Google’s Moto bid: It’s all about the patents
By merging Motorola’s 17,000 issued patents with its own, the Internet giant hopes to create a legal shield that protects the Android ecosystem from death by a thousand patent suits. Indeed, the legal threats against Google and its mobile partners have been growing as fast as Android’s market share.
But a Motorola acquisition also creates a hornet’s nest of problems for Google and its Android smartphone and set-top partners. A wide community of embedded developers in everything from airplanes to X-ray machines will now watch to see how well the ecosystem weathers the inevitable storms.
In the end, there’s no doubt Google was bold, but it may take years before anyone knows whether it was wise.
Don’t believe for a second Google wants to be a maker of smartphones or set-tops. Such hardware businesses with their complex supply chains and rapid product cycles are anathema to Web companies today.
Google clearly felt it had its back against the wall. In an August 3 blog post, Google’s chief legal officer, David Drummond, signaled the rising heat when he made accusation of "a hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents."
Oracle shot one of the first big volleys in August 2010 when it filed a broad suit against Google for infringement Java patents in Android. Drummond pointed to separate suits against Android partners including Barnes & Noble, HTC, Motorola and Samsung.
In a more low profile effort, Apple, EMC, Microsoft and Oracle quietly created a consortium called CPTN Holdings LLC to buy 882 Novell patents that read broadly on areas including open source software including Linux and virtualization. The U.S. Department of Justice forced the companies in April to revise their deal in an effort to ensure the patents would be fairly licensed.
The big blow came last month when a consortium including Apple, Microsoft and Research in Motion acquired for $4.5 billion about 6,000 Nortel patents, many of them said to be fundamental wireless patents. Google quickly bought 1,000 patents from IBM, but it clearly thought the move was not enough.
With the Nortel patents, competitors could levy patent licensing fees of as much as $15 per Android handset, Drummond said in his blog. Press reports suggested Microsoft stood to make more on the sale of Android handsets than on its one Windows Mobile 7 software.
The fact that a group of competitors could orchestrate a set of legal moves that threaten to freeze free software out of the market is a potent indictment of the current patent system. The top-line consequences of Google’s reaction are equally stunning.
Google is paying an estimated 63 percent premium for Motorola, making it the biggest proposed acquisition of it history to date. Google even agreed to pay a whopping $2.5 billion fee if it walks away from the deal, according to the New York Times.
The all-cash deal uses about a quarter of Google’s cash reserves. The fact that such a large big is motivated primarily to protect a strategic part of its patent portfolio further underscores the absurdity of the situation. But this is not the first time this absurdity has come to light in the electronics industry.
Even in the smartphone sector, Research in Motion was stung in 2006 by a $612 million settlement when it mishandled a suit against its implementation of mobile email.
In recent years a herd of so-called patent trolls have emerged solely to acquire and assert patents. They have spawned a separate set of companies geared to help large product companies cope with their threats including Intellectual Ventures, Allied Security Trust and RPX Corp.
The rise of patent litigation has turned up the heat in recent years for patent reform. The Supreme Court has handed down several decisions on a wide variety of issues to deal with some of those problems. A bill still awaiting final approval in Congress aims to tackle others, but experts say none of the moves will impact the heated patent battle around Android.
Google would not comment on how the acquisition of Motorola’s patents—including about 7,500 Motorola patent applications in process—might shift its legal strategy in the many Android suits. "But we will be in a very good position to protect the legal situation for all the [Android] partners," said Drummond on a conference call announcing the deal.
"Motorola’s IP team has lots of experience dealing with the patent assertion in the wireless space, and you would expect Google to make good use of that team," said Mike McLean, a vice president of professional services at TechInsights, an IP consulting group part of UMB LLC, the publisher of EE Times.
"Having a [Motorola] product business in this space should provide a strong position for injunctive relief if [Google] pursues litigation," McLean added.
The deal requires approval from antitrust regulators already examining Google for dominance in other areas such as online advertising. Drummond expressed confidence in getting the approvals given Google’s current lack of a hardware business and the broad industry use of Android.
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