Many Oracle Corporation (NYSE:ORCL) shareholders may have forgotten about the company’s lawsuit with Alphabet Inc (NASDAQ:GOOGL) — it started back in 2010. Ergo, owners of Oracle stock were treated to a pleasant surprise on Tuesday when a federal appeals court overturned a previous courtroom decision. Now, Google owes Oracle some big bucks for unlawfully using Oracle’s Java computer coding.
The final amount of the award hasn’t been determined yet. Oracle was looking for a little more than $9 billion in due compensation and damages, but the appeals court has kicked the number-crunching work back down to a federal district court in California.
Whatever the dollar figure ends up being, the case is being watched closely by anyone who does computer programming.
A Legal Gray Area
In 2010, Oracle — the developer of Java — sued Google for using more than a little too much Java code in its Android operating system.
Java is a simple but powerful programming language. It’s primarily meant to power apps and programs on operating systems like Windows from Microsoft Corporation (NASDAQ:MSFT) or iOS from Apple Inc. (NASDAQ:AAPL). It was never quite meant to be the basis of an operating system itself, though.
There’s the rub. Java is free to use, even for commercial purposes. Whether it’s free to use in this manner, though, has clearly been a tough call to make — even for a judge and jury.
Each company has their own spin on the recent ruling, of course. Oracle’s attorney in this case, Dorian Daley, commented:
“The Federal Circuit’s opinion upholds fundamental principles of copyright law and makes clear that Google violated the law. This decision protects creators and consumers from the unlawful abuse of their rights.”
Google’s people chimed in from the other side of the table, explaining:
“We are disappointed the court reversed the jury finding that Java is open and free for everyone.This type of ruling will make apps and online services more expensive for users. We are considering our options.”
The only spin that really matters in the end, though, is that of the three-judge appeals panel. Their statement concluded:
“The fact that Android is free of charge does not make Google’s use of the Java API packages noncommercial.”
“There is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.”
The ruling, and any subsequent appeal, will be well watched — and for good reason. It could redefine how programmers make their apps and operating systems work with one another.
Attorney Mark Schonfeld, or Boston-based law firm Burns & Levinson explained :
“It’s a momentous decision on the issue of fair use…It is very, very important for the software industry. I think it’s going to go to the Supreme Court because the Federal Circuit has made a very controversial decision.”
The irony is, the Java code in question that Google began using when Android was new nearly a decade ago is no longer in use. All versions of Android since 2016 only use the (truly and clearly) “fair use” part of Java. There’s still going to be a ripple effect though, and there’s still the matter of settling up Google’s revenue that resulted from the pre-2016 versions of Android. App developers may also need to rewrite older apps or rethink future ones, so as to also not be in violation of fair-use laws that just took a much firmer shape.
Bottom Line for Oracle Stock
Oracle stock owners need not count their chickens just yet. Alphabet can make an appeal of the ruling to the U.S. Supreme Court. And the buzz is the company’s lawyers are already preparing that effort.
If the ruling does stand though — and Oracle gets the $9 billion it’s seeking — it could be a huge payday for Oracle stock holders. Over the course of the past four quarter, the company has only generated $39.5 billion worth of revenue, and only managed to turn $3.6 billion of that into net income.
Don’t worry too much about Alphabet though. It’s earned more than $12 billion for its past four quarters, and it’s got more than $100 billion in the bank.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.