saying ‘we willfully infringe,’ there’s no way I’m going to keep that from the public or the investing public. Don’t get me started on this. These big companies do not own the U.S. District Court.”

For more coverage of the hearing, see Reuters, Bloomberg and the San Jose Mercury News.