An Oracle win over Google may mean a licensing fee for Android

Oracle is reportedly already asking handset makers to pay as much as $20 per Android phone, a move that could stifle the platform

Will handset makers maintain their dedication to Android if they have to pay to license it? That's the question experts following Google's battle with Oracle are asking, and some of them think the answer is no.

If Oracle wins the lawsuit that it brought against the software giant, the consequences for Google and the entire Android market could be dire, analysts say. Oracle likely won't settle for a lump payment but instead will want a cut of each phone sold. That added cost changes the economics for handset makers such that many will take a second look at their commitments to the Android platform.

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While manufacturers are unlikely to abandon Android for a couple dollars per handset, they might begin to find other platforms, like Windows Phone, more attractive and begin to reduce the number of Android phones they make in favor of other platforms.

The dispute started last year when Oracle sued Google for patent and copyright infringement in Android. Oracle alleges that Google's Dalvik virtual machine, which runs Java applications on Android devices, uses technology developed by Sun Microsystems without a license. Last year, Oracle closed its acquisition of Sun.

"Based on what I've seen up until this point, I think Oracle is very much in a strong position," said Dave Mixon, a lawyer with Bradley Arant Boult Cummings LLP, who has been closely following the case. In an early hearing that typically sets the tone for patent disputes, the judge favored Oracle.

With Google on the defensive, Oracle is keeping the pressure on. "Oracle is taking an aggressive stance with this in that they understand the perception is that they've put Google back on their heels and that they may be on the verge of winning," Mixon said.

One way that Oracle may be trying hard to push its case forward is by reportedly directly asking handset makers to license its software -- for $15 or $20 a handset. Oracle is approaching the major OEMs and inviting them to join an early adopters program under which they agree to license the technology directly from Oracle, according to Jonathan Goldberg, an analyst with Deutsche Bank.

Oracle declined comment on whether it is asking handset makers to license its technology and did not comment further for this story. Google did not reply to requests for comment.

That licensing cost would make using Android comparable to the cost of licensing Windows Phone 7, Goldberg said. Microsoft often points out that while Android is technically free, OEMs must fund related work necessary to integrate the software onto their hardware. With Windows Phone, Microsoft includes support services that help hardware vendors do that as part of the licensing fee.

"Handset makers are going to have to think long and hard about staying on Android," said Jack Gold, an analyst with J. Gold Associates. "Because why are they on Android? Because it's free and it's modifiable. If you start changing the terms, handset makers have to start looking at the business proposition." While handset makers likely wouldn't abandon Android altogether, they would think about how heavily they rely on it.

If Oracle is approaching handset makers with such a licensing proposal, it's likely a negotiating ploy, said Mixon. "So now Google is not only getting attacked by Oracle, but they're also under pressure from (OEM) customers," he said. If Google's handset partners are telling the search giant that Oracle is pressuring them to license the technology, it could encourage Google to settle with Oracle, he said.

Oracle, however, is unlikely to truly ask handset makers to pay double digits for each device that uses Android. "Ultimately I don't think anyone pays that much. It kills Android," Goldberg said. He said Oracle is likely offering rebates that would let the OEMs pay far less than $15 per phone.

"It's kind of a delicate balance for Oracle," Mixon said. "They want Android to succeed. They don't want to make such extraneous demands on Android to where it might give somebody an incentive to come up with a noninfringing alternative."

However, Oracle may not be alone in asking OEMs to pay to use technology in Android. Microsoft, which also says it has technology used in Android, has announced licensing deals for technology in Android devices with HTC and a few other smaller names. It is also reportedly asking Samsung for $15 per handset for Android phones. While Microsoft could find a healthy revenue stream from Android, it most likely would instead prefer success of its own Windows Phone platform, which offers more potential for revenue from services. That means Microsoft doesn't have the incentive Oracle does to keep the Android licensing fee affordable for OEMs.

While the larger OEMs like Samsung and Motorola can afford a dollar or two per phone, that cost could have a bigger impact in China, where many phone makers are using Android, Goldberg said. "Are they going to pay Oracle? They have a very different relationship with IP than companies here," he said.

Chinese handset makers likely wouldn't pay to license Android and might create a headache for both users and developers. "I don't think they'd abandon Android but I think they'd move it underground. They'd massively fork the OS," Goldberg said.

He suspects the Chinese OEMs would continue to use Android but in order to avoid the licensing fees they'd separate their development path from the larger Android community and Google to avoid detection. That would cut Google off from the potential revenue opportunities in Android through the many services it builds into the OS.

It also would further fragment the community, which currently is divided because of the multiple versions of Android on the market at any given time. "It's already an issue and it would just get unsustainable," Goldberg said.

In order to avoid the licensing fee altogether, Google has surely investigated whether it can simply build new technology that eliminates any potential infringement of Oracle's technology. Since some of the patents at issue are not being disclosed in the suit, it's difficult to know the full extent to which Google may be relying on the technology, Goldberg said. His sense is that the technology covers relatively low-level functions that would be difficult to get around.

Rearchitecting part of the OS takes time and would likely lead to compatibility issues with existing phones on the market, Gold noted. "They'd have to start over again. That's never a good thing," he said.

In the meantime, the legal battle continues. Depending on how confident both sides are, the case could drag on for years through appeals and challenges with the patent office, Mixon said. "But if Google feels ultimately they're going to lose, they could settle quickly," he said. In that case, while the amount of a licensing fee will surely come to light, the terms of a settlement will most likely be confidential, he said. "So the perception would be that Google lost. Oracle will probably insist on [confidentiality] to be able to keep this posture, whether it's justified or not."

Nancy Gohring covers mobile phones and cloud computing for The IDG News Service. Follow Nancy on Twitter at @idgnancy. Nancy's e-mail address is Nancy_Gohring@idg.com

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