Google’s Motorola Bid: Big Patent Portfolio — but Potentially Big Headaches, Too

On Monday, Google announced plans to buy Motorola Mobility in a surprise $12.5 billion deal that gives the creator of the Android mobile operating system access to 17,000 patents and 7,500 patents in progress. Google was recently outbid by an industry consortium led by Apple and Microsoft in an auction for Nortel’s 6,000 patents. The wireless consortium won Nortel’s patents with a bid of $4.5 billion.

In a blog post, Google said the effort to outflank the company for Nortel’s patents amounted to an attack on Android. When Google announced the acquisition of Motorola Mobility, CEO Larry Page said the acquisition “will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies.”

Indeed, Google is facing a lawsuit from Oracle over Android, and partners such as HTC and Samsung are being sued by Apple over intellectual property.

With that backdrop, Wharton management professor David Hsu says that Google had little choice but to buy Motorola Mobility to beef up its patent portfolio — if only to fend off lawsuits. “It’s no surprise that people are talking about the intellectual property portfolio when it comes to Google and Motorola Mobility,” Hsu notes. “It seems that Google weighed the time and effort of dealing with the legal system — and paying royalties on each Android activation — with [the cost of] buying Motorola Mobility.”

Kevin Werbach, a legal studies and business ethics professor at Wharton, points out that by purchasing Motorola, Google is acquiring a series of “foundational” phone patents, given that Motorola created the first cell phone. “Motorola has been at this for a long time, and Google was looking for patents that others don’t control and would be scared of,” he says.

However, Werbach adds that there is more to Motorola Mobility than patents for Google. For instance, Google gets TV assets that can boost its television software efforts, as well as engineers who are well versed in the wireless market.

What’s unclear is how many complications Google will inherit just to acquire Motorola’s patent portfolio. Hsu says that because Motorola uses the Android platform, Google will likely end up in competition with its other Android partners, notably HTC and Samsung. Publicly, HTC and Samsung supported Google’s plans to buy Motorola. On a conference call, Page said that “many hardware partners have contributed to Android’s success, and we look forward to continuing our work with all of them on an equal basis.” He added that Android will remain open source, and key partners “share our enthusiasm for this combination.”

In the smartphone industry, competitors are fighting to win over software developers, create app markets and create platforms that are hits with consumers, Hsu notes. He questions how Google can keep Motorola Mobility on equal footing with other partners and manage perceptions. “Will there really be a Chinese wall inside the organization [between Google and Motorola]? There are clearly bundling opportunities [there] for Google.”

If Google really wanted to allay concerns with its Android partners, it could end Motorola Mobility’s manufacturing altogether, Hsu suggests. “Google could shut down Motorola manufacturing to prove it will be an even landscape. That would be a bold, but crazy, move.”

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