Google Will Honor Motorola's 2.25% Per-Unit Royalty Rate

Google, whose $12.5 billion deal to acquire Motorola Mobility (NYSE:MMI) appears set for a Justice Department blessing, has pledged to uphold the phone maker's existing practice to license patents under fair, reasonable and non-discriminatory terms—FRAND, in industry parlance.

That includes supporting Motorola's current practices for licensing patents at a cost of 2.25 percent of the net selling price for each device, wrote Google Deputy General Counsel Allen Lo in a letter addressed to Gordon Day, president of the Institute of Electrical and Electronics Engineers (IEEE).

The net selling price is the selling price of a handset, tablet or other consumer device before application of any discounts or subsidies provided to consumers by carriers.

That means Google is reinforcing Motorola's request for a 2.25 percent cut for every iPhone Apple (NASDAQ:AAPL) sells as part of the Android OEM's patent-infringement lawsuit versus its rival. Intellectual-property expert and FOSS Patents blogger Florian Mueller wrote:

It's a prohibitive royalty rate as long as they want to apply it against the selling price of what they call the "relevant end product." If they asked for 2.25 percent of the price of a baseband chip, they would at least propose a reasonable royalty base, and one could then talk about how many patents go into such a chip and what the relative value of their patents is. But 2.25 percent of the selling price of the product as a whole is absolutely out of step with the concept of FRAND and with industry practice.

Google is already the target of a patent-infringement lawsuit by Oracle over Android. In supporting Motorola and adding its own wrinkle to patent defense, Google is moving further into the orbit of mobile technology providers that have sued each other to halt sales of products purported to have infringed FRAND patents.

Apple is involved in heated patent-infringement lawsuits with Motorola, Samsung and HTC. Microsoft (NASDAQ:MSFT) and Motorola are also embroiled in a patent-infringement suit related to hardware and software used in their Android phones.

Google in its letter to the IEEE also said it will abide by Motorola's agreement to negotiate alternative licensing frameworks as necessary, so long as the other licensing party does not initiate legal claims against its essential patents or seek injunctive relief in court.

However, Google also noted it "reserves its right to seek any and all appropriate judicial remedies against counterparties" that refuse to license its FRAND patents.

Google's support of Motorola's existing practices is being viewed as a shrewd move by industry watchers. Mueller said he was expecting Google to follow Apple and Microsoft's recent pledges by including a "no injunction policy" in its FRAND letter.

"On injunctions, the letter basically says that the only way to avoid them is to accept those out-of-line royalty demands that no responsible company in the industry will be able to accept," Mueller wrote. "I can't imagine that any major player ever acceded to that demand."

Mueller said he's not sure how antitrust regulators, such as the Department of Justice (DOJ) and the European Commission, will accept Google's positioning on Motorola's patents. "It looks like Google is taking an extreme position now so it can easily make concessions going forward," he added.

Google agreed to acquire Motorola last August for $40 per share in cash, a 63 percent premium for the maker of Android handsets, tablets and other mobile peripherals for consumers and enterprise workers.

The deal has been held up pending regulatory review by the DOJ, which The Wall Street Journal said is ready to clear the bid. The European Commission will decide whether to approve the acquisition by Feb. 13.

Experts believe Google simply wants Motorola's 17,000-plus patents, including patents for 3G and 4G wireless technologies, as well as nonessential patents Google can use to defend itself in the litigious mobile market.