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Google’s Big Bet on the Mobile Future

By EVELYN M. RUSLI, New York Times, AUGUST 15, 2011, 9:47 PM

Tim Boyle/Bloomberg NewsSanjay

Jha, the chief executive
of Motorola Mobility, who has been responsible for turning
around the company, will remain as the division’s top executive.

Google made a $12.5 billion bet on Monday that its future

and the future of big Internet companies

s in mobile
computing, and moved aggressively to take on its arch rival
Apple in the mobile market.

The Silicon Valley giant, known for its search engine and
Android phone software, rattled the tech world with its
announcement that it would acquire Motorola Mobility
Holdings, allowing it to get into the business of making
phones and tablets.

The acquisition, Google’s largest to date and an all
cash deal, would put the company in head
competition with its own business partners, the many phone makers that use Android software, as well as
with Apple.

The deal, which re
quires regulatory approval, would also give Google a valuable war chest of more than
17,000 patents that would help it defend Android from a barrage of patent lawsuits.

“Computing is moving onto mobile,” Larry Page, Google’s chief executive, said in an int
erview. “Even if I
have a computer next to me, I’ll still be on my mobile device.”

The effect of a Google
Motorola Mobility merger on consumers is unclear. But in the past, Google has
shaken up the mobile industry by pushing cellphone carriers to open up t
heir networks, and by licensing its
Android system at no charge, increasing competition. With the Motorola deal, analysts said, Google may be
able to accelerate innovation in smartphones and tablets.

“For Google, it’s important for them to make sure that t
he mobile space is not dominated by one
company, that being Apple,” said Steve Weinstein, an analyst at Pacific Crest Securities. By acquiring Motorola,
he said, they “can drive down costs and create a product that is pioneering with Google services around


The proposed deal would have ramifications across the tech industry, giving strength to Motorola at a time
when Research in Motion and Nokia are faltering.

Google said it would continue to license its Android system to other smartphone makers, like H
Samsung and LG. “Many hardware partners have contributed to Android’s success, and we look forward to
continuing to work with all of them,” wrote Mr. Page in a company blog post announcing the deal.

Nonetheless, while many of Google’s partners issued p
ositive statements on Monday, analysts suggested
that the acquisition would create tension because Motorola would be in an obviously favored position. That
could push other phone makers into the arms of Microsoft, which offers a rival operating system.


you woke up today and you are one of Google’s hardware partners, the hair just set up on the back of
your neck,” said Colin Gillis, an analyst with BGC Partners. “If you’re an Android partner, you may start
considering the Windows platform.”

Mr. Page addr
essed those concerns by saying that Motorola would effectively operate as a stand
business. Sanjay Jha, the chief executive of Motorola Mobility, who has been responsible for turning the
company around, will remain as the unit’s top executive.

l regulators are already investigating Google’s dominance in several areas of its business, and the
planned merger will prompt additional antitrust review. But legal experts said it seemed unlikely that the deal
would be blocked because the two companies a
re in separate, if related, businesses so a combination would
not increase Google’s share of either market.

Phones running the Android system have become increasingly popular, accounting for 43.4 percent of
smartphones sold in the second quarter, according

to Gartner research. But many customers have complained
that the phones can be confusing to use.

That is because Google works with 39 phone makers that use different versions of Android across their
platforms, resulting in variable performances, said Rich
ard Doherty, research director for Envisioneering
Group, a market research and consulting firm.

Tim Boyle/Bloomberg News

Sanjay Jha, the chief executive of Motorola Mobility, who
has been responsible for turning around the company,
will remain as th
e division’s top executive.

Apple, by contrast, controls its entire product

device and software. With the Motorola acquisition,
Google, too, could exert greater control over its products

But it is far from clear that Google, a $179 billion business largely built on sophisticated search algorithms
and online advertising, can transform itself into a device maker. The business is costly, and the margins are
slim, said Jordan Rohan, an analy
st with Stifel Nicolaus.

“If you have the best
selling phone, you can make a lot of money,” he said. “What’s not clear to me is
whether phones that sell a few million units make a lot of money.”

The chief of Android, Andy Rubin, even proclaimed, in 2009, t
hat the company was simply “not making

By becoming a phone maker, Google may be able to increase its clout with wireless carriers, which control
pricing and distribution of cellphones.

“This is an opportunity for Google to jumpstart the market,
in pricing and innovation,” said Avi Seidmann,
an information systems professor at the University of Rochester.

Google’s deal for Motorola comes just weeks after it lost a bid to a consortium led by Apple and Microsoft
for 6,000 patents from Nortel, a Cana
dian communications company that filed for bankruptcy in 2009. For
Google, which faces an increasing number of patent infringement claims against its Android system, the loss
was a major blow.

David Drummond, Google’s chief legal officer, later accused the

winning bidders of engaging in
anticompetitive behavior, describing the deal as “a hostile, organized campaign against Android by Microsoft,
Oracle, Apple and other companies, waged through bogus patents.” Patent fights are common in the
technology indust
ry and come with high stakes. Companies are often required to pay licensing fees to
continue using technology after losing infringement claims and are sometimes blocked from selling their

But while Mr. Drummond was complaining, he and other execu
tives were working on the Motorola deal.

“The best way to fight a big portfolio of patents is to have your own big portfolio of patents,” said Herbert
Hovenkamp, a law professor at the University of Iowa. “That appears to be what Google is doing here, armi
itself with patents to be able to defend itself in this fast
growing market.”

Google’s bid for Motorola is an extension of what Eric E. Schmidt, the company’s former chief executive,
said last year was a “mobile first” strategy. Following that approach,

Google has expended millions of dollars
and considerable engineering power into developing a broad array of mobile
centric services. But the bid for
Motorola is its strongest move in that area.

“This is an emphatic exclamation point that Google is a mobil
e company,” said Ben Schachter, an analyst
with Macquarie Capital. “It shows how important Android is to Google.”

Under the terms of the deal, which is expected to close by early 2012, Google will pay Motorola Mobility’s
shareholders $40 a share, a 63 perc
ent premium to Friday’s closing price. Although Motorola had casual talks
with prospective suitors earlier this year, the sale of the Nortel patents at a $4.5 billion price tag encouraged
Motorola’s directors to pursue a sale more actively, according to pe
ople briefed on the matter. Last week
Google, led by Mr. Page, emerged as the frontrunner, and by Sunday, Motorola’s board gave the green light.

