Google – Motorola vs. Microsoft – Nokia- Utter Failure vs. Smart Acquisition? Explanations

7/30/2019 Google Motorola vs. Microsoft Nokia- Utter Failure vs. Smart Acquisition? Explanations

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GoogleMotorolavs.MicrosoftNokia:UtterFailurevs.SmartAcquisition?Explanations.

ThomasDubuisson,LL.M,J.D.,LL.B

http://www.d-is-freshinteresting.blogspot.com/

[email protected]:@tdubuisson

I. ThePartiesGoogle'sinnovativesearchtechnologiesconnectmillionsofpeoplearoundtheworldwithinformationeveryday.Foundedin1998byStanfordPh.D.studentsLarryPageandSergeyBrin, Google today is a top web property in all major global markets. Google's targeted

advertising program provides businesses of all sizes with measurable results, whileenhancingtheoverallwebexperienceforusers1.MicrosoftisanAmericanmultinationalsoftwarecorporationthatdevelops,manufactures,licenses, and supports a wide range of products and services related to computing. ThecompanywasfoundedbyBillGatesandPaulAllenonApril4,1975.Microsoftistheworld'slargestsoftwaremakermeasuredbyrevenues2.AtMicrosoft,they'remotivatedandinspiredeverydaybyhowourcustomersusetheirsoftwaretofindcreativesolutionstobusinessproblems, develop breakthrough ideas, and stay connected to what's most important tothem.

II. TheAcquisitionsOn August 12, 2011 Google Inc. (NASDAQ: GOOG) and Motorola Mobility Holdings, Inc.(NYSE:MMI) announced that they have entered into a definitive agreementunderwhichGooglewillacquireMotorolaMobilityfor$40.00pershareincash,oratotalofabout$12.5billion3.Itwasthecompanysbiggestdealever,farexceedingpreviousbigbuyslikeYouTubefor$1.7billionandDoubleClickfor$3.1billion.

GoogleclearlyexplainsonitswebsitewhytheydecidedtobuyMotorolaMobility:

Google and Motorola Mobility together will accelerate innovation and choice inmobilecomputing.Consumerswillgetbetterphonesatlowerprices[forinstance,the

MotoXiscomingverysoon].MotorolaMobilityspatentportfoliowillhelpprotectthe

Android ecosystem (emphasis added). Android, which is open-source software, is

vital tocompetition in themobiledevice space, ensuring hardwaremanufacturers,

mobile phone carriers, applications developers and consumers all have choice.

MotorolaMobilitysfullcommitmenttotheAndroidoperatingsystemmeansthereis1http://investor.google.com/releases/2011/0815.html2 http://www.microsoft.com/about/companyinformation/en/us/default.aspx andhttp://en.wikipedia.org/wiki/Microsoft3http://investor.google.com/releases/2011/0815.html


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anaturalfitbetweenourcompanies.Googleisgreatatsoftware;MotorolaMobilityis

great at devices. The combination of the two makes sense and will enable faster

innovation.MotorolaMobility has a long history of innovation in communications

technologyandthedevelopmentofintellectualproperty4

.

OnSeptember3rd,2013MicrosoftacquiredacquiresubstantiallyallofNokiasDevicesand

Servicesbusiness,includingtheMobilePhonesandSmartDevicesbusinessunitsaswellas

anindustry-leadingdesignteam,operationsincludingallNokiaDevices&Services-related

productionfacilities,Devices&Services-relatedsalesandmarketingactivities,andrelated

supportfunctions5.

MicrosoftalsoexplainedwhytheydecidedtobuyNokiasdevices&servicesbusiness:

Under the terms of the agreement, Microsoft will pay EUR 3.79 billion to purchase

substantiallyallofNokiasDevices&Servicesbusiness,andEUR1.65billiontolicense

Nokiaspatents, for a totaltransactionpriceof EUR5.44billion incash.Microsoftwill

draw upon its overseas cash resources to fund the transaction. The transaction is

expected to close in the first quarter of 2014, subject to approval by Nokias

shareholders, regulatory approvals and other closing conditions. Building on the

partnership with Nokia announced in February 2011 and the increasing success of

Nokias Lumia smartphones, Microsoft aims to accelerate the growth of its share and

profit in mobile devices through faster innovation, increased synergies, and unified

branding and marketing. For Nokia, this transaction is expected to be significantly

accretivetoearnings,strengthenitsfinancialposition,andprovideasolidbasisforfutureinvestmentinitscontinuingbusinesses6.

As I already mentioned two times, Microsoft only bought Nokias devices & services

business;nottheentireNokiaCompany(Ilatelyreadsomemistakesontheinternet).Nokia

still has two major and important businesses: networking and mapping. In fact, Nokia

networkingbusiness,which includesequipment it sells to telecom operators to run their

wirelessnetworks,bringsinthemajorityofthecompanysannualrevenue 7.Nokiasmaps

technology has a valuable global database of geographical information. It provides GPS

services todashboard navigation systems inmany carmodels. The unit,whichgenerates

around $1.3 billion in annual revenue, plans to sell GPS and entertainment services tocompaniesthatdonotwanttobuildthemfromscratch8.

