Oracle vs. Google: Fallout Could Be Felt Across the Tech Sector

Wall Street seems to be taking the legal fracas between Oracle (ORCL) and Google (GOOG) in stride. Both of their stocks ended little changed Monday in a flat market as investors shrugged off the lawsuit that Oracle filed late last week to defend patents for its Java software programming language. Java is used in the code for Google's Android operating system, which runs smart phones, such as the Motorola (MOT) Droid, and other mobile devices.

Technology stocks from Google on down may be ripe for a decline, however, as investors come to realize the implications, including higher costs and therefore lower profits, of what is being called "a case of Goliath versus Goliath."

What buyers (and holders) may not realize is that technology industries and all of us who rely on them may have an immense free lunch - the open-source software programs, such as Java, that run a lot of applications and gadgets - taken off the table. The Oracle suit is likely to bring into focus the thorny issue of how open open-source software really is.

A massive repertoire of open-source programs have been developed by academics to make sense of their research and by other geeky types eager to form a rebel alliance to counter the galactic empire that they perceive Microsoft (MSFT) to be. The open question about open source is whether others have the right merely to operate the programs or whether they can use them, without permission or payment, as building blocks for new software that becomes the intellectual property and potential cash cow - a la Android - of the developer.

By dragging Google into court and alleging that "in developing Android, Google knowingly, directly and repeatedly infringed Oracle's Java-related intellectual property," Oracle is saying that it thinks the answer is definitely not B.

That makes the lawsuit more than just an attack on Google, a company that received more bad press recently when protestors took exception to the shift away from support of so-called "net neutrality" - the idea that all online services and applications should be treated equally - inferred from Google's alliance with Verizon (VZ) in calling for regulation of wireless Internet access.

Until the Oracle lawsuit is resolved, and maybe after that, technology companies will be more preoccupied than usual with intellectual property matters. Their legal staffs will be assessing their potential liability, and their research and development efforts could be severely hampered as they assess the use of open-source software in their products and how much they may have to pay for rights before and after the fact.

Valuations for tech companies are likely to suffer as that process plays out. They could be hit much harder if a settlement or court ruling goes against Google and investors decide that the free lunch is over and that hardware and software producers will have to pay something close to full price for the intellectual property they use.