Google Escalates The Patent Arms Race : Planet Money There's a patent war in the smartphone business. That's part of what's driving Google's acquisition of Motorola.
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Google Escalates The Patent Arms Race

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Google just dropped $12.5 billion to buy Motorola Mobility, the mobile phone company. It's Google's biggest acquisition ever, by far. It's a big push into the hardware business.

And, perhaps most importantly, it's huge play in the patent arms race that's engulfing the smartphone industry, where Google's Android is one of the leading operating systems.

In other words: Google is buying Motorola in large part because it wants the company's 17,000 patents.

Accusations of patent infringement have been flying back and forth in the smartphone business lately, with everyone suing everyone else. Companies have been buying up patents to defend themselves.

Here's how we described it in our recent story, When Patents Attack:

All the big tech companies have started amassing troves of software patents — not to build anything, but to defend themselves. If a company's patent horde is big enough, it can essentially say to the world, "If you try to sue me with your patents, I'll sue you with mine."

It's mutually assured destruction.

The arms race has radically escalated in just the past few months.

In April, Google announced its bid on the patent portfolio of Nortel, a defunct tech company. Google said it wants the patents to defend itself against lawsuits.

But Google — which was willing to pay more than $3 billion — got outbid by a consortium of tech giants, including Apple and Microsoft, which paid $4.5 billion.

A few weeks later, news emerged that Google had bought over 1,000 patents from IBM for an undisclosed price.

Less than a month ago, Carl Icahn, a big Motorola shareholder, pushed the company to sell off its patent portfolio. He mentioned the Nortel patent sale and the "current heightened market demand for intellectual property in the mobile telecommunications industry."

A few weeks ago, Google described "a hostile, organized campaign against Android ... waged through bogus patents."

And in a blog post this morning, Google CEO Larry Page wrote:

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.

Google is buying these patents, in large part, to defend itself against lawsuits. This is a legal expense — it's money that the company is not putting into developing new products or hiring new workers.

The big tech companies have huge cash piles and can afford to fight this patent war. The likely casualties, as we've noted before, are the young startups that may get sued out of existence before they have a chance to become the next Google, or the next Apple.