Google, Apple Competing for InterDigital Patents

Google and Apple are reportedly vying for the mobile phone and network technology patents owned by InterDigital. Patent-poor Google needs the technology more, but Apple could outbid it.

Less than a month after Apple (NASDAQ:AAPL) and others budged Google (NASDAQ:GOOG) aside in its bid for Nortel's patent portfolio, the iPhone and iPad maker is looking to beat the search engine in another auction: the assets of InterDigital.

InterDigital hired Evercore Partners and Barclays Capital to look at strategic alternatives, including a potential sale.

The Wall Street Journal said Google is in discussions with the wireless technology developer and licenser, which holds roughly 8,800 patents relating to transmitting wireless data and other mobile phone and network technologies.

Bloomberg, meanwhile, said Apple is also in the running for InterDigital, which could put Google in a precarious position as it seeks to fortify its patent portfolio.

Neither Google nor Apple confirmed any such negotiations, but InterDigital would be super valuable to both companies.

Google is particularly weak in intellectual property related to mobile devices and networks, which makes it vulnerable to patent infringement lawsuits regarding its Android open-source operating system.

The company, which is being sued by Oracle over its use of Java in Android, agreed to buy Nortel Networks' 6,000 patents for $900 million before losing soundly in the ensuing auction to a consortium of Apple, Microsoft, Sony and others. That group, which called itself Bidco, paid $4.5 billion for the patents.

Without knowing anything about negotiations, it's clear what Apple has in its favor is more cash. Google has some $39 billion in available cash and securities, while Apple just closed a quarter with $76 billion in the bank. Moreover, the company has said it would use its cash reserves for strategic acquisitions.

This means InterDigital could be girding for a large payday from Google or Apple. Indeed, Jefferies & Co analyst Peter Misek said they are about to enter a patent war over InterDigital.

Misek said InterDigital holds about 16 percent of the essential LTE (Long Term Evolution) wireless patents, with OEMs accounting for 40 percent of handset shipment licensing technology from InterDigital.

The company is also testing a video compression technique that requires only a fraction of the normal bandwidth without degrading video quality. Such technology on mobile devices "would be of high interest to Apple and Google," Misek said.

Were Apple to win InterDigital's assets, it could put additional pressure on Android, Misek said.

By licensing InterDigital technology and winning lawsuits versus Android OEMs HTC, Motorola and Samsung, Misek said Apple could cause the free Android OS to actually become a burden for OEMs, forcing them to become more conservative in their pricing plans.

"This is likely to slow the price cuts Android OEMs are likely to bring," Misek said. "So rather than a $150 Android smartphone, we could see a $200 device that is less likely to hurt a lower-cost iPhone."

The analyst also estimated InterDigital's patents could be worth $3 billion to $10 billion to Apple, assuming the company acquires the concern and inks cross-licensing deals.

"We estimate Apple will ship 500 million phones in the next four years," Misek said. "Assuming a 5 percent unit CAGR (compound annual growth rate) thereafter and a 10 percent discount rate, the InterDigital portfolio could be worth between $3 billion and $10 billion to Apple."