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The (patent) fear factor in the Motorola-Google deal

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We’re getting more details about Google’s (s goog) $12.5 billion bid for Motorola (s mmi) thanks to a filing by Motorola with the SEC. The document outlines how Google ultimately offered $40 a share for Motorola, a 60-percent premium over the share price at the time, even though it was the only one negotiating with Motorola.

The document suggests Google was eager and anxious to buy up Motorola, going from initially offering a bid in the high $20s to low $30s. And it sounds like Motorola may have capitalized on Google’s eagerness by upping its demands and insisting the company must be bought whole instead of making a deal for Motorola’s patents.

But the real story, argues patent analyst Florian Mueller isn’t that Motorola squeezed Google for more money; it’s how and why it was able to. Mueller said Motorola was, in essence, threatening Google with a number of dire consequences to Android if Google didn’t buy up the manufacturer. Ultimately, he said, it wasn’t simply about the patents, which he’s argued in the past are of less value, or Google’s interest in getting into the hardware business. It was about responding to these veiled threats and ensuring Motorola didn’t undermine the success of Android by following through on its threats.

Mueller has been a sharp critic of Google and was criticized for reading too much into recent documents suggesting Google might favor Motorola to the exclusion of other Android manufacturers. But he’s got some very compelling thoughts on the dynamics of this deal and timing of the various moves. Here’s a look at the threats as identified by Mueller:

Motorola might sign a licensing deal with Microsoft and possibly settle with Apple. In its cases against both Microsoft (s msft) and Apple (s aapl), it’s possible Motorola could have given in and sought for some licensing resolution, something the company raised in its filing. That, Mueller argues, would have been a major capitulation by one of the strongest Android manufacturers and would have been an admission that Android infringes on Microsoft and Apple patents.

Motorola might look at becoming a Windows Phone 7 manufacturer to help mitigate its patent situation with Microsoft. Motorola’s CEO Sanjay Jha expressed some openness to exploring Windows Phone 7 during the Google negotiations. Motorola has been dedicated to Android as its smartphone platform. Mueller believes that Motorola may have been looking at building Windows Phone 7 devices as a way to settle its case with Microsoft under more favorable terms.

Motorola was potentially looking at suing other Android manufacturers for patent infringement. On Aug. 9, the same day Jha expressed openness to Windows Phone 7, he also talked of the possibility of collecting royalties from other Android makers. Motorola could have raised the price of Android devices with patent suits, said Mueller, and possibly wreaked more havoc if Motorola abandoned Android, which would make it even easier to target Android manufacturers with lawsuits. On Aug. 9, Google boosted its previously rejected bid of $30 to $37 and then up to $40 a share, a 33-percent increase in one day.

Motorola could have sold parts or all of itself to another bidder. While Motorola and Google entered into a mutual confidentiality and non-disclosure agreement during the negotiations, Motorola was also weighing “other strategic alternatives.” Om wrote that Microsoft was talking to Motorola about buying its patent portfolio, which helped Google pull the trigger on the deal. Motorola, in its proxy filing, communicated early on that it wanted to keep the company whole because selling patents separately might hurt its ability to operate as a standalone company. At its Aug. 9 board meeting, Motorola directors discussed whether to solicit proposals from other potential buyers before deciding to negotiate privately with Google. But the threat was always there that Motorola could look at other suitors who could have made life tough for Google.

I’m not sure if Google was prompted by these threats in the way that Mueller speculates. But it sounds plausible that Google was motivated by more than just patents. As observers have noted, they aren’t quality patents, don’t offer the best protection for Google and didn’t dissuade Apple or Microsoft from suing Motorola. And I don’t think Google is interested in really undermining its Android ecosystem by competing heavily with its manufacturing partners even if Google Chairman Eric Schmidt said the deal was for more than patents.

What makes more sense is that Google needs to do everything it can to keep the Android express going and if Motorola defected to another platform, started suing Android manufacturers, struck licensing deals with Apple or Microsoft or fell into the hands of those rivals, it could have caused significant damage to Android.

