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Impact Analysis: Google buys out Moto (Part I- Of Lawsuits and Patents)

Posted in Industry updates by Manas Ganguly on August 15, 2011

Google is pulling off an acquisition that is larger than any that Microsoft, Apple, or any of their other main competitors ever have. The Moto acquisition is either the smartest thing Google has ever done, or the dumbest. A $12.5 billion deal in cash, with a $2.5 billion collapse clause? There is no in-between

In a series of blogs over the next few days, I would be analyzing the impact of the Google-Moto deal in terms of:
1. Patents Leverage
2. Platform/Hardware Competence
3. Eco-system view
4. Impact on Telcos

Of Lawsuits and Patents

Google justified its investment in Motorola as an effort to “protect Android and its eco-system” from Apple, Microsoft and others. This will provide more balance and a better defensive position for Android, which was getting killed in court. Google CEO Larry Page wrote in an Aug. 15 corporate blog posting. “Our acquisition of Motorola 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.”

This deal is clearly about patents. If Motorola didn’t have thousands of patents, there is no way this deal would have happened. For Google to have bid 63% premium for Motorola (at $12.5bn with a $2.5bn disengagement penalty), inspite of the fact that Moto is loosing money, is doubling Google’s headcount and is in a severe quagmire in terms of lawsuits, patents have been the overwhelming cause. In losing the Nortel patent auction to Apple, Microsoft, RIM, and others, Google lost out on 6,000+ patents. With a battle over the InterDigital patents just getting started, there was a pretty decent chance they were going to lose another 8,800+ to their rivals. But with the Motorola buy, Google gains at least 17,000 patents. And if some other applications go through, perhaps as many as 25,000 patents. In one fell-swoop. Crazy.

It raises Google’s patent pool from around 2,000 — over 1,000 of which are from a deal they just did with IBM — to around 20,000. That’s around what Microsoft has. And nearly double what Apple has.

However, its not the number. Motorola’s patent pool may not go far enough to cancel out some key patents owned by Google’s main rivals: Apple and Microsoft. Apple and Microsoft, have the upper hand in most of the critical patents. That is something that the Google lawyers will have to figure out in terms of defending the Moto patent turf. In any case, 17,000 is a leverage and Google has the capability for to better leverage that number compared to Moto.

It can also be seen as defensive strategy from Google. Google buying Motorola out could also be a response to stop Moto from settling with Apple and/or Microsoft on the patent issues. Such a settlement would have been a big blow to the entire Android ecosystem. Perhaps not quite as bad as Samsung agreeing to license patents from Microsoft (joining HTC and others), but bad. Microsoft was also negotiating to buy at least Motorola’s patent portfolio.
Google’s acquisition could also drive its competitors into buying frenzies of their own. RIM suddenly becomes very valuable for its patent horde. HP, Apple or Microsoft should quickly move to buy RIM for its patents and also [BlackBerry Enterprise Server], the crown jewel.

to be continued

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