Analysis: Google's Motorola deal is patently defensive
This week, Google rocked the smartphone world by announcing its plans to acquire Motorola Mobility.
It's a big deal. Google intends to buy Motorola Mobility for $12.5 billion US in cash, making it Google's biggest acquisition ever.
It also marks a major change in strategy for Google's Android smartphone business. Up until now, Google's focus has been on software. Its engineers write the Android operating system, then Google partners with various manufacturers who actually build smartphone hardware. With the Motorola deal, Google is very clearly getting into the hardware business, which is new territory for them.
"So Dan," you might be thinking. "A big search company wants to buy a big cellphone company. Why should I care?"
Well, for me, the most interesting part of this story isn't that Google is buying Motorola. It's why Google is buying Motorola.
The reason: patents.
According to its CEO, Sanjay Jha, Motorola holds more than 17,000 patents worldwide, with 7,500 patent applications in process, covering "many applications" and "wireless standards."
Google wants to beef up its patent portfolio because they're in the middle of a patent arms race. Large companies like Google, Apple and Microsoft are trying to build up war chests full of patents.
"Android, and Google by extension, really are under a legal siege by other competitors in the industry," says Kevin Restivo, who tracks the mobile industry for market research firm IDG. "And so what Google is trying to do now — and frankly, what the entire industry is trying to do — is to gain a leg up on one another by controlling patents. That allows companies to go to court and say, 'You are profiting from creations made by people in our company, and therefore you need to pony up. You need to pay us money.'"
Why patents matter
To illustrate this, let's do a little role-playing, shall we? Let's pretend you're a big cellphone manufacturer, and I'm a big cellphone manufacturer. We're competitors.
Now, let's say I come up with a brilliant new smartphone application: a technology that lets my smartphone bake cupcakes. A tiny light bulb inside your phone bakes pre-mixed batter. It's both brilliant and delicious, so I patent the invention.
If I'm awarded the patent, and your company starts building a phone that makes cupcakes, I can sue you, or force you to pay me a licensing fee.
According to Ariel Katz, director of the Centre for Innovation Law and Policy, "On one hand, companies amass as many patents as possible so that, if they have a competitor or if they have others who use their technology, they can be in a position to go after them."
But Katz says there are other reasons to want a large collection of patents. "Even if they don't want to play this [offensive] game, they might still feel they must amass and create a large portfolio in a defensive manner."
Let's role-play again. If you have a bunch of patents, and I have a bunch of patents, and we're each using one other's intellectual property to build our smartphones, we could sue each other until the cows come home. But we'd have to spend a lot of time and money doing that. So instead of suing each other for patent infringement, we could decide to call things even, and do what's called cross-licensing.
Google's battle plan
So is Google acquiring Motorola's patents offensively or defensively?
According to Google, they're on the defense. Google has said that its deal with Motorola Mobility will help them "better protect Android," and they accuse Microsoft, Apple and other companies of what they call anti-competitive patent attacks. It says that those companies have teamed up to try and buy large collections of patents to keep them away from Google.
Currently, Google licenses its Android operating system for free, and that's been a major factor in the platform's growth. Google sees these moves by its competitors as an attempt to make it more expensive for handset manufacturers to license Android, which could cost them market share.
What could this mean for consumers like you and me?
According to Kevin Restivo from IDG, this patent arms race could "ultimately drive the cost up of an Android smartphone, and ultimately slow down innovation within Google on the Android front."
Restivo's analysis dovetails with recent criticism over software patents. American entrepreneur Mark Cuban recently proposed that such patents be abolished. His argument is that the patent system is broken; that it's designed to foster and promote innovation, but doesn't.
My concern: that the next big thing might not see the light of day, because of defensive patent portfolios. I also worry that we may feel these effects (higher prices or stunted innovation) without ever understanding their causes.
But my biggest worry: I may never get a smartphone that bakes cupcakes.