(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Reynolds Holding
NEW YORK, May 2 (Reuters Breakingviews) - Google (GOOG.O) is shooting blanks in the smartphone patent wars. Buying Motorola Mobility and its cache of inventions was meant to shield the search giant’s Android operating system from legal attack. But judges and regulators are defusing the patent arsenal, saying the underlying technology must be licensed on reasonable terms. While bad for Google shareholders, it’s a bonus for innovation.
The Motorola deal was born of necessity, if not desperation. An Apple-Microsoft (AAPL.O)(MSFT.O) consortium’s $4.5 billion purchase of Nortel NRTLQ.PK patents in 2011 meant rivals could extract steep royalties from Android device manufacturers - and possibly block the gadgets altogether. So Google, with few patents of its own, shelled out $12.5 billion for Motorola and its 17,000 patents.
It seemed a smart acquisition at the time. The portfolio consisted largely of standard essential patents, rights so important to the industry that their holders agree to share them. Motorola had done so at lofty prices, giving Google a tidy revenue stream along with a stout defense.
But a shift in the law and some weaker-than-expected patents prompted a losing streak. The rights weren’t powerful enough to dissuade Apple from successfully challenging two in a federal trial last August, or the U.S. International Trade Commission from invalidating several last month. And with prodding from Apple and Microsoft, jurists and regulators started questioning Motorola’s licensing practices.
In 2012, the European Union and then the U.S. Federal Trade Commission began investigating whether the practices were anticompetitive. The EU probe continues, but in January the FTC made Google promise to stop seeking court orders essentially blocking use of its patents.
Meanwhile, a Chicago federal judge slapped down Motorola’s request for such an order, as well as royalties, against Apple, while a U.S. court in Wisconsin affirmed that those royalties must be reasonable. The latest blow came last week: A Seattle federal judge slashed Motorola’s royalty demand of Microsoft from as much as $4 billion to less than $2 million.
It’s a stretch to call the Motorola deal a bust. The patents have probably boosted leverage in licensing negotiations and smoothed Android’s path to operating-system dominance. But Google might have anticipated that courts would bristle at Motorola’s royalty overreach, which can stifle technology innovation and, ultimately, consumer choice. That’s not only bad legal strategy, but an affront to Google’s aspirations not to be evil.
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- A U.S. district judge in Seattle ruled on April 26 that Google’s Motorola Mobility deserved only a small fraction - about $1.8 million - of the $4 billion it had demanded for use of its wireless and video technology in Microsoft’s Xbox console. It was the latest of multiple legal setbacks for Google, which in 2011 paid $12.5 billion for the smartphone maker largely to acquire its patents. The decision lowers the value of those patents as bargaining chips in negotiating licensing agreements with Apple, Microsoft and other rivals.
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(Editing by Rob Cox and Martin Langfield)
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