This post was contributed by Matthew Marquardt, Partner, Norton Rose Canada
Last week, apparently by accident, Motorola Mobility leaked specs and images of its newest mobile device, the Atrix HD. This is the first new smartphone announced by Motorola since Google bought the company in May.
While the device bears a strong family resemblance to earlier Motorola products, many observers expect, unsurprisingly, that future products will bear a more apparent Google stamp. Google has been working its way into the smartphone market since 2005 when it purchased Android for $50 million.
How does Google, which started as an Internet search engine, end up calling the shots for the designs of one of the world’s best-known makers of mobile devices? By paying $12.5 billion for the privilege.
What induced Google to pay that kind of money for a smartphone manufacturer? When it decided it wanted to get into the business, it realized that it faced a significant challenge: literally thousands upon thousands of issued and enforceable patents owned by its competitors, backed by countless pending patent applications—every one of them, in the eyes of Motorola’s competitors, a threat of unpredictable scope.
The only way in was to buy their way and to pick up existing players that owned their own massive portfolios of patents and applications.
Motorola alone owned more than 17,000 issued patents and pending applications, and the value of that portfolio was widely accepted as a driving factor in the $12.5 billion price tag, perhaps even more important than the going concern value of the mobile device lines. Remember, Nortel sold its patent portfolio for more than $4.5 billion, even after it stopped making phones altogether. Prior to its purchase of Motorola, Google narrowly lost the Nortel auction to a consortium that included Apple, Ericsson, RIM and Microsoft.
Placing a price tag on a patent portfolio can be a tricky business. The value of a patent, not surprisingly, often resides in the eyes of its beholder. To an owner of a key technology, one that can be used to block or control an entire industry, the value can be very, very high.
Many factors can be considered in pricing a patent portfolio. Here are a few:
- Who owns them – including the offensive and defensive needs of their owners
- The correlation between the jurisdictions they cover and key markets
- The technologies and subject matter they cover
- Their age
- The manner in which they were written, and obtained from the various patent offices
- Whether they have previously been enforced against known infringers
- Whether alone, or in combination with already-owned portfolios, they raise antitrust concerns
- Their relation to industry standards and regulations
The Google smartphone metamorphosis shows that significant entry even to a massive, well-developed, patent-protected marketplace can be made. If you have the money.