Why Cutting A Deal With Oracle Should Be Google’s Top Android Priority

It’s a little amusing to think of Google (NSDQ: GOOG) CEO Larry Page and Oracle CEO Larry Ellison sitting across a negotiating table from one another: other than the fact that they are both billionaires named Larry, the bombastic Ellison and the more reticent Page are not cut from the same cloth. But even though a week of talks between the two parties ordered by a settlement-seeking judge doesn’t appear to have produced a breakthrough, Page needs to find some common ground with Ellison in hopes of putting the most important Android patent case behind Google.

The dispute between Oracle and Google over whether or not Google copied Java technology owned by Sun Microsystems (purchased by Oracle last year) is set to go to trial on Halloween in San Francisco, but Judge William Alsup would prefer the two parties work out their differences beforehand. While reports indicated there was little progress made in those discussions, Oracle agreed late Thursday to reduce the amount of damages it would seek at trial from its original $6.1 billion (rejected by the judge) to $1.2 billion, which is still a lot of money but a far more palatable number to megacorporations.

Oracle argues that a key piece of Android, its Dalvik virtual machine, is using patented technology lifted from Java and developed by Sun. It wants damages and royalties related to Google’s use of the technology, which Google has argued is not covered by the patents at issue. The argument basically comes down to whether or not Google thought it might need a license to the technology before deciding to go ahead with the project anyway in hopes of designing around the claims.

Google’s problem is that it has far more to lose at trial than Oracle. Should Oracle prevail at trial, it will probably ask for an injunction against the sale of Android handsets. That’s likely to be appealed, of course, but once imposed represents a sword hanging over Google’s head that can only be removed by settling the case with Oracle.

If Google prevails at trial, it will lift only some of the cloud over Android while Android partners continue to struggle with demands from Apple (NSDQ: AAPL) and Microsoft (NSDQ: MSFT). While Oracle might be unable to assert the Java patents again if that happens, mobile operating system development is not one of Oracle’s core competencies.

Now that Oracle has reduced its demands, it seems time for Page to cut a deal that can allow Google and Android to concentrate on those other threats. It’s unlikely that Google is going to come out of the patent-related attacks on Android without having to pay up somewhere along the line (not counting the $12.5 billion purchase of Motorola, of course). Certainly the notion that Android partners are going to have to pay something in the way of legal fees in order to use Android is gaining steam as more and more companies take a license to Microsoft’s patent portfolio.

Patent trials are long, expensive, and distracting: just ask Research in Motion (NSDQ: RIMM). Both Google and Oracle have indicated in court filings that they would consider settling the case. And a public trial could be embarrassing for Google, which is already trying to prevent one ominous-sounding e-mail from being entered into the record. After all, every time something comes up related to Google and Android that depicts Google as controlling or assertive, a new round of criticism about Google’s “open” Android strategy takes flight.

Of course, who knows if Oracle is even interested in settling. It wouldn’t be surprising if Page and Ellison have been unable to close the gap because Oracle knows Google is more likely to dance to its tune: just look at how Motorola negotiated its sale price to Google. Motorola (NYSE: MMI) knew it had Google over a barrel, and didn’t let up.

Such is the state of Android at the moment, under siege from a mobile industry that can’t compete with free. It could take Google years and tons of cash to litigate these cases only to arrive at the same outcome having exhausted the patience of its Android partners, who are already considering their place in the Android world following the Motorola bid.

If focus and execution are the main goals of Page as he nears the six-month anniversary of his return to the CEO spot, he’d do well to put the Oracle mess behind him and pay now in order to avoid paying more later. Google made a mistake in developing Android without properly considering the need for intellectual property protection. At some point, it’s going to have to pay for that mistake, and it would be better to do so on its own terms rather than under the gun of an injunction.