Shares of Google fell 1.16 percent on Monday, to $557.23, while shares of Motorola Mobility added 55.78
, to $38.12.

Shares of Nokia and Research in Motion surged, too, amid speculation that they are takeover targets as
well. Nokia, which recently entered a comprehensive partnership with Microsoft, led the gains, with shares
rising more than 17 percent.

e Lohr, Verne G. Kopytoff and Michael J. de la Merced contributed reporting.

Behind Google’s Huge Breakup Fee in Motorola Deal

By STEVEN M. DAVIDOFF, New York Times, AUGUST 18, 2011, 4:07 PM

It is certainly big. But is there any chance that it will be
paid? I’m talking
about the $2.5 billion reverse termination fee that Google agreed to pay
Motorola Mobility if its proposed takeover fails to obtain antitrust clearance.
This fee is about 20 percent of the $12.5 billion deal value and is significantly
her than the $375 million Motorola Mobility must pay Google if it accepts
another bid.

Motorola filed a copy of the acquisition agreement between it and Google
on Wednesday that spells out the exact terms when this fee is required to be
paid. There are two



The agreement is terminated because a government authority (e.g., a
federal court or European Union antitrust authorities) issues a final, non
appealable order blocking the transaction on antitrust grounds.


If by Feb. 15, 2013, the transact
ion has not closed because it is being blocked by the authorities or has not cleared antitrust
review, either party can terminate the agreement and transaction. The fee is then payable if two more conditions are met:


The transaction could otherwise close b
ut for the failure to obtain antitrust clearance or the government blocking the deal.


Google willfully failed to use its reasonable best efforts to complete the deal or otherwise willfully breached the
requirements in the agreement to obtain antitrust appr

Basically, these provisions can be boiled down to an agreement that if the transaction is blocked on antitrust grounds, then
Google is on the hook for $2.5 billion. But as long as Google complies with the agreement, it will have to fight such a gover
action in court, and a final disposition of the action has to occur by Feb. 15, 2013.

People close to Google have said they do not believe there are antitrust problems. So why is the fee so big?

The fee’s driver is that Google has become what Microso
ft was a few years ago, a natural target for European and American
antitrust regulators. For the foreseeable future, any significant transaction Google engages in will really be all about anti
trust in
terms of getting it done.

Absent this factor, the antit
rust risk on this deal seems low. There is not substantial overlap between the company’s businesses.
Google, the Internet search engine giant, also produces Android phone software, while Motorola Mobility manufactures cellphon
and other wireless devices.

Since there is virtually no horizontal overlap, the deal is known as a case of vertical integration. This is
where two companies combine whose products are usually made separately but can be used in each others’. An example might be i
General Motors boug
ht a steel maker.

In the case of vertical integration, the antitrust authorities would have to show that competition would be reduced to challe
the transaction. This is a hard thing to do in the case of vertical integration because the impact on competi
tion is much harder to

This big fee, however, may not be a signal that there is an antitrust risk that the deal will be blocked, but a statement to
market of the opposite: that there is no such risk. By agreeing (or perhaps even proposing) suc
h a large fee, Google is saying this is
not a problem. And antitrust authorities are now put on notice that if they decide to give Google a hard time, the company is

only going to fight this but will be willing to pay for the fight to the tune of $2.5

This fee may therefore be a statement by Google that the antitrust authorities should tread carefully in examining and
challenging this deal.

There is precedent for this. When Microsoft agreed to buy aQuantive in 2007 for $6 billion, it agreed, li
kely for similar reasons,
to a $500 million reverse termination fee, or just over 8 percent of the deal value.

Typically, merger agreements have provisions that also spell out the procedures and steps the parties will take to obtain
antitrust clearance. If

you look at these provisions in the Google
Motorola Mobility acquisition agreement, they support the theory
that this is all about Google making a statement to the antitrust authorities.

The provisions provide Google complete control over the antitrust pr
ocess. In addition, the agreement does not obtain any
species of a “hell or high water” provision. This provision, commonly seen in deals with antitrust risk, requires the buyer t
o take
steps like asset divestitures or licensing of technology to satisfy an
titrust regulators and obtain antitrust clearance. But there is no
such provision in the Google
Motorola Mobility transaction agreement. This is a boon for Google, because regulators will look at
such a provision as an easy way to force concessions. Google

does not want to provide antitrust regulators any low
hanging fruit.

To some extent, the high reverse termination fee functions as a form of hell
water provision, though it is different in an
important way. Without this provision, Google can argua
bly refuse to take any steps to satisfy regulators and simply pay the fee. If
there were a hell
water provision, Google would first have to offer up concessions.

Again, making the fee higher benefits Google. If it were smaller, say only a couple of

hundred million dollars, regulators might
arm the company into simple concessions, thinking this was chump change to Google. By setting it higher, Google has sent a
warning: If you come after us, you better be serious and we are not going to give.

Here, the actual terms specifying when Google has to pay the fee also benefit it. Because so much is at stake, Google will fi
any antitrust action and is unlikely to breach the agreement. This would only leave a final order blocking the merger as the
y such
a fee is payable, meaning a long fight for regulators.

Of course, I am sure Motorola Mobility asked for a high fee and was happy to take it. But the acquisition dynamics play to bo
parties agreeing to this fee. This $2.5 billion fee is therefore d
ifferent than the $3 billion fee that AT&T agreed to pay T
Mobile if that
deal does not obtain regulatory clearance. In the case of the AT&T
Mobile deal, the fee is all about compensating T
Mobile if the
deal collapses and assuring it on the risks involv
ed, as well as incentivizing AT&T to do what is needed to obtain this clearance in
terms of regulatory concessions.

And for those wondering, the Microsoft
aQuantive deal closed without any significant antitrust scrutiny.

Steven M. Davidoff, writing as The
Deal Professor, is a commentator for DealBook on the world of mergers and acquisitions.

