Alert April 02, 2018

Federal Circuit Rules in Oracle v. Google

Summary

On March 27, 2018, the Federal Circuit ruled in Oracle v. Google that Google’s use of certain of Oracle’s Java application programming interface (API) code in the Android operating system was not “fair use” and sent the case back to the trial court to determine the amount of damages that Google must pay Oracle.

Background

The dispute between Oracle and Google began in 2005, when Google commenced efforts, but ultimately failed, to license the Java APIs for use in its Android mobile operating system. Google decided to build the Android platform around the Java programming language anyway, and in so doing re-wrote 37 of the 166 existing Java APIs on its own. These APIs contained different “implementing” (functional) code from the original APIs but directly copied the APIs’ “declaring” (header) code and “structure, sequence, and organization” (hierarchy). Copying the Java declaring code and “structure, sequence, and organization” (SSO) would allow developers to write programs in Java for existing laptops and desktops that could also run on Android devices with little modification. Google released the Android platform in 2007; in 2010, after obtaining the rights to Java through its acquisition of Sun Microsystems, Oracle sued Google for copyright infringement in the Northern District of California seeking $9 billion in damages.

Following an initial trial in 2012, the jury found that Google had infringed Oracle’s copyrights of the Java declaring code and SSO, but deadlocked on the issue of fair use. However, the district court judge overturned the jury verdict, determining that these aspects of the APIs were not copyrightable in the first place. In 2014, the Federal Circuit overturned the district court’s findings on copyrightability and remanded the case for a new trial on the issue of fair use. That second trial concluded in 2016, with the jury finding that Google’s copying of the Java declaring code and SSO was fair use. Oracle appealed, and the Federal Circuit’s March 27 ruling overturned the jury verdict. The case has now been remanded for a third trial to determine the amount of damages Oracle is entitled to.

Rationale of the Federal Circuit

The Federal Circuit evaluated the four statutory factors of fair use: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and  (4) the effect of the use upon the potential market for or value of the copyrighted work. It based its conclusion primarily on the first and fourth factors.

Under the first fair use factor, the purpose and character of Google’s use, the Federal Circuit found that Google had used the Java declaring code and SSO in a commercial and non-transformative manner. It rejected the district court’s determination that the modification of the Java platform for a new context — mobile devices — gave the APIs a new purpose, and also found that Google’s implementation of Java did not alter the expression or meaning of the copied code. The Federal Circuit disagreed that the jury could reasonably have decided that the use was non-commercial, because although Google offered access to its version of the APIs as an open source project and free of charge, the APIs constituted part of the Android commercial enterprise and were designed to incentivize developers to create content for Google’s platform, which in turn would attract consumers.

Under the fourth fair use factor, the effect of Google’s copying on the potential market for Java, the Federal Circuit held that the district court’s judgment failed to consider the market for smartphones. According to the Federal Circuit, smartphones were a potential derivative market for Java, and Oracle’s copyrights entitled Oracle to the exclusive right to exploit it. Therefore, even though Oracle’s version of Java had not been built into a smartphone or smartphone platform, Android’s dominant position in the smartphone market should have been considered part of the overall market harm to Oracle. With respect to the market for the APIs themselves, the Federal Circuit noted that Android’s release made it more difficult for Oracle to negotiate licenses for its own version of Java. Presented with an alternative to Oracle’s APIs, potential licensees could negotiate a steep discount or could switch over to using Google’s APIs for free. The Federal Circuit therefore found that the fourth factor weighed “heavily in favor” of Oracle.

Implications

The Federal Circuit’s opinion underscores the risk and uncertainty of API copyright cases. Because APIs are copyrightable, software companies that are unable to negotiate a license to use a set of APIs must be prepared to litigate a trial on fair use to rebut claims of copyright infringement. Fair use is a notoriously complicated and subjective affirmative defense, which in many circuits can be evaluated entirely by a jury.

In this case, the Federal Circuit emphasized that applying APIs to a different context was not itself enough to constitute a transformative new purpose under the first fair use factor and that the commercial nature and market impact of copying must not be looked at too narrowly. In particular, making an API offering free and open source is not sufficient to escape a finding that the use was commercial. While these considerations suggest a high bar for finding fair use in software API cases, it is important to remember that the Federal Circuit has not yet entertained a case in which the defendant copied APIs in order to enable full interoperability.

Oracle v. Google will likely encourage software licensors to assert more control over their API packages. On the one hand, this will enable licensors to block uses of their APIs that enable features they find undesirable or parasitic; on the other, it may provide an incentive for rent-seeking or the exclusion of competitors from popular platforms. For licensors who wish to encourage third-party integration with their products, it will be important to signal a willingness to offer cheap licenses for their APIs or to make their APIs open source. In this case, the Federal Circuit noted that Google could have used Oracle’s open source version of Java, OpenJDK, instead of implementing its own offering. OpenJDK carries a General Public License (GPL), which permits free use of the software on the condition that any modifications to it are also made freely available to the public. Companies facing a similar choice to Google may find such alternatives suitable for their needs.

Those interested in learning more about Goodwin’s technology transactions expertise and practice, or the issues discussed above, should contact Steve Charkoudian or James Riley, partners in Goodwin’s Technology Transactions practice; or Ira Levy or Robert Carroll, partners in Goodwin’s IP Litigation practice, which was recently awarded Managing IP’s U.S. Copyright Firm of the Year, 2018.

Goodwin Procter LLP represented the Recording Industry Association of America and the Association of American Publishers as amici curiae in support of the appellant before the Federal Circuit in the appeal discussed above.