16 April 2012 -  Let Games begin!  In what almost every pundit is calling the “World Series” or “World Cup” of intellectual property trials”, the Google/Oracle trial gets underway today with jury selection in a federal court in San Francisco.

And it is a biggie.  The trial marks the first time that a jury has been asked to weigh up the inner workings of Google’s software, albeit hardware makers such as Motorola Mobility and HTC also face a barrage of lawsuits over the use of Android software in their smartphones, tablets and e-readers.

The issue?  Java, the software platform of which Oracle became the owner, when Oracle acquired Sun Microsystems in 2010.  And there is an all-star witness list: both Google CEO Larry Page, and Oracle CEO Larry Ellison are expected to take the witness stand during the trial, as will former Sun CEO Jonathan Schwartz, and Andy Rubin, the Google Senior Vice President who runs its Android and mobile operations.

The allegations are fairly simple.  Oracle sued Google in the summer of 2010, alleging that the Android mobile operating system violated seven different Java patents. Five of those patents have since been tossed out since they were re-examined, leaving two.

But the biggest issue is over copyright. Oracle will argue in court that Google violated copyrights on Java. Specifically, Oracle alleges that when Google was creating Android it copied a lot of material more than 37 Java application programming interfaces or APIs, and 11 lines of Java source code, and that these are subject to copyright protection like other intellectual property.

This is a new and controversial legal argument that has software developers watching the trial closely. Google has argued that APIs shouldn’t be subject to copyright protection because they’re more akin to tools and techniques that programmers use to build software.  Google has argued APIs and programming languages aren’t entitled to copyright protection, for exactly that reason: You can copyright a given program because it’s unique, but you can’t copyright the language it’s written in.  As Google puts it in one of its briefs: “That is a classic attempt to improperly assert copyright over an idea rather than expression.”  And earlier in that same brief, it argues: “Without a computer programming language, the set of statements or instructions cannot be understood by the computer. As such, a computer language is inherently a utilitarian, nonprotectable means by which computers operate. …The protectable material is the computer program (the set of statements or instructions); the unprotectable material is the method or system (the language). So understood, original computer programs may be protected, but the medium for expression in which they are created is not.”

For its part Oracle outlined its position on the issue as follows:

“Allowing copyright protection for computer interfaces makes sense because original expressions in software are innovations of an incremental sort that Congress meant to encourage. Trade secrecy law cannot achieve this goal because interfaces can be reverse-engineered. Patent law, because of its novelty and non-obviousness requirements and examination process, protects those substantial innovations, claimed as broadly and generically as possible, and in return gives strong protection against even those who independently develop the same technology. Copyright law protects innovations at a much finer level of detail (where original expression can be found) than patents ever could, but only offers protection against the copyist.”

Why didn’t Google just sign up for a licence and move on? A licence would not have been expensive. There is even a free, open-source version.  As Oracle tells it, Google built Android out of Java building blocks so that it would be easy for the legions of existing Java developers to write Android applications. But it didn’t want to make Android fully compatible with other Java-based platforms, which taking a licence would have required.

The idea was to keep the applications within the Android ecosystem, and under Google’s control. Developers can check in, but they can’t check out. This damages “the entire Java ecosystem”, according to an Oracle lawyer, because part of the value of any Java application is in its ability to “talk” to all the others.

This story turns the images of Android as open software, and of Google’s “don’t be evil” ethic, upside down. Oracle is also cast against type, as the defender of openness, protecting compatibility in the name of all Java developers. Yet it is a bit hard to see how Google has harmed Java developers by building the first viable mobile operating system they can use and profit from. Anyone who has written an app for Android will have little trouble recasting it for another Java platform. Oracle is more likely concerned to participate in the future of a popular operating system that may grow beyond phones, and even enter Oracle’s core market, business software.

Of course, all of this is only relevant if Google is found to have violated Oracle’s IP. There will only be reparations if there was a theft.

5 May 2010 — The U.S. Commodity Futures Trading Commisison (CFTC)recently approved two exchanges (one to be administered by Cantor Fitzgerald, the other by Media Derivatives) that would allow trading in contracts that are based on the box-office take from films.  The second of these exchanges was approved by the CFTC on April 20.

Our colleague Neil Wilkof at the IP Finance blog picked up on the story in the Economist saying “the appearance of these exchanges can be seen in the light of a perceived problem in Hollywood about how to better to spread risk. It seems to be that, akin to judicial notice, Hollywood has for a long time tended to rely on a small number of box-office hits to both cover the losses incurred by the majority of films, as well as to provide a net overall profit for the studio. This business dynamic, risky in its own right, has been exacerbated by the economic meltdown of recent years. Individual investors have not flocked back to finance films. As well, independent film makers (apparently being other than the six major studios) are finding it much more difficult to sell in advance rights to sums received from foreign box-offices. This appears to have been their preferred means in the past for funding their pictures. But this funding window is much more narrow these days”.

However, while the exchanges have been approved, no contracts have been traded and the studios are actively engaged in stopping the exchanges dead in their tracks, both directly and through Congress. As such, they have ramped up their lobbying activities agains the operation of the exchanges. As for getting Congress to focus to enact a legislative ban against box-office futures, one needs to ask how successfully this issue can be pushed in light of the broader Congressional program to reform regulation of the financial markets. Within Congress, opposition has brought together strange bedfellows, including Senator Barbara Boxer, a noted liberal senator from California (who is also, I think, involved in a reelection campaign that might include making nice to Hollywood), and noted conservative Senator Orrin Hatch from Utah.

Neil presented the arguments against the operation of these exchanges as discussed in the Economist article:

1. Box-office figures are merely estimates and so, presumably, cannot be relied upon. Whatever the accuracy of this metric, still they must certainly be galaxies more precise than either the AAA bond ratings given in connection with subprime financial instruments or Greek fiscal data. On the other hand, one should not dismiss out of hand the impact of the uncertainty of the underlying metric in questioning the effectiveness, if not the very viability, of such an exchange. As Frank Knight taught us nearly a century ago, risk is one thing, uncertainty is quite another.

2. There is an information imbalance in the film business. A study carried out by Thomas Gruca of the University of Iowa found that there was an average error of 31% in predicting revenues. That said, there is a severe assymetry of information between the studios and other investors. As for the studios, they presumably have pre-screening insights gleaned, from contact group viewers, as well as knowledge about marketing plans and budgets and how the film will be rolled out. In the words of The Economist, “almost every trade by a studio would be an insider bet.”

3. Studios would never short their own films via trades on the exchanges. The reason for this, as suggested by the article, is that Hollywood moguls can never be seen as somehow acting in a way that undercuts its own persona of success and power, much less affecting the possible commercial success of its films.

Assuming that the studios have their way and the exchanges never get off the ground. The question still remains: is there a better way for them to hedge their risk? Or is the old way also the new way for hedging risk? After all, events of the last three years have shown that one should exercise a healthy skepticism before adopting the latest offering of finanical innovation.