BlackBerry Maker RIM Again Subject of Takeover Talk

By IAN AUSTEN, NYT, AUGUST 16, 2011, 8:39 PM


Ever since the introduction of its first BlackBerry
more than

a decade ago, Research in Motion has defied
expectations that it would be gobbled up by a larger rival and has
effectively created the market for smartphones.

But as Google moves to buy Motorola Mobility, RIM, already
under pressure from diminished prospe
cts and declining market
share, is once again the subject of takeover talk.

Since the Motorola acquisition was announced on Monday,
shares of RIM, which have suffered for much of the year, have
shot up more than 10 percent, mainly on speculation of a sale.

“For a long while the market cap of RIM prevented any kind
of takeover,” said Adam Leach, a London
based analyst with
Ovum. “I’m certainly not writing them off now, but they have got a tough job.”

Tenille Kennedy, a spokeswoman for RIM, said the company d
oes not “comment on rumors and speculation.”

The Motorola deal, which has the potential to shake up the mobile industry, comes at a difficult time for RIM.

After pioneering wireless e
mail, RIM has slowly ceded control to Apple’s iPhone and to handsets tha
t run on
Google’s Android operating system. The current lineup of BlackBerrys relies on technology that dates back to the first
models of the smartphone.

RIM has moved to spruce up its technology. In 2010, the company bought QNX Software Systems of Ottawa
and the
Astonishing Tribe, a Swedish user interface design house, to recreate the BlackBerry platform.

But the results have been disappointing so far. The BlackBerry Playbook received a weak reception this spring when
it lacked important features like an i
ntegrated e
mail application. Last week, Sprint dropped plans to offer a forthcoming
model of the tablet computer that would have connected to the carrier’s network.

RIM does not seem in a rush to introduce new Blackberry phones based on the QNX software,
either. The models
will not be available until later next year, and the company is offering no further specifics.

Still, RIM has plenty to offer suitors. Despite reducing financial forecasts, the company remains firmly profitable. In
the latest quarter, th
e handset manufacturer reported net income of $695 million, down from $769 million in the
quarter a year ago.

BlackBerry, too, remains a valuable brand, even as its market share declines.

It is the device of choice for corporate customers in important indu
stries like financial services and law enforcement,
which depend on the unique features of the BlackBerry to safeguard their e
mail. The security stems from RIM’s
proprietary global network, a system that is hard to duplicate and also generates recurring r
evenue for the company.

While analysts have speculated in the past that Microsoft could be interested in BlackBerry, that seems less likely in
light of the Motorola acquisition, said Al Hilwa, an analyst with IDC in Seattle. If some handset makers that use

Android system switch to Windows Phone 7, Microsoft’s mobile technology, then a perpetual also
ran could become a
serious competitor. In that case, a deal for BlackBerry would be less necessary.

“Microsoft is the party that stands the best to gai
n out of this,” said Mr. Leach.

A more likely buyer, said Mr. Hilwa, would be a large software company that, like Google, sees wireless as an
important component in its future growth.

Alternatively, a cash
rich Chinese handset maker like ZTE or Huawei coul
d view RIM as a way to expand beyond
generic, low
profit phones.

Another possibility, if more remote, is the prospect of a better
known Asian manufacturer such as Samsung or HTC
buying RIM to distinguish its products from the Android and Windows Phone comp

A deal for RIM, though, faces significant hurdles.

For one, RIM’s co
chief executives, Jim Balsillie and Mike Lazaridis, are the company’s largest shareholders. Neither
seems interested in losing control. And they will not readily back down from a

fight, as the executives demonstrated
during a protracted patent battle several years ago that the company eventually lost.

The Canadian government, which must approve any takeover, has also been reluctant to sign off on deals for
companies it views as st
rategic assets. Last year, the country’s regulators blocked the purchase of Potash Corporation of
Saskatchewan by BHP Billiton, the Australian mining company. Politicians and commentators have portrayed an
acquisition of RIM as an economic doomsday outcome

for Canada.

But while a takeover seemed unthinkable during previous debates, the prospects for a RIM deal may be less distant
in the current environment.

Google, Motorola and the Patent Wars


The costs of our
broken patent system are often abstract, but this month
Google put a price tag on the problem: $12.5 billion. That's what Google paid
for Motorola's U.S. smartphone business and its 17,000 patents. This is $12.5
billion that one of America's most creative
companies will not use to
innovate, fund research or hire anyone beside patent lawyers.

It's not as if Motorola has some must
have patents for mobile phones.
Instead, Google wants an arsenal of patents to fight the similar arsenal
collected by competitors
of its Android operating system for smartphones.
These competitors include Apple and Microsoft, which recently teamed up
to buy 6,000 wireless patents for $4.5 billion from Nortel.

The value of patents in software and hardware such as smartphones has
thing to do with litigation risk. It has almost nothing to do with technology.

"A smartphone might involve as many as 250,000 patent claims" that are largely questionable, David Drummond,
Google's chief lawyer, wrote in a blog post earlier this month, befo
re the Motorola acquisition. The arbitrariness of
patent grants means mobile
phone operators are inevitably infringing patents, risking billions in infringement lawsuits,
but they have no way to know which broad patents will be upheld and which rejected. T
he best and maybe only defense
is a good offense.

"Our competitors want to impose a 'tax' for these dubious patents that makes Android devices more expensive for
consumers," Mr. Drummond wrote. So Google responded to what he calls "a hostile, organized cam
paign against
Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents," by buying (presumably
equally bogus) patents of its own.

It's a measure of the deeply dysfunctional U.S. patent system that the most sophisticated technolo
gy companies
have been reduced to investing in patents to defend themselves from one another.

Many venture capitalists and software entrepreneurs have warned that software is fundamentally different from
other areas of innovation and that patents should be

granted much more rarely than they are today. Software almost
always builds on previous work, so patents rarely reflect the kind of original work that patent law is supposed to protect.

Part of the problem is that the law no longer distinguishes between h
ow ideas become products and services
differently in different industries. A good contrast to software is how advances are made in the pharmaceutical industry,
which is made up of largely independent areas of research.

There is an "Orange Book" maintained
by the Food and Drug Administration that lists all the pharmaceutical patents
for each drug, so researchers can avoid infringements. It's hard to imagine a similar effort to summarize software
patents. Far from giving such clear notice of patents, lawyers
at many software firms tell developers not to waste time
trying to parse vague patent claims.

Apple and Microsoft have already teamed up to pressure Google's mobile
phone strategy, so a logical next step
would be a patent cease

Google, Apple and Micr
osoft could agree not to sue one another and to defend one another against lawsuits by
practicing entities" (also known as patent trolls) that buy up patents and set up shop in plaintiff
happy federal

Patent pools are smart self
help by

companies when the law goes awry. They reduce litigation risk, but they also
suppress innovation. The sewing machine industry was the first in the U.S. where patent holders had to team up or
suffer mutually assured destruction. In 1846, Elias Howe got a p
atent for the two
thread lock stitch, which was such an
improvement to sewing machines that he could charge a license fee of almost half the sales price of the machine.

But as technology developed, his patents no longer included all the required parts of t
he machines. Litigation in the
sewing machine wars ended only when the major companies formed the Sewing Machine Combination, which included
the nine key patents to build a machine. This pool began in 1856 and lasted for 20 years.

Two Stanford economists,
Ryan Lampe and Petra Moser, studied this patent pool's impact on innovation. In a 2009
paper published by the National Bureau of Economic Research, they showed that the patent pool did reduce litigation
for the participating firm

but slowed the overall rat
e of innovation. Members of the pool had less incentive to invent
and, because the incumbents had amassed so much control, "increased litigation risks for outside firms lower[ed]
expected profits and discourage[d] investments." As applied to software, pate
nt pools might cut lawsuits but could
suppress invention of the next big thing.

The solution lies in Washington. Congress has debated patent reform for years, but current bills don't address the
key issues of overbroad patents or indeed whether software pa
tents cause more harm than good.

Hobbled by a costly patent system, the technology industry is not the engine for global wealth and productivity it
could be. If only someone could patent a process for Washington to keep patent law updated to encourage inst
ead of
stifle innovation.

Apple Ruling Hits Samsung

In Patent Case, Sales of Korean Company's Gadgets Are Barred in European Hub

By ARCHIBALD PREUSCHAT in Amsterdam and IAN SHERR in San Francisco, WSJ, AUGUST 25, 2011

A Dutch court barred units of Samsung

Electronics Co. from selling several smartphone models in much of Europe, marking a
victory for Apple Inc. as it engages in global litigation to protect its iPhone and other mobile devices.

The preliminary ruling prohibits three Dutch units of the South K
orean company from selling the Galaxy S, S II and Ace
smartphones because of the way they scroll photos and other information across screens. The method was deemed to be too simil
to the way Apple's popular smartphone handles similar tasks.

Wednesday's o
rder takes effect Oct. 13 and covers activities by the Netherlands
based subsidiaries in most European countries.

The ruling applies only to Samsung's subsidiaries in the Netherlands. Samsung can export the devices elsewhere in Europe thro
other operati
ons. But since the Netherlands is an important distribution hub, the company will have to rework its logistics to
continue selling the devices elsewhere in Europe. The company also can modify its software to avoid the patent violation.

A Samsung representa
tive said the company will take "all possible measures, including legal action" to ensure there is no
disruption in sales.

An Apple spokeswoman reiterated that the Cupertino, Calif., company believes that Samsung had copied its products.

The court

some of Apple's claims, including that Samsung had copied Apple's device designs.

The ruling doesn't apply to Samsung's latest tablet computer, which was released this summer and runs on Google's Android
operating system and is considered the most promisi
ng competitor to Apple's iPad. A court in Germany is considering a separate
case filed by Apple against Samsung's Galaxy tablet.

Wednesday's ruling came as Apple engages in several legal skirmishes with competitors around the world. Apple has claimed
products running Google Inc.'s Android operating system infringe on its patents. Apple also has locked horns with, among
others, Taiwan's HTC Corp. and U.S.
based Motorola Mobility Holdings Inc., which is being acquired by Google Inc. for its valuable
e of patents. Apple also has sued Samsung in the U.K., the U.S., South Korea and elsewhere.

More consumers are opting for smartphones over standard mobile devices to get access to such functions as Web browsing,
streaming video and applications like games.

Smartphone sales are expected to jump about 56% to 467.6 million units world
this year and reach 652.7 million units next year, according to research company Gartner Inc.

Apple has notched victories in other jurisdictions as well. Earlier this month,

a German court barred the sale of the newest
version of Samsung's tablet computers. Apple also won an agreement from Samsung in Australia to postpone the sale of tablet
computers until a patent lawsuit there is resolved.

Musing on the Prospects of a Micr
osoft Counterbid for Motorola


Google’s $12.5 billion deal for Motorola Mobility is widely considered aggressive, with a hefty 63.5
percent premium that few would dare try to top.

But analysts at Ma
cquarie seem to think that one of
Google’s biggest rivals

a certain software giant based in Washington State

may step up to the plate

In a research note published on Tuesday, Kevin Smithen of Macquarie wrote that Microsoft may
make its own bid
for Motorola, driven by the patent war roiling the smartphone world.

Here is Mr. Smithen’s thinking: Microsoft has already sued Motorola for intellectual property violations
in its line of Android
based smartphones. Microsoft has already won concessions fr
om another Android
handset maker, HTC, and is pursuing claims against Samsung.

It is unclear where exactly Motorola’s own skirmish with Microsoft stood as of the Google deal
announcement on Monday. But Mr. Smithen thinks that Microsoft might consider just
bidding for Motorola

(GigaOm reported that Microsoft was already in talks with Motorola, though for a patent deal rather than a takeover.)

In his note, he writes that if Microsoft were to gain control of Motorola’s more than 17,000 patents, “the
Android camp would
fall even further behind in the patent arms race. Also, MSFT would gain valuable US market share, branding and distribution (
esp. at
Verizon) that it does not have with Nokia.”

But while intriguing, there are a couple of other points to
consider. As Mr. Smithen alludes to in his note, Microsoft has already
signed a wide
ranging partnership with Nokia, in which the beleaguered phone maker will use only Windows Phone 7. It might be
easier for Microsoft to buy the Finnish company, with which

it already has a relationship.

