Thursday, January 30, 2014

Google sells Motorola Mobility to Lenovo, except for most of its patents: implications for litigation

Late on Wednesday, Google CEO Larry Page announced the signing of an agreement to sell Motorola [Mobility] to Lenovo for $2.91 billion". He says "Google will retain the vast majority of Motorola's patents, which we will continue to use to defend the entire Android ecosystem", claiming in the same blog post that "Motorola's patents have helped create a level playing field, which is good news for all Android's users and partners".

Since Mr. Page became the successor of his own successor (Eric Schmidt), Google has been extremely successful (I'm talking about the business, not its patent lawsuits), making him the second-most successful returning CEO in this industry (unlike Steve Jobs, he didn't have to manage a complete turnaround here). But there are basically two things for which investors criticized him according to various reports I read over the last few years. One, the impact of Motorola Mobility's (loss-making, I believe) hardware business on Google's margins. Two, Google's investment in "moonshots" in many fields, from anti-aging to robots to self-driving cars. I can see why some investors would like a more traditional, margin-oriented, quarter-by-quarter approach -- that's the way Wall Street works, though I'm a big fan of Google's innovative efforts in those new fields. For example, Google's investment in self-driving cars has accelerated the automotive industry's efforts in that field, and getting rid of accidents and saving people time spent unproductively and inconveniently behind steering wheels will one day -- when no one will die from road accidents anymore -- be regarded as one of the most important technological achievements of mankind, possibly more important than the literal moonshot.

So I'm really glad that Mr. Page jettisoned the former (Motorola Mobility's hardware business), not the latter (those new business areas that have the potential to make the world a better place).

I disagree with his portrayal of the impact of Motorola Mobility's patents. With zero injunctions in force worldwide against Apple and Microsoft (or anyone else), the Motorola Mobility deal has not been able to bring about patent peace. On the contrary, its aggressive assertions of FRAND-pledged standard-essential patents (SEPs) have contributed to a problem that antitrust regulators have solved to only a limited extent so far. I remember an anti-software-patent activist in Europe, a former president of an anti-patent NGO, saying that "the problem has to become a whole lot bigger before we can solve it". I'll give Google the benefit of the doubt that this could have been the idea to some extent. But even if that was the intent, it doesn't mean the Motorola deal was or will be a solution.

Mr. Page's announcement that Google "will continue to use [Motorola's patents] to defend the entire Android ecosystem" means that patent assertions against Apple and Microsoft are not going to be withdrawn after the closing of the deal, which, as Mr. Page notes, will take time due to the need for regulatory clearance. So what are the implications for pending Apple-Motorola and Microsoft-Motorola litigations?

I don't know if Lenovo has an Android patent license deal in place with Microsoft, or will work with an Original Device Manufacturer who has a license. On the PC side Lenovo is certainly a Microsoft partner. Should Lenovo, directly or indirectly, pay Microsoft patent royalties on Motorola Mobility's Android-based devices, then Microsoft has already won in the sense that Google would have been unable to prevent Motorola Mobility from doing what I believe it would already have done (like 20 other companies) if not for Google's wider agenda.

I doubt that Lenovo has a deal in place with Apple. It's another question whether Lenovo is a priority target for Apple to sue. Depending on how the deal is structured, it could be that Google wouldn't be affected in any way by any further patent enforcement against Motorola Mobility -- Lenovo may have agreed to handle the related risk. In that event, Apple might settle the offensive part of its case just like it did with HTC, which also became a low-priority target at some point.

If Google keeps suing Apple and Microsoft over Motorola's patents (which is what it will do according to the announcement) unless they give Google a global Android patent license that covers its hardware partners (how else could Google "defend the entire Android ecosystem"?), which they probably won't, then Apple and Microsoft could still countersue Google over (i) the Android software and (ii) any Nexus devices it sells. So far, Apple and Microsoft haven't done any of that, but a company they own jointly with three other industry players, the Rockstar Consortium, recently added Google as a defendant to a Samsung lawsuit.

In the United States (and other jurisdictions, such as the UK), operating companies suing competitors over patents they implement in their own products are in a far better position to obtain injunctions (including ITC import bans) than those who don't. In U.S. federal court, it's not impossible but certainly rather difficult to satisfy the eBay v. MercExchange criteria as a non-practicing entity. The ITC's domestic industry requirement is almost a joke by now because even patent trolls frequently satisfy it, but the Obama Administration plans to raise the bar for this as well (see "Legislative Recommendations", item 7).

By publishing the Android software, Google doesn't practice wireless patents such as Motorola's 3G and 4G SEPs. Google will probably try to leverage its involvement with, and distribution of, the Nexus devices in this context. Motorola Mobility, however, was able to point to a sizable hardware manufacturing business and to claim a directly competitive relationship with Apple.

Despite zero enforceable injunctions in place against Apple and Microsoft, Motorola Mobility hasn't brought a new patent assertion against these players in years. It raised some new remedies issues over previously-asserted patents in Germany, but I'm not aware of any new filings involving new patents, calling into question whether there is any useful ammunition left in that portfolio. Google has continued and will continue to buy patents, and it's now filing large numbers of patent applications itself.

Motorola Mobility's patents were costly, but not that costly. When Google paid $12.5 billion, it got a company that had cash in the bank, accumulated losses that helped Google save taxes, and it has now divested Motorola Mobility's two hardware business lines for roughly $3 billion each. So the patents were costly on the face of it, but didn't hurt Google's bottom line by virtue of advanced financial engineering. The biggest financial issue was the impact of that business on Google's margins.

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