Nortel patent portfolio sale also goes through; Google still stuck waiting on Asian approval

Despite being under antitrust scrutiny in the U.S. and Europe, regulators saw no reason to block Google Inc.'s (GOOG) purchase of phonemaker Motorola Mobility (often referred to as simply "Motorola", but not to be confused with Motorola Solutions, Inc. (MSI) an equipment company).  They gave the deal their approval on Monday, according to press releases by the EU Competition Commission [press release] and the U.S. Department of Justice (DOJ) [press release].  The approval ended weeks of uncertainty surrounding Google and Motorola's fate.

The deal now only awaits approval in China, Taiwan, and Israel before Google can officially be called the proud new owner of Motorola.

I. EU, U.S. Jointly Approve Motorola Mobility Acquisition

Google announced the surprise acquisition bid in Aug. 2011, offering up $12.5B USD.

As a phonemaker, Motorola has had some decent successes with its Android smartphones -- such as the Droid RAZR -- but has seen its mobile market share evaporate.  It went from vying with Samsung Electronics Comp., Ltd. (KS:005930) and Nokia Oyj. (HEL:NOK1V) in global sales, to falling to the bottom of the top 10 global phonemakers.  In 2011, Motorola was in a virtual tie for seventh place in global sales with the likes of HTC Corp. (TPE:2498), Huawei Technologies, ZTE Corp. (SHE:000063), and Research in Motion, Ltd. (TSE:RIM) all of whom have between 3 and 5 percent global market share [source].

Motorola Androids
Motorola makes a number of popular Android models such as the rugged "Defy" (left) and the thin, but long-lived "Droid RAZR Maxx" (right). [Image Sources: Wired (left); Phandroid (right)]

It might have been Motorola's incredible shrinking sales that swayed EU and U.S. regulators that the deal would not harm competition.  The EU concluded that it would be counterproductive for Google to try to make Motorola the favored or exclusive Android phonemaker, given its small market share.

They write, "Google's core business model is to push its online and mobile services and software to the widest possible audience, it is unlikely that Google would restrict the use of Android solely to Motorola, a minor player in the European Economic Area (EEA)."

Still, the EU's press release regulators say they will be keeping an eye on Google for possible anticompetitive behavior.  Remarks EU Competition Commissioner Joaquin Almunia, "The commission will continue to keep a close eye on the behaviour of all market players in the sector, particularly the increasingly strategic use of patents."

Motorola owns 17,000 patents.  This large portfolio was a key driver of the acquisition.  Google has already stated that it will use the portfolio to provide a collective defense of the Android platform against Apple, Inc. (AAPL) and others.

Google vice-president Don Harris alludes to this writing, "As we outlined in August, the combination of Google and Motorola Mobility will help supercharge Android.  It will also enhance competition and offer consumers faster innovation, greater choice and wonderful user experiences."

II. Concern About Abuse of Standards Patents Remains

Still, there is substantial concern that Google and/or Apple could abuse the patent system, refusing to license standards patents, which come with mandatory fair, reasonable, and non-discriminatory (FRAND) license terms.

people on phones
Both EU and U.S. regulators expressed concerns about Apple or Google abusing standards patents. [Image Source: Visual Images]

The U.S. DOJ expresses concern about this, offering a stiff warning to Google:

During the course of the division's investigation, several of the principal competitors, including Google, Apple and Microsoft, made commitments concerning their SEP [standard essential patent] licensing policies.  The division’s concerns about the potential anticompetitive use of SEPs was lessened by the clear commitments by Apple and Microsoft to license SEPs on fair, reasonable and non-discriminatory terms, as well as their commitments not to seek injunctions in disputes involving SEPs.  Google's commitments were more ambiguous and do not provide the same direct confirmation of its SEP licensing policies.

More explicitly, it writes:

In particular, Google has stated to the IEEE and others on Feb. 8, 2012, that its policy is to refrain from seeking injunctive relief for the infringement of SEPs against a counter-party, but apparently only for disputes involving future license revenues, and only if the counterparty: forgoes certain defenses such as challenging the validity of the patent; pays the full disputed amount into escrow; and agrees to a reciprocal process regarding injunctions.

