Oracle pushes judge to force Google to disclose terms of deals with Apple, other mobile competitors

14 January 2016. By Mike Swift.

Google acknowledges that the check it writes Apple each year to be the default search engine on the iPhone is one of its most sensitive secrets. As a prelude to their high-stakes copyright trial this spring, Oracle wants a federal judge to force Google to disclose terms of that deal with Apple and other mobile competitors.

According to depositions Oracle has taken from Google executives in the prelude to a trial set to start May 9, the annual amount Google pays Apple to keep its search box on the iPhone has now topped $1 billion, an Oracle lawyer said at a hearing Thursday in Oakland, California.

Oracle lawyer Annette Hurst told US Magistrate Judge Donna Ryu that one Google executive recently testified in a sworn deposition: “I know we paid them a billion dollars in 2014.”

Hurst’s statement drew an objection from Google lawyer Robert Van Nest, who said those numbers and other specifics of the Apple deal had been sealed, and that the court reporter should strike the comment. Ryu said she will consider whether to redact that statement from the public transcript.

At the trial in May, Oracle will attempt to convince a jury that Google’s use of elements of Oracle’s Java software to create the Android mobile operating system was not protected by the doctrine of fair use. If Oracle is successful, it is expected to ask for billions of dollars in copyright damages from Google’s profits from Android, the world’s most widely used operating system for smartphones and other mobile devices.

Google does not charge phone-makers to use Android, but the advertising revenue it gets by having its search engine and other mobile services installed as defaults on those devices goes to the Mountain View, California search giant. That indirect relationship makes Oracle’s job much tougher in trying to peg the economic value of Android to Google, and how much Google might have to pay in damages if the jury finds it infringed Oracle’s copyright.

Hurst told Ryu Thursday that when Google decided a decade ago to copy the structure and organization of 37 packages of “Application Programming Interface,” or API, code from Java to build Android, it was in a desperate “space race” to create a viable smartphone platform that could counter the iPhone, which is powered by Apple’s iOS operating system.

“It was a critical window of opportunity for Google,” Hurst told Ryu. “Consumers were converging on the [mobile] market, and they were in a space race with Apple. They were neck-and-neck with the iOS platform.”

Google’s copying of Java allowed it to get a smartphone operating system to market much more quickly than it otherwise would have, Hurst said. The first Android phone went on the market in October 2008, about 16 months after the debut of the iPhone.

To buttress its argument for the size of those copyright damages, Oracle wants Ryu to order Google to turn over details of its revenue-sharing and service agreements with Apple and other non-Android mobile platforms, such as Blackberry and Microsoft. Those disclosures could include the amount Google pays those platforms and the specific list of Google services such as search, maps and Gmail that get placed on those devices as a result.

Knowledge of Google’s deals with Apple and other non-Android platforms, Hurst told Ryu, would allow Oracle to deduce the economic benefit Google reaped by copying the Java APIs to build its own mobile operating system quickly enough to command its current market share, and therefore control the terms of the very large Android platform.

Knowing the size of the payments to Apple and other non-Android platforms would also help Oracle counter Google’s fair use defense by allowing Oracle to argue to the jury that Google’s copying of the Java APIs was a purely commercial use.

“This is a compelling commercial use. It is not, ‘We want to delight the world’s consumers,’ ” as several Google executives testified in recent depositions, Hurst told Ryu Thursday. “It is, ‘We are earning billions and billions and billions of dollars and we don’t want to pay Sun [Microsystems], and later Oracle, a single penny of that.’ ”

Google counters that any damages Oracle potentially gets should be based on the hypothetical license negotiation that would have happened between Google and Sun had Google decided to pay for a license to Java to help build Android. Sun developed Java before the company was acquired by Oracle in 2009. What Google has paid Apple and other non-Android competitors to get Google services on their mobile devices in recent years is irrelevant, Van Nest said Thursday.

Ryu did not rule on Oracle’s request Thursday, but ordered lawyers for the two sides to meet and try to negotiate a joint proposal by Tuesday for what terms of those platform agreements Google must provide to Oracle. The names of the companies would not be shared, Ryu said, but the amount and percentage of revenues shared by Google would be, as well as a potential list of search and other Google services covered by those deals.

The disclosure of the specific list of services covered by the deal with Apple and other platforms “is what we’re really objecting to,” Van Nest told Ryu. “They don’t really need that to make the point they want to make.”

Google paid $13.5 billion, or about 20 percent of its total revenue, for traffic acquisition costs in 2014, the most recent full year for which the company has reported public financial data. Google does not disclose what share of those costs go to Apple to make Google the default search engine on the iPhone, rather than competitors such as Microsoft’s Bing.

Oracle said in a court filing in December that it has already deposed Google experts such as Hiroshi Lockheimer, the current vice president of Android. Lockheimer also testified in the second patent trial between Apple and Samsung.

Some details of Google’s agreements with Android phone-makers such as Samsung and HTC to make Google the default search engine on their devices came to light during the second antitrust and intellectual property trial between Apple and Samsung, the biggest maker of Android-powered phones.

The so-called Android “Mobile Application Distribution Agreements” were also the basis of an antitrust lawsuit against Google that was withdrawn in 2015.

But the specifics of Google’s iPhone deal with Apple, including the exact amounts of the annual payments Google makes to Apple, have remained a tightly held secret, one of the biggest financial mysteries in Silicon Valley.

“None of this material, which is among the most secret and competitively-sensitive material that Google maintains, and which is subject to confidentiality agreements with third parties who would need to be heard before any of this could be disclosed, is relevant to any issue in this case,” Van Nest said in the December court filing.

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