Google last year purchased Motorola Mobility Holdings partly for the mobile-phone pioneer’s trove of more than 17,000 patents. But the $12.4 billion acquisition is showing signs it wasn’t much of a bargain.
A federal judge last week said Microsoft owes only pennies in royalties per sale of each Xbox video-gaming system and Windows operating system instead of the potential billions Google sought in a patent-infringement case. Four days earlier, the Google unit lost a patent case against Apple.
Google, owner of the most-used search engine and the Android operating system for wireless devices, estimated in regulatory filings that $5.5 billion of the purchase price for Motorola was for patents and developed technology. Chief Executive Larry Page in August 2011 said Motorola’s patent portfolio would “help protect Android from anticompetitive threats from Microsoft, Apple and other companies.”
“It wasn’t an irrational decision at the time, but they’ve gotten nothing but heartbreak for that money,” said Rodney Sweetland, a patent lawyer with Duane Morris in Washington, D.C., who has watched the legal disputes over smartphones. “Should they have bought? Not at that price.”
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While the acquisition may have deterred Apple and Microsoft from filing new patent lawsuits against it, Google hasn’t won a decisive legal case with a big payoff — such as a lucrative licensing deal.
Motorola’s patents also opened up the company to increased antitrust scrutiny, leaving Google to face legal battles in Europe and the U.S. with patents that may not be as valuable as investors thought.
Since Google acquired Motorola in May 2012, most of the company’s efforts to limit sales of Microsoft’s products in Europe have been averted, a U.S. judge in Chicago threw out claims Apple and Motorola lodged against each other, and a U.S. trade panel rejected claims against Apple over wireless technology.
“They just keep striking out when they have all this ammunition allegedly behind them,” said Will Stofega, a program manager at researcher IDC. “They don’t have any home runs to show for it.”
On Thursday, U.S. District Judge James Robart in Seattle released his decision that Google’s Motorola unit isn’t entitled to royalties of 2.25 percent of retail sales it sought for Xbox and Windows, which Microsoft estimated would cost it $4 billion.
Instead, Robart put the value of patents for video-decoding and wireless technology at a few cents per unit, equal to about $1.8 million, according to Microsoft.
On April 22, the U.S. International Trade Commission invalidated Motorola’s patent on a phone sensor in a case that could have limited Apple’s ability to ship Chinese-made iPhones into the U.S.
“We acquired Motorola to level the playing field in patent attacks against Android and draw on Motorola’s long history of innovation,” said Matt Kallman, Google’s spokesman, in an email. “In just under a year, they’ve accomplished a lot, with impressive velocity and execution. We’re excited about Motorola’s future.”
The greatest value to the patents so far is in what didn’t happen, Sweetland said. The patents didn’t fall into the hands of a Google rival, nor did Motorola become like Ericsson or Nokia, using litigation to try to recoup the billions they spent on wireless research.
When Google announced in August 2011 it was going to buy Motorola, it was being criticized by handset makers for not helping them fight off patent lawsuits over phones running on Android, the most popular operating system for mobile devices.
Google at the time had fewer than 1,000 of its own patents, most related to search. It needed to bolster its negotiating position for a licensing deal that would protect all Android customers because in a typical patent dispute, competitors assess each other’s patent holdings, with net licensing fees going to the company with stronger patents.
“It definitely has taken a lot of pressure off Android,” said Colin Sebastian, an analyst with Robert Baird & Co. “There was the appearance of multiple storm clouds in the patent litigation for Android until they closed this acquisition.”
Given the results of recent litigation, “the perceived value of the portfolio is clearly less” than what Google paid, said Erin-Michael Gill, managing director of MDB Capital Group, a Santa Monica, Calif.-based investment bank that specializes in patent issues.
The Motorola unit generated $4.14 billion in revenue last year, about 8 percent of Google’s total sales, and had about $1.1 billion in losses, according to data compiled by Bloomberg.
Page is streamlining the unit to bolster efforts in the smartphone and tablet market. The Motorola Home set-top box division was sold for about $2.35 billion, and more than 5,200 jobs are being cut. Stofega said investors are looking for new devices or innovations to come out of Motorola Mobility, perhaps at the Google I/O 2013 meeting in San Francisco next month.
“Motorola has a great set of assets,” Google Chief Financial Officer Patrick Pichette said at a conference in February. “It had a pipeline of products that were fine, but not really to the standards that Google would say is wow, innovative, transformative. So you invest for the long term.”