Court warns Oracle/Google to follow ‘road map’ in calculating royalties under entire market value rule

Soon after Oracle filed claims that Google infringed its patented Java software in the Android system, the federal district court made a mistake: it let Oracle submit its expert damages report early. Instead of expediting trial preparation (and settlement), the expert’s report simply “overreached in multiple ways,” the court said, “compounding damages ever higher into the billions—evidently with the goal of seeing how much it could get away with.” But that won’t happen again.

“Please be forewarned: the next bite will be for keeps,” the court said, in permitting Oracle’s expert to supplement his report by specifically apportioning damages to the patented features rather than Java’s application in the entire Android system. “The fact that Java may be a critical component of Android does not justify application of the entire market value rule,” it held, citing the Federal Circuit’s recent decision in Uniloc v. Microsoft.  Pursuant to that case, the court also rejected the “Nash bargaining model” (developed by Nobel Prize winner John F. Nash, Jr.) for use in any reasonable royalty calculations. Instead, it strongly advised the expert to use the unsuccessful but “real world” negotiations between the parties as a starting point and then provided a six-point roadmap for adjustments to any reasonable royalty under Georgia-Pacific. Read the digest of Oracle Inc. v. Google Inc., 2011 WL 2976449 (N.D. Cal.)(July 22, 2011) in the OctoberBusiness Valuation Update; the court’s opinion is already posted at BVLaw.

Keep current on the rule. Since Uniloc, we’ve covered nearly half a dozen new cases that interpret expert damages evidence under the courts’ more stringent application of the entire market value rule. On Thursday, October 6, join Craig Jacobson (Citrin Cooperman) and Stephen Lieb (Frommer Lawrence & Haug) for  “Patent Damages: The Entire Market Value Rule.”  This installment of BVR’s Online Symposium on Litigation & Economic Damages will discuss how the increasing dominance of intellectual property as a value-driver has placed a new burden on patent damages in general and entire market value analysis in particular.