Google Scores in Patent War

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In its race to gain more control over the increasingly lucrative market for smartphones, tablets and other mobile devices, Google is buying Motorola Mobility for USD 12.5 billion.

Motorola has over 17,000 patents and would help Google battle the intellectual arms race with Apple, Microsoft and Oracle in the increasingly competitive smartphones and tablets market.

Motorola has another 7,500 patents awaiting approval, which could also come into Google’s Patent kitty.

These new patents are expected to help Google defend Android, its operating system for mobile devices, against a barrage of lawsuits alleging that Google and its partners infringed on patents of other companies.

Experts are predicting that if the Fed regulators approve the deal, it could trigger more multi-billion dollar buyouts including the stars of yesteryear’s like Nokia and Research in Motion (The Blackberry company).

Getting Motorola’s patents would allow Google to offer legal cover for it’s partners as well including, HTC and Samsung Electronics Co., that depend on Android.

The deal is by far the largest Google has pursued in its 13-year history. Motorola Mobility’s price tag exceeds the combined $9.1 billion that the company has paid for 136 previous acquisitions since going public in 2004, according to filings with the Securities and Exchange Commission.

Strategic goal

The acquisition has a strategic goal, as well: to protect Google and its Android software for smartphones and tablets against a host of costly patent lawsuits filed by its rivals. Motorola holds thousands of patents, which now will be owned by Google, giving the search giant a stronger hand in court. Android products are under threat from some companies who are looking to use patents to compete, said David Drummond, Googles chief legal officer.

For Google, the biggest advantage of the deal may be getting Motorolas portfolio of technology patents. Google has been under intense attack by competitors who claim Android violates some of their key patents. Last week, a German court ordered Samsung Group ofSouth Koreato stop selling Android-based Galaxy Tab tablet computers in most of the European Union, after Apple said the Google software infringed on some of its patents.

Other lawsuits against Android, including one filed last year by the giant database companyOracle Corp., are pending. One small Boston company, Skyhook Inc., has filed suit, saying that Androids navigation technology infringes on several of its patents.

Motorolas patents will give Google more power to fight back with countersuits claiming its own patents have been violated, as well. The more patents, the better, said Carl Howe, telecom analyst at Yankee Group inBoston. You just have more ammunition to sue people with.

Google owns about 300 patents on mobile device technology, according to research from MDB Capital Group. But Motorola Mobility boasts a huge portfolio of 17,000 patents, with 7,500 applications pending.

Google and Motorola executives stressed the importance of the patent library, leaving no doubt it was Googles chief reason for doing the deal. During a teleconference yesterday, Page said Motorolas patents will help protect Android from anticompetitive threats fromMicrosoft, Apple, and other companies.

The Android thing

Google expects the deal to be finalized by the end of 2011 or early 2012, after review by antitrust regulators in the United States, the European Union, and other countries.

Motorola Inc., founded in 1928 in Chicago, developed the worlds first commercial cellphone service in 1983. Motorola Mobility, its mobile phone operation, was spun off as a separate company in January.

Android began as the product of a Silicon Valley start-up company with a software development facility in Cambridge. The company was purchased by Google in 2005, and the software has become the worlds most popular platform for mobile devices like smartphones and tablets. Every major US carrier and 231 wireless providers around the world sell Android devices.

As a result, sales of Android devices far outstrip those for the iPhone and iPad, which run Apples iOS software.

Page said yesterday that more than 150 million Android-based phones and tablets have been activated, with 550,000 coming online every day.

The research firmGartner Inc.estimates Android has 38.5 percent of the worldwide market for mobile device software, compared to 19.4 percent for Apples iOS, and by next year Androids market share will reach nearly 50 percent.

Complications

Owning a smartphone maker could complicate Googles relationships with other makers of Android phones.Motorola Mobility will operate independently from Google, and Android will be provided on free and equal terms to all phone and tablet makers, Google said.

David McQueen, principal analyst at Informa Telecoms & Media in London, said Google must provide such assurances to major makers of Android phones, including Samsung, LG Corp., and HTC Corp. Otherwise, having Motorola in their stable would appear to be a conflict of interest, McQueen said.

If Motorola engineers get early access to improvements in Android, he added, other phone makers will be at a serious disadvantage and might consider defecting from the Android platform.

But Yankee Groups Howe said Google should do all it can to exploit its ownership of Motorola. Owning it could let Google make dramatically better Android phones, with the kind of seamless integration of hardware and software found in Apples iPhone.

