Can Google Win Patent War Against Microsoft, Apple?

In a world of never-ending battles to preserve intellectual property, technology giants Microsoft and Apple are hitting out at Google.

Ever since Google launched its Android mobile operating system, it has come under the competitive radar of Microsoft and Apple, as the search giant's OS directly rivals Apple's iOS and Microsoft's Windows.

Microsoft and Apple have always been at each other's throats, but now it seems they are coming together to attack Google.

Google has hit back, saying it has been a victim of "a hostile, organized campaign against Android by Microsoft, Oracle, Apple and other companies, waged through bogus patents."

On the other hand, Microsoft said Google was asked to join the bid for the Novell portfolio, but Google declined the invitation.

General counsel Brad Smith tweeted "Google says we bought Novell patents to keep them from Google. Really? We asked them to bid jointly with us. They said no."

When Android was launched in October 2008, very few thought it would become a roaring success. Android now ranks as the top smartphone platform for the month of June, with 40.1 percent of the market share, up 5.4 percentage points from March 2011, according to comScore.

Apple came in second with 26.6 percent of the smartphone market, up 1.1 percentage points from the prior reporting period. On the other hand, Microsoft's share fell 1.7 percentage points to 5.8 percent with its Windows Phone 7 operating system.

More than 550,000 Android devices are activated every day, through a network of 39 manufacturers and 231 carriers.

Google offers Android free, whereas Microsoft charges a fee for licensing its Windows Phone 7. This strategy by Google has triggered a plethora of lawsuits as several companies, including Apple and Microsoft, have sued Android partners such as HTC and Samsung for patent infringement.

In the latest development, Google's chief legal officer retaliated that its rivals are attempting to make Android expensive for phone manufacturers and suing the company for "bogus" patents.

"They're doing this by banding together to acquire Novell's old patents (the "CPTN" group, which includes Microsoft and Apple) and Nortel's old patents (the "Rockstar" group, which includes Microsoft and Apple), to make sure Google didn't get them; seeking $15 licensing fees for every Android device; attempting to make it more expensive for phone manufacturers to license Android (which we provide free of charge) than Windows Phone 7. Patents were meant to encourage innovation, but lately they are being used as a weapon to stop it," said David Drummond, chief legal officer of Google in a blog post.

Earlier, Oracle had sued Google over the use of Java in Android. Also, both Microsoft and Apple have separately sued Motorola. Drummond alleged that Android rivals are fighting through litigation instead of competing with building new features or devices.

"A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a "tax" for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices," Drummond said.

Google was outbid in early July, when a coalition of companies which called itself "Rockstar Bidco" that included Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT), Research In Motion Ltd. (NASDAQ: RIMM), Ericsson, EMC Corp. (NYSE: EMC) and Sony Corp. (NYSE: SNE), agreed to buy a portfolio of over 6,000 patents owned by Nortel Networks for $4.5 billion.

The patents covered wireless, wireless 4G, data networking, optical, voice, Internet, service provider, semiconductors and other patents, touching nearly every aspect of telecommunications and additional markets including Internet search and social networking.

The search-engine giant also placed an initial bid of more than $900 million for the patent portfolio back in April. However, it couldn't snap up the deal after Apple joined hands with other companies. The group offered five times more than Google's initial bid.

Competitors Winning Against Google Partners

In an escalating patent war, some of the Google partners are losing out to Android rivals, including Apple.

On July 15, the United States International Trade Commission (USITC) ruled that HTC had infringed on two of the four patents involved in its lawsuit with Apple. The USITC also ruled that all four of Apple's patents were valid.

Contrary to some popular technology blogs, there is no workaround to these data capture and API patents, which are fundamental to touch and user interface and is core to the Android OS. Theoretically, this could negatively impact all Android handset original equipment/design manufacturers.

"While HTC could appeal the initial ruling, there is no precedent where the final determination by the USITC differs materially from the initial ruling. While an injunction on HTC phone portfolio is a low probability event, the likely outcome is that HTC will be forced to pay royalties to Apple," Rodman & Renshaw analyst Ashok Kumar wrote in a recent note to clients.

HTC currently pays over $40 in royalties per smartphone including about $5 for Android phones violating its patents. The analyst believes that Apple will receive comparable payments.

Meanwhile, analysts say the patents asserted by Apple against Samsung have substantially more legal grounding than its lawsuit against HTC.

"Based on the substance of Apple's legal position, and the recent precedent, there is an even better chance that the ruling will be in Apple's favor," Kumar said.

As an aside, Microsoft has also demanded that Samsung pay $15 for each Android smartphone its ships for patent violation. With further validation of Apple's key multi-touch patent portfolio, Apple can legally pursue the rest of the Android handset makers for royalty.

"We believe that it is only a matter of time before Apple legally goes after Google," Kumar said.

Where Does Google Stand?

With a paucity of patents, only 1500 at last count against Apple's 4,000 and Microsoft's 17,000, Google is on the defensive.

It is not in a position to indemnify any of the participants in the Android ecosystem and that in turn will erode the margins of handset makers in the Android ecosystem.

Google is seeking to rectify this structural deficiency by seeking the help of the DoJ to investigate the recent acquisition of Nortel's wireless patent portfolio by the Apple/Microsoft consortium.

"While Android may be winning the market share battle for now, without the protection of the patent portfolio, it will likely lose the long-run battle against Microsoft and Apple (iOS)," Kumar said.

Meanwhile, rumors are rife that Google, which has nearly $40 billion in cash, also has plans to buy InterDigital's intellectual-property portfolio, a move to bolster its portfolio and also to protect itself from patent litigation.

There were also reports that Apple is also considering a bid for InterDigital's intellectual-property portfolio.

InterDigital has about 180 engineers, more than 18,000 patents (awarded and pending), and about 16 percent of the essential LTE patents versus about three percent for Nortel.

Google may also benefit from the favorable regulatory bend towards open source system. The U.S. DoJ has been forcing Microsoft to sell the patents it bought from Novell and demanding that the winning group, including Microsoft, Oracle, Apple, EMC, give a license to the open-source community.

"These changes were necessary to protect competition and innovation in the open source software community," the DoJ said in April.