Google Buys Motorola for ‘Superpower’ Status

Google Inc. (GOOG) is relying on its planned $12.5 billion purchase of Motorola Mobility Holdings Inc. to forestall patent litigation and force settlements with Apple Inc. (AAPL) and Microsoft Corp. (MSFT) over smartphone technology.

Google cited patent disputes as key to its agreement to buy Motorola Mobility, announced yesterday. Apple, maker of the iPhone, and Microsoft, developer of Windows Phone software, have targeted phones that run on Google’s best-selling Android system, including handsets built by Motorola Mobility, Samsung Electronics Co. and HTC Corp. (2498), in lawsuits worldwide.

Lacking its own trove of patents to vie with Apple, Microsoft and other companies, Google and its hardware partners were targeted by suits aimed at slowing the adoption of Android smartphones. Adding the 17,000 patents of Motorola Mobility, which has been inventing mobile-phone technology since the industry began, may help Google stanch the onslaught.

“The analogy to a nuclear arms race and mutually assured destruction is compelling,” said Ron Laurie, managing director of Inflexion Point Strategy LLC, which counsels companies on purchasing intellectual property. Google and its rivals “look pretty evenly matched at the moment. Google may have become a patent superpower.”

Photographer: Simon Dawson/Bloomberg

Google Inc. is relying on its planned $12.5 billion purchase of Motorola Mobility Holdings Inc. to forestall patent litigation and force settlements with Apple Inc. and Microsoft Corp. over smartphone technology. Close

Google Inc. is relying on its planned $12.5 billion purchase of Motorola Mobility... Read More

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Photographer: Simon Dawson/Bloomberg

Google Inc. is relying on its planned $12.5 billion purchase of Motorola Mobility Holdings Inc. to forestall patent litigation and force settlements with Apple Inc. and Microsoft Corp. over smartphone technology.

The goal of Google’s new patent clout is also to act as protection for the handset makers that have been bearing the brunt of the litigation, the company said yesterday.

Patent Weaponry

Competition for dominance in the smartphone market has heated up since Google introduced Android in 2008. Patents, which grant exclusive rights to use a specific invention, have become a way to fight for market share and inhibit rivals from introducing new features.

Apple stepped up the patent feud by suing Android manufacturers, claiming Google-powered devices copy the iPhone and iPad. Microsoft has sued Motorola Mobility and Barnes & Noble Inc., whose Nook reader runs Android software.

Apple and Microsoft have focused on the devices that run on Android, while Oracle Corp. (ORCL), which has sued Mountain View, California-based Google directly, contends Android was developed using its Java programming language. Oracle is seeking billions of dollars in damages for patent- and copyright-infringement, and Google’s response has been limited to challenging the validity of Oracle’s patents.

Heightening the dispute, a group led by Apple and Microsoft won an auction of patents owned by Nortel Networks Corp. in June after bidding up the price to $4.5 billion, beating out Google in the largest-ever patent auction.

Google Shops Around

Before agreeing to buy Motorola Mobility, Google had few patents on mobile-phone technology. The company’s research had focused largely on its main search-engine business.

Google, seeking to tilt the balance, has actively sought patents that it said could be used as a deterrent to litigation, culminating in the purchase of Motorola Mobility. Google bought more than 1,000 patents in July from International Business Machines Corp.

“Yesterday you could sue Google and you weren’t taking any risks because they didn’t have any patents,” said Pierre Ferragu, an analyst at Sanford C. Bernstein in London. “Today it’s the same as suing Motorola.”

The purchase of Motorola Mobility lessens the likelihood of future bidding wars, Ferragu said.

“You have very, very few transactions that would make sense today,” he said. “You possibly have some smaller transactions as Google continues to shop around for quality.”

‘Level Playing Ground’

Motorola Mobility traces its roots to the 1928 founding of Galvin Manufacturing Corp. in Chicago. The company, renamed Motorola, was a pioneer of early televisions and two-way radio in World War II. It helped lay the foundation for the mobile- phone industry, demonstrating its first handset in 1973.

“Motorola was a pioneer in this business,” said Will Strauss, an analyst at Tempe, Arizona-based Forward Concepts Co. “They certainly have a lot of intellectual property. It will certainly level the playing ground quite a bit. It’s going to give them an awful lot to defend Android with.”

The purchase would directly embroil Google in litigation, where its partners have until now been the main targets. Motorola Mobility has its own pending lawsuits against Apple and Microsoft. A case Microsoft brought against Motorola Mobility is due to begin trial Aug. 22 at the U.S. International Trade Commission in Washington, and a victory may mean a ban on imports of Motorola phones. Motorola Mobility retaliated with a bid to ban U.S. imports of Microsoft’s Xbox video-game systems, with a trial scheduled for October.

Protecting the Ecosystem

Motorola Mobility’s case against Cupertino, California- based Apple also was scheduled to begin Aug. 22, though it’s been postponed. Apple’s case against Motorola begins in September at the ITC. Samsung and HTC also have each filed separate suits against Apple.

“We believe we’ll be in a very good position to protect the Android ecosystem for all of the partners,” Google Chief Executive Officer Larry Page said in a conference call with analysts yesterday. Motorola will manage the litigation until the acquisition is completed, expected by the end of this year or early next year, he said.

Kevin Kutz, a spokesman for Redmond, Washington-based Microsoft, declined to comment on what Google’s purchase of Motorola Mobility might mean for the litigation. Kristin Huguet, an Apple spokeswoman, also declined to comment.

Nokia Agreement

Apple has been winning so far, with an ITC judge’s finding that, if upheld, could lead to a ban on imports of HTC phones into the U.S. and a court order that prevents Samsung from introducing its new Galaxy Tablet in most of the European Union. As yet, nothing has stopped sales of Motorola’s phones or Xoom tablet.

Google may be hoping that an agreement can be reached with Apple that mirrors one the computer maker struck with another phone pioneer, Nokia Oyj (NOK1V), said Bernstein’s Ferragu.

The Finnish phone maker in June said it won an almost two- year patent dispute with Apple in a settlement that provided it with a one-time payment plus royalties.

“From that, you could infer that in the end it’s going to be Apple paying Motorola, paying Google,” Ferragu said.

While there will continue to be patent purchases in the mobile-phone market, litigation may slow if Google is successful in its strategy of using patents as leverage to strike settlements and keep further lawsuits at bay.

“It may not be the end, but you can see it from here,” said Inflexion Point Strategy’s Laurie. Google “was such an obvious target, and now they’re not,” he said.

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Allan Holmes at aholmes25@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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