Are you aware of any company in Oracle's position that did not sue? Are you aware of any company that has ever done what Google did, at that scale, and was not sued?
Obviously not. They didn't have the resources or the time to sue; they were on the brink of collapse and already involved in talks of acquisition. Google fully expected them to sue[1], but got a reprieve due to Sun's troubles.
Android was released in September 2008, with the first phone in November. At that time Sun was in acquisition talks with IBM (and maybe HP), which fell through in 3/09. In 4/09 -- about six months after Android was released -- they announced their agreement with Oracle[1]. That's hardly enough time to even prepare such a lawsuit, let alone carry it through, and obviously Sun had much greater concerns at the time.
[1]: Because no such action had ever gone un-sued.
Oracle made many arguments -- patent and copyright infringement. The patent claims were rejected, but after an appeal, the appeals court ruled that language-level APIs (i.e, not REST APIs or other protocols) are copyrightable, at which point (another) court debated the question of fair use by Google, and ruled in Google's favor (i.e, that their use of Java's API does not constitute an infringement of the API's copyright). Oracle have announced their decision to appeal the ruling.
In the meantime, though, it seems like Android is about to adopt Oracle's OpenJDK, under the open-source license granted by Oracle.
Sun Microsystems, obviously