The DOJ isn't necessarily picking a side or saying Google's approach is wrong.  Nowhere in its review does it claim it to be improper to -- under certain special circumstances -- seek an injunction (a ban on sales of a product) using FRAND patents (as Samsung and Motorola have tried to do against Apple).  It does, however, suggest that such applications open the door to anti-competitive abuse.  It offers a warning to Google about abuses, writing:

In light of the importance of this industry to consumers and the complex issues raised by the intersection of the intellectual property rights and antitrust law at issue here, as well as uncertainty as to the exercise of the acquired rights, the division continues to monitor the use of SEPs in the wireless device industry, particularly in the smartphone and computer tablet markets.  The division will not hesitate to take appropriate enforcement action to stop any anticompetitive use of SEP rights.

Thus far Motorola Mobility appears to be much more compliant with regards to standards patents than Samsung, despite being in legal wars with Apple [1][2] and Microsoft Corp. (MSFT) [1][2].  While Motorola is seeking to licenses its 3G patents to both companies, there is active debate over whether its terms are sufficiently "fair" in terms of asking price.  Apple also claims that several of Motorola's key patents are invalid, potentially precluding the debate altogether.

III. Rockstar Bidco deal also receives thumbs up

In related news the U.S. Department of Justice approved the sale of bankrupt Nortel Networks' 6,000 patent portfolio to "Rockstar Bidco", a coalition of Apple, Microsoft, RIM, and others.  The portfolio contains key communication and standards patents.  Google tried to buy this portfolio, as well, but was outbid.  The winning bid was $4.5B USD, slightly more than Google's maximum bid of $3.141592B USD.

Microsoft and Apple could use the new acquisitions in their legal war against Google or, alternatively, as a defense against Google and its partners' counterattacks.

The DOJ says it is less concerned with licensing pressure from RIM and Microsoft, because of their "low market shares" (ouch!).  It also cites the many license agreements [1][2][3][4] between Microsoft and Android phonemakers:

The division concluded that each of the transactions was unlikely to substantially lessen competition for wireless devices.  With respect to RIM’s and Microsoft’s acquisition of Nortel patents, their low market shares in mobile platforms would likely make a strategy to harm rivals either through injunctions or supracompetitive royalties based on the acquired Nortel SEPs unprofitable.  Because of their low market shares, they are unlikely to attract a sufficient number of new customers to their mobile platforms to compensate for the lost patent royalty revenues.  Moreover, Microsoft has cross-license agreements in place with the majority of its Android-based OEM competitors, making such a strategy even less plausible for it.

It offers the larger Apple a warning similar to the one it gave Google, though, writing:

Apple's and Google's substantial share of mobile platforms makes it more likely that as the owners of additional SEPs they could hold up rivals, thus harming competition and innovation.  For example, Apple would likely benefit significantly through increased sales of its devices if it could exclude Android-based phones from the market or raise the costs of such phones through IP-licenses or patent litigation.  Google could similarly benefit by raising the costs of, or excluding, Apple devices because of the revenues it derives from Android-based devices. 

For these reasons the division continues to have concerns about the potential inappropriate use of SEPs to disrupt competition and will continue to monitor the use of SEPs in the wireless device industry, particularly as they relate to smartphones and computer tablets. The division's continued monitoring of how competitors are exercising their patent rights will ensure that competition and innovation are unfettered in this important industry.

The Nortel coalition does include one Android phonemaker -- Sony Corp. (TYO:6758).  Sony has thus far escaped any lawsuits or licensing demands from Apple or Microsoft -- potentially because of low sales, but also likely due to its strong patent position.

The corporate patent atmosphere is becoming increasingly incendiary, and the DOJ and its international peers are left playing Fort Knox inspectors with the corporate world's -- particularly the tech industry's -- growing patent arsenals.  

[Image Source: Google Images]

Over 25% percent of the patents in U.S. history were granted over the last 12 years. (U.S. Patent 5,946,647 granted in Aug. '99; patent 8,000,000 granted in Sept. '11).  That means one of two things is true -- either the U.S. Patent and Trademark Office is allowing increasingly abusive and fraudulent designs to pass, in an effort to boost its revenue intake; or the U.S. population is somehow wildly more intelligent and inventive today than people in the 1990s, 1980s, 1970s, and prior decades.

Sources: EU Competition Commission, U.S. DOJ, Google

"It's okay. The scenarios aren't that clear. But it's good looking. [Steve Jobs] does good design, and [the iPad] is absolutely a good example of that." -- Bill Gates on the Apple iPad

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