Monday, May 21, 2012

Intellectual property issues will make it hard for Google to keep its Chinese 'open Android' promise

On Saturday, Google announced that China's Ministry of Commerce (MOFCOM) finally cleared -- with conditions attached -- Google's proposed acquisition of MMI, which is now expected to close within a matter of days. It appears that Google has had to make a general commitment to keep Android "free and open" for at least five years to come, though it will be allowed to provide add-ons and cloud-based services against fees, which is consistent with Google's practice: Android was never truly open, and it won't be after this deal. It will continue to be a potpourri of software that is available under structurally different licenses.

What's unclear is how the MOFCOM ruling affects Google's practice of giving preferential treatment to lead device manufacturers. It appears that Google will in the future have multiple lead devices, from different manufacturers, for each new generation of Android.

The transaction had previously been cleared by U.S. and EU antitrust authorities, both of whom expressed concerns over the potential abuse of FRAND-pledged standard-essential patents. In April, the European Commission launched two formal investigations of Motorola's enforcement of such patents.

The details of Google's commitments to MOFCOM aren't known. For example, one could define the part of Android that has to be published on "free" and "open" terms broadly or narrowly. Still, the overall structure of Google having committed to continue to make all new Android versions, for the next five years, available on "free" and "open" terms is interesting in at least two respects:

  1. The time limit shows that Google reserves the right to turn Android into a closed, proprietary platform. While one may argue that it wouldn't make sense for Google to limit its flexibility beyond the term that was needed to address the competition concerns MOFCOM identified, the free and open source software community has given Android a whole lot of support based on the expectation that Android would remain free and open (to the extent it is) forever, or even become more, not less, open over time.

    A company that is 100% committed to open source principles would not make a time-limited commitment. The principled way for Google to respond to the Chinese regulators' concerns would have been an open-source commitment for all times. The five-year term is plainly consistent with what certain Sun executives thought about Google's attitude toward open source a few years ago.

  2. Even within the five-year period, Google's ability to keep its promise will depend on third parties: on companies that hold intellectual property rights Google may have to license.

    Motorola's patent portfolio won't enable Google to strike royalty-free cross-license agreements with everyone. Some right holders are non-practicing entities and only interested in money. Others are operating companies and presumably interested in some of Googlorola's patents -- but the patents Google is buying now aren't strong enough to force right holders like Apple and Microsoft (and especially Oracle, which has a completely different focus than the one Motorola had) into free-of-charge deals. The concept of "mutually assured destruction" grossly oversimplifies the nature of those deals, and overstates the strength of those Motorola patents (if any of those are truly destructive, it's the standard-essential ones, and using them as nuclear weapons creates antitrust problems).

    Ultimately, each and every Android device sold in the U.S., Europe and various other major markets will result in obligations to pay per-unit patent royalties. If a right holder decides to collect royalties from device makers rather than Google itself (because it has some practical advantages), then Google isn't directly affected -- but every right holder has the choice. As a right holder, you can go after Google itself if the program code it distributes infringes, or after its hardware partners, or even after retailers or end users. If one or more right holders insist that Google pay a per-unit royalty, those demands could reach a point at which Google is no longer able to refinance those costs through the sale of online advertising. Different people have expressed different opinions on how much Google makes per Android user, but even the most optimistic assumptions are close to $10 per year -- and those devices aren't used for too many years. It doesn't take too many patent holders who insist to be paid by Google before Google's "free and open" business model becomes economically unsustainable.

    If Google at some point finds out that it lacks a viable basis for paying the royalties it has to cough up to solve Android's intellectual property problems, it will have to go back to the Chinese regulators and try to renegotiate the deal in order to be able to pass those license fees on to its device makers.

    Courts and quasi-judicial authorities in different jurisdictions have identified IP infringements by Android. A San Francisco found Google in infringement of 37 Java APIs, and if the unanswered questions on copyrightable and "fair use" are decided in Oracle's favor (including the possibility of an appeal), Google will have to take a Java license on FRAND terms.

    I don't know whether people in Mountain View are far too optimistic about the outcome of pending (and future) IP infringement lawsuits or whether they just entered into an agreement with MOFCOM that will require them to go back at some point and renegotiate. It will take a while before we know.

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