Was Google Pressured Into Buying Motorola Mobility?

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Patent wars are big news these days. But it’s not the overt conflicts that are really interesting. Take for instance Google’s acquisition of Motorola Mobility, Inc. Emerging discussions point toward MMI essentially pressuring Motorola to buy it “or else.”

Google’s purchase of Motorola Mobility raised some eyebrows, if not for the fact that Google is now entering the hardware market, but for the premium acquisition price. At $40 per share, the purchase is said to give a 60% premium toward the standing value of MMI at that time (as opposed to some shareholders’ claim that it was not enough).

In the chronology leading to the actual acquisition announcement, FOSS Patents’ Florian Mueller explains that Motorola was planning to do several things that would be considered catastrophic to the Android platform. Because of this, they were able to dictate their desired price in negotiating for the purchase. In summary, here are Motorola’s supposed bargaining chips.

Settlement with Microsoft and Apple. Samsung is not the only target for Apple’s and Microsoft’s patent lawsuits. While Motorola holds a significant number of mobile-related patents itself, it’s also a target of patent infringement claims from Redmond and Cupertino. MMI indicated it was planning to settle these disputes through royalty payments. But if MMI were to settle, then it will likewise mean that the Android platform, in general, will also be guilty of infringement.

Switch to Windows Phone 7. To date, Motorola is only major smartphone maker that builds Android devices exclusively. But the company has expressed interest in developing Windows Phones as “an interesting option to consider.” In an investor meeting the day before the Google acquisition was finalized, MMI’s CEO Dr. Sanjay Jha told investors that management is seriously considering a switch to Windows Phone exclusively. This would have rendered a big blow to Android, especially since a deal like this would also imply a settlement with Microsoft for Motorola’s Android-related activities.

Patent litigation against other Android smartphone makers. If you think only Apple sues smartphone makers that use Android, consider that even Motorola was planning to do this. With its patent portfolio, Motorola could actually sue other Android smartphone makers for patent infringement to make their devices more expensive due to licensing royalties, thereby improving Motorola’s own standing in the competition.

Public or private sale of Motorola patents. Motorola had also been considering selling off its patent portfolio as a whole or in part. This would significantly weaken MMI as a mobile manufacturer, though, but handing control over to another company would likewise be a significant threat to Google and Android.

Given these scenarios, it’s plausible that Google may have been pressured into buying Motorola, if only to protect the Android platform from the repercussions of any or all of the above threats. The rationale that MMI’s patents will give Google more legal ammo in fighting against the likes of Apple and Microsoft is said to be a logical and legal fallacy. Buying MMI as a company in whole, Google will still have to honor existing cross-licensing agreements that may be in place (as opposed to buying patents and assets from a bankrupt company, like Nortel). With this, MMI’s patent portfolio is actually a weak defense.

Google likely agreed to Motorola’s premium asking price because the alternative would mean that Android would crumble due to a weak intellectual property base. In fact, while Google initially made an offer for $30 a share (or a total of $9.38 billion acquisition price), Motorola was able to dictate a higher asking price of $40 per share. Google’s acquisition deal with Motorola prevented MMI from settling patent disputes, which means that, for now, Android is protected from the repercussions of a potential royalties/licensing deal with Apple and/or Microsoft. But from Mueller’s analysis, it seems that the Google-Motorola acquisition deal was something like paying a $12.5 billion fee as protection money.