Patents the weapon of choice in fight for mobile computing market
Announcing a swath of changes on Thursday, the German chief executive said HP would abandon its loss-making tablet device and range of smartphones.
The American giant will also seek to offload its PC business in a bid to concentrate on higher-value server, storage and networking solutions for big business.
To that end, it has unveiled plans to buy Britain’s largest software company Autonomy in a record-breaking $11 billion (£6.7bn) deal that will net a fortune for Mike Lynch, who founded the Cambridge-based university spin-off 15 years ago.
The news was a lot for the markets to digest, but Apotheker’s reasoning wasn’t lost on analysts. With Apple’s “iOS” and Google’s “Android” dominating the market for mobile devices, HP’s own system, “WebOS”, never stood a chance.
HP hoisted the white flag just three days after Google unveiled the technology sector’s other megadeal of the week, the $12.5bn acquisition of hardware maker Motorola.
Google declared the deal would allow it to “supercharge” its Android operating system, sparking wild excitement in California’s Silicon Valley that the firm, set up in 1998 by Larry Page and Sergey Brin, was about to challenge the dominance of Steve Jobs’ Apple.
But as analysts chewed over the rationale behind the deal last week, many suspected that Google’s interest has less to do with mobile phones and more to do with the 17,000 patents held by Motorola, plus a further 7,500 pending. Intellectual property (IP) rights have become the munitions of choice in what has become an escalating race to amass what has cheekily been dubbed “weapons of legal destruction”.
By acquiring the patents of Motorola – the inventor of the mobile phone – Google aims to strengthen the defence of what it has described as a “hostile, organised campaign” against its Android operating system for smartphones.
Announcing the Motorola deal on Monday, chief executive Page referred pointedly to the cascade of lawsuits over IP unleashed during the past year.
“Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies,” he declared.
Like the arms race of the Cold War era, analysts say it is possible that the mere threat of Google’s newly-acquired armoury could impose détente across the industry, with the spectre of mutually assured destruction bringing an end to the spate of lawsuits.
“But I think it is going to get worse before it gets better, to be honest,” says Carolina Milanesi, vice president of mobile device research at Gartner.
“It will take a while for the lawsuits that have already been filed to work their way through.”
The most recent of these was a filing last Tuesday by long-time Android supporter HTC, Taiwan’s fast-growing maker of smartphones. It alleges that practically every product Apple makes infringes upon three HTC patents.
Meanwhile, claims by Apple that HTC was violating two of its patents were upheld by the US International Trade Commission in July. Apple, HTC, Motorola, Nokia, Samsung and Google are all currently involved in one or more patent lawsuits, which can result in settlements worth billions.
Against this backdrop, patents have become a hot commodity in the wireless sector, with some speculating this could prove to be the industry’s next bubble.
“People have woken up to the value of these portfolios, and because of that they are out there examining the value of various patent positions,” says Nick Ziegelasch, equity analyst at Killik & Co.
The frenzy kicked off in earnest earlier this year when a consortium led by Apple paid $4.5bn for the IP of bankrupt Canadian equipment maker Nortel. The portfolio of some 6,000 patents was split between Apple, Microsoft, EMC, Ericsson and Research in Motion (RIM).
Others are lining up to cash in on the demand, with wireless patent holding company InterDigital of Philadelphia set to auction itself off next month.
Kodak has also said it is considering selling about 1,100 patents covering the capture, storage, organisation and sharing of digital images. One particular patent likely to be included covers image previewing technology, and Kodak claims it is being infringed by Apple and RIM.
If that particular copyright does form part of the collection, it could kick off a ferocious bidding war, as Apple would seek to ensure that it didn’t fall into the hands of rivals – particularly Google.
Motorola’s IP should provide more legal cover for the makers of Android phones, but there is some concern that these licensees will feel threatened because their key software partner is now competing with them in the manufacture of handsets. Many believe Google will sell the hardware business as soon as it can to avoid any disruption.
Despite the building frenzy, Milanesi cautions there is “more to it” than just patents when it comes to winning the war for mobile computing – companies must still compete on the fundamental strength of their products and services.
“All of this is really more a reflection of how important mobile is to us these days,” she says. “It is not just about selling a phone or a tablet PC.”