Google Buys Motorola: The Real Story

This is big news: Google buys Motorola for $12.5 billion. Why buy a mobile phone company that’s struggling? What makes it worth so much money? Why does Google want to get into the hardware business, anyway?

Everyone in the industry understands the real reason: Google wants Motorola’s 17,000 patents. Google doesn’t intend to use the patents to invent new products; instead, they intend to use the patents as defensive tools in an obscure but critical corporate battlefield: intellectual property law. Last month, a coalition of companies including Apple and Microsoft paid $4.5 billion for the 6,000 patents of Nortel Networks. Google felt threatened; they needed a comparable pool of patents to seriously compete in the legal battles that are guaranteed to follow.

The reason why legal battles are guaranteed is that every company is vulnerable. There are so many patents on software ideas, and they’re so vaguely and broadly written, that every company might be said to be in violation of something. Google’s chief lawyer recently wrote “A smartphone might involve as many as 250,000 patent claims” that are probably questionable, but still you have to defend against those claims in court. So what happens is that the big guys get their lawyers and accountants together in a room, and they trade patents like poker chips. Eventually, they come to an agreement not to sue one another, sometimes in exchange for a supplementary cash payment (if everyone agrees that one pool of patents is worth more than another).

Apple, Microsoft, and Google are mature companies and they’ll work out a deal. What everyone is more worried about are the so-called “patent trolls.” These are companies that don’t make anything; they only exist to sue other companies for violating their patents. (The nice term for them is “non-practicing entities.”) You can’t negotiate with them because they don’t need anything that you have; they only want a cash settlement.

Is this the way to foster maximum innovation? I’m not a lawyer, but I have to believe the answer is NO.

Also see my previous posts on patent law: