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Google paid $4B for patents: why the Motorola deal worked out just fine

When Google(s goog) bought Motorola Mobility for $12.5 billion in 2011, many people said it was all about the patents — and they were right. Now, on news that Google sold the device maker for just $2.9 billion, it’s worth examining if the deal made sense, and what role the patents played.

The short answer is that the deal, including the patent part of it, worked out just fine. A look at the math, and the competitive landscape, shows that the purchase and sale of Motorola made strategic sense for Google, even at that $12.5 billion price tag.

The final outcome of the Motorola deal validates Google’s strategy at a time when most patents are business weapons unrelated to actual innovation. It also provides yet another reminder of how badly America needs patent reform.

Google encircled, a controversial counter-attack

Recall that one month before the acquisition, Google’s rivals — including Apple(s aapl), Microsoft(s msft) and BlackBerry(s rim) — had snapped up a coveted patent portfolio at auction, giving them a new stick to pummel Google in a global and ever-sprawling legal battle over smartphones.

The deal, then, gave Google a chance to counter-attack or at least hold its ground thanks to Motorola’s intellectual property, which reportedly amounted to 17,000 issued patents and 7,500 applications. Google has never been a big booster of a patent system that awards patents for inventions like a “method of swinging on a swing” but, given the context, this was a case of if you can’t beat ’em, join ’em.

Or, as programmer Robert Eric Raymond put it at the time:

This is Google telling Apple and Microsoft and Oracle “You want to play silly-buggers with junk patents? Bring it on; we’ll countersue you into oblivion.”

Sure enough, Google went ahead and poured more gasoline on the smartphone patent wars, in part by asking the International Trade Commission to ban iPhone imports because the popular Apple devices infringed Motorola patents. The ITC lawsuit, however, was a flop and some of Google’s other legal adventures with the Motorola patents have outright backfired.

Last fall, for instance, the company sued Microsoft for patent infringement but a jury ordered Google to pay up for fighting dirty with standards-essential FRAND patents, which must be licensed on Fair, Reasonable And  Non-Discriminatory terms. (Google, by the way, is not the only accused of messing with FRAND — the cable industry just sued an Apple-backed group over the same tactic).

The bottom line is that the Motorola patents haven’t always worked out as well as Google might have hoped. But that doesn’t mean buying Motorola was a mistake.

The math of irrational patents and the end of war

Sure, Google bought the company for $12.5 billion and sold it for around $3 billion, but that doesn’t necessarily mean it was a bad deal from a patent perspective. While the spread suggests Google lost its shirt, the amount it will actually spend on Motorola at the end of the day is around $4 billion — and it’s keeping the patents.

The $4 billion figure, as analyst Benedict Evans, the New York Times and Bloomberg noted, results from the fact that Motorola had around $3 billion in cash on hand, and from the $6 billion Google recouped from selling off units of the device maker.

As for the patents, CEO Larry Page had this to say:

Motorola’s patents have helped create a level playing field, which is good news for all Android’s users and partners … Google will retain the vast majority of Motorola’s patents, which we will continue to use to defend the entire Android ecosystem.

Page’s words are a reminder that while some of the Motorola patents didn’t pan out in court, there are still thousands more of them that Google can unleash at any time, including newly issued ones (recall that Motorola had 7,500 applications at the time of the deal). And, at $4 billion, the price doesn’t appear to be crazy, especially when considering that’s less than the amount that Google rivals paid at auction for the patent portfolio of Nortel (which took place shortly before Google acquired Motorola).

More importantly, the Motorola patents don’t stand alone; they are part of Google’s swelling intellectual property portfolio, which now includes access to Samsung’s patents as well as the rapidly increasing number of patents Google is obtaining internally.

All of this means that Google is in position to wage the smartphone patent wars for years to come. Even if the Motorola patents don’t give it a knock-out victory, the patents will allow Google to inflict incredibly expensive litigation on rivals since, under America’s bloated patent system, it can take years to invalidate even the flimsiest patent.

Fortunately, this may not be Google’s goal. According to a person familiar with the company, Google’s patent partnership with Samsung is part of a larger plan to defuse the patent wars over smartphones, and promote industry-wide cross-licensing deals instead. If this is the case, the $4 billion that Google paid for Motorola’s patent will help give it the necessary strength to promote peace.

At the end of the day, the Motorola patent purchase was a sane response to a patent system that is so irrational that all three branches of the US government are now trying to reform it.

