Bloomberg reports that another round of
talks between software giants Google Inc. (GOOG) and Oracle Corp. (ORCL) ended at an impasse. Oracle Corp. is
currently suing Google for using pieces of its patented Java2ME (J2ME) code in
Android via the Apache Project's Java Standard Edition "Harmony" (J2SE).
CEO Larry Page sat with Oracle CEO Larry Ellison for 10 hours trying to work
out an acceptable licensing agreement. The talks ended with no deal
reached, with both parties agreeing to talk to court officials about "when
further discussions will take place and whether the further attendance of Mr.
Ellison and Mr. Page will be required."
I. Oracle's Plan For Double-Dip License Fees
The case represents a substantial risk for both firms.
Working in Oracle's favor is the fact that the judge has suggested that
Google's infringement of the Java technology was "brazen". But Google has some
advantages of its own. It dug up documents from the former CEO of Sun
Microsystems -- the company Oracle acquired the Java intellectual
property from in 2010 -- praising Google's use of Java in Android, and
casting doubt on whether Sun was opposed to the unpaid use.
Furthermore, Google succeeded in convincing the judge to toss out the $6.1B USD
that Oracle wanted -- a figure which included speculative future damages.
Oracle has since revised its estimate downwards to $2.3B USD, a figure
that still includes a $1.2B USD speculative damages total for 2012, which
Google contends is unfair.
If the pair can't settle up, the case will likely go to trial. If that
happens Oracle will be seeking one thing -- a permanent injunction banning U.S.
Android sales. Unlike Apple, Inc. (AAPL) who is seeking a similar injunction in hopes
of permanently preventing U.S. Android sales, Oracle's "permanent"
injunction bid would be in hopes of forcing Google into a lucrative licensing
deal. Oracle could ask for a royalty as high as $15-20 per device
license, on top of the identical fee it already charges Android handset makers
like Samsung Electronics Comp., Ltd.'s (SEO 005930).
This is an important aspect to understand of why Oracle's campaign is more
harmful to Android, than Microsoft's
licensing efforts -- Oracle is double-dipping, seeking fees both at
the OS and handset levels, where as Microsoft is content to stick with handset
Google offers Android licenses to handset manufacturers for free, though it
does earn a certain amount of revenue via its cut of app sales and
Android-targeted licensing. The question becomes how much of that revenue
can Oracle take before Android starts to become a losing proposition for
If Google is unable to beat Oracle in court, it will surely regret rejecting
Sun's 2006 offer to license Java2ME to Android for $100M USD.
II. Google Could Remove Java from Android
One possible way Google could shirk the licensing fees, though, is to remove all the J2SE/J2ME code, leaving a naked interface for partners to implement
their own build of J2ME. As most Android partners -- such as Samsung and
Google subsidiary Motorola Mobility – are J2ME
licensees, Oracle likely couldn't do anything about this scheme. The
one major player who would be hurt by such an arrangement would be HTC
The Taiwanese manufacturer, believed to be the second largest Android
handset maker, does not license
J2ME. Thus it would likely be summarily sued by Oracle, should it try to
plug in the technology.
If Google adopts such a strategy (and there's no clear reason why it wouldn't
other than to protect HTC), it would still have to pay the damages for past
infringement, but it would be spared from the ongoing double-dip licensing
scheme. That would mean a big loss for Oracle, as the license fees
comprise the majority of the money Oracle hopes to pocket in future years as a
result of the case.
One thing to recall is that Google is sitting on a $39B USD cash surplus [source],
so it can afford to stomach some damages. But licensing fees? Those
it should be far more concerned about, as they affect its ongoing bottom line.