Then there is the matter of Motorola’s tight bonds with Google, since the phone maker’s resuscitation came largely from the
success of its Android devices. By contrast, Windows Phone 7 is optimized for Qualcomm’s processors

for the moment, anyway

necessitating either some changes to the operating system or a switchover from Motorola’s current preference, Nvidia Tegra ch

A slightly lesser factor is that of price. Microsoft currently has a war chest of more than $62 bil
lion, comprised of cash on hand
and short

and long
term securities. That compares favorable to Google’s treasure trove of roughly $40 billion. But Microsoft has
already committed to at least one big deal, the $8.5 billion takeover of Skype, that would dem
and the company’s attention.

In truth, however, the actual price a buyer would pay is not as high as a deal would initially seem. Motorola has about $3 bi
in cash on its books, which Google is already discounting. And it has tax benefits, called net o
perating losses, whose value is
conservatively $1 billion. So the real purchase price of the Google deal might be closer to $8.5 billion or less.

And then there is the matter of Microsoft taking over a phone maker. Many have already speculated that Google’
s Motorola
deal will strain its relations with other Android device makers, and some have posited that HTC and Samsung would instead
increasingly turn to Windows Phone 7. (For now, those other companies say they are fine with the deal.)

But Microsoft would

the same problem as Google if it bought a handset company outright.

None of this is to say that Microsoft definitively will not bid, and as Mr. Smithen points out, a successful jumping of Googl
deal would leave Android much weaker. But it is a dec
ision with a lot of hurdles to overcome.

Motorola shares fell slightly on Tuesday to $38.02.

Corporate News: Apple Looked for a Lost Prototype

By Ian Sherr, 6 September 2011, The Wall Street Journal, B2

Police officers and Apple Inc. employees recently
visited a San Francisco residence in a search for a prototype of one
of the tech giant's devices that had been traced to a local home, but left empty handed.

Four city police officers accompanied two Apple employees to the home in south central San Francis
co, the city's
police department said in a statement on Friday. The police statement didn't say when the search took place or name
the device that went missing. However, the department's news release was sent in a document titled "iphone5.doc."

"The two Ap
ple employees met with the resident and then went into the house to look for the lost item," the police
said in the statement. "The Apple employees did not find the lost item and left the house."

Apple didn't want to make an
official report of the lost ite
m, the statement said

The search for the stray device marks the second time in as many years that the Cupertino Calif.
based consumer
electronics giant has tracked down a prototype that has slipped out of the hands of an employee.

Last year, technology
g Gizmodo published photos of the iPhone 4, which was still under development, after it paid $5,000 for the device to
someone who claimed to have found it in a bar.

Samsung Pulls New Tablet From Trade Show

By Jung
Ah Lee and Evan Ramstad, 6 September 2011
, The Wall Street Journal, B8


Samsung Electronics Co. pulled its new tablet computer from display at Europe's largest electronics show
following a court order in Germany, marking the latest blow to the South Korean electronics company in its growi
patent dispute with Apple Inc.

Samsung said Monday it is complying with a Dusseldorf court's decision to suspend sales of its Galaxy Tab 7.7, which
was unveiled last week at the IFA trade show in Berlin.

The same court last month issued a similar injunc
tion on Galaxy
Tab 10.1, after Apple accused Samsung of copying elements of the design of its iPad tablet. Both court orders are
preliminary injunctions that will be subject to a review Friday, when a judge will decide whether to leave them in place
or lif
t them until the patent case goes to trial.

In the fast
moving technology industry, where products like smartphones and tablet computers are sold for about
nine months and then replaced, a sales ban pending the outcome of a legal matter can result in a com
pany missing out
on an entire product generation.

The development in Germany is the latest setback for Samsung, which has been embroiled in several lawsuits with
Apple over patent infringement involving mobile devices. With the new preliminary ruling, anal
ysts said Samsung not
only loses an opportunity to promote its new tablet in one of Europe's biggest markets, but it may also affect future
sales of its Android
based tablets.

At the start of the trade show last week, Samsung plastered demonstration models

of the 7.7 tablet, which has a
smaller screen but is similar in operation and appearance to the 10.1, with stickers that said "Not for Sale in Germany" in
an attempt to satisfy the earlier court order. But upon receiving the second court order, the compan
y said it
immediately removed promotional materials for the tablet.

Another risk for Samsung is that its marketing of the 7.7 at the trade show could be seen as violating the initial court
order, which could lead to a fine.

In April, Apple sued Samsung in
a California court, accusing the South Korean
manufacturer of infringing on its patents and "slavishly" copying its designs. Samsung fired back with countersuits in five
countries and the legal battle eventually widened to 19 lawsuits in nine countries.

ple has also won a preliminary injunction against Samsung in the Netherlands, and Samsung has agreed not to sell
10.1 in Australia ahead of a prospective injunction ruling there.

The 10.1, which was released earlier this summer and
runs on Google Inc.'s An
droid operating system, is one of the strongest competitors to Apple's iPad, which has
dominated the market since its release last year.

An Apple spokesman in Korea declined Monday to comment on the latest development.

In a statement, Samsung said Monday t
hat it respects the latest decision by the Dusseldorf court and decided not to
display or further market the 7.7 at the trade show, which runs through Wednesday.

The main difference in the 7.7 from existing tablet computers, including the iPad, is that its

screen is built from
active matrix organic light
emitting diodes rather than liquid
crystal display. So
called Amoled screens create their own
light, rather than needing backlights as LCDs do, and are thinner and use less energy, as a result.

Samsung inve
stors and analysts say the high
profile litigation likely won't harm Samsung's smartphone business,
which is poised to overtake Apple in unit sales this quarter.

"The ongoing legal fights between the two may have a short
term noise in the mobile market and

could even slow Samsung's tablet sales in the near term, but they will eventually
compromise at the end as Samsung also has a broad hardware
related patents," Y.J. Park, analyst at Woori Investment &
Securities in Seoul, said Monday.

In an interview with
South Korean news outlets at the IFA show on Friday, Samsung Chief Executive Choi Gee
said the battle with Apple was "destiny" and portrayed it as part of Samsung's long history of beating other competitors
in memory chips, TVs and appliances.

had been heavy doubts about Samsung, whether we can pass over Sony of
Japan and even Nokia," Mr. Choi said, according to Korean media accounts. "But the results say everything."