11 Responses to “Google paid $4B for patents: why the Motorola deal worked out just fine”

  1. Here is an idea, Google stop stealing IP from other companies. Android is basically a stolen product resulting from the honest investments made by Oracle/Sun, Apple and Microsoft. now Google wants to give it away for free. Google is circled like Custer, the noose is getting tighter and tighter. All Google can do is stall for time. Google had to sell Motorola, they were getting closer and closer to having to pay a lic fee to Microsoft which would have been a big embarrassment to all Android OEMs. Oracle will win which will add a tax to all Android users, Apple will continue to win which will add another tax. Microsoft will continue to collect fees and the soon Nokia will be also adding an additional “Android Thief Tax” on Android. Android will not be free for long

  2. “[The final outcome] also provides yet another reminder of how badly America needs patent reform.”

    @jeffjohnroberts: I fail to see any evidence to this claim, making this statement just your biased opinion. Can you provide an example to shed some light on this?

    As evidenced by Google’s purchase of Motorola patents, this just shows that patents are valuable assets; therefore, the patent system is working as intended. Because patents have value, inventors have an incentive to innovate. Without patent value or patent assertion, inventors would have no incentive to innovate, and where would technology be today without innovation and without protection for those who spend the time/effort/money to innovate?

  3. Chris Kerry

    It’s simplistic to judge the initial transaction as bad and a mistake for these reasons:
    1. Actual cost for patents: $12.4(initial amount) – $2.5 (sales of set-top(to Arris) & factories (to Flextronics)) – $3.2(Motorola’s cash reserve) – $1(Tax credits) – $3(sale to Lenovo) + $1((Motorola’s amortisation & restructuring costs) = $3.7billion. This doesn’t add in revenue accrued from sales of Motorola products and patent licences (however meager). The amount is very reasonable for patents priced at that time (;it was even valued at about $5.5b at the time but Motorola wouldn’t sell unless the whole company was being bought). It remains to be seen if the Apple-MS consortium that acquired Nortel’s for way more would yield the believed profits (;the truth is that it was bought as a club to beat Android OEMs with, creating a fresh company so that the fallout of this won’t reach them, not for profits).
    2. Android was not as dominant as it is today. It only had 33% of the US smartphone market. Nokia, which had recently abandoned Symbian, took $1b from Microsoft to focus on only WinPhoneOS. Motorola, which had been losing android market-share to HTC, LG and Samsung, saw them sign android licencing deals with Microsoft to avoid litigation battles. It wanted to sue them to secure more licencing revenue, considering its more extensive mobile patent collection (than MS) []. The higher Android cost & infighting would have destroyed androids’s growth and uptake by other OEMs at a time when WinPhoneOS seemed to be rising and had already snagged the still-then biggest mobile device maker, Nokia [ ]. Buying Motorola rewarded a company that had loyally stuck to android exclusively (unlike Samsung, HTC, etc) and the only one that held out from paying MS’s toll fees and prevented patent wars from erupting within android.
    3. Google’s primary aim has always been to develop a mobile ecosystem that is free to others and enables it act as the primary gateway and arbiter for services in such a way that it doesn’t suffer significantly if shut out from others (eg, IOS). In fact, considering the initial purchase fee of Android plus all the investment so far, all given away for free so much so that even Amazon benefits, it’s arguable that Google has willingly spent more on creating and maintaining its Android ecosystem outside of the (<=)$3.7billion on Moto. And it's all been worth it, more so as the years unfold. (Many who berate YouTube founders from selling pointing to its present yearly profit fail to see that there was not only no monetization solution for the first 4-5yrs (lots of losses/overheads) it was the buyer, Google, that eventually made it profitable and all those years of losses were worth it).
    4. Samsung was getting too big to be effectively competed against by any other Android maker, inadvertently making Google more and more beholden to Samsung. Having Motorola eventually enabled Google to reach the recent "peace deal" with Samsung [ ] and stop Samsung's duplication of Google apps and confusing android skins. It also enabled Google to nurture and clean up a key Android OEM while waiting for one like Lenovo to mature enough, in the mobile space, and take charge of it to act as a nice rising counterweight to Samsung (the sale will propel Lenovo to 3rd biggest behind Samsung & Apple).
    5. For all Android's success, Google has little foothold in China. By owning a part of the biggest Chinese maker (& playing a crucial part in propelling it to 3rd worldwide), Google does well for its possible subsequent growth in China.
    6. With the way it handled Motorola, Samsung, Lenovo (a favourable deal), LG, Asus, HTC (not just the nexus program but lent it patents), Intel (the only mobile OS to make a serious effort to help it and its Moto was the first OEM to make the effort to incorporate its chips) Google has built an increasingly loyal network of hardware partners ready to aid it in its Android and ChromeOS efforts. This is can be contrasted to MS.
    7. It's been a very useful experience, learned at virtually no cost, of real hardware-software realities that can only help it in its non-smartphone hardware design and promotion (chromecast, etc) and future OEM collaborative efforts. All these still allow Google to play to its strengths while offloading future losses/low margins and distribution headaches to Lenovo.
    The whole sequence of the first transaction (buying Moto) up to the present one (selling to Lenovo) has been a great deal for Google.

