Motorola has been losing smartphone market share. Google seems to be paying not for the company's phones, but its patents, in a move to protect the Android mobile OS from patent attacks.
Google is paying a premium for Motorola Mobility, the recently spun-off device maker from Motorola proper. But for the $12.5 billion it's paying, Google likely is more interested in Motorola's patents than its phones.
Google's core is its search engine, and the ads that are served up every time someone looks up "Nascar news," "Kim Kardashian" or "Firefox 6." It midwifed the Android mobile operating system to capitalize on the fast-expanding universe of mobile users making use of online search, which fuels the ads that sustain Google. But Android, which Google licenses for free, is under patent assault from Microsoft, Apple and even Oracle.
Motorola was a pioneer of the mobile phone, and it's built up a huge portfolio of patents. According to the company's website, at the start of 2011, Motorola had about 24,500 patents and patent applications worldwide. Those patents relate to both of the company's two divisions, Mobile Devices, with about 14,600 issued and nearly 7,000 more pending; and Home, which deals with a range of products like set top boxes and video services such as IPTV, based on a recent Swedish acquisition.
The patents related to a wide range of technologies and standards, including 2G, 3G and 4G, as well as the H.264 and MPET-4 data compression standards, 802.11, and near-field communications (NFC).
This storehouse of intellectual property is the key asset for Google, according to some observers. "Google's acquisition of Motorola is clearly designed to be an acquisition of Intellectual Property rather than an entry of Google into the phone business," writes Horace Dediu, founder of Asymco, a market intelligence firm that focuses on mobile and wireless markets.
In June, a consortium that included Apple and Microsoft paid $4.5 billion to acquire a much smaller portfolio of patents from bankrupt Nortel Networks. Google had bid $900 million for them. In the wake of that deal, Motorola Mobility's biggest investor, billionaire Karl Icahn, urged company management to consider monetizing its own patents. That statement quickly drove the company's stock price up 15%.
Earlier this month, public comments by Motorola Mobility CEO Sanjay Jha were widely interpreted as showing that the company now was prepared to use its patents as weapons, both to protect its own Android-based products (for example, against Apple's infringement suits against the Samsung Galaxy S II Android smartphone and most recently against the Motorola Xoom tablet in Europe), and to charge other Android licensees for using patented technologies.
Speaking at the Oppenheimer Technology & Communications conference earlier this month, Jha was quoted as follows: "I would bring up IP [intellectual property] as a very important for differentiation (among Android vendors). We have a very large IP portfolio, and I think in the long term, as things settle down, you will see a meaningful difference in positions of many different Android players. Both, in terms of avoidance of royalties, as well as potentially being able to collect royalties. And that will make a big difference to people who have very strong IP positions."
"I see very little ambiguity in those words," writes Stasys Bielinis, in an Aug. 11 post at UnwiredView.com. "The discussion above was solely about Android, and how Motorola can differentiate from other players who are already doing better -- like HTC and Samsung. One of the key points to win against competition, according to Sanjay Jha, are Motorola's patents. Used not only defensively -- to avoid paying royalties on its Android handsets, but also offensively. To collect royalties from other Android device makers."
He went on to urge Google to buy Motorola "or some other big patent pool" to forestall messy, expensive, growth-inhibiting Android infighting.
Increasingly, technology patents, especially for software, are not primarily product enablers, but competitive weapons. "The value of these patents is not in the technology," writes Brian Kahin, senior fellow, Computer & Communications Industry Association, in HuffingtonPost.com. "These prices [for patent portfolios] are being paid for the power to block others from using technology they have developed independently. Or for the power to block others from blocking you by threatening to block them from using their technology -- 'assertion' and 'counter-assertion.'"
An article at Groklaw, which covers legal issues relating to the free and open source software community, argues that Google's purchase of Motorola is "all about leveling the playing field and making sure that consumers have choice, not a choice merely between an iPhone 4 or an iPhone 5 or between an iPhone and a phone powered by Windows Phone 7, but a choice between phones operated with a *closed* operating system and one powered by a (relatively) open operating system."
The article continues: "I would expect one of two outcomes from this purchase: (a) an earlier than expected truce between Google and Apple and Google and Microsoft; or (b) a battle to the death. Let's hope for all involved -- the companies, the economy, and consumers -- it is the former and not the latter."
But at this point it's unclear how Google will make use of the patents. The company has been criticized for being conspicuously absent from the patent debate as Apple, Microsoft, Oracle and others mount infringement suits against the phone makers who license Android. That began to change only recently.
In July, Google bought just over 1,000 IBM patents, covering a range of silicon and computer technologies and architectures, explicitly, according to its general counsel, as a move to "not only create a disincentive for others to sue Google, but also help us, our partners and the open source community -- which is integrally involved in projects like Android and Chrome -- continue to innovate."
Just last week, Wired.com reported that Google formally asked the U.S. Patent and Trademark Office to re-examine two patents asserted by Lodsys, a patent firm that's suing 11 smartphone application developers, ranging from very small boutiques to big software companies like Atari and Electronic Arts. Lodsys charges these developers are using in-app payment technology covered by the patents.
"But despite the fact that two Android developers were named as defendants -- Rovio, the Finnish development studio behind Angry Birds, and Illusion Labs, a Swedish company that produces the game Labyrinth -- Google has remained conspicuously quiet on the issue until now, rankling many in the development community," Wired reported.
Google has been trumpeting rather pro forma sounding statements from its Android handset partners, endorsing the Motorola acquisition. That endorsement may reflect the relief HTC, Samsung and the others feel over Google having much more skin, and leverage, in the patent game.
But the acquisition might have unintended consequences, cautions Asymco's Dediu, referencing the experience of the Symbian mobile OS, where Nokia came to dominate the other licensees. "The lesson (and warning) was that a licensor that is also a licensee makes other licensees uncomfortable. The supplier is also a competitor. This is classic channel conflict and never ends well," he argues.
In light of that, he says, Google's promise that Android will remain open "seems naive at best."
John Cox covers wireless networking and mobile computing for Network World.
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