Microsofts rationale for buying these Nokias Devices & Services business was also

explained in a PowerPoint presentation (what else!)9. In the intellectual property (IP)

4http://www.google.com/press/motorola/5http://allthingsd.com/20130902/microsoft-explains-the-rationale-behind-the-nokia-deal/6http://www.businessinsider.com/microsoft-buys-nokia-devices-2013-97http://www.nytimes.com/2013/09/04/technology/shedding-handsets-nokia-looks-to-the-future.html8Id.9 You can find the presentation (strategic rationale) at:

http://www.docstoc.com/docs/160532498/StrategicRationale


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context,twoslidesdescribeanddetailwhytheseintangibleassets,morepreciselypatents,

areimportantelementsofthesmartdevicesbusiness:


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III. TheComparisonAlthoughGooglehasadmittedtofocusingmoreoninnovationthanpatentprotection,letsbehonest,theonlyreasonwhyGoogleboughtMotorolawasforthepatentparts.Itsanon-negligibleportfolioof17,000patentswithmanyofwhicharedirectlyapplicabletomobiletechnologies10.Microsoftjustacquiredover8500designpatentsbutnotNokia'sutility(technical)patents;inotherwords, a 25-year registeredmonopoly rightwhichdescribes anew, originalandornamental design for a manufactured object, broadly half-way between a patent and acopyright. They are called registered designs inEurope andmost partsof theworld, butdesignpatentsintheUS11.TheCompanyalsohasbeengrantedaten-yearlicensetousetheNokiabrandonfeaturephones.

Besidesthenumberofpatents,whatsthedifferencethen?FlorianMueller(FOSSPatents12)intellectualpropertyexpertdescribesthesituationasfollows:thewholeideaoftheGoogle-Motoroladealwastobuypatentsinordertosueothersoverthem,hopingthatthiswouldbring about a stalemate -- a strategy that has been an utter failure. Compare this toMicrosoft'sfocusonlicensingpatentsinordertoavoidlitigationfrombeingbroughtinthefirstplace13.As you know, the value of intellectual property rights is dependent on the possibility ofenforcement.AsexplainedbyMr.Mueller,therearetwowaysinwhichyoucanleverageoutofapatentportfolio:

Toobtaininjunctions(themostimportantone) Toseekmonetarycompensation

Afteralmostthreeyearsoflitigation,Google-MotorolahaswonzeroenforceableinjunctionsagainstMicrosoft and itjust losttheonlyinjunctionithasbeenenforcing recentlyagainstApple14.Inotherwords,GooglecompletelyoverpaidforMotorola'spatentsand,atthispoint,probablywastedalotofmoney.Anotherdifferencepointed inthisarticlewas that the "Googlorola"break-upfeewas$2.5billion, reflecting desperation as well as concerns over antitrust approval. By contrast,Microsoft'sannouncementsaidthat

[t]hetransactionissubjecttopotentialpurchasepriceadjustments,protectingbothNokiaandMicrosoft,andaUSD750millionterminationfeepayablebyMicrosofttoNokia in the event that the transaction fails to receive necessary regulatoryclearances.

10http://www.digitaltrends.com/mobile/is-googles-acquisition-of-motorola-working-out/ 11http://www.bbc.co.uk/news/technology-2367338512http://www.fosspatents.com/13http://www.fosspatents.com/2013/09/microsoft-nokia-deal-results-in-cost.html14Id.


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Thisisaprettystandardlevelforsuchafee,especiallyrelativetodealsize,while,comparedto transaction value as well as in absolute terms, the Google-Motorola fee wasextraordinarily high. There can be no doubt that today's deal is one of the most pro-competitiveM&A deals in the history of the informationand communications technologyindustry:consumers,wireless carriers,appdevelopersandotherstakeholdersdon'twantthesmartphonebusinesstobecomeaduopoly15.

IV. TheConclusionTwoyearsago,beforethedealwithMotorola,GoogleInc.ownedhardlyanypatents.Today,with a portfolio ofmore than 17,000patents, the situation is not really different. At thispoint,Google-MotorolahaswonzeroenforceableinjunctionsagainstMicrosoftandApple.Weneverknowwhattomorrowbrings,butthatsnotreallypromisingforthefuture.

Onthecontrary,beforethedeal,Microsoftalreadyhadanextremelystrongpatentportfolio.Now, with an addition of 8500 design patents, Microsoft just demonstrated that theCompanyisincreasingitscommitmenttothemobiledevicesandservicesbusiness;thatitwill make hardware alongwith the software16.Will Microsoft really have themost cost-effectivepatentarrangementsforsmartdevices?Onlytimewilltellwhethertheymadetherightdecision.

15http://www.fosspatents.com/2013/09/165-billion-euro-patent-licensing.html16Forsomepeople,thistransactionmeansthatWindowsisdead:WindowsIsDead,GoogleKilledIt,available

at:http://www.businessinsider.com/windows-is-dead-2013-9

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Google – Motorola vs. Microsoft – Nokia- Utter Failure vs. Smart Acquisition? Explanations