  4. Typical fanboy article.

    News: Google buys Motorola. Interpretation: Google wins.
    News: Google sells Motorola. Interpretation: Google wins.
    News: Google re-buys Motorola. Interpretation: Google wins.
    News: Doesn’t matter. Interpretation: Google wins.

  5. Why is it just an Apple backed group. Where is Microsoft, Blackberry and Ericsson not mentioned as backers also? What about Motorola being investigated by the EU for breaching the spirit of FRAND? You make it seem as if Google is riding on a white horse trying to clean up the system, when they also sue and enforce injunction on bogus patents such as the pager patent that was invalidated in the UK and Germany. No ones hands are clean, but I believe a little more fairness and objectivity goes along way

    • Hi Drew – I agree, Google is hardly the pure innocent virgin that this article portrays; they play dirty, just in different ways. google has a huge lobbying budget, and seems to be an extended arm of the NSA.

  6. Dilip Andrade

    Your reference to “access to Samsung’s patents” is odd… there’s a cross licence deal that was announced, but that doesn’t help Google from a defensive positioning perspective. It’s an agreement that the two companies have access to each other’s patented technologies, which is different than counting it as part of Google’s IP portfolio. Nothing in any of the reports indicates that Google got an ownership stake in anything.

    Also, saying that it was a response to the failure to acquire the Nortel patents may be accurate, but I doubt that anyone will consider the Moto patent portfolio as rich or valuable as the Nortel portfolio was. It’s likely that the Nortel patents, in the hands of Rockstar will end up making up for cost of acquisition, and it’s doubtful that the Motorola ones ever could.

  7. How much does one patent cost?
    (One inventor’s tangent perspective on patent-price arithmetic).

    This was an interesting article, thank you Jeff.

    I am an IC design engineer, inventor; (co)authored 11 granted patents. From my perspective I did not get paid even US$1.- per patent, at the last two start-up companies I worked for 12 years in Silicon Valley. I was ignorant on negotiating my fixed salary and be paid for innovations that made these companies viable.
    Therefore the simple valuation question “How much does a company pay for one patent?”

    To paraphrase “That’s one small step for [a] man, one giant leap for mankind” I am asking “A small question for [a] company, one giant question for inventor”.

    From the numbers in your article, a rough calculation of what Google paid for one patent:
    Total price paid 12.5e9 – 2.e9 = 9.6e9 or 9.6 billion US$.
    Total patent count 17,000pat + 7, = 24,500pat
    One patent price 9.6e9 / 24500 = 390000 US$ or approximately $400K/patent (high number)

    With the actual $4 billion figure (Benedict Evans) this per patent price gets reduced to:
    Total price paid 4e9 = $4 billion
    Total patent count 17,000pat + 7, = 24,500pat
    One patent price 4e9 / 24500 = 164000 US$ or approximately $200K/patent (low number)

    Seems this purchase price/patent is advantageous for Google as prior patent portfolio deals put the individual patent price between a low $0.5 million/patent and a high $5 million/patent if my math is correct.
    For example the Nortel patent portfolio deal puts the per-patent price at $4.5 billion/6000pat = $750K/patent.
    [email protected]

    • No one explains that in the early 2000’s Google decided that patents were important to them, and Android also had a very thin patent program; and when google found out that was a mistake, they embarked on a scorched-earth policy in patent litigation. They could have played nice; but took the same position that Blackberry RIM did, which was to try to destroy law merely because they were on the losing side of that law. Google has embrace litigators and lobbyist, some of the lowest scum on earth, to make up for their past folly.

      google has taken the low road, and tried to make it sound like the high road. google needs to reject the lobbyists and litigators and negotiate on patent licenses in good faith.