Search giant Google Inc. in April signed a deal in April this year to buy the 6,000 patents of defunct telecommunications firm for $900 million. Problem is the deal was subject to higher and better offers
At the end of June, a consortium that offered $4.5 billion, five times Google's opening bid, for the patents that are used or can be used for smartphone technology emerged the winning bidder at an auction that lasted three days. The consortium was comprised of entities like iPhone maker Apple Inc., Blackberry vendor Research in Motion Ltd., operating systems giant Microsoft Corp.
Although Google had enough cash that could have outbid the latest bid from the Apple-led consortium, it simply walked away.
Now Google's decision to simply bring home the at least $25 million break-up fee for opening the bidding and possibly the failure of its allies to form a consortium of their own could haunt Google if concerns raised in an investigation proves true
The Wall Street Journal, citing people familiar with the matter, has reported that the U.S. Department of Justice is intensifying an investigation into whether Apple and other tech giants could use the Nortel patents to unfairly hobble competing smartphones using Google's Android software.
According to the Journal, Apple, et al.'s $4.5 billion offer stunned observers and raised concerns about how the consortium intended to use them.
The Journal's sources said the Justice Department is interviewing consortium members on whether they have plans to file patent infringement suits against handset makers using Google's Android software. They are also talking to others that could be adversely affected.
The sale to Apple, et al., was approved by bankruptcy judges in the United States in Canada and the U.S. last month, and the sale was closed last week. Hence, it would be unlikely that the sale could be unraveled.
The Journal, however, said that the U.S. Department of Justice could still impose conditions on the parties.
Not Android Fans
Google has previously said it believes the consortium intends to use the patents to block it and others from bringing new products to market. The bid was "a sign of companies coming together not to buy new technology, not to buy great engineers or great products, but to buy the legal right to stop other people from innovating," Google's general counsel, Kent Walker, said on Bloomberg TV this week, according to the Journal.
Google's concerns are not hard to comprehend. Google's Android operating system is already the world's number one operating system used in smartphones. Samsung, HTC, LG, and other vendors are using the platform for their smartphones.
However, the members of the consortium that defeated Google are using their own platforms. Apple's iPhone and RIM's Blackberry have their own operating systems while Microsoft is teaming up with Nokia to put Windows Phone 7 on future Nokia mobile phones.The winning consortium also included Japanese electronics giant Sony Corp., information technology services provider EMC Corp. and Swedish provider of 2G, 3G and 4G mobile technologies Telefonaktiebolaget LM Ericsson.
Lawsuits against Google and smartphone manufacturers using the Android are not novelty -- they have been ongoing even before the Nortel auction.
Oracle Corp. has sued Google over Java in Google's development of the Android OS. Oracle claims that "Google's Android competes with Oracle America's Java" and that Google has been aware of Sun's patent portfolio.
Several mobile companies have sued Android partners for patent infringement. Apple has sued manufacturers of Android-based phones like HTC Corp. and Samsung Electronics Co.
Microsoft Corp. also has demanded payments from makers of products that run on Android.
Now Nortel's 6,000 patents and patent applications sold to the Apple group span wireless, wireless 4G, data networking, optical, voice, internet, service provider, semiconductors and other patent portfolios. The extensive patent portfolio touches nearly every aspect of telecommunications and additional markets as well, including Internet search and social networking.
So with its rivals now leading the arms race, should Google's Android just hoist the white flag?
Google though won't be just waiting in the sidelines wondering what rivals will do with the Nortel patents. Google is setting its eyes at other smartphone patents.
Having its own patent portfolio will allow Google to defend itself from patent litigation and will allow it to file counterclaims against its rivals. Like in the case of HTC, Apple won a ruling July 15 in the U.S. International Trade Commission that HTC's Android-based mobile phones infringe two Apple patents. Apple was asking the agency to block the importation of HTC phones in the U.S. due to the violations. However, by buying S3 Graphics Co., for $300 million, HTC was able to win victory in the ITC that said that Apple's Mac OS X system was violating patents held by S3. In the event Apple pursues a ban of HTC phones, HTC can pursue a ban of Mac OS X. HTC thus has its bargaining chip in settlement talks with Apple.
Google last week confirmed that it purchased 1,000 patents from International Business Machines Corp. related to memory and microprocessor chips, computer architecture and online search engines. The patents acquired from IBM are largely concerned with fabrication and architecture of memory and microprocessing chips, servers and routers, relational databases, object oriented programming, and a wide array of business processes, according to SEO by the Sea.
Whether the IBM portfolio is adequate for Google's defense or whether Google is destined to fail in the ongoing patent wars remains to be seen.