Samsung five years ago beat Sony Corp. to become the world's top seller of TVs

and has been growing at such a rate
in cellphones that it may pass Nokia Corp., the longtime top cellphone seller next year.













By Dana Mattioli,
7 September 2011,



, B4



.'s planned sale of patents sparked another round of Nortel Networks fever

hopes for another investor
following the Canadian telecom company's big
ticket sale of intellectual property this summer.

But some experts are warning that a similar spike may not be forthcoming. They say

's imaging patents are on
the fringe
of mobile technology and already are heavily licensed.

"The assets here are not of the same strategic import as Nortel," said James
Malackowski, Chief Executive of Ocean Tomo LLC, a Chicago
based intellectual property brokerage and advisory firm

portfolios have so little to do with one another," he said.

At the center of this summer's high
profile bidding wars were patents related to mobile communications, including technology
found in smart phones and tablet
style computers. New entrants

in those markets are looking to arm themselves with patents for
strategic purposes, often because they have few of their own.

In July, Nortel sold a trove of wireless patents to a group of buyers including


. and


. for $4.5


., which lost the auction, later bought hundreds of technology patents from




to defend itself against lawsuits. And in August,


paid $12.5 billion for



., largely to acquire its patents.

Yet patent experts are skeptical about the value left in some of

's patents given their heavy
licensing. The strongest patent
is one that has proved its mettle in litigation, but over
licensing a patent can diminish its value.


has licenses with more than 30

"We are not going to specula
te on the ultimate value of any transaction other than to say that we believe that these
portfolios are of significant value," said a




had l
ong relied on patent licensing to fund the company's turnaround. Between 2008 and 2010, the Rochester, N.Y.,
company reaped $1.9 billion from intellectual property licenses and lawsuits. Settlements from some of the patents


is now
selling brought in $550 million from



. and $400 million from




ts decision to sell 1,100 patents, including some that were cash cows, came after attempts to strike new deals to license the

patents stalled this year, as well as Chief Executive Antonio Perez's desire to test the heated environment for patent sales.


mainly has pursued makers of smartphones. In July, Mr. Perez said there is plenty of room for further litigation. The
portfolio could be applied to other devices with camera functions, such as tablet compute
rs, he said.


also licensed many of its
patents by product category, meaning that a company that licensed a patent for use in a smartphone would have to license the
same patent again for tablets, Mr. Pere
z says.

The Nortel and


deals reflect the scramble by companies involved in mobile technology to get hold of essential patents
for strategic and defensive purposes, said Alex Poltorak, CEO of
General Patent Corp., an intellectual property and patent
enforcement firm. While

's patents are relevant in mobile, "they're only tangential," he said.

The Nortel auction caught the eye of many CEOs, sai
d Michael Fitzgerald, CEO of NextTechs Technologies LLC, which acts as an
intermediary between buyers and sellers of patents.

"I don't believe it will be a significant strategic acquisition the likes of which we
just saw go on in the mobile market," Mr. Fi
tzgerald said. "That doesn't mean it is not a good and valuable portfolio."

















By Ben Dummett and Judy McKinnon
7 September 2011





A little
known Canadian activist investor called for




.'s board to consider a wide range of
ic alternatives, including a possible sale of the company or its patent holdings

a fresh sign of investor unrest over the poor
market performance of the BlackBerry maker.

Canadian merchant bank



. on Tuesday asked RIM to form a special committee, including four or five of its
seven independent directors, to lead an effort to maximize shareholder value.

Jaguar manages

assets of 12 million Canadian dollars,
about US$12 million, as of the end of June. In an interview, Jaguar's chief executive said it and other RIM investors it is w
orking with
own less than 5% of the company's shares, but he declined to be more specific.

Still, the move marks an acceleration of shareholder criticism over the smartphone and tablet maker. RIM's share price has
suffered this year amid a series of lackluster product launches. In recent months, RIM has seen its market share for the Nort
an smartphone market shrink, as rivals


. and


., whose Android system powers several smartphones, have
come to dominate the market.


shares gained 2.8% to $30.97 at 4 p.m. Tuesday on the



. Its share price has
fallen nearly 50% since the start of the year.

Bigger, better
funded activists have so far stayed
away. And RIM has successfully fended off one investor
led attack already.
Earlier this year, an activist fund called for a shareholder vote over the company's management and board structure. RIM's tw
o top
executives share both the CEO role and the chairma
n role.

But RIM's board managed to convince the investor to back down ahead of
a shareholder meeting, after agreeing to study its structure and report back about possible changes by early next year.

Jaguar said it has successfully squeezed more value out o
f several other companies, but they were small, resource and
technology firms. In 2009, Jaguar successfully blocked Canadian miner



.'s bid to acquire rival copper



. But RIM would be its biggest target by far. The investment community in Toronto viewed skeptically
its chances of affecting significant change.

"They have had some success with sma
ll, cash
rich companies, but won't be able to
change RIM," said Peter Hodson, a portfolio manager at Sprott Asset Management LP. Mr. Hodson said he doesn't hold RIM shares

RIM didn't respond to the Jaguar statement or request for comment.

Jaguar cited a poor share
price performance, lost market share due to a lack of innovation, recent employee resignations and an
"ineffective" corporate structure among its reasons for calling for change. "The status quo is not acceptable, the company ca
t sit
still. It is time for transformational change," Vic Alboini,
of Jaguar, said in a statement. In an interview, Mr. Alboini said his fund
would start seeking out bigger, like
minded investors to join its effort. He said the

n't yet reached out

to RIM's board.

Motorola Mobility Holdings, Inc. Income Statement










Cost of Goods Sold





Gross Profit





Gross Profit Margin





SG&A Expense





Depreciation & Amortization




Operating Income




Operating Margin




Nonoperating Income




Nonoperating Expenses




Income Before Taxes




Income Taxes



Net Income After Taxes




Continuing Operations




Total Operations




Total Net Income




Net Profit




Diluted EPS from Total Net Inc




Motorola Mobility Holdings, Inc. Balance Sheet






Current Assets





Net Receivables










Other Current Assets





Total Current Assets





Net Fixed Assets





Other Noncurrent Assets





Total Assets









Current Liabilities

Accounts Payable





Term Debt




Other Current Liabilities





Total Current Liabilities





Term Debt





Other Noncurrent Liabilities





Total Liabilities





Shareholder's Equity

Common Stock Equity





Total Equity





Motorola Mobility
Holdings, Inc. Cash Flow Statement




Net Operating Cash Flow




Net Investing Cash Flow




Net Financing Cash Flow




Net Change in Cash




Depreciation & Amortization




Capital Expenditures




All amounts in millions of US Dollars except per share amounts.

