BREAKINGVIEWS - HP purchase of patent-rich Palm now looks smarter

The Palm website is seen on the Palm Pre smartphone at the annual Consumer Electronics Show (CES) in Las Vegas, Nevada January 8, 2009.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK (Reuters Breakingviews) - Hewlett-Packard's(HPQ.N) purchase of Palm last year is suddenly looking smarter. Google's(GOOG.O) $12.5 billion deal to buy Motorola MobilityMMI.N this week, and the frenzied bidding earlier in the year for Nortel's patents, have revealed the riches in the intellectual property of mobile computing. And HP snatched up one of the most important troves for a price that now looks cheap. Yet cashing in, should HP want to do so, is a challenge.

A big stash of patents allows the owner to demand royalties from others, prevent companies from incorporating particular features, or at least horse-trade over such things from a position of strength. On the simplistic metric of enterprise value per patent, HP paid about $750,000 for each of Palm's roughly 1,600 patents, in line with what Apple (AAPL.O), Microsoft (MSFT.O) and the other Nortel buyers paid for 6,000 or so. Google, meanwhile, paid just over $550,000 for each of Motorola Mobility's 17,000-plus patents.

But patents aren't created equally. For a time, Palm's products dominated the market for personal digital assistants, among the recent antecedents of today's smartphones. And the company later developed an innovative operating system for handsets. So the firm's patents sit in the sweet spot for mobile devices, whether they relate to displays, interfaces, call management or other features. On average, those should be worth more than the wider range of Nortel's patents, some which covered things like optical technology and search, or the still broader collection at Motorola.

It is also instructive that even in Palm's heyday, Apple was hesitant to take its rival to court, even though Palm seemed to enjoy tweaking Apple. That suggests some important intellectual property leverage compared with, say, Motorola, a company Apple has sued. It's difficult to value patent portfolios. Assessments vary, and the uncertainty in trials and licensing negotiations is large. But it could be the collection HP seemed to have paid a very full price for is now worth a good bit more.

Mark Hurd, the HP boss at the time, said plainly he was buying Palm for its IP, not its smartphone business. But HP hasn't yet reaped much benefit -- recently, for instance, it rolled out an underwhelming tablet device. The company's ex-Palm operating system may yet gain traction, especially since HP has said it will bundle it with all its computers and may license it out. But even if HP ends up an also-ran to Apple and Google's Android, there's always the option of another patent auction and watching the money roll in.

CONTEXT NEWS

-- Google said on Aug. 15 that it had agreed to buy Motorola Mobility for $12.5 billion. The search company said the 17,000 patents held by Motorola would help defend Google's Android operating system and its users from lawsuits.

-- A consortium of Apple, EMC (EMC.N), Ericsson (ERICb.ST), Microsoft, Research In Motion RIM.TO and Sony (6758.T) paid $4.5 billion for 6,000 patents and patent applications held by Nortel, the networking company said on June 30.

-- In April 2010, Hewlett-Packard bought smartphone maker Palm at a $1.5 billion market capitalization, or $1.2 billion in enterprise value when accounting for cash on its books. Palm had about 1,600 patents at the time of purchase.

(Editing by Richard Beales and Emily Plucinak)