Google's patents bid may prompt showdown with Microsoft

Google bid $900m for Nortel patents on Monday, as its defence against rising Android litigation. The search giant now needs to compete with Apple, Nokia and Microsoft in an aggressive intellectual property rights (IPR) power play.

When Google emerged as the stalking horse bidder for Nortel's huge patents hoard, it indicated how the search giant is being forced to play the big boys by their own rules, in its bid to dominate the mobile web. Google may come from a happy land of open-source, royalty-free inventions and RAND (reasonable and non-discriminatory) patent fees, but in the mobile world, the alpha dogs are the ones with huge stores of IPR, which they use to gain power in closed-door bilateral licensing deals, and failing that, to wrong-foot their rivals with litigation.

Google's Android platform is under siege from a tide of legal actions: some direct – like Oracle's over Java – and some aimed at its partners, like Microsoft's against Motorola. Google needs to fight on a more even playing field, particularly against its two greatest challengers, Microsoft and Apple – especially as the waters are further muddied by the alliance of Microsoft with another massive patent holder, Nokia.

Why Google needs Nortel's IPR

If Google's $900m bid for Nortel's patents is successful – and even if another company trumps the offer, we suspect Google will raise its price and win through – it will overnight become one of the largest IPR owners in wireless networking. In many ways, the patents themselves will not be much use to the company, though some may enrich Android or other developments in mobile platforms. But Google does not make cellular networks or even gadgets (except through OEM partners), nor is it likely to want to create a significant licensing revenue business, as that would undermine its open credentials.

The patents will, instead, perform a similar role to those of Microsoft, which rarely sues or overcharges over its IPR, but regards its patents as a critical competitive weapon. They defend the giant from the litigation of others and allow it to claim its platforms are uniquely innovative and tightly defended from trolls. Microsoft is making increasing use of this argument when talking up Windows Phone against the legally besieged Android.

Google wrote in a recent corporate blog posting, referring to its legal battle with Oracle over Java patents in Android:

One of a company's best defenses against ... litigation is (ironically) to have a formidable patent portfolio, as this helps maintain your freedom to develop new products and services. Google is a relatively young company, and although we have a growing number of patents, many of our competitors have larger portfolios given their longer histories.

Google's purchase of the Nortel patents would not be a blow to Microsoft in the short term; the firm was quick to stress that it already has licensing deals to all the IPR that it uses in the collection, and these deals would carry over to new ownership. Apple might be more perturbed, since it was said to be one of the frontrunners for the Nortel deal too, along with Ericsson and even ZTE.

Nortel's final hurrah

As a "stalking horse" buyer, Google's bid could still be topped by one of these rivals, but if the sale goes Google's way, the search giant will become a far more serious wireless patent holder overnight, gaining over 6,000 items, many of them considered important IPR in new technologies such as LTE and OFDMA.

According to Reuters, Nortel owns seven of the 105 patent families likely to be essential to LTE. By comparison, Nokia holds 57 and Ericsson 14. Some of the assets could be harnessed directly for Android, Google applications frameworks or cloud networks, but others will be valuable mainly to give it a stronger negotiating position against rival IPR majors such as Oracle or Microsoft.

Nortel's statement describes its patent mountain as touching "nearly every aspect of telecommunications and additional markets as well, including internet search and social networking." The company said the $900m offer had been the result of multiple rounds of bidding from several interested parties.

Sale of Nortel's patents is the last major step to completing its exit from bankruptcy protection, which has been delayed several times. At one time there was speculation that it might emerge from Chapter X1 as a rump company focused on IPR licensing, but it seems there is better value for its creditors in making a sale.

Nortel's patent portfolio is sufficiently large and valuable to make a material difference to the IPR balance of power in 4G, a balance that is already the subject of intensive legal activity, most recently with Ericsson's decision to sue ZTE over licensing. Success for a non-traditional mobile player on the LTE front, such as Google, could be a catalyst for a change in 4G licensing norms. Google, like Intel, is likely to be more interested in opening up patents to stimulate a massive base of devices that could use its services, rather than becoming a royalty business in its own right.

Nortel separated many of its formidable pile of intellectual property assets from the sale of other units, notably its 4G, CDMA and GSM businesses to Ericsson. It then divided these into six groups in different technology areas, which could have been sold separately had a single buyer not been found.