Oracle Lashes Out at Google Over Android (ORCL)

Oracle (ORCL)

Oracle (ORCL: Charts, News, Offers), the world’s largest enterprise software company, has taken Google (GOOG: Charts, News, Offers), the world’s largest search engine, to court. Oracle, which recently acquired Sun Microsystems, the makers of the ubiquitous Java platform, claims that Google’s red hot, freely distributed mobile platform Android “knowingly infringed” on patented Java technology, and has demanded that it receive compensation for Android’s Java integration. Is this merely a repeat of Sun’s complex duel with Microsoft (MSFT: Charts, News, Offers), over a decade ago, or is it part of a shrewd, overarching business plan to profit from Android’s growth as Google plans to spray its mobile OS across mobile handsets, tablets, cars and ultimately “smart home” appliances?

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Stock Analysis

Oracle is best known for its enterprise software products, in particular its database management systems. Its software revenue ranks third in the industry, trailing Microsoft and IBM. Revenue and net income have increased steadily the past three years, and in the most recent quarter, reported revenue of 26.8 billion, a 15% increase over the previous year. Since 2005, it has acquired 65 smaller tech companies, the most costly of which was Sun Microsystems for 7.4 billion in January 2010. The acquisition of Sun, which produces workstations and servers, gives Oracle an enterprise hardware arm to complement its software core. Oracle’s new interest in “open source” programming comes from Sun, whose Java platform has been one of the seminal languages in cross-platform computing.

“Write once, run anywhere” is the well-known mantra of the Java language. The entire idea, which bears an uncanny resemblance to Google’s current game plan with Android, is that Java is a language that can be written on any device, then transferred to any device equipped with the JVM (Java Virtual Machine) and be executed. Devices that are equipped with JVM include PC, Mac, Linux, standard cellphones and smartphones. When Sun Microsystems developed Java, they consistently stressed the need for an open-source environment as opposed to the closed off, proprietary coding environments that competing computer makers were harboring –especially during the IBM Clone vs Apple years.

To understand the conflict over the seemingly open source Java code, we have to turn back the silicon clock back to 1997, when Sun, whose Java department was ironically once headed by current Google CEO Eric Schmidt, first came after Microsoft for modifying the licensed version of Java in Microsoft Internet Explorer 4.0 with 40 code modifications that were designed to make IE run smoother. Sun felt that Microsoft improving upon their core product without their express consent was a violation of their licensing terms, and more importantly, it made them look less competent than Microsoft to their peers. Sun’s Java was the Android of the late 90s, open source and easily modified to suit each developer’s needs, and Sun felt that Microsoft’s tampering with the core of Java compromised its universal cross platform compatibility. Sun was afraid that their free, open source Java programming language would be fragmented and developed into other independent languages, which would take Sun out of the picture altogether.

An equivalent comparison today would be if HTC not only modified the GUI of Android, but tampered with its guts so that universal compatibility with other Android devices were compromised.

Now, 13 years later, the conflict arises anew, with Schmidt on the receiving end rather than tossing stones at Goliath. Now absorbed by Oracle, Sun’s much evolved Java platform bears little resemblance to its early predecessors, but the argument is the same. Oracle’s CEO Larry Ellison believes that Google modified and circumvented their open source Java on their Android mobile operating systems while not being fully compatible with the former. His argument has puzzled many pundits; how does one open-source developer go after another open-source developer for reverse engineering and modification, when those are practically the cornerstones of open-source computing? Basically, Ellison’s move is a strategic play, in which there are only three possible outcomes. The first is to ignore Android’s success, despite some of the architecture being based on Java EE (Enterprise Edition), and miss out on any chance to ride its coattails. The second is to sue Google and win royalties on each Android phone and mobile application sold. This would have the adverse effect of signaling that Java EE wasn’t as open-source as previously thought, but it would perhaps centralize and standardize some aspects of the language. The third is to lose to Google, and thus allow all Java developers to reverse engineer and circumvent Java EE’s licenses and fragment the language further towards the proprietary environment Oracle wishes to avoid.

There may not be an outcome for years, as many Silicon Valley patent infringement suits take years to resolve, due to the complexity of the technology and the difficulty of proving said infringements. This should not be any reason to buy Oracle or sell Google; it’s most likely just the beginning of a slow, years-long litigation process, much less exciting than financial headlines would have you believe.

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