Almost precisely a year ago, Google announced its $12.5 billion merger agreement with Motorola Mobility as a means of "supercharging Android" and a patent acquisition that would enable it to "better protect Android from anti-competitive threats from Microsoft, Apple and other companies". From today's perspective, it was a colossal mistake no matter whether you look at Motorola's handset business or at its failing patent strategy -- and it has gotten Google into some additional antitrust trouble.
Today, the New York Times reports (which was meanwhile been confirmed) that "the ailing cellphone maker [...] told employees Sunday that it would lay off 20 percent of its work force and close a third of its 94 offices worldwide". In a world in which Apple and Samsung are the only wireless device makers to generate high levels of profits, Google faces a tough choice with Motorola. It could certainly recapture market share from Android OEMs, but since Android turns out unprofitable for almost everyone in the industry except Samsung and is a ticket to IP trouble, any attempts to leverage Motorola's privileged access to Google's resources would further reduce the motivation of third parties to build Android gadgets. But if Samsung is the only viable Android and tablet phone maker in the world, it may at some point adopt a transition plan from Android to another platform because it would have the market power to get all app developers to sign up to its own app store.
Some observers downplay the significance of Motorola's mass layoffs (this one is not the first and probably won't be the last), arguing that this was at its core only a patent deal and the hardware business was just excess baggage. If one accepted that (false) premise for the sake of the argument, the next question would have to be whether Motorola's patents were worth more than a limited fraction of the $12.5 billion Google paid. And as of today, there's serious doubt that these patents were more valuable than a billion dollars or two.
The measure for assessing the value of the patent part of the deal has to be the plan I quoted above: Google wanted to "better protect Android from anti-competitive threats from Microsoft, Apple and other companies". The word "anti-competitive" is merely an unsubstantiated allegation -- if any parties are in conflict with competition law in these disputes, it's Motorola Mobility (and Samsung, and perhaps also HTC). With or without that qualifier, Microsoft's IP licensing program is apparently not much of a "threat" to Android since its terms have been accepted by roughly 70% of the Android ecosystem, including all major device makers (such as market leader Samsung) except for Motorola Mobility. Admittedly, Apple is less licensing-oriented than Microsoft.
Anyway, the key question here is not whether Google's August 2011 allegations were accurate. It's whether the $12.5 billion impulse purchase of Motorola Mobility serves to "better protect Android from [...] Microsoft, Apple and other companies". The answer is, at least at this stage, NO:
- Microsoft keeps signing up Android patent licensees (amid all the litigation that's going on and that I cover in detail on this blog, let's not forget that licensing is still far more common in the industry than litigation). And it keeps making headway against Motorola Mobility, which is coming under enough pressure, step by step, that it will in the not too distant future also realize that a royalty-bearing Android patent license is a smarter choice than litigation.
Apple keeps pursuing injunctions as if nothing had changed. The courts are slow, especially in the U.S., and Apple doesn't have infinite management bandwidth in its litigation department, so it can't sue more than the three leading device makers at the same time (for now), but in August 2012, Apple is doing the same thing concerning Android and patents as it was already doing a year ago.
If Apple's and Microsoft's patent enforcement against Android hasn't stopped yet, how (and when) will Google build enough pressure to get cross-license agreements, or non-aggression pacts, with those major rivals? At this stage, its strategy doesn't appear to work because Motorola's standard-essential patents aren't supposed to be used as strategic weapons and its non-standard-essential ones (at the least the ones it has asserted in court so far) are too weak.
The latest bad news for Motorola's SEP-centric strategy is a partial summary judgment ruling that came down in Wisconsin on Friday and mirrors Microsoft's progress against Motorola Mobility in a separate but somewhat similar case in Seattle.
Earlier this month, Microsoft said in a court filing that "Motorola's efforts to evade its [F]RAND commitments are collapsing". The Wisconsin summary judgment decision is not the definitive end of Motorola's attempt to leverage FRAND patents in unFRANDly ways, but as I mentioned in the post I just linked to, judges in four different U.S. districts, the most famous one being Circuit Judge Richard Posner, have now ruled in FRAND-friendly ways in Apple's and Microsoft's favor.
