It was what every plaintiff wants to find during discovery: a smoking gun. And it helped trigger the biggest verdict of 2010.
The case pitted Oracle USA Inc., the business software company, against competitor SAP A.G. It ended with a $1.3 billion infringement verdict for Oracle.
During discovery, Oracle’s team uncovered a document proving that SAP board members knew in January 2005 when it bought TomorrowNow Inc. that its new subsidiary had been poaching Oracle’s intellectual property.
This “highly extraordinary” revelation was a milestone in the case, said Geoff Howard, a San Francisco partner at Bingham McCutchen who led much of the case.
“There was a business case that was presented to the board of directors seeking approval for acquisition,” Howard said. “It called out that TomorrowNow was illegally using [Oracle's] software and they approved the acquisition anyway.”
The recovery was the largest recorded during 2010 by VerdictSearch, an affiliate of The National Law Journal.
When Oracle first filed Oracle Corp. v. SAP A.G. in the Northern District of California in March 2007, the company knew that SAP subsidiary TomorrowNow was engaged in “vast illegal downloading” of Oracle’s software, Howard said. Specifically, TomorrowNow, which supported products made by Oracle subsidiary PeopleSoft, was breaking into Oracle’s customer-support Web sites and downloading tens of thousands of files and software, Howard said.
Oracle had announced plans to buy PeopleSoft in December 2004, at which point SAP went shopping for its own a third-party support services provider. The search generated a report warning executive board members that TomorrowNow was relying on its own copies of Oracle’s PeopleSoft software. Under the heading “Threats,” the document said: “Access rights to the PeopleSoft software is very likely to be challenged by Oracle and past operating issues [of TomorrowNow] may be a serious liability if Oracle challenges (i.e., offsite production copies and the form of delivery of regulatory updates may be subject to Oracle challenge.)”
Having acquired the document during discovery, “We were able to see that SAP’s board members did know prior to acquiring TomorrowNow that TomorrowNow relied on a business model that infringed Oracle’s copyrights,” said Oracle senior corporate counsel Jennifer Gloss.
The revelation played an enormous role in the verdict, Howard agreed. For starters, it induced SAP to stipulate to contributory infringement four days before the trial. That meant that damages were the jury’s only concern. “The jury wasn’t asked to decide whether or not SAP knowingly contributed to infringement, or asked if they infringed 120 of Oracle’s works,” Howard said. “That obviously affects the dynamics at trial.”
In November, NLJ affiliate The American Lawyer reported on a secret pretrial settlement between Oracle and SAP. Under the deal, SAP agreed to pay $120 million of Oracle’s legal fees, and Oracle dropped its punitive damages claims. When asked about the deal, Howard said he was “not allowed to comment on it publicly.”
SAP’s stipulation to contributory infringement — coming as it did practically on the eve of trial — meant that Oracle had to quickly refocus its case. “The gamesmanship was that they waited until four days before trial” to enter the stipulation, Howard said. “It was part in an effort to throw off our trial strategy and derail our trial presentation.”
Oracle’s main challenge was ensuring that procedural hurdles didn’t derail its factual case. Understanding the scope of the infringement and distilling it for the jury presented a major challenge, Howard said. “As far as Oracle’s team can tell, the scope of the copyright infringement was really unprecedented in terms of the amount of time and the number of copyrighted works that were infringed,” Howard said.
It took many attorneys, consultants and experts “years to analyze just a portion of it,” he said. “To wrap that all up in a tidy package for trial was a major part of our strategy and a challenge.”
As many as 15 people spent more than 13,000 hours analyzing TomorrowNow’s computers and servers holding Oracle’s intellectual property. “It was a huge, huge costly effort,” Gloss said. “That was by far the biggest challenge. By the time we got to trial, it didn’t seem like there were too many challenges aside from trying to introduce the massive amount of evidence we had in the time frame we had and deciding what to produce.”
During Oracle’s closing argument, David Boies, managing partner at Armonk, N.Y.-based Boies, Schiller & Flexner, told the jurors that the fair market value of the license SAP should have purchased from Oracle was between $1.65 billion and $3 billion. Howard explained that the estimates were based on “the value of the customer, the revenue stream SAP was taking through its use of infringing intellectual property.” Oracle’s expert witness called $1.65 billion a minimum number, according to court transcripts, based on a hypothetical negotiation for SAP’s use of three Oracle software products.
The $3 billion figure represented “how much SAP projected it was going to make based on the number of customers it projected it was going to convert,” Howard said. “There was a whole range of different values. We were showing the jury that there were a number of different values as to what the license would have been. Our expert was at the lower end of that range, and that’s one indication of why it’s a reasonable number.”
SAP, which in 2008 announced plans to close TomorrowNow, has challenged the award, arguing that Oracle isn’t entitled to hypothetical license fees. On Feb. 23, SAP filed motions for judgment as a matter of law and for a new trial.
In a written statement, the company said: “We believe the verdict was based on a legal theory, a so-called ‘hypothetical license,’ that should not have been permitted in this case, and that the verdict was improperly excessive and based on speculation.”
Meanwhile, Apple Inc. is attacking another large jury result — the No. 3 verdict on the VerdictSearch list, a $625 million infringement award against it in a patent case.
On Oct. 1, an Eastern District of Texas jury returned the verdict for the plaintiff in Mirror Worlds LLC v. Apple Inc. The case involved three Mirror Worlds patents related to so-called document-stream operating systems. The computer-related technology organizes and displays documents in chronological order.
According to the trial transcripts, Mirror Worlds’ expert witness testified that Apple should pay $625 million. That’s based on an 8.8% royalty rate for software products and a 0.81% royalty rate for hardware products. The expert testified that Apple would keep 88% of its operating profit based on that formula.
Mirror Worlds’ damages approach differed from the common 25% “rule of thumb” as a starting point for determining reasonable royalty rates. That rule was commonly used in patent cases until the U.S. Court of Appeals for the Federal Circuit ruled on Jan. 4 in Uniloc USA Inc. v. Microsoft Corp.
Neither Apple nor its lawyer in the case — Jeff Randall, a Palo Alto, Calif. attorney who serves as global co-chairman of intellectual property at Paul, Hastings, Janofsky & Walker — responded to requests for comment.
Mirror World’s lead counsel were Otis Carroll of Ireland, Carroll & Kelley in Tyler, Texas, and Joseph Diamante, an intellectual property partner at New York-based Stroock & Stroock & Lavan. Diamante said he couldn’t comment in depth because that post-verdict motions were pending and the court has sealed most of the pleadings.
“A significant part of our case was about the vindication of the achievements, reputation and great mind of Dr. Gelernter,” Diamante said in an e-mailed statement, referring to David Gelernter of Yale University, co-inventor of the three patents at issue. “We appreciate the jury’s time and attention to this important case, and we await the Court’s judgment.”
Sheri Qualters can be contacted at firstname.lastname@example.org.