Google’s Motorola Marriage to Come With Big Patent Dowry

Google announced Monday it intends to purchase Motorola Mobility for US$12.5 billion, pursuant to regulatory approval.

That price is a premium of 63 percent over the closing price of Motorola Mobility shares on Friday.

The deal was unanimously approved by the boards of directors of both companies.

The news sent Motorola Mobility stock prices soaring over 55 percent by the afternoon.

Both Google and Motorola Mobility declined to provide the E-Commerce Times with further comment.

About the Google Bid

The acquisition of Motorola Mobility will let Google supercharge the Android ecosystem and enhance competition in mobile computing, Google told investors.

Google will run Motorola Mobility as a separate business, Motorola Mobility will remain a licensee of Android, and Android will remain open, Google stated.

Google’s announcement was accompanied by statements of support from other major Android hardware device makers — Samsung, Sony Ericsson, HTC and LG Electronics.

“What I heard on the analysts’ call was that all Android’s top five vendor partners outside Motorola are happy about this,” Ramon Llamas, a senior research analyst at IDC, told the E-Commerce Times. “But if I were one of those guys, I’d look at someone else as well, maybe Windows Phone 7 or webOS.”

The deal is subject to regulatory and shareholder approval. It’s expected to close by the end of 2011 or early 2012.

The Backdrop to the Deal

Google’s bid for Motorola Mobility is widely seen as a bid to acquire patents in order to protect its business.

Google CEO Larry Page referred pointedly to patent lawsuits filed against Android by Microsoft, Apple and others and said the acquisition of Motorola will strengthen Google’s patent portfolio.

Microsoft has several Android device makers paying it royalties, and it’s suing Motorola and Barnes & Noble over patents it claims to hold on Android technologies. In fact, Android royalty payments are reportedly a cash cow for Redmond.

Oracle, too, has filed suit against Google over Android, while digital security solutions firm Gemalto is going after Google in court.

Apple’s suing HTC and Samsung for allegedly infringing on its product patents, and it’s obtained an injunction blocking shipments of Samsung Galaxy Tabs across Europe.

“The Android ecosystem is under pressure from an IP perspective,” Brian Marshall, an analyst at Gleacher, told the E-Commerce Times.

Android’s an Easy Target

Google lacks a strong patent defense, Rob Enderle, principal analyst at the Enderle group, previously told the E-Commerce Times.

Google did try earlier this year to buy patents from bankrupt Canadian telecommunications company Nortel, but lost out to a consortium that included arch-rivals Apple and Microsoft.

That led David Drummond, the Internet giant’s chief legal officer, to accuse Microsoft, Oracle, Apple and other companies of running a hostile organized campaign against Android through the use of “bogus” patents.

The bid for Motorola Mobility may tilt the playing field a little more in Google’s favor.

“This [bid for Motorola Mobility] is a patent play,” IDC’s Llamas told the E-Commerce Times. “Look at how Google got shut out of the Nortel auction and the way they’re hit by lawsuits from Microsoft and Apple.”

Motorola has 17,000 patents now and another 7,500 patents pending, Llamas said.

With the purchase, Google “may be hoping to beef up its patent portfolio to cross-license with Microsoft, Apple, Oracle and other players,” Gleacher’s Marshall said. “This is clearly a defensive play on Google’s part.”

However, the purchase of Motorola Mobility “isn’t going to change the dynamics of the handset space,” Marshall asserted.

You Can Buy Your Way Into Trouble

Google’s attempt to escape from the sandpit of patent suits over Android may land it in another quagmire instead.

“If Google takes the patents and shuts down the Motorola hardware business, that will damage relationships with the other licensees, much like IBM did with OS/2,” Enderle pointed out.

“It’s going to be generally good news for Microsoft, which is in the licensing business, because these [other Android] hardware manufacturers are going to be nervous,” he added.

“The smart move would be to shut down Motorola Mobility and just go with the patents, but Google has to learn everything the hard way, and I’m going to go with tradition here and say they’re going to make the mistake,” Enderle said.