‘Fair use’ test at heart of $9 billion Google-Oracle copyright trial

6 May 2016. By Mike Swift.

In its 18-year existence, Google has performed three remarkable business tricks that catapulted it from an unknown startup in a Silicon Valley garage in 1998 to one of the world’s most valuable companies.

First, Google co-founders Larry Page and Sergey Brin led the creation of the world’s first fully effective Internet search engine. Second, their young company discovered a way to monetize search by selling lucrative advertising precisely targeted to the keywords searches entered in Google’s query box.

And third, since 2008, Google has seamlessly extended its search and advertising franchise from desktop computers to smartphones as the web went mobile. Google did that by building the Android mobile operating system and offering it to phonemakers for free, often sharing a portion of advertising revenue with some partners, so long as Google was the default search box on the touch screen.

That hugely successful business strategy has made Android the most widely used mobile operating system on the planet. Google says more than one million Android devices are activated every day worldwide, and there are more than 1.4 billion active Android smartphones, tablets and other devices being used in more than 190 countries.

That lucrative mobile business is now going on trial. According to court documents in a high-stakes copyright trial between Google and Oracle America that starts Monday before US District Judge William Alsup in San Francisco, Android has earned Google a cumulative $40.6 billion in gross revenue through 2015. That gross revenue generated $22.6 billion in profits for Google, with the lion’s share coming from advertising and search revenue, according to court filings.

Starting with a one-hour opening statement by Oracle lawyer Peter Bicks expected after jury selection Monday, Oracle will tell 10 jurors that Google could not have earned those eye-popping sums without illegally copying and incorporating the structure, sequence and organization of key elements of Oracle’s Java software language into Android.

The question the jury must answer in one sense is deceptively simple: Was Google’s copying of Java legal under the copyright doctrine of fair use? While billions of dollars in damages are at stake, Google also faces the risk of injunctive remedies that could alter its Android business in some as yet unknown way.

Copied APIs

In attacking Google’s fair use defense, Oracle’s lawyers will argue that Google should pay billions in copyright damages for copying 37 packages of Java application programming interfaces, or APIs. APIs allow two different pieces of software, such as an operating system and an app, to speak a common language as they communicate with one another. The damages Oracle is seeking would be a combination of Java’s lost market value due to Android’s success, and disgorgement of the search and advertising profits Google earned from Android’s copyright infringement.

Oracle’s main damages expert, James Malackowsky, has opined that Google should pay about $9 billion in damages, composed mostly of the disgorgement of $8.8 billion in Android-related profits due to Google’s alleged copyright infringement.

Google lawyer Robert Van Nest will argue in his opening statement on Monday that Google’s admitted copying of the Java APIs was transformative, and therefore a legal fair use. While Oracle and Sun tried and failed to develop Java into an operating system that could power smartphones, Van Nest will say Monday and Google’s witnesses will testify during the trial that the search giant’s software engineering creativity transformed the Java APIs into something completely different with Android.

The trial will have two phases, with the initial liability phase expected to last about two weeks, after which the jury will deliberate in order to decide whether Google’s copying was a legal fair use. If the jury says Google’s copying was fair use, the trial would be over.

But if not, there will be a second phase on damages in which the two sides would battle over how much Google should pay. Google damages expert Gregory Leonard has said the search giant’s exposure would range from $85,000 to $100 million, a wide range but still just a fraction of what Oracle is seeking.

The amount of money at stake is illustrated by the fact that top executives for the two companies are expected to testify live in court, including Eric Schmidt, the executive chairman of Google’s Alphabet holding company; Andy Rubin, who headed the development of Android; Oracle co-founder and chairman Larry Ellison; and Oracle CEO Safra Catz. As a former executive with Sun Microsystems, which developed Java in the 1990s before the company was acquired by Oracle in 2010, Schmidt’s testimony will be particularly significant.

If the trial reaches the damages phase, a new player will enter the stage — a court-appointed neutral expert, James Kearl.

