It’s only Tuesday, but the big news this week is already behind us: Google intends to shell out $12.5 billion to acquire Motorola Mobility and its portfolio of roughly 25,000 patents. The deal was covered far and wide, but some of the most interesting thoughts surrounding the news came late Monday night from Apple pundit John Gruber. The initial intent of Gruber’s piece was to point out the irony of reporter Dan Lyons’ repeated use of baseless speculation in an effort to discredit “Apple fanboy MG Siegler” of TechCrunch, but it evolved into an interesting commentary on the acquisition itself. Moreover, it brings a few interesting observations to light that went widely overlooked in yesterday’s coverage of the deal. BGR noted yesterday that it was curious Google chose to spend a fortune — nearly two times its 2010 profits, as Gruber points out — to acquire Motorola rather than licensing its patents. The answer might just be that Google, despite its size, was not in a position of power with this deal, and saving Android in the face of unending patent complaints became its top priority. Read on for more.
With Apple and Microsoft using patents as a weapon in an effort to slow competition from Android vendors and even block the sale of their products, Google had to act. The company’s odd public patent spat ended up being a prelude to something more — something much more: a massive $12.5 billion acquisition. Of course this purchase will give Google the ability to create an end-to-end Android experience across smartphones, tablets and Google TV boxes that represent its vision more precisely, but many experts agree that this was not the driving force behind the deal. Instead, it was Motorola’s massive patent portfolio, which will arm Google with the means to defend Android and its partners. With this in mind, it now makes sense that Google was willing to part with $12.5 billion to buy a struggling smartphone vendor that reported an operating loss of $85 million last quarter. It also might explain how Motorola Mobility managed to work out a sale rather than a licensing deal.
“I think Motorola knew they had Google by the balls,” Gruber wrote on Daring Fireball. “Google needed Motorola’s patent library to defend Android as a whole, Motorola knew it, and they made Google pay and pay handsomely.” He also notes that during the company’s negotiations with Google — which only took place over the past five weeks according to a report from GigaOm — CEO Sanjay Jha publicly spoke of Motorola’s interest in Microsoft’s Windows Phone platform, and even openly threatened to use Motorola’s IP to wage war on other Android vendors. In this context, Jha was asserting power and giving Google ultimatums. Gruber continued, “I don’t think it’s curious at all why Google didn’t simply license Motorola’s patents. Motorola held out for a full acquisition at a premium far above the company’s actual value, and threatened to go after its sibling Android partners if Google didn’t acquiesce. Thus the public threats from Jha and Icahn. Thus the high price. Thus the lack of a simpler, cheaper licensing agreement. Thus the unusual $2.5 billion reverse breakup fee.”
In the end, Motorola may have just played an incredible game of chess with Google, a company that identified Motorola’s patent war chest as its best line of defense against Apple, Microsoft and even a patent battle that was brewing within the ranks of its Android partners. Motorola has been behind some of the most popular smartphones in Android’s short history, and yet it is still unable to turn a profit. Now that Samsung and HTC have emerged as clear leaders in the Android space, Motorola might have seen a potential acquisition as its best chance to create a return for investors. And so by denying Google the ability to license its patents and forcing Google’s hand, an acquisition of Motorola Mobility might have become the only way for Google to ultimately save Android from patent predators like Apple.
