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Google Inc. (GOOG - Analyst Report) won the second phase of its trial against Oracle Corp (ORCL - Analyst Report) when a jury voted unanimously in its favor on all eight considerations before it.
The second phase of the trial was about patent infringements, which according to intellectual property experts, constituted the less important part. In fact, patents have shorter lives (owners can cash in on them for 20-odd years) compared to copyrights, which could generate revenue for 95 years or more.
The patents in question related to memory management, computer stacks, compilation and binary objects, to name a few.
The judge dismissed the jury immediately after the verdict, implying that the third phase of the trial, constituting the amount of damages that Google would be called upon to pay would be decided by him alone.
Since Oracle would not receive any damages for patent infringements, the only damages it could be granted would be for copyright infringement, which was determined in the first phase of the trial.
In the first phase, the jury found that Google had in fact copied 9 lines out of 15 million lines of Java code, or 0.0000%. While they unanimously found Google guilty of doing this, they could not come to a consensus regarding its fair use.
The jury foreman told Bloomberg that he was the only one believing in Google’s guilt from the beginning, but by the end of the trial he managed to convince two others.
The doctrine of fair use dictates that if anyone uses copyrighted work without the consent of the owner for teaching, news reporting or for the creation of something new in the interest of the public, such person would be protected by law.
The fact that Google copied the 9 lines for the purpose of creating a free OS seems to indicate that Google’s actions did serve the public interest. Google had the intention of profiting out of the deal, but the doctrine does not say that the person so using copyrighted material may not indirectly profit from it.
A teacher would get wages, a news agency would get viewership and they would earn dollars out of the exercise. Just because Google would earn more dollars, it does not seem logical to penalize it.
Oracle had previously asked the judge for infringer’s profits (a percentage for each product Google has sold), something that the judge threw out the window. This makes perfect sense since it would be a practically incalculable amount, given the percentage of code copied by Google.
Even then, we have to consider what exactly Google copied. It seems that they copied application programming interfaces (APIs), commonly referred to as source code. But this basically describes a pretty complex thing comprising software, instructions, best practices and techniques.
The developer community is comfortable with the idea of sharing APIs because it promotes the development of open source software (think Linux). It is also the foundation of cloud computing and responsible for the proliferation of the Internet. The thing that needs to be protected is the software itself.
Even leaving these technicalities aside, the jury found in the particular case that Sun Microsystems, which was the owner of the Java platform when Google used the code, gave Google reason to believe that certain parts of Java could be used without license. Therefore, Oracle’s claim lost its legs in the first phase of the trial.
A further argument in Google’s favor is the fact that there is a precedent to the case (although not in the U.S). Earlier this month, a European court ruled that APIs are not copyrightable. Therefore, a U.S. decision going against the principle would be a hindrance to software development in the country.
At any rate, the maximum Google could be called upon to pay would be around a million dollars in statutory damages, and given the arguments in Google’s favor, this too could be waived.
Google shares are currently ranked #3 by Zacks (Hold rating over the next 1-3 months), compared to Oracle’s #2 (Buy).