If it holds Motorola at arms length, Google will waste much of the transactions value, he said. If I were a Google shareholder, Id be saying, What do you think youre doing, because youre not taking advantage of the fact that you now own a phone company.

Ronald Gruia, principal telecom analyst for Frost & Sullivan in Toronto, predicted that competing Android phone makers would start hedging their bets by offering more phones that use alternative software like Microsofts Windows Phone 7.All in all, the deal is positive for the consumer, he said. They may end up seeing one vendor like HTC selling [both] Microsoft phones and Android phones.

Support from all except Apple?

For now, other major Android phone companies say they are happy with the deal. Google published statements from top executives of Samsung, HTC, LG, and Sony Ericsson Mobile Communications AB, all expressing support for the Motorola acquisition. Apple did not return calls for comment.

“The combination of Google and Motorola will not only supercharge Android, but will also enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences,” said Page on the company blog.

Future market challenges

Google’s planned acquisition of Motorola Mobility has taken the market by surprise and analysts in the technology and mobility community are showing mixed reaction to the news.

International Data Corporation (IDC), the market intelligence provider, says that the acquisition is a great opportunity for Motorola and will help it compete in the smartphone market with a differentiated mobile product. Motorola shipped 4.4 million smartphones globally in Q2 2011 and was the eighth biggest smartphone player with a 4.1% market share.

“In the first place, this is a great opportunity for Motorola. With Google’s cash and control of Android, Motorola will be better positioned to compete in the smartphones segment. Motorola is a major Android manufacturer and this acquisition will allow the company to focus on differentiation as this is becoming key to succeed in the much crowded Android space,” said Francisco Jeronimo, research manager European Mobile Devices at IDC.

The acquisition will also give Google the ability to expand and improve its GoogleTV service.

“Motorola is one of the pioneers of mobile phones, and along with Nokia and Ericsson it has one of the biggest and most profitable phone patent portfolios in the world. Secondly, Motorola has an important set-top box business, which will help the GoogleTV service to expand. Google also becomes a consumer electronics manufacturer with the deal, which may open new opportunities in the future,” said Jeronimo.

However, Jeronimo says that this acquisition will also make most Android players realise how dependent they are on Google and how quickly Google’s plans can change their businesses.

“Samsung, HTC, and Sony Ericsson may now look at other platforms as a way to diversify the risk of being so dependent on one platform. Increasing their Windows Phones portfolio may now be a need in the long term. These companies don’t want to see Google as their main partner and main competitor at the same time. Ultimately, we don’t believe this acquisition is a first step for Google to close Android or to make it exclusive to Motorola. Google needs players such as Samsung, HTC, Sony Ericsson and others to continue growing Android’s installed base,” he said.

This acquisition may be the catalyst for companies to reduce their dependence on Google’s platform to face future market challenges, according to the IDC.

Ashish Panjabi, chief operating officer ofJacky’s Electronics in the UAE thinks that the acquisition will put Samsung, HTC and Sony under pressure to hook up with a partner going forward.

“If the Google Android tie up with a Motorola hardware offering is exclusive, then it may leave the likes of Samsung, LG and HTC out in the dark.Samsung has Bada as a back-up OS but I’m not sure if they intended for this to ever replace Android. This may also meanwe see more alliances or acquisitions as the likes of HP with WebOS is still struggling and may find partnering with Samsung or HTC is the way forward. RIM also has been under pressure and may find HTC, LG or Samsung as a possible partnerinchallengingthe dominance of Apple and Google,” he said.
Stela Bokun, senior analyst at Pyramid Research agrees that the news of Google’s acquisition may not be good for Android partners.

“In the medium term, I expect that today’s announcement will result in a stronger commitment to Windows Phone by Samsung, LG, HTC and ultimately even Sony Ericsson,” she said.

According to Pyramid Research however, Google’s acquisition of Motorola Mobility for is good deal for both parties. Benefits of the planned acquisition include the fact that Google can now control everything about Android phones and become an end-to-end player.

“Google will now be able to complete its offer and position itself as an end-to-end player and will now have the control over the secure element of all Motorola’s NFC enabled phones that will support Google Wallet,” said Bokun.

The deal also added fuel to rumours that struggling Nokia and Research in Motion would become takeover targets and this sent Nokia’s shares up 17.35% and RIM’s up 10.3%, according to Reuters.

Shares of Motorola Mobility rose nearly 56 percent to $38.12. Google stock slipped about 1 percent, closing at $557.23.

Sources: Boston, itp,Yahoo News, Reuters

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