Instead of rethinking its patent strategy, Google appears to pursue it doggedly. It no longer cares about its credibility when it makes arguments in court. Google probably relies on its PR group (and third parties) to put some spin on it later. It's usually not a huge problem for a party's credibility if it makes different kinds of arguments in lawsuits in which it has different roles. A defendant against patent infringement will argue in favor of narrow claim construction, while a plaintiff will push for a broad one -- that's an example of what is reasonably acceptable. It's also legitimate to bring claims or raise defenses that are mutually exclusive. You can always try to hedge your bets. But in my observation, Google's Motorola Mobility has recently started to contradict its own positions in ways that are truly questionable. Two examples:
A week ago, Microsoft filed a notice with the United States Court of Appeals for the Ninth Circuit, which will hear (on September 11) Motorola's appeal against a preliminary injunction that bars it from enforcing German standard-essential patent injunctions against Microsoft. In that appeal, Motorola argues that Judge Robart's court in Seattle, Washington, does not have the authority to grant an injunction relating to the enforcement of a German patent injunction, and one of its key arguments is that this kind of ruling is a bad idea with a view to international diplomacy (comity of nations). But while it was already pursuing this appeal, it told Judge Robart (in a filing that Microsoft flagged to the Ninth Circuit) that he could always enjoin it from enforcing SEPs against Microsoft, so he should adopt a Motorola proposal for narrowing the scope of the envisioned November FRAND trial.
This is a clear contradiction in itself. If the Seattle-based court can do this, there's no basis for an appeal, and there's no genuine concern for comity. It's disingenuous because it's not just about a legal argument: in this context of a case management proposal, which Motorola basically tries to sell to Judge Robart, this behavior is closer to that of negotiating in bad faith.
The only thing that Motorola's alternative case management proposal in Seattle and its Ninth Circuit appeal have in common is simply that Google wants anything that may create an opportunity to enforce a German H.264-essential patent injunction against Microsoft in order to get a deal on its preferred terms, at the threat of irreparable harm to Microsoft's business. As long as the U.S. anti-enforcement injunction is in force, Google can't do that, and if the November trial results in a FRAND license agreement at a rate determined by the court, it's game over (except for an appeal, which would be a difficult one to win).
On Friday, the Google subsidiary filed a reply in support of its case management motion in Seattle. That motion is centered around the new claim that the court in Seattle doesn't have jurisdiction to create a FRAND license agreement between Microsoft and Microsoft "ab initio" ("from scratch").
There are two credibility issues about that. The first one is that Motorola made FRAND pledges to standard-setting organizations but now doesn't want them to be enforceable. In the Apple-Motorola summary judgment order I reported on today, Judge Crabb also took note of this attempt by Motorola to extricate from its obligations: "In other words, Motorola argues that although it made promises, the promises are largely meaningless because they cannot be enforced by either the organizations or third parties."
And getting back to the Microsoft case in Seattle, Motorola's case management motion there is openly inconsistent with its previous representation that the court should set the missing terms of a FRAND license agreement rather than issue an anti-enforcement injunction. In this context, Motorola cites case law such as the following:
"Absent success in a prior proceeding, a party’s later inconsistent position introduces no ‘risk of inconsistent court determinations,’ . . . and thus poses little threat to judicial integrity"
There may be "little threat to judicial integrity" under certain circumstances, but how about Google's integrity? It will make any argument, however inconsistent or far-fetched, as long as there is hope that it will ultimately win, and get to enforce, injunctions over standard-essential patents. Whether or not any of its arguments are estopped, this desire to negotiate only if there's an injunction being enforced, or a somewhat credible threat of its enforcement, is all too obvious to the courts.
In short, Google needs a better plan. "Don't Be Evil" would be a good starting point to devise one. SEP injunctions are evil.
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