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Behind Google’s $12.5B Motorola Gamble: Patents, Patents, Patents

Nobody saw this pricey acquisition coming, but Google saw the need to protect Android, one of its biggest successes in mobile innovation

Google’s $12.5 billion purchase of Motorola Mobility Holdings, widely considered a mobile phone also-ran, took the technology world by surprise on Monday.

But the major reason for the acquisition seems to be the 25,000 patents the company will  get by buying the phone manufacturer.

"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 CEO Larry Page said on Monday.

To analysts, Google’s pricey new toy will help it do everything from build up its nascent tablet business to prop up its ailing Google TV arm.

And Google may have had little choice. GigaOm reported that Microsoft was interested in acquiring Motorola’s patent portfolio in a move aimed at torpedoing Google's Android business.  "The possibility of that deal brought Google to the negotiation table, resulting in the blockbuster sale," wrote Om Malik.

In the wake of the announcement, Google executives stressed that patents were the major reason for shelling out $40 a share.

Those patents will prevent Google competitors from suing the company over its designs for new products. It also will allow the Silicon Valley giant to launch legal assaults on those competitors.

Apple has been particularly aggressive in exploiting patent challenges in recent months, launching legal assaults on the likes of Samsung and HTC, which carry Google’s Android operating system. This expensive move by Google is, in the estimation of many Silicon Valley tea leaf readers, a defensive maneuver.

“The real value would seem to be Motorola’s patent stash, which Google thinks will be a valuable weapon in the high-stakes arms race that has recently started up,” Peter Kafka wrote on AllThingsD. “Which is why Google executives used the word 'protect' at least six times while explaining the deal this morning.”

As Google executives vowed to allow Motorola to operate at arm’s length on a conference call with the media, the likelihood that the company would become immediately enmeshed in manufacturing mobile devices struck some analysts as slim.

After all, Motorola lags behind its competitors, and Google’s Android platform is an open operating system featured on cellphones from the likes of Samsung and HTC. That has likely left Google smoothing ruffled feathers among its key competitors, who don’t like the thought of a resurgent, cash-rich Motorola.

“I think if Google could have bought just the patents, they would have and not bought the handset business,” Mark McKechnie, senior telecom analyst for ThinkEquity, told TheWrap. “It’s a conflict for them to compete on a product basis with their customer, and the handset business compromises their overall ecosystem.”

Google must also tread lightly as it faces the threat of regulatory rejection for its Motorola deal unless it can demonstrate that it will not leverage its new bauble to discourage competition in the growing smartphone market. It appeared likely that Google’s bid would be approved on Monday afternoon, but sources told Bloomberg that the government might require the company to license patents to other competitors in order to get approved.

Though Motorola is the biggest acquisition in the company’s history, it might not be the only billion-dollar move Google makes this week. The company is still circling Hulu, and has the $1.5 billion its owners are looking to offload the popular online video site.

“This doesn’t preclude them making another deal, even a large one,” Mike Hickey, an analyst at Janco Partners, told TheWrap. “They have a lot of cash.”