Motorola: Is It Google’s Albatross?

Last year, Google (NASDAQ:GOOG) acquired mobile-phone pioneer Motorola, with the hope of cashing in on the company’s stockpile of more than 17,000 patents and complementing its search engine and mobile operating system, Android. But so far, Motorola has been more of albatross — weighing down Google’s earnings quarter after quarter — than a help in the increasingly competitive smartphone market.

In the company’s annual 10-K report submitted to the U.S. Securities and Exchange Commission on December 31, 2012, Google reported that $5.5 billion of the purchase price for Motorola was for patents and developed technology. The technology giant was willing to spend that large of an amount because, as Chief Executive Officer Larry Page said in August of 2011, Motorola’s patents would “help protect Android from anticompetitive threats from Microsoft, Apple and other companies,” according to Bloomberg.

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But as recent courtroom battles have shown, that strategy has not worked well. The billions of dollars Google hoped to extract from Microsoft (NASDAQ:MSFT) for patent infringement came to naught; a federal judge ruled last week that the company owes just a few pennies in royalties per sale of each Xbox video-gaming system and Windows operating system. Four days earlier, Google also lost a patent infringement case it brought against Apple (NASDAQ:AAPL) after the U.S. International Trade Commission invalidated Motorola’s patent on a phone sensor that could have restricted Apple’s ability to transport Chinese-made iPhones to the U.S. In fact, the company has not won one single decisive legal battle with a big gain and the patent trove even made the company susceptible to antitrust scrutiny in the European Union.

“It wasn’t an irrational decision at the time but they’ve gotten nothing but heartbreak for that money,” as Duane Morris patent lawyer Rodney Sweetland described the deal to the publication. “Should they have bought? Not at that price,” he added.

Instead of making headway with Motorola, Google has been forced to defend its acquisition. “We acquired Motorola to level the playing field in patent attacks against Android and draw on Motorola’s long history of innovation,” wrote Google’s spokesman Matt Kallman in an email to Bloomberg. “In just under a year they’ve accomplished a lot, with impressive velocity and execution. We’re excited about Motorola’s future.”

At the time of Motorola’s purchase in 2011, Google was fending off accusations from companies manufacturing handsets powered by Android that was not helping them fight patent lawsuits. Google had fewer than 1,000 patents then and most were related to its search egine. In order to strengthen its negotiating position, Google decided to buy Motorola. In a typical patent dispute, rival sides assess the value of each other’s patent holdings and the net licensing fees are awarded to the company with stronger patents, so acquiring the handset manufacturer was meant to give Google an edge.

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Page is trying to streamline the unit in hopes of boosting its contributions to the smartphone and tablet market. However, last year, the Motorola unit generated just 8 percent of Google’s total sales, an amount equivalent to $4.14 billion in revenue, and posted a $1.1 billion loss.

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