Google may be just as concerned about the injunctive relief that Alsup could order at the end of the trial if all the company’s copyright defenses fail. While no one knows what that relief might be, it could involve an order that Google pay Oracle for a license to the APIs, or it could require Google to change its Android business in such a way to no longer use the Java APIs.

Long Road

The intellectual property battle over Android has already traveled a six-year path to get to Monday’s opening statements in what technically is a retrial of the first trial between Google and Oracle in 2012.
The 2012 trial included both patent and copyright claims by Oracle. The 2012 jury found that Android did not infringe Oracle’s patents, but that the search giant did infringe the copyright on Java. The jury hung, however, on the question of fair use.

Alsup, who learned to program in Java to prepare for the trial, then ruled that the structure, sequence and organization (SSO) of the Java APIs were not copyrightable, because they were discreet “methods of operation” exempt from copyright protection.

Alsup was reversed two years later, however, when the US Court of Appeals for the Federal Circuit ruled in 2014 that because the SSO of the Java APIs “is original and creative,” and because the accompanying 11,000 lines of declaring software code Google also copied could have been written in many different ways, it does “not bar the [API] packages from copyright protection just because they also perform functions”.

Google lost its last chance to block the retrial when the US Supreme Court last year denied its petition to review the Federal Circuit decision reversing Alsup . It’s not impossible, however, that after a final judgment is recorded following the 2016 retrial, Google could ask the high court to reconsider the question of whether the structure and organization of APIs can be copyrighted.

Transformation or Additive?

Weeks of pretrial hearings and thousands of pages of court filings provide a clear window into how arguments on both sides are likely to unfold starting Monday. The test of what constitutes fair use will be the gateway question of the trial.

US courts apply a four-factor balancing test to determine fair use. Juries or judges look at how commercial and transformative the use is; the impact on the market value of the original work that was copied; the amount of the portion used in relation to the copyrighted work as a whole; and the nature of the copyrighted work, which considers its level of creativity.

Like a software API, the four fair use factors are somewhat interactive. Because the commercial nature of Google’s use is not in question, a key issue will be the degree to which Google’s use transformed Java.

“The greater the transformation, the more likely an accused use will be a fair use, and the less the transformation, the less likely an accused use will qualify as a fair use,” Alsup wrote in proposed jury instructions on fair use that the judge filed Tuesday.

Under Ninth Circuit law, commercial copying that damages the market for an original work such as Java can still outweigh the economic damage to the original use if the copying is transformative enough. In Sony Computer Entertainment v. Connectix, a case involving PlayStation gaming consoles, the US Court of Appeals for the Ninth Circuit said in 2000 that “some economic loss” for the original work “does not compel a finding of no fair use.”

Google’s Van Nest will try to convince the jury that copying the Java APIs transformed them into something completely different. The 11,000 lines of declaring code Google copied were a miniscule share of the millions of lines in source code in Android, he will say.

Oracle’s lead lawyers, Bicks and Annette Hurst, will counter that Google’s use was additive, not transformative. They will point out that Google took the structure, sequence and organization of the Java APIs and plopped them unchanged into Android. Not only did Google not alter the Java APIs in any way, their purpose and function in Android is identical to what they do in Java, Oracle’s lawyers are expected to say.

Google wanted the Java APIs to work the same way, Oracle is expected to argue, because the search giant wanted to woo to Android the legion of independent software developers who, a decade ago, were writing applications to run on Java.

Apple, which launched the iPhone more than a year before the first Android phone went on the market, had a huge lead in attracting developers to write apps for the iPhone, one necessary ingredient of success for any software platform. Oracle’s lawyers will say Google copied Java because it needed to act fast or lose control of the search engine’s destiny on mobile.

“What the 37 Java APIs enabled Google to do was to create the Android platform. And it enabled Google to do that at a very specific moment in time, which was a critical window of opportunity for Google,” Hurst told US Magistrate Judge Donna Ryu at a hearing in January, a statement that will no doubt echo during opening statements on Monday.

“Consumers were converging on the mobile market and they were in a space race with Apple. They were literally neck-and-neck with the iOS platform.”