Rick Maiman/Bloomberg NewsThe Motorola shareholder Carl C. Icahn pronounced himself pleased with the deal.
Google, in announcing a $12.5 billion deal for Motorola Mobility on Monday, saved its warmest words not for Motorola Mobility’s management or its products, but for one valuable asset: the company’s roughly 17,000 patents, as well as an additional 7,500 patents that are under government review.
That intellectual property portfolio is a treasure trove for Google because the battle in wireless is one that is increasingly being fought in court.
Corporate warfare over patents is not new. Companies historically preferred to reach truces, choosing to cross-license their intellectual property rather than risking bigger losses in court.
But patent battles are no longer waged between just two competitors, like Intel and Advanced Micro Devices. Platforms like Android and Windows Phone 7 are built upon a handful of device makers, adding more players with different stakes at risk.
That has changed the calculus of settling, as product makers have become increasingly willing to sue rather than reach peaceful settlements.
“Now you’re seeing more suits being brought by product companies willing to step up and say we will defend our patents,” said Colleen Chien, an assistant professor at the Santa Clara University School of Law.
Apple has sued important Android phone makers like HTC and Samsung, while Oracle has taken Google to court. The fighting has been likened to a “patent arms race.”
“The best way to fight a big portfolio of patents is to have your own big portfolio of patents,” said Herbert Hovenkamp, a law professor at the University of Iowa. “That appears to be what Google is doing here, arming itself with patents to be able to defend itself in this fast-growing market.”
Large sums hang in the balance, especially if phone makers are forced to pay out royalties for each handset they make. Microsoft has already persuaded HTC to pay a fee for every Android phone manufactured, and is seeking to extract similar royalties from Samsung.
If left unchecked, such payments could make creating new devices for Android prohibitively expensive for manufacturers, forcing them to turn to alternative platforms like Windows Phone 7.
“With a slim patent portfolio, Google is especially vulnerable to lawsuits against its Android licensees, if not itself,” Charlie Wolf, an analyst with Needham, wrote.
By acquiring Motorola Mobility, Google is seeking to ensure that growth in the Android market will not be choked by the burden of royalties.
The importance of bulging patent portfolios became clear this summer after a consortium led by Apple, Microsoft and Research in Motion, the maker of the BlackBerry, paid $4.5 billion for some 6,000 patents held by Nortel Networks, the Canadian telecommunications maker that filed for bankruptcy.
Google, which initially offered $900 million for the collection, fell short after several bids. Shortly afterward, Google executives complained that the company’s rivals had banded together to smother its Android system with patents.
“We’re determined to preserve Android as a competitive choice for consumers, by stopping those who are trying to strangle it,” David Drummond, Google’s chief legal officer, wrote in a blog post earlier this month.
In a sign of how badly it appeared to want Motorola Mobility’s patents, Google offered $40 a share, a rich 63 percent premium to Motorola’s closing price on Friday. Analysts at Jefferies calculated that, of the $12.5 billion offer price, Google was essentially paying $9.5 billion for the patents.
And analysts at Canaccord Genuity estimated that the price per patent was higher than the $4.5 billion total that bidders paid for the Nortel patents.
Though companies like Google may be snapping up thousands of patents at a time, they are looking for the few that cover their competitors’ products. Among the most valuable components of the Motorola collection, according to analysts, are those that cover cellular radio technologies like 4G data speeds.
It was the high price fetched by Nortel’s patents that opened the eyes of Motorola’s directors, people briefed on the matter said.
By the end of the Nortel sales process, Motorola had begun holding talks with a number of potential partners about how to reap value from its larger collection of patents. Some of the offers focused on simply licensing Motorola’s patents.
Of Motorola’s suitors, Google had the benefit of having worked closely with the handset maker on the first truly popular Android phone, the original Droid for Verizon Wireless. Over a matter of weeks, Google’s bid evolved into a takeover of the entire company.
Late last month, one of Motorola’s biggest shareholders, the activist investor Carl C. Icahn, specifically called upon the company to “explore alternatives” for its patent portfolio. Mr. Icahn said that there were “multiple ways” to realize such value, suggesting even then that he was open to a sale.
The investor was not a catalyst for any decision by Motorola’s board, though his support for a range of possible actions was helpful, the people briefed on the matter said.
By the beginning of last week, the search engine giant emerged as a front-runner, and by Sunday evening clinched the deal at a vote by Motorola’s board.
Mr. Icahn, a longtime gadfly who once sued Motorola to jolt it into action, praised the deal on Monday as “a great outcome for all shareholders.”
Motorola’s sale left many investors looking for the next company that could be acquired for its intellectual property, especially other struggling phone makers. Shares of Research in Motion jumped 10.4 percent on Monday, while American depositary receipts of Nokia leaped 17.4 percent.
In January, Motorola split itself into two separate companies: Mobility, which makes cellphones and set-top TV boxes, and Solutions, which makes radio equipment for corporations and governments.
Steve Lohr contributed reporting.
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