Google surprised many high-tech watchers with its $12.5 billion acquisition bid for key Android phone maker Motorola Mobility on Aug. 15. The $40-a-share, all-cash deal is a 63 percent premium. Google intends to run Motorola Mobility as a separate business should the deal close in 2011 or early 2012. Assuming the deal meets with the approval of federal regulators, the search engine would get a few things.
First is patent protection. Motorola has more than 17,000 patents, including ones for 3G and 4G wireless technologies, as well as nonessential patents Google can use to defend itself in the litigious mobile market.
Second, like rival Apple, Google would own the hardware assets to build a closed, integrated system, if it chooses to do so.
Third, Google would gain Motorola's set-top box business, which it could use to fortify the Google TV Web television service.
But this deal is fundamentally about patent protection. Oracle is suing Google for patent infringement over its use of the database software maker's Java technology in Android.
Plus, Google's Android OEMs-including Motorola, Samsung and HTC-are being sued by Apple for using hardware and software in their Android phones that resembles technology used in the iPhone.
Microsoft and Motorola are also embroiled in a patent infringement suit related to hardware and software used in their Android phones.
So aggressive is the positioning against Google in the mobile sector that foes Apple and Microsoft worked together to keep Nortel Networks' 6,000-plus wireless, technology and other patents away from Google.
This led to Google publicly accusing Microsoft and Apple of setting up patent consortiums to seize control of valuable wireless patents. Twelve days later-boom!-Google dropped the Motorola bombshell.
"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," said Google CEO Larry Page in a corporate blog post.
Patent experts differ on just how much patent protection Motorola will afford Google and Android OEMs in the current lawsuits, but most agree that they will at least serve as deterrents for future litigation.
Google may be buying patent protection, but it could upset the balance the company created by cultivating Android as open source. Google has maintained that Motorola will remain a licensee of Android, which will remain available to other OEMs under an open-source license.
Publicly, Samsung, HTC and others expressed support for the agreement, pointing to the obvious patent protection angle. But most industry watchers aren't buying the diplomatic responses, wondering whether these vendors fear Google will favor Motorola for new Android software builds.
These handset makers may not have to worry about Google-Motorola favoritism. The Motorola merger is pending regulatory approval, which is far from assured considering the close antitrust scrutiny Google has come under by the Federal Trade Commission over its search and-allegedly-its Android software business.
No one saw this deal coming. As Gartner analyst Michael Gartenberg said: "A master magician always has you looking at their left hand while they try to get you to ignore what's going on with their right."