Thursday, January 30, 2014

(BN) Google’s Motorola Sale Underscores Primacy of Patents

(Bloomberg ) With two patent-related deals in less than a week, Google Inc. (GOOG) is shoring up its intellectual property portfolio.

Google yesterday agreed to sell its Motorola Mobility handset division to Lenovo Group Ltd. for $2.9 billion, while holding onto most of the unit's patent portfolio. Earlier this week, Google signed a patent-licensing agreement with hardware partner Samsung Electronics Co., covering existing patents and those filed for the next decade.

The pair of deals underscore how Google is using patents to create a defensive moat against litigation and also tie partners like Samsung more closely to itself. That aids the world's largest search engine as it battles in mobile with its Android operating system against smartphone rival Apple Inc. (AAPL), said Chris Sargent, an intellectual property lawyer at ComputerLaw Group LLP in Palo Alto, California.

"This set of deals indicate that Google continues to be worried about Apple," said Sargent. "They think of themselves as the target of lawsuits more than as the instigator of them."

While Google is doubling down on patents, it's also reversing an ill-fated foray into mobile hardware. The acquisition of Motorola's handset business in 2012 threatened to alienate other device makers that also use Google's Android mobile software, yet competed with Motorola. Motorola devices released under Google's watch also failed to break through with many customers.

Selling Motorola

The sale of Motorola may have partly been a result of the cross-licensing deal that Google reached with Samsung, the biggest maker of Android phones, said Kevin Rivette, a managing partner in the Silicon Valley office of 3LP Advisors LLC, which has advised companies on patent strategies.

For Samsung, "to have to compete against Motorola, that would be a big issue for me," said Rivette. "I bet Google wanted to get rid of the handset business. They weren't comfortable with it. They kept the patents they wanted to use."

Matt Kallman, a spokesman for Mountain View, California-based Google, declined to comment on ties between Samsung and selling Motorola.

On patents, "given the explosion of patent lawsuits, a strong portfolio helps us enter into cross-licenses and defend our inventions," said Allen Lo, Google deputy general counsel for patents. "We'd much rather innovate than litigate."

Good Buy?

Patents were a key part of the Motorola purchase, which cost $12.4 billion in 2012. Google has said $5.5 billion of the purchase price was tied to the intellectual property, which comprised about 17,000 patents that cover some fundamental phone technology.

At a conference this week, Google General Counsel Kent Walker called the deal a success because there had been no lawsuits against the Android operating system by competitors since the Motorola acquisition, said Ron Laurie, managing director of Inflexion Point Strategy LLC, who attended the event.

"Was it a good buy? In hindsight, considering everything that's happened, my opinion is yes," said Erin-Michael Gill, managing director of MDB Capital Group, an IP-focused investment bank based in Santa Monica, California.

Still, Google hasn't been able to use ownership of the patents to force Microsoft Corp. or Apple to settle with other Android manufacturers. And it's lost some patent-infringement cases that have gone to trial against Microsoft and Apple.

Headache, Asset

The fundamental technology developed by Motorola has become a regulatory headache as well. U.S. and European antitrust officials have accused the company of demanding unfair royalties for use of technology that's essential to any wireless device.

Yet the patents remain a good asset for Google and likely reduced costs for the company, according to Sameet Sinha, an analyst with B. Riley & Co., who has the equivalent of a buy rating on the stock.

"We don't know what these patents saved Google from," he said. "I think the patents will continue to have value for a long period of time."

Meanwhile, Google's patent-licensing agreement with Samsung earlier this week means ongoing collaboration between the Internet company and the smartphone maker. The strengthened cooperation between the companies may reduce potential litigation, Google and Samsung said in an e-mailed statement at the time.

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