Just days after David Drummond, Google Senior Vice President and Chief Legal Officer published a lengthy rant on the company blog accusing rivals Apple, Microsoft and others of engaging in “a hostile, organized campaign against Android,” the search engine giant announced a deal to acquire Motorola Mobility. In one fell swoop, Google beefed up its patents portfolio and entered into the handset manufacturing business. Motorola Mobility, a spun off entity of Motorola, Inc., is considered a mobile phone pioneer and owns 17,000 patents that could provide some firepower for Google in the ongoing litigation battle waged by Apple against makers of Android devices.
But is Google really just interested in Motorola’s patents? And how strong are Motorola’s patents, really? Does the Mountain View giant have grand designs to become a handset maker? And where does this leave Google’s Android partners, HTC and Samsung?
The Motorola Deal by the Numbers
Google agreed to purchase Motorola Mobility for about $12.5 billion or $40.00 per share in cash. This amount is sixty-three percent more than the recent closing price of Motorola’s shares. There is more. Bloomberg reported Google agreed to pony up a hefty $2.5 billion reverse breakup fee if the deal falls through. The amount of the fee, representing twenty-six percent of the value of the entire deal, is unheard of. Motorola’s breakup fee is a mere $375 million. Perhaps Motorola is concerned with the anti-competition probes launched against Google getting in the way of regulatory approval. But David Drummond doesn’t seem too concerned about obtaining the necessary approval from the Justice Department. “We believe very strongly this is a pro-competitive transaction,” he said in a conference call.
A Supercharged Android System
Google and Motorola issued a joint press release claiming the deal will “supercharge the Android ecosystem and will enhance competition in mobile computing.” The statement went on to reassure its Android partners and consumers, saying “Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.”
Google CEO Larry Page also published a statement on the company blog, promising the deal would “enhance competition and offer consumers accelerating innovation, greater choice, and wonderful user experiences.”
Supercharged how? Motorola is a good fit for Google, since the mobile phone maker bet its entire future on Android. But Motorola has been struggling to gain market share and the value of its patents are questionable. Is Google actually scheming to become a full-fledged handset maker? And if so, what will happen to Android’s “open source” platform?
Motorola’s Patents Not What They Are Cracked Up to Be
Google went to great pains to tell the world its primary motive for acquiring Motorola is protection from patent threats to Android. “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,” wrote Larry Page. It’s certainly true Google needs to beef up its arsenal of patents to defend Android from infringement lawsuits. But the value of Motorola’s patent portfolio is in doubt. Foss Patents’ Florian Mueller throws cold water on Google’s claim that Motorola’s patents will arm Google with enough firepower to fend off lawsuits from its rivals Apple and Microsoft. Why? Motorola’s patents did not scare off Apple and Microsoft. Both companies are currently battling Motorola in federal court and they are poised to win. Google’s flimsy “protection story is a smokescreen,” according to Mueller. And S&P isn’t buying it either.
S&P Downgrades Google After Motorola Deal
S&P is on a downgrading roll. After dinging the economic health of the United States, the controversial ratings agency looked at the Google-Motorola deal and promptly downgraded Google’s targeted price from $700 to $500. S&P also downgraded Google’s stock from a buy to a sell. Scott Kessler, an S&P analyst based his downgrade, in part, on the weakness of Motorola’s patents, saying “despite MMI’s extensive and valuable patent portfolio, we are not sure it will protect Android from IP issues.”
Does Google Plan to Manufacture a Proprietary Motorola Android Phone?
The New York Times’ DealBook published a provocative piece questioning Google’s patent protection claims in its Motorola acquisition, asking “Is Google Turning Into a Mobile Phone Company?” Google is not about to fess up to its grand ambitions to become an Android handset maker, but the future of Android-based phones is about to change in a big way. Although Google could technically claim Android is still an open source platform, nothing would stop Google from producing a “special phone with bells and whistles,” according to the Dealbook. A unique Motorola-Android phone would certainly set up Google to effectively compete against the iPhone.
Whatever Google is up to, its acquisition of Motorola Mobility will certainly shake up the mobile phone industry.
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