Google’s widely reported acquisition of Motorola Mobility is continuing the run of the prominence of IP and specifically patent reporting in the financial press. The FT runs a very good insights piece here, though you’ll need to activate an account to read it.
I’ll come back to the financial reporting of this when back from my break. For now I wanted to focus on one item that should be expected to be part of Google’s thinking in making the acquisition, but if you’re reading this Mr Page, make sure you double check.
The FT and many other articles state that around $6bn of the purchase price is attributable to patents. The figures are arrived at, it sems, be trying to calculate the value of Motorola’s loss making MM business and then using the premium to justify the positive impact on Google’s patent assets. Seems sensible so far.
But one glitch that Google should be factoring in, and if you’re a shareholder of Google, you should feel justified to ask, is the extent to which the MM patent assets are already subject to cross licenses, that is very private and never publicied licenses that bite on the patents and will continue to do so in Google’s ownership. Licenses to and with third parties (for example MSFT) that will or at least could limit the portfolio’s ability to renegotiate and initiate negotiations of licenses that Google will anticipate are possible as a key assumption in making the acquisition.
The sheer size of this purchase, with the price representing over 35% of Google’s cash reserves (WOW!!) shows the stakes of the high poker game are being raised and re-raised between the smartphone players. Google quite clearly needs the heavily ad-friendly Android to be at least a good size of the market to meet its strategic aims. In MM it seems that they’ve seen something worth a large gamble.
Do your diligence very carefully Google. That is a very large chip you’ve laid down and to make it worthwhile you’ll need to review all of the cross licenses to which the portfolio is subject. Don’t miss those quirky clauses that allow fellow cross licensees to select a to be specified and identified 5-10 other patents that can be nominated as part of the license. And also make sure you understand FRAND principles really well.
All in all I’m not convinced for now that this will 100% go ahead. Diligence may just throw up one negative assumption too many.
In all the melee, very few comments so far on Google’s transition in part to being a hardware player. From search to hardware, there is a story there in and of itself. Expect, and I stronglypredict, that Nokia will be the next to fall, to MSFT. Expect the announcement very soon.
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{ 2 comments… read them below or add one }
Although its entry into the patent-war big leagues didn’t start out very smoothly, perhaps Google is better off now with the IBM and Motorola portfolios than with the Nortel patents. It will certainly have more patents at its disposal now than if it had bid higher than Pi at the Nortel auction.
As you say, perhaps. One large added IP asset that Google does at least acquire this route is a high quality engineering team, with you’d guess a few man years of relevant experience. Though whether this will shift the market far enough from Apple’s design led lead to justify the price and the risk to Google’s existing model of swallowing MM is to be played out. Quite what MM can achieve under Google’s control that it could not under Motorola’s is an interesting question.
At a patent level, it’s hard to talk in absolutes I think. It seems that Google needs a large pile of patents to be able to sit with some degree of parity or proximity in licensing discussions with those that would rather that Android didn’t succeed, or succeeded only enough to generate license fees. Short of stopping Google from being forced to exit the market through patents, which this will likely achieve, one should question, one being a Google shareholder, whether a risk of this scale was really needed.