By scooping up Motorola, it can prevent a lot of those issues from arising while also obtaining a fair amount of patents along the way. It also means that it is now responsible for Motorola’s legal battles, which could still strike a big blow to Android if Motorola loses.

Is Motorola worth $12.5 billion? That’s arguable. But it sounds like Google was backed into a corner with Motorola basically calling the shots. This indicates that Google is willing to go to great lengths to keep Android running, but it also exposes the company to similar threats from other partners. At the very least, we’re reminded again that Android may be a free platform, but it’s certainly not cheap for Google to maintain.

9 Responses to “The (patent) fear factor in the Motorola-Google deal”

  1. Do no evil? I think Motorola was evil. The execs in Motorola where two-facing the Android community. They made their multi-millions from the “Droid” and they do an about face on Android by threatening to sue Android phone makers and others, moreover wanted to make devices for MS to negate the patent lawsuits from MS. The execs from Motorola who were orchestrating the threats will probably be shown the door once Google has the deal settled. These individuals have no allegiance to the Android system. Money was their bottom line…they need to get shoved out the door!

    • “no allegiance to the Android system. Money was their bottom line”
      As with all the manufacturers. There’s really no allegiance to android, it is simple a means to compete with iPhone. It gets too costly and all the manufacturers will be looking for alternatives.

  2. 米 迦 勒 / 미가엘

    I keep hearing this line about Motorola’s patents not being of good quality. I could understand that if this wasn’t Motorola. When it comes to tech Motorola has been involved in a lot of ponds and all of them required patents and patent protection. The fact that Motorola is likely older than Apple and Microsoft combined is enough to take steam out of this claim. On top of that Motorola has had extremely successful devices in the cell category long before again, Apple and Microsoft did. On top of that, the cell phone device business has been extremely competitive from day one but Motorola’s involvement began on day zero. So I think this claim needs to stop mindlessly getting passed around without first being evaluated.

    Besides one of the reasons even patent owners prefer to head off court because the merits of a patent are only truly tested in court and only after all appeals have been exhausted. It sounds good on the face of it, but as patent owners know, anything can happen in court and often does. What’s going on in the tech industry is really ‘trade by having the appearance of being the rightful owner of the tech’ and nothing more.

    • Evidently you’ve never heard of encumbered patents. If patents become part of a “standard”, they get encumbered and can’t be used for lawsuits other than royalty payment negotiations. That’s the problem with a lot of MM patents, they’ve been around so long, are part of the basic standards and are encumbered.

  3. Jason Thibeault

    We seem to be doing a lot of speculating about veiled threats and proposed reasons with no hard evidence to back it up. Just because Google up’d its bid (in the SEC filing) doesn’t mean that they were under pressure from Motorola. In fact, I recently commented on a WSJ article that actually claimed (not supposed, actually claimed) the aggressive bidding on Google’s part actually demonstrated it was all about the patents. Shoddy journalism.

    Instead of continually speculating on the “why” Google acquired Motorola, why don’t we spend some time on looking at what Google can get out of it? Even if the patents did play a role in the acquisition, that’s not to say that there aren’t tangible, real-world benefits that point to a lot of interesting plays for Google in the future. I guess I’m hoping that the community can turn to some interesting, fun speculation and imagination rather than tired old drumming on the “why.”


    • Agent Utah

      Consider for Google what great timing this storm of publicly would be if they truly had no concern with regard to their patent portfolio but rather have been acquiring the necessary “pieces” for a secret project… maybe Apple isn’t the only one who can hold their cards tight :0) After a quick review of all that has been Google, the recently purchased patents (most noteworthy the IBM group), new releases (like Google +), and all that comes with Motorola Mobile… I think we may be enjoying a new way of mobile communication that will change our culture just like the mobile phone did. Think “Grids” – It’s kinda sad really… I’ve enjoyed the cell phone era.

      • Jason Thibeault

        See, that’s what I’m talking about. Great speculation. There’s a lot of ingredients in the soup now. What it will taste like is anyone’s guess. I’m just not concerned anymore with where they got the ingredients. I want to see what they cook up.