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The judge in the notorious dispute between Oracle(s orcl) and Google(s goog) over Java software declared from the outset that the case was the “World Series” of intellectual property trials. And no wonder. The money the two sides have already spent on legal fees is nearing the annual payroll of the San Diego Padres.
“As a general rule, even simple patent cases can cost a few million dollars,” said Doody. “This is probably ten times the size of the average patent case. $50 million in legal fees for both sides [is a reasonable guess].”
The figure is not surprising. A new ruling yesterday rejecting Oracle’s patent claims means that more than 1200 documents have now been filed in the case. The case has also involved more than two dozen attorneys from various white shoes firms, including David Boies, a celebrity lawyer who has represented everyone from Al Gore to the NFL. The sides have also paid for public relations initiatives such as Oracle’s controversial decision to hire an ethically-challenged blogger to spin its side of the trial.
A “Near Disaster” or business as usual?
After a jury last week concluded that Google (s goog) had not infringed on Oracle’s patents, an intellectual property attorney at Stanford told Bloomberg that the case had been a “near disaster” for Oracle (s orcl). The patent finding came after the jury was unable to decide if Google should be liable for copyright infringement. The judge also cancelled a planned damages phase of the trial.
On its face, the trial does appear to be disaster for Oracle which has now burnt through tens of millions in legal fees with nothing to show for it. But in the bigger picture of Oracle’s strategy, the legal bills may amount to just another cost of doing business.
According to Doody, Oracle is simply pursuing a common strategy in which companies that have passed their innovation phase turn instead to their intellectual property portfolios to make money. In Oracle’s case, the widespread use of Java in the Android smartphone market means the potential pay-off is worth the legal investment.
Doody says that companies in Oracle’s position can do one of two things to chase licensing revenue. They can either pressure small companies to obtain licenses so as to lay the groundwork for asserting patent claims against a big company. Or they can try to spear a giant company in court (in the way that Yahoo (s yhoo) is targeting Facebook (s FB)) which, if successful, makes it easy to pick off smaller players.
“One strategy is to go after small companies first. Or, go after the big guys first, and then [turn to small firms to] load them up and sign them up.”
Oracle clearly appears to be trying the whale strategy. At the moment, it is suing not only Google but SAP(s sap) and Hewlett-Packard(s hpq) too.
There may be a perverse logic to Oracle’s lawsuit against Google, and not only from a licensing standpoint. As the case moves up to appeals levels, the company stands a chance of persuading the courts to expand the number of things that can be covered by patents or copyright. If that happens, Oracle would be poised to seek even more licensing revenue.
And appeals seem inevitable. Both companies have suggested that they are far from finished and Doody predicts that Oracle will try and drive the case all the way to the Supreme Court.
If this comes to pass, the estimated $50 million price tag will have only covered the first few games of a 7-game World Series. Renowned software developer Linus Torvalds decried the situation by saying Oracle would “pay lawyers to take it to the next level of idiocy.”
The outsized legal fees in the Oracle case, and in dozens of other smartphone patent cases, raise the question if these trials are the most efficient way to promote innovation. Consider that $50 million could pay the annual salary of 500 Silicon Valley engineers or pay for a new start-up jumpstarter like Y-Combinator or Betaworks.
So far, though, it appears that Oracle CEO Larry Ellison is satisfied with the company’s current strategy. He yesterday portrayed the Google case as a victory for his company.
(Image by Aptyp_koK via Shutterstock)