Google Buys Motorola

In its biggest deal to date, Google acquired handset manufacturer Motorola Mobility for $12.5 billion in cash. The agreement lets the search giant match up its popular Android mobile operating system with Motorola’s phone making know how, putting pressure on Apple.

It’s worth noting that Google is acquiring only one of two companies with the Motorola name – but for the search giant’s purposes, it’s the one that counts. This year, Motorola was split into two companies. Motorola Mobility focuses on cell phones and TV set-top boxes. Motorola Solutions offers items such as walkie-talkies to corporations and governments.

Google paid $40 per share for Motorola Mobility, an extremely generous offer considering Motorola’s stock closed at $24.47 on Friday. This amounts to a 63 percent premium. In a blog post extolling the deal, Google CEO Larry Page notes Android’s successes: 150 million Android devices activated, through 39 manufacturers and 231 carriers in 123 companies. In his discussion of the acquisition, he pointed to Motorola’s history “of over 80 years of innovation in communications technology and products” and the milestones it has achieved, such as the world’s very first portable cell phone nearly 30 years ago.

Page also cited Motorola’s position as a founding member of the Open Handset Alliance, and its 2008 move to make Android the sole operating system across all of its smartphone devices. “Motorola’s total commitment to Android in mobile devices is one of many reasons that there is a natural fit between our two companies,” Page explained. Even so, he emphasized that Google is still committed to running Android as an open platform. Motorola will be run as a separate business. The deal itself is expected to close by the end of this year or early next year, and carries a reverse termination fee of $2.5 billion.

Google hopes to gain more than just a perfect merging of operating system and mobile devices in this deal. Earlier this month, Google Senior Vice President and Chief Legal Officer David Drummond warned of  “a hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents.” He pointed to this group’s acquisition of Novell’s and Nortel’s old patents, among other moves aimed at using patents “as a weapon” to stop innovation. Of these companies, Drummond wrote that “Instead of competing by building new features or devices, they are fighting through litigation.” Near the end of his post, Drummond notes that Google is working on “strengthening our own patent portfolio” to reduce the “anti-competitive threats against Android.” Obviously, Google’s acquisition of Motorola is one of the ways the search company hopes to strengthen that portfolio.

It’s an impressive addition. Motorola Mobility boasts 17,000 patents, dating back to the beginning of the mobile phone industry. This is on top of Google’s acquisition in July of more than 1,000 patents from IBM. The sheer quantity and age of the patents should act as some deterrent to its litigious rivals.

All of the companies Drummond names had active lawsuits related to Android before they acquired Novell’s and Nortel’s patents. Apple’s suits with Android manufacturers argue that Android-powered devices simply copy the iPhone and iPad. Microsoft  suits also focus on the devices; the company has filed against Motorola Mobility and Barnes & Noble (for the Nook reader, which runs Android software). Oracle, on the other hand, filed suit against Google directly because it alleges that Android was developed using the Java programming language – which Oracle now owns because of its acquisition of Sun.

Motorola, meanwhile, has filed lawsuits against both Apple and Microsoft. If it wins the latter suit, it could prevent Xbox game systems from being imported into the US. Microsoft’s suit against Motorola, scheduled to start late this month, could prevent Motorola handsets from being imported into the US. “The analogy to a nuclear arms race and mutually assured destruction is compelling,” notes Ron Laurie, managing director of Inflexion Point Strategy LLC. 

Some speculated that Google’s move will force Microsoft to buy a handset maker to protect its own Windows Phone operating system. Indeed, shares of both Nokia  and Research in Motion rose amid those rumors. Microsoft doesn’t seem to think so, however. In a statement that sounded strange to those used to Microsoft’s traditional closed architecture approach, Andy Lees, president of the Windows Phone Division at Microsoft, said that “Investing in a broad and truly open mobile ecosystem is important for the industry and consumers alike, and Windows Phone is now the only platform that does so with equal opportunity for all partners.”

Some observers have said that buying Motorola represents a move by Google toward Apple’s model of owning the software and the hardware for its systems. Others state that Google doesn’t really want to be in the handset business – an observation supported by Google’s statement that Motorola will continue to be run as a separate business. Even so, the fact is that now, anyone trying to sue Motorola is basically suing Google – and vice versa. Marry Motorola’s patents to Google’s deep pockets, and you have a combination that could make even Microsoft and Apple blink.

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