Pricey Nortel IP shows fear of Google’s Android
By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Android paranoia can now be valued. A consortium of Apple, Ericsson, Microsoft, Research In Motion and Sony has agreed to pay an eye-watering $4.5 billion for wireless patents and applications held by bankrupt Nortel. That’s about three times the expected price, and blows Google’s early $900 million bid out of the water. It’s partly an effort to hold back the search giant’s phone platform, but Android looks strong enough to shrug it off.
The buyers of Nortel’s intellectual property have plenty to worry about. Android has grabbed a huge chunk of the smartphone market worldwide because it works, it’s cheap, and it’s easy to license. More than a third of all U.S. smartphone users now have Google’s platform, ComScore says. More astonishing is Japan. Only 15 percent of smartphones used Android in September
but nearly half did by March. No wonder the three other big makers of mobile operating systems — Apple, Research In Motion, and Microsoft — were willing to get together and pay over the odds for Nortel’s patents. One vulnerability of Android lies in the patent area. Google is a relative newcomer to wireless devices, so it hasn’t built up intellectual property in the way pioneers like Nokia or Nortel have. Manufacturers that license Android for handsets or tablets may be even more exposed than Google. Smaller electronics companies often lack a patent portfolio big enough to help them arrange a cheap cross-licensing deal.
And the licensing tolls can be expensive. Apple agreed in June to pay Nokia to use technology the Finnish firm owns. The iPhone and iPad maker may shell out $400 million this year alone, analysts reckon. A Taiwanese handset maker, for instance, might as a result find it marginally more attractive to produce phones powered by Microsoft’s operating system, for example.
Yet Android will remain a cheap, effective and improving option. Moreover, it has the large user base and momentum that attract application developers. More apps in turn make Android even more useful. If the new owners of Nortel’s patents defend them aggressively, they could slow the Android tide. But only better operating systems stand a chance of actually turning it.