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March 14, 2012

Apple v/s Google: Motorola tried to bully Apple in patent negotiations

We had earlier reported that Apple had offered cross-licensing deals to Motorola and Samsung, but the talks failed due to unknown reasons and the patent wars escalated.

Now, in a document filed by the European Commissions (EC) on the proposed merger of Google and Motorola, it has appeared that the licensing deal didn't happen as Motorola/Google tried to intimidate Apple into licensing ALL of its patents, something unacceptable to Apple.

The EC document does not go into much detail on the licensing deals, but there are two interesting points. One relates to Android cross-licensing and the other relates Apple's patents and potential carve outs.

Android cross-licensing
Even before the Google-Motorola acquisition has closed, the negotiations between Motorola and Apple involved cross-licensing benefits for all Android OEMs, so that the deal will be acceptable to Google. Google apparently tried using the standards essential patents (SEP) of Motorola to benefit its entire Android ecosystem, across all OEMs.According to the EC document,
"In the context of Motorola Mobility's negotiations with Apple in late 2011 concerning a potential cross-licensing settlement, the parties discussed the scope of any potential settlement in the event that the Google/Motorola Mobility transaction is closed. From the information available to the Commission, this option envisaged a cross-licence possibly to the benefit of all Android OEMs but also with mutual carve-outs."

At the same time, Google also claimed that “it does not control Android and therefore Android's market share should not be attributed to Google but to each of the various OEMs building Android based phones.”

Now, if the market share needs to be attributed to individual Android OEM’s they should be the ones striking deals with Apple, rather Google trying to use Motorola’s essential patents in forcing Apple to do so. Clear double speaking by Google.

Recently Apple had convinced the court to direct Motorola to ask Google to hand over documents related to Android development, which was opposed by Motorola on grounds that both the companies are different. But if they can jointly negotiate cross licensing, I think the documents can also be handed over.

Licensing of Apple's patents
The other major, and more important piece of information, was that Motorola and Google wanted all the Apple's patents to come under cross licensing, so that any future litigation could be avoided. As the EC document says,
"For instance, according to Apple, Motorola Mobility has insisted that Apple cross-licenses its full non-SEP portfolio in exchange for Motorola Mobility's SEPs. Apple also argues that its refusal to accede to this demand led Motorola Mobility to sue Apple in an attempt to exclude Apple's products from the market. On the terms of Apple's own argument, Motorola Mobility's allegedly anti-competitive behavior in this regard well precedes the merger at issue in the present decision."

This was not acceptable to Apple as it wanted "carve outs" which would exclude some of the patents from the licensing as well as limit use restrictions, to keep Android and Google under control. Apple has preferred to  use patents as strategic tools rather than as revenue generator and this strategy is in line with that.

On the other hand, Google and Motorola tried to use their standards essential patents to bypass all the licensing problems for all the Android devices and OEMs.

This approach was not acceptable to Apple and something we don't think will be acceptable to Microsoft.

Google and Motorola equally responsible as Apple
This interesting piece of news highlights that while Apple and Microsoft may be considered as "patent trolls" by many wanting to either see Android dead (Apple) or make it as an important source of revenue (Microsoft), Google and Motorola are also to blame for the escalation of the patent wars.

The fate of the patent cases would likely be decided on the approach the regulators and courts take to licensing FRAND patents. If the regulators/courts allow Google to earn a high royalty fee, then it will have a huge impact, on both current licensing costs as well as future standards.

Current licensing cost will increase significantly as the other standards patent holders also increase the royalty rate. For ex. Google wants 2.25% royalty for 2% of patents as part of a standard where Microsoft currently pays currently 2 cents for the other 98% patents.

It will also massively increase the value of the future standards essentially patents, as they can be use to cripple competitions, something which will not be appreciated by the regulators.

While I am not a patent expert, I expect the essential patents to be eventually licensed at far lower terms than what Google wants. Apple has an excellent chance of enforcing carve outs and may extract significant royalty fee from the Android OEMs. This combined with Microsoft’s current royalty, will make Android infinitely less attractive than other options like Windows mobile.

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