Original URL: http://www.theregister.co.uk/2011/04/10/google_patents_bid_sets_stage_for_showdown_with_ms/

Google's patents bid may prompt showdown with Microsoft

EU antitrust complaint from MS adds fuel to fire

By Wireless Watch

Posted in Mobile, 10th April 2011 08:00 GMT

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.

Microsoft brings EU complaint against Google ...

The other area where Google is facing rising pressure in the law courts is in business practices. US federal probes into possible breaches of consumer privacy, with the sharing of personal data gathered from mobile apps, initially focused mainly on Apple, but are extending to Android too. And in the field of anti-trust, there are all kinds of ironies in Microsoft making a complaint to the European Commission. Microsoft, rather than Google or Oracle, could be Google's chief nemesis in mobile, as the Windows behemoth adopts all strategies to strengthen its platforms against Google's, and to take a last shot at being a mobile web leader.

In patents, it is now sure to lend its support, behind the scenes, to Nokia's IPR wars, as it has done tacitly to those of HTC, its former handset BFF. That initially hurts Apple most directly, but the ripple effect will soon be felt by Android. And now Microsoft is extending its hostilities to the competition courts.

The Redmond giant has turned the tables of history and made an antitrust complaint against Google – just as the search giant may be playing into its enemy's hands by introducing some Microsoft-style approaches to Android. The company is reportedly stepping up its efforts to gain stronger control over the supposedly open source platform, a strategy that could play to Microsoft's advantage by narrowing the gap between Android and WP7.

Microsoft is filing its complaint with the European Commission, scene of some of its own greatest antitrust setbacks. This is part of the ongoing EC probe into Google's practices, and Microsoft SVP and general counsel Brad Smith says the Windows giant has turned to Europe because Google's behaviour is more extreme there (it has 95 per cent of the search market in the EU, whereas in the US, Microsoft Bing has succeeded in gaining 25 per cent share).

In a blog posting, Smith says Google is demonstrating a "broadening pattern of walling off access to content and data that competitors need to provide search results to consumers and to attract advertisers".

He gives six examples, such as alleged efforts to block rival search engines from accessing YouTube, and to discriminate against rival advertising platforms. There is one specifically mobile claim, that Google has blocked Windows Mobile from being able to play YouTube videos.

... as Google becomes more Microsoft-like

Meanwhile, in another part of the mobile world, Google continues to weigh the balance between openness and control in Android. Recently it said it would delay open-source access to the Honeycomb tablet version indefinitely, saying that if partners were able to use the release for non-tablet devices like phones, they would come up with sub-standard experiences. Now Google may be going further to limit vendors' freedom of action, in order to achieve a more harmonised, consistent (and possibly Google-centric) Android experience.

According to reports in Digitimes, Google is working with ARM, whose processor design underpins most Android gadgets, on a standardised reference platform. This could be part of a broader push to take a more prescriptive approach in order to improve quality control and fight fragmentation: an approach closer to that of Apple, or of Microsoft, whose limitations on its WP7 licensees are far more rigid than in Windows Mobile (though MIPS, which has pinned high hopes for its own mobile processor ambitions on Android, says any reference designs remain multi-architecture).

Reports in BusinessWeek say that Google will, in future, insist on "non-fragmentation clauses" in contracts with developers. In order to gain early access to new Android releases, companies will have to get their product plans approved by Google. Of course, while that could help cut down on poor quality or rogue implementations, it could also stifle innovation. Google has, in the past, conceded that it focuses its own efforts mainly on phones, but that the open platform has allowed third parties to adapt Android for a far wider class of devices including netbooks, set-top boxes and media players.

And Google critics will also be quick to point out that these restrictive contracts could also be used to disadvantage developers of apps that might compete with Google in critical revenue areas such as map- ping and search – or even to discourage OEMs from supporting rival services on their homescreens, as Motorola has done by defaulting to Yahoo or Baidu on some models.

There have always effectively been two tiers of Android partners, with the chosen few (particularly Motorola) gaining early access to new developments, plus considerable development and marketing help from Google. This was reinforced by the recent release of Honeycomb to a few major partners such as Motorola and Samsung, followed by the decision to postpone open access.

Citing unnamed sources, BusinessWeek says some companies have already made complaints to the US Department of Justice about Google's new rules, and names LG, Toshiba and Facebook as firms that might have been impacted by the two-tier structure. It also says some chipmakers have received priority treatment from Google in being able to optimise their processors for Android, and if the search giant decides to lay down definitions on core hardware specs – as Microsoft does with its WP7 chassis program – it could disadvantage Intel.

If Google does not pull back from these reported tactics, it will be removing one key source of differentiation between Android and iOS or WP7, especially for OEMs and developers. That still leaves Microsoft with a lot of catching up to do, though it says over 1.5m developer tools have now been downloaded for WP7, and 36,000 people have paid to join the AppHub programmer community for the new OS. From that effort, about 11,500 apps have been made available, with Microsoft insisting it does not count "lite apps" such as wallpapers. Nearly 7,500 paid-for apps are available in the App Marketplace. Microsoft will upgrade the tools soon, showing off the chances at its MIX11 conference from 12 April.

Copyright © 2011, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.