What You (Do) Need To Know About The Google/Motorola-Mobility Tie-Up
by Daniel Foty
A bit over a week back, your humble correspondent found himself in the (wonderfully delightful) South African Airways lounge at the Johannesburg airport, wrapping things up before heading back to the northern hemisphere that evening. A South African colleague, who was also (conveniently) flying out that evening was there as well, and we were cleaning up the last odds and ends from the previous few days.
At some point, he wandered off to get a cup of coffee, and - upon his return - blithely asked, "Did I miss anything?" This allowed me to break the news that indeed he had - while he was off getting that coffee, news had arrived that Google was going to be acquiring Motorola Mobility.
It was evening in Joburg, but it was morning in California - so after some contacting and chatting, it quickly became clear what the game involved.
What makes this interesting for the more generalized spectator is that it opens a window into the sausage factory that exists at the confluence of technology, intellectual property, and global trade.
The Google move appears to be one of operating to a calculated risk - something we'll discuss below the fold.
Over the past two-or-so decades, various sectors of the "technology industry" have adopted a business model based on disaggregation and specialization; the central notion of that business model is that specialization in different aspects of a larger picture will produce better pieces of the larger puzzle - and better operating results. A key aspect of this business model is the need for the equivalent of the diplomatic concept of "spheres of influence" - that is, each player will carefully (and publicly) define what it will do, and also (and perhaps more importantly) what it will not do. The goal here is for everyone to make it clear to everyone else where their business borders are - so that no one will have to worry about various conflict issues that might be associated with a customer, supplier, or collaborator also being a competitor.
Since it moved into the mobile devices arena, Google has been operating using this business model. Google has provided its (now-famous) Android operating system - and stopped there. The various handset makers who have adopted the Android operating system (such as Samsung, HTC, and.... Motorola) have had the diplomatic knowledge that Google was an ecosystem partner (if you can forgive that expression), and not a competitor.
Of course, that last paragraph should make the problem obvious. By acquiring Motorola Mobility, Google has also turned itself into a player in the mobile devices area - and thus risks upsetting its own business ecosystem by turning itself into a direct competitor for its own customer base. One wonders about the immediate reaction in the executive offices of the various (other) handset makers who use the Android operating system.
So why is Google taking this risk of potentially blowing up its own (very lucrative) ecosystem?
The "Smartphone Wars"
That evening in Joburg, one of my old California friends - who is a veteran telecom industry CEO - immediately put his finger on what he thought was going on.... and events since then have basically shown him to have been right in his supposition.
Motorola Mobility possesses some 17,000 active patents (with some 7,000 more in "pending" process) relating to mobile device technology. This is the real prize for Google - one that to Google's management team made it worth the risk of damaging their own business model.
In addition to the astounding rate of innovation, the mobile devices space is (relatedly) characterized by extensive litigation - in a variety of venues. Some interesting pieces about this situation were penned - last week and this week - by the Wall Street Journal's Holman Jenkins.... and, while not perfect, he seems to hit the key nails square on the head. And while the litigation has been an apparent free-for-all involving everyone and everything, for some time it's been clear that the underlying theme is one of Apple vs. Google - though, ironically, Google's involvement has mostly been via the proxy of the various Android-using handset makers.
As various commentators have noted, Google arrived on this battlefield (when it introduced Android) without much in the way of a patent portfolio. Whatever they are supposed to be, patents serve most commonly as "trade goods" between various parties - for direct (for cash) licensing, for cross-licensing, etc.
This seems to be Google's most likely motivation - that it needed to acquire a patent portfolio in the space, and quickly. With the ongoing litigation-all-over-the-place, this provides Google (finally) with its own armory of patents - to use as trade goods in these disputes.
One critical aspect of the litigation relating to this arming-up - and one noted by Mr. Jenkins in this week's piece (linked above) - is that so much of that litigation has moved to the venue of the International Trade Commission (ITC). The ITC was set up as part of the 1930 Tariff Act, and was (until recently) a relatively obscure venue. Litigation that is moved onto the ITC track will (if carried through) reach a trial - however, unlike a civil trial in the other commonly-used venues (such as district or federal court), ITC trials do not involve a jury; instead, they are managed (and tried) by an "Administrative Law Judge" (ALJ) - who not only presides over the trial (in Washington DC) but issues the final decision. These decisions can of course be appealed - but they have the unique feature that they must be signed by the President for them to come into effect.
As its name implies, the ITC bailiwick is international trade - particularly, a judicial venue for the evaluation of the possible "improper" (or "unfair") importation of goods into the United States. Given the by-now globalized nature of both trade and trade flows, nearly every technology product contains imported components and/or is assembled (into the final product) outside of the U.S. In addition, non-U.S. companies that import products into the U.S. - and thus have a U.S. presence - can seek access to the ITC.
In addition to the lack-of-jury-proceedings mentioned above, ITC litigation also has two important characteristics that are extremely material to litigation such as the smartphone wars: 1) ITC proceedings are extremely rapid - encompassing several months rather than several years; 2) The ITC is empowered (via its rulings and the various enforcement mechanisms) to find that products (as either finished products or because of included components) can be banned from importation into the United States (with heavy fines as the punishment for ex post facto violations of such bans).
Thus, the ITC venue has become a core (if not the main) venue for the smartphone wars - since its rapid pace actually comes closest to the pace of innovation in the mobile devices arena.... and because a guilty verdict carries such a nuclear-class sanction.
Ponder the above.... and it should be pretty clear why Google is taking "the risk" in what they are doing.
What It Means To You As A User
The short answer is, "not much" - at least for the immediate future. Given the size (and lucrativeness) of the mobile devices marketplace - and the amount of intellectual property involved (as Mr. Jenkins notes in this week's column, a contemporary mobile device can touch on as many as half a million patents in some way or other) - extensive litigation is (and was) inevitable. Patents exist to be licensed, cross-licensed.... or litigated. It will all just have to play out.
And for what it's worth, the "smartphone wars" are (for the most part) independent of the challenges facing the mobile devices business. The growth of both the numbers and the capabilities of various mobile devices is creating a (literally) exponentiating demand for wireless bandwidth; for now, neither regulation nor "tinkering" will address this challenge - this is a serious engineering situation, and major discontinuous engineering innovations are required. In the absence of those innovations, the only solution is to use the best-known and most-successful mechanism (pricing) for allocating scarce resources. Don't pay any attention to any hype that floats around - this problem is bumping up against some serious physics, and physics always wins.... you have to learn to work with it to find new ways forward.