How Google
Motorola Deal Came Together


,NYT Dealbook,
SEPTEMBER 13, 2011,

7:56 PM

It took less than seven weeks, but it became more expensive quickly.

From the first discussion
s in early July to a formal announcement on Aug.


moved swiftly this summer to secure a $12.5 billion takeover of
, according

to a filing

submitted on Tuesday. The search giant, which was
eager to own Motorola’s extensive patent portfolio, was also willing to pay up.

After floating an initial bid of $30 a share on Aug. 1, Google raised its offer price

$37, before settling at $40 a share. In just weeks, the offer increased by more than $3

For that, Motorola can thank

Frank P. Quattrone
, whose investment bank was
hired on Aug. 1.

The filing, which maps out the background of the merger, discloses how the dea
came together in the wake of Google’s failed bid for

’s patent portfolio. In early


mere days after Google lost out to a consortium led by




Andrew Rubin, the company’s senior vice president of mobile, reached out to Sanjay
Jha, the chief executive of Motorola Mobility, to discuss “the
possible impact of and
potential responses” to the Nortel purchase. Over the next several days, discussions
intensified, roping in more executives, including Google’s chief,

Larry Page
, and Nikesh
Aurora, the company’s chief business officer. And by mid
July, the parties had agreed to a confidentiality agreement, as
Google began due diligence on Motorola Mobi
lity’s patent portfolio.

Although talks initially centered on Motorola’s patents, the focus quickly shifted to takeover talks. On July 28,
Google said it would entertain a bid in the range of high $20s to low $30s. On Aug. 1, it came back with a formal let
and a $30 offer.

Enter Mr. Quattrone. On that day, Motorola Mobility hired Mr. Quattrone’s Qatalyst Partners and Centerview
Partners to serve as financial advisers.

According to the filing it was Qatalyst, which has recently advised some of the largest

takeover transactions in the
technology sector, that prodded Google to go higher. On Aug. 5, after a telephone meeting with Motorola’s directors, an
unidentified Qatalyst representative contacted Google’s chief legal officer “to reject the $30 per share o
ffer and
suggested that Google increase its proposed price to $43.50 per share.”

On Aug. 9, Google came back with $40 a share.

At the tail end of the process, Motorola Mobility’s board considered seeking other buyers, but ultimately concluded
that it was “
preferable” to negotiate on a confidential basis with a single potential acquirer, rather than to conduct a
private or public auction. Six days later, the deal was done.







By John Letzing,
7 October 2011,



, B8

Intellectual Ventures, a large patent holding firm, sued




. for

patent infringement
Thursday, a move that comes as


. proceeds with an acquisition of the cellphone maker based largely on its
property portfolio.

The lawsuit creates a potentially
awkward scenario as


is an investor in Intellectual Ventures. The secretive
Bellevue, Wash., firm has amassed a portfolio of more than 35,000 patents and until recently had avoided litigation,
g big tech companies to become investors instead.

Intellectual Ventures filed its new suit in Delaware, alleging that



has infringed on six patents
related to transferring files am
ong computers and technology used in an "entertainment device," according to the

Intellectual Ventures was founded in 2000 by Nathan Myhrvold, a former


. executive who has
used on amassing ideas, rather than products based on those ideas.

In May, Intellectual Ventures had filed a legal
disclosure naming






and many others as having a financial interest in the

In the complaint filed Thursday, Intellectual Ventures disclosed
that it has earned over $2 billion from licensing its

Intellectual Ventures noted in its complaint that it first approached



about licensing its
inventions in January,
roughly eight months before


announced plans to buy the device maker.

Intellectual Ventures is seeking a trial and unspecified damages, according to its complaint.




spokeswoman declined to comment. A


representative didn't immediately respond to a request for

Tony Avelar/Bloomberg News

Frank Quattrone, chief of Qatalyst





By Evan Ramstad,
23 September 2011,



, B4


As the battle between



. and


. heads back to courts in coming days, it
appears that Samsung is trying to sow confusion among courts world
wide over different types of patents.

At the heart of the issue are so
called standard patents, which companies contribute to internationa
l bodies and
make available to other companies, generally for minimal, though reliable, royalties to make gadgets compatible with
each other.

Apple filed a U.S. suit in April against Samsung, alleging that its smartphones and tablets copied important
elements of Apple products.

Samsung countersued in several other countries, saying Apple was using some of the Korean company's patents
without authorization.

Apple has said many of those patents were contributed by Samsung to pools of standards pat
ents that Apple had
licensed. Standards bodies require patent contributors like Samsung to license their ideas in a fair, reasonable and
nondiscriminatory manner, known in intellectual
property circles as Frand.

Samsung's strategy appears to turn to a larg
e degree on claiming that such standards patents haven't been
sufficiently valued. Samsung's defense, to be presented at courts in nine countries, also questions whether standards
patents can be used to force a competitor to give up rights stemming from mo
proprietary patents, which aren't in
standards pools.

property attorneys say it appears that Samsung doesn't really want either question settled

it also
holds nonstandard patents

but is trying to create uncertainty so Apple settles to

avoid risking a ruling that devalues its

Representatives of both companies have declined comment on the legal fight beyond statements in court filings.

Florian Mueller, a German consultant who runs a blog about software
patent disputes, said
Samsung appears to be
counting on the prospect that courts in different countries will approach the Frand issue differently. "It's all about them
really not having the depth and strength to say 'Here are three or four killer patents and we'll use them and
scare the
daylights out of Apple.' They don't seem to have that," he said.

The two companies will appear Friday in a hearing in Seoul that is unlikely to produce a ruling. But in Sydney a court
Monday could decide whether to grant Apple an injunction again
st the sale of some Samsung products.

