Google's Motorola Purchase Was a Patent Power Play

Motorola's patent portfolio is four times thicker than Nortel's

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Everybody seems to agree that the reasoning behind Google's fat-check acquisition of Motorola Mobility is about one thing: patents. Last month, a consortium of companies including Apple, Microsoft and Research in Motion beat Google in an auction and purchased Nortel's portfolio of 6,000 patents for $4.5 billion. With 24,000 patents, Motorola Mobility's portfolio dwarfs that of Nortel's, and the $12.5 billion all cash price tag makes it seem like Google got a deal by comparison. That said, the tech community seems both nonplussed by the surprise power play and assured about the reasoning behind the purchase.

The acquisition obviously bolsters Google's patent portfolio. Peter Kafka at AllThingsD sums up this argument neatly: "The search giant is spending $12.5 billion on 25,000 patents, and getting a handset maker, too." Founder Larry Page says so himself on Google's Official blog and points to last week's much-blogged-about "When patents attack Android" post and adds:

We recently explained how companies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to "protect competition and innovation in the open source software community" and it is currently looking into the results of the Nortel auction. 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.

Motorola Mobility CEO Sanjay Jha echoed this sentiment on an investor call Monday morning. "We believe that we'll be able to provide much better support to the businesses at Motorola Mobility as well as the Android Ecosystem," said Jha.

Google might want to get into the mobile and TV hardware business. Ryan Kim at GigaOm speculates how the Motorola Mobility acquisition "gives Google a chance to build very integrated devices that combine hardware and software well, something Apple products are known for," an optimistic possibility since "partners have not always been happy with Google’s efforts to build a Nexus One smartphone." However, it might not be all about mobile. Ben Berkowitz at Reuters points out that with the Motorola Mobility "Google also buys largest set top box maker in Motorola," who build one out of every 12 set top boxes and offer Google "insta-penetration."

No but seriously: It's all about the patents. "I disagree with those who say Google wants to be in the hardware business. It got out of that biz. This was a strategic patent play," argues Jeff Jarvis in a tweet.

Other Android partners might be intimidated. In announcing the deal, Google emphasized how "Motorola Mobility will remain a licensee of Android and Android will remain open." Kara Swisher at AllThingsD thinks that other Android partners could react poorly to the Motorla purchase:

Make no mistake--they already resent Google from time to time, the way Compaq or Dell has resented Microsoft in the PC business.

But, since Google already showed favoritism to Motorola by letting them do the first Honeycomb tablet, the Xoom (although it didn’t do any good), that discomfort will only increase now.

Indeed, as patent expert Florian Mueller explained to ZDNet's Mary Jo Foley, the acquisition implies that the other handset makers "would have to compete head-to-head with the supplier of their operating software."

However, other Android partners sound most committed to defending Android. Google spokesman Kay Oberbeck quotes the heads of Motorola Mobility competitors and Android partners echoing the same talking point almost verbatim. The chief executives of HTC, Sony Ericsson and LG all "welcome Google‘s commitment to defending Android and its partners." The other Android partners' agreement forms a united front against mobile competitors Apple and Microsoft, who have been winning the patent battle so far.

Microsoft might want to think about a return volley. Parmy Olson at Forbes tweets, "Microsoft buying Nokia doesn't seem like such a wild idea anymore."

No matter what, Motorola Mobility shareholders win big. The all-cash $12.5 billion purchase price breaks down to $40 per share, a 63 percent mark up on Motorola Mobility's Friday closing price. The company's largest shareholder, Carl Icahn, has been asking for a deal like this at least since last month when he said, "There may be multiple ways to realize such value given the current heightened market demand for intellectual property in the mobile industry."

What if it fails? No big deal, says Erick Schonfeld at TechCrunch, because Google "will still have all those mobile patents, which arguably could be worth a good portion of the total acquisition price."

This article is from the archive of our partner The Wire.