Google-Motorola Deal May Result in Conduct-Based Consent Decree
Dennis Villasana | Bloomberg Law
On August 15, 2011, Google, Inc. announced that it will acquire Motorola Mobility Holdings Inc. for $12.5 billion, the largest of Google’s acquisitions to date. The acquisition vertically integrates Google, the developer of the open-source Android smartphone software, with one of the most successful Android handset manufacturers, placing Google in competition with HTC, Samsung, and other makers of Android handsets. Nonetheless, major manufacturers of handsets currently running on Android software expressed support for Google’s move and specifically indicated their belief that the acquisition demonstrated Google’s commitment to protecting Android from its competitors’ patent infringement allegations. Google has indicated that it plans to continue licensing Android to handset manufacturers.
Patent Portfolio Key Aspect of the Deal
From a vertical integration point of view, the deal, which is expected to close in late 2011 or 2012, presents some interesting questions. How will Google integrate a firm of Motorola’s size? Is the future of the wireless industry vertically integrated hardware and software companies? More specifically, will Microsoft react by purchasing a hardware manufacturer of its own, such as Nokia?
The more immediately important aspect of the deal, however, lies in its patent and antitrust implications. As part of the deal, Google will acquire approximately 17,000 patents and 7,500 pending patents, a treasure trove that appears to have been the real impetus for the deal, more so than an independent desire to vertically integrate.
Google’s competitors have strengthened their patent portfolios over the past year. In April 2011, CPTN Holdings – a consortium that included Android competitors Apple, Inc. and Microsoft, Inc. – purchased over 800 of Novell Inc.’s patents, many related to open-source software. And in June 2011, in a move more directly tied to the wireless industry, consortium Rockstar Bidco Ltd., which included Apple, Microsoft, and Research in Motion, Ltd., acquired approximately 6,000 wireless-related patents from Nortel Networks Corp., outbidding Google in the process.
The Motorola deal may be seen as a defensive maneuver against the anticompetitive use of patents by Google’s competitors, including Apple and Microsoft. Google has been blunt in its public statements on that point, indicating that the Motorola acquisition was the direct result of its competitors acquiring patents and using them to attack Android. Google CEO Larry Page’s blog post announcing the acquisition made this clear:
[C]ompanies including Microsoft and Apple are banding together in anti-competitive patent attacks on Android. The U.S. Department of Justice had to intervene in the results of one recent patent auction to “protect competition and innovation in the open source software community” and it is currently looking into the results of the Nortel auction. 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.
Indeed, the Department of Justice has already launched an investigation into Microsoft, Apple, and RIM’s Nortel patent purchase and continues to monitor the Novell purchase. The DOJ’s apparent concern that the Nortel patents have the potential to be used anticompetitively might be counterbalanced by Google’s acquisition of Motorola’s patents, placing the major industry participants on more equal competitive footing.
On the other hand, the DOJ and Federal Trade Commission (Agencies) have exhibited increased concern over vertical mergers over the past several years. It is also true that Google is already facing investigations in the United States and abroad for its search and ad business and that those investigations have extended into its Android business. Google’s sheer size – augmented by the scope of this latest acquisition – is bound to draw some attention.
Mindful of Competitors’ Nortel Patent Purchase, Agencies May Impose a Consent Decree on Google/Motorola
A seemingly likely outcome is that the Agencies will approve the deal, but subject to a consent decree. Such decrees have seen increased use, and the DOJ specifically noted the utility of conduct-based remedies in vertical mergers in its recent Antitrust Division Policy Guide to Merger Remedies. In the Guide, the DOJ endorses the use of conduct remedies such as mandatory licensing, non-discrimination provisions, and prohibitions on certain contracting practices, all of which could be relevant to Google/Motorola.
Notably, a conduct remedy was imposed in January 2011 to the Comcast Corp./NBC Universal, Inc. joint venture, requiring, among other things, that the NBC license content to Comcast’s competitors. See DOJ Imposes Conditions Upon Comcast-NBC Joint Venture, Bloomberg Law Reports, Antitrust & Trade, Vol. 4, No. 2 (Jan. 24, 2011). And Google itself was the subject of a vertical consent decree after its $700 million acquisition of ITA Software, Inc. in April 2011. Under the terms of the consent decree, Google is required to license ITA’s travel search software at reasonable terms and fund continued research and development of the product. See DOJ Imposes Conditions Upon Google’s Acquisition of ITA, Bloomberg Law Reports, Antitrust & Trade, Vol. 4, No. 8 (Apr. 18, 2011).
A Google/Motorola decree likely would address two issues. First, the Agencies could insist that Google formally agree to what it has said it intends to do; namely, to continue to license Android to competing hardware manufacturers. The Agencies could also require that Google do so on non-discriminatory terms to ensure that Google does not subtly place HTC, Samsung, and other Android handset manufacturers at a disadvantage by licensing, for example, a slightly less robust version of Android or by making new versions available to Motorola for handset development before it is available to its competitors.
Second, the decree could specifically address Google’s use of the patents it acquired from Motorola, to ensure that they are not used to stifle innovation and the introduction of new products. In large part, any patent-related remedy the Agencies impose will likely be influenced by – and perhaps mirror – what remedy, if any, the Agencies impose on the Rockstar consortium with regard to the Nortel patent purchase.
What is clear is that the Agencies now have before them two major acquisitions of patent portfolios by wireless industry heavyweights. Just as Google’s acquisition of Motorola was apparently a response to the Rockstar consortium’s purchase of Nortel’s patents, the Agencies may view both transactions in tandem and craft remedies that, while certainly separate, will take each other into account and complement one another. From that perspective, the Agencies stand in a position to make a substantial impact on competition in the wireless industry.
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