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Network World - 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."