Facing similar claims by Apple in a German court Samsung argued that Apple's iPad took ideas from the flat
computers depicted in the 1968 science
fiction movie "2001: A Space Odyssey."

But the court this month r
ejected that argument, saying the movie doesn't show specific details of the computers.
The court barred the sale of Samsung's Galaxy tablets in Germany.

Samsung's focus on standards patents versus proprietary patents may be its best tool for blunting Appl
e's claims,
attorneys said, because there are few legal precedents.

Patents that create industry standards are given a lower monetary value to increase the affordability and appeal of a
standard, increasing its likelihood of widespread adoption.

"While hav
ing patents that are standards
based is great because you get revenue, you can't control what
competitors do with them," said Jonathan Radcliffe, an intellectual
property attorney at



in Londo
n. "The
really powerful intellectual
property rights are the patents that are not part of standards."

Squaring Off: The rundown of patent cases between Apple and Samsung.

U.S. District Court preliminary
injunction hearing on Oct. 13; trial set for July
2012; International
Trade Commission hearings pending.

Germany Samsung barred from selling Galaxy Tab 10.1 on Sept. 9.

Netherlands Samsung temporarily barred from selling Galaxy Tab 10.1 and some smartphones
starting in mid

South Korea Two evident
iary hearings held, with third one scheduled Friday.

Australia Preliminary
injunction hearing set for Monday. Samsung delayed release of Galaxy Tab
10.1 pending hearing.

France, Italy, Japan, U.K. No hearings or rulings yet.

Google: 190M Android devices

activated, mobile revenue run rate hits


October 13, 2011,
Devindra Hardawar

The total number of Android devices activated worldwide has

now reached 190 million, Google CEO Larry Page said during the
company’s third
quarter earnings call today.

Additionally, the company announced a $2.5 billion mobile
revenue run rate

Google’s expected mobile revenue over the
next year based on its perfo
rmance this quarter

up from

billion last year.

Google pointed to mobile search as its big mobile moneymaker.
“Mobile is becoming a must
have,” Google sales head Nikesh Arora
said during the call.

Even though Google doesn’t make any money when Android
manufacturers use its software in their phones, the company is able
to reap the advertising benefits of having hundreds of millions of
users on its own platform.

Page said the company felt comfortable divulging a mobile
revenue run rate because there is a
confluence of many things
growing in mobile. “We thought it was appropriate to round it
[mobile revenue] up with a snapshot of where we stand,” he said.

The company said in July that

it was activating 550,000 Android
devices daily
. At this point, I would imagine that number is closer to 600,000.

Page described Google’s third
quarter earnings as “gangbusters.” The

company announced $9.7 billion in

and $2.7 billion in profit, well beyond Wall Street expectations.

Does Google earn more cash from Apple iPhone than Android?





March 30, 2012

9:04 A.M.

I love


. Truly one of the classic police dramas of our time, detective Lester Freamon really sums it up when
he says: "

















" How is this relevant?
Well, today it's relevant to



and fresh claims

makes four times as much money




as it does
from Android devices. So who re
ally has the power in that unequal relationship?



I can't claim to be completely convinced at the mathematics behind these claims. I'm also uncertain all Google's
making activity is necessarily linear. In the long term

it must certainly have plans to 'monetize' all that personal
user data, preferences and location information it has been gathering for a decade. One day the search engine




, as your digital life is transformed into its digital data.

So, to the claim: Based on data provided by Google as part of a settlement offer with Oracle,



that Android devices generated less than $
550m in revenues between 2008 and the end of 2011, but, tellingly, its deal
with Apple generated four times as much cash.



: "















































That's really rath
er interesting. And underlines just how Apple's move toward








threatens Google's bottom line. Another recent move,
Apple's decision to add


to the search engines
available as options to Chinese iPhones also threatens Google's financially.

That Android isn't earning Google too much cash could be a problem for the beleaguered se
arch giant, which is
currently facing



from privacy and data protection commissioners for its innovat
ive approach to
user privacy. The relative lack of success of its attempts to create a media acquisition system to rival iTunes, and its lack

of control of the







is also damaging to its relationship with smartphone buyers.

Its manufacturing partners increasingly find themselves competing against each other for device sales in an industry
in which component prices, and component scarcities, are p
retty much set by the moves Apple makes.




Now we learn that Apple has the ability to take a fair chunk of Google's revenue away, revenue that Google sorely
needs as the post
PC age begins.

Think about this: As well as noting the $10 per
Android device Google makes, The Guardian also points out that the
search machine makes around $30 per PC per year. Now consider that as






, it is inevitable that Google's PC
based income will slowly shrink. The mobile age is upon us. Google may be fighting
for its life.

But the mobile age is just that, mobile.







. Siri allows users to search for the
data they need without direct access to a Web browser. That's because the search reque
sts are spoken with results
up from access to a number of search tools, without direct contact with the browser. That's a true threat to
Google's income, as search moves from the browser and into the air, into the cloud.







If Apple's senior management had predicted these trends in the prelude to the introduction of the iPhone, then it is
interesting to consider this: If Apple's senior teams, which then included then Google CEO, Eric Schmidt, had correctly
identified th
e radical change in the way we use the Internet that would evolve following introduction of the iPhone (and
the advanced smartphones which followed it), then Google executives would have seen the threat to Google's business,
the lion's share of which is st
ill generated by conventional browser
based search.

In that context, Google's decision to race into the smartphone space with devices seemingly inspired by the iPhone
makes perfect sense. And while









, it could be argued that
Google didn't have much choice but to do this if it wanted to remain a viable business entity.

However, returning to



and it
s exhortation to follow the money, right now in mobile, Apple is making more
cash on every device, its customers are more satisfied than those using other devices, its developers are making more
dollars on the apps, and Google is making more money on iOS t
han on its own mobile platform. In my opinion, this puts
Google in a fairly exposed position as we enter the post
PC mobile age.

Ending this, I know Google has its fans. Please think about this

I'm not interested in "











" forms of argument; I'm interested in how you see Google might potentially evolve

business plan to remain compelling in the future mobile era once Apple replaces it on iOS for maps and search; I'm
also interested in what

weak spots you perceive in Apple's current business approach. And, for a change, might it be
possible to keep things civil, people?