With the java GPL licensing from SUN and the patent exception _ONLY_ for non mobile versions. The Mobile JVM still has separate licensing requirements. Claiming yourself to be JAVA means you have to fulfill a standards compatibility test by SUN.
Google released Dalvik under an Apache license, thereby not granting patent protection to sub licensees. Google did not go with JVM for android because of the Java-Mobile licensing issues.
Next up, by filing suit now against Google and prolonging the court case, they can fire against the handset developers for more licensing costs. ( Remember the 1.x bn \$ cashflow that SUN got from Microsoft in the Java deal in the past? Look for numbers like that. )
If Google fold, Oracle can then aim for all handset distributors, basically fragmenting and ruining the Android market. If Google fight, Oracle can show the cash for lawsuit defense vs. the small cost of buying a license to the handset developers, and do SCO style attacks by sending invoices to the hardware manufacturers. It's the same Lawfirms and Lawyers, so that's a valid assumption to go on.
Google had the chance to buy SUN but decided not to, And now it's coming in to haunt them... Badly. So, It's a mess of patents and licensing. The copyright claims will be interesting, but it seems as if Oracle has decided to kill off Java as an open platform. Looks as if Python is the way now?
So, techincally, Google can start modifying the JVM under GPL License and push that as a Dalvik replacement, Maybe. Otherwise, write a .class => .pyc recompiler, inspired by Jython?
Other than that, I'm not too sure what to make of this. Oracle wants money to recap the purchase, the question is if this is a sane strategy for them? They will gut the Java market, however, it's been on steady decline as they failed to keep it sexy. Even symbian is moving away from it. Most probably because of compability issues, slowness and failed licensing problems. Java is no longer a prime factor on the *nix side, after Oracle killing off the SUN Solaris customers by attempting to gut them for cash.
Dalvik can always be modified some more, push out some updates and make it even more unlike the JVM, thereby going around the patents. No doubt, this has already been done in some cases.
Google countersuing Oracle is another interesting concept.
Now, I wonder when someone will invoke the dead ghost of SCO Unix, along with the IBM lawsuits?