Google's Motorola Acquisition May Spark New Apple Patent War

by dekokfo399 on 2012-02-16 14:27:46

Google has repeatedly said it will run the MMI business at arm's length in a way that will not disadvantage other handset makers using Android software. But analysts doubt whether it will increasingly look to its subsidiary to showcase new versions of Android phones as it tries to exert more control over the fast-growing use of the software. But across Google's bow, the US Department of Justice said that while accompanying its approval, Apple and Microsoft had made clear commitments regarding their "standard essential patents" (SEPs) used in smartphones, "Google's commitment statement is more ambiguous and does not provide the same direct confirmation of its SEP licensing policy." For this reason, the Department of Justice will continue to monitor the market and "will not hesitate to take appropriate enforcement action to prevent any anti-competitive use of SEP rights." In approving the acquisition, Almunia added that the decision "does not mean that the Commission gives its blessing to all past actions of Motorola or all future actions by Google involving Motorola," and considered any actions on "[the] question whether Motorola's or Google's conduct complies with EU antitrust laws" would be taken separately. But Icahn held that on August 7, Google's chief negotiator Nikesh Arora - who is now whispering in Icahn's ear in the merged company - asked him to make a bid of $37.

Google acquired MMI's portfolio of 17,000 existing and 7,500 pending patent applications. Photo: Robert Galbraith/Reuters. The European Commission and the US Department of Justice have cleared Google's $12.5 billion (€10.4bn) acquisition of Motorola Mobility (MMI), the US cellphone and set-top box maker - a move that could open a new and potentially explosive chapter in the battle over smartphone patents. Motorola, which bid 33% higher last July after Larry Page, Google's CEO, contacted Motorola Mobility following its loss from a series of patent bids at the bankruptcy auction of Canadian telecommunications company Nortel Networks. It abandoned bidding with Intel, where the consortium including Google, Apple, Microsoft, and BlackBerry maker RIM reached $4.5 billion - but its Motorola bid would far exceed that.

On the same day Icahn spoke, he thoughtfully mentioned publicly suing other brands of Android phones for infringing Motorola's patent portfolio and proposed the possibility of collaborating with Microsoft rather than Google, adopting new Windows Phone software and dropping Android.

Apple is seeking to expand the case in Germany, where it is battling Motorola's attempt to impose a ban on the sale and use of its iPhone 4S handsets and iCloud web storage and synchronization services.

MMI was spun off from Motorola in January 2011 but has struggled financially, recording net losses each quarter, losing funding and market share in its phone business. While bringing in around $3.4 billion per quarter in revenue, which is small for Google compared to an expected $10 billion in the fourth quarter, it is expected to bring tax benefits, meaning it will have no net effect on profitability.

Almunia's team has not ruled out an independent investigation into Google's behavior in Europe, where it decides whether to launch a full antitrust investigation into advertising and search practices. A decision is expected in March.

China also must do the same before the merger can be completed.

It did the trick: At the end of the day, Google offered a price of $40 per share - enough for Icahn and the MMI board. They squeezed Google into issuing $12.5 billion; Ichan's stake rose from $750 million when Google first approached MMI to $1.34 billion when the deal was completed. Icahn owes Icahn a big favor - if, as some expect, the CEO pushes Arora aside when the merger is completed, Icahn may be in a position to repay him.

Microsoft has been forced to make almost all Android phone manufacturers, such as Samsung and HTC, sign royalty deals for patent ownership, claiming royalties per device. These deals cover 70% of Android phones sold in the US - it is behind others like Huawei in China, the software giant claims. Microsoft is also locked in a patent war with MMI.

Apple filed a lawsuit in the US last week that could cause an explosion, claiming MMI is abusing its ownership of basic patents used in phones after it wrote to Apple and chipmaker Qualcomm in January. In the letter, MMI revoked Apple's ability to use two patents embedded in Qualcomm chips used in iPhones. This specific revocation generally would not be allowed under "essential" patent licensing terms: if Motorola is found to have violated "FRAND" rules surrounding its patent licensing (fair, reasonable, and non-discriminatory), then it could face sanctions from standard-setting bodies and damages from Apple.

A week later, Google indicated that it considered buying the company at a "price high $20 or low $30s."

On August 1, Google made its first formal bid at $30 per share - valuing MMI at $9.4 billion.

The approval came as Google and Apple, through a Motorola subsidiary, tried to squeeze the iPhone maker into paying a supplier of iPhone chips, chipmaker Qualcomm, which said it had licensed the patents.

The EU also issued a similar warning. After extending the review of the proposed merger, the two companies waved off concerns, and the EU Commission announced on Monday evening that it had decided the deal would not affect the supply of Android software to other handset manufacturers. However, EU Competition Commissioner Almunia warned that "the Commission will continue to closely monitor all market participants in this sector, particularly the increasing use of patent strategies as a behavior."

According to the acquisition agreement filed by Motorola with the SEC, Google stated it would be interested in purchasing the company - two weeks later, on July 20, the famous "corporate raider" Carl Icahn, who then held about 11% of the company, said Sanjay Jha, MMI's chief, should "explore alternatives for the MMI patent portfolio." In other words, Icahn said: sell. (Icahn revealed this suggestion one day later in a filing.)

If Apple can show that MMI abused FRAND patents in this case, Joaquín Almunia, the EU's competition commissioner, who warned in a speech last Friday of attention "that owners of standard essential patents are given power in the market that they cannot be allowed to abuse."

Google has said it is acquiring MMI to make phones because its portfolio of 17,000 existing and 7,500 pending patents covers a wide range of fundamental standards in wireless and mobile fields, among others. This acquisition will allow Google to offer patent protection to device manufacturers using its Android mobile operating system, which are facing legal attacks over patents from companies like Apple and Microsoft.

Almunia can fine companies up to 10% of their global turnover for abuse - which, post-merger, would reach billions. Google's largest fine was $500 million, levied by the US government last August for its role in illegally selling prescription drugs from Canadian sites to the US.