Google has agreed to pay Motorola Mobility an unprecedented $2.5 billion in reverse break-up fees if its $12.5 billion acquisition fails to go through, says a report. Meanwhile, observers are debating the value of Motorola's patents vs. the baggage of its ongoing litigation, weighing the impact on other Android OEMs like Samsung and HTC, and glimpsing an opportunity for Microsoft.

Google has agreed to pay back $2.5 billion in reverse break-up fees if its $12.5 billion acquisition of Motorola Mobility fails to be consummated, according to Bloomberg. The fee, which is tied to "certain conditions," is six times higher than normal, and triple what AT&T is offering T-Mobile if its $39 billion bid for T-Mobile fails to be approved, says the story.

The tip regarding the $2.5 billion was based on an anonymous source, described only as "a person with knowledge of the situation," says the story. Google and Motorola declined to comment on the report, adds Bloomberg.

The high fee suggests Google is confident that the acquisition will be approved by government regulators, despite reported investigations into its business practices by the Federal Trade Commission (FTC),  says the story. However, Bloomberg notes that it may also reflect lesser confidence by Motorola about approval, as well as its concerns over how a broken deal might impact its future.

Writing in FOSS Patents, technology patent expert Florian Mueller has a different take on the alleged break-up payment. Mueller believes that any confidence by Google would be misplaced since the U.S. government could indeed find grounds to block the acquisition. In addition to the FTC's current concerns about Google's alleged heavy-handed pressures against Android OEMs, "post-acquisition we'd be talking about a fundamentally worse problem," writes Mueller.

"Google could use revenues from its dominant search business to subsidize MMI [Motorola Mobility, Inc.] and, as a result, undercut other handset makers," Mueller continues. "That kind of outcome would be a nightmare from a competition law point of view, because it would distort competition in two markets at the same time. There's simply no way that other Android device makers would be able to compete on a level playing field with a wholly-owned Google subsidiary named Motorola Mobility."

Is Motorola on the verge of losing its Microsoft and Apple suits?

If, as Mueller and others allege, Google is facing considerable regulatory scrutiny, why would it pay a breakup fee that could be the largest in history? According to Mueller, Motorola's legal cases in its lawsuits with Microsoft and with Apple over Android-related patents have increasingly been revealed to be weak.

He goes on to suggest that Google may have been forced into a desperate acquisition bid to keep Motorola from settling with its legal opponents. The pending acquisition would likely prohibit Motorola from settling, Mueller adds.

For its part, Motorola — which had recently hinted at a possible rapprochement with Microsoft over Windows Phone — may have demanded the breakup fee as a down-payment on settlement costs in case the deal fails to go through.

On the other hand, if Motorola loses one or more of its lawsuits, Google would face another grim scenario. "If regulatory scrutiny delays the closing of the acquisition, Google could end up buying a company that is formally enjoined from importing Android-based devices into the United States," writes Mueller.

In this case, Google would face pressure to abandon the acquisition, and pay the huge breakup fee, he adds. Motorola, it would seem, realized its vulnerable position and demanded top dollar.

Motorola: Patent boon or bane?

Mueller is not convinced the breakup fee is for real, and indeed he notes that he is still exploring all the possible ramifications of the deal related to all the patent lawsuits currently in play. One thing seems clear to him, however: that the acquisition is not primarily about patent protection, as Google CEO Larry Page seemed to suggest in his blog analysis of the acquisition.

Indeed, Mueller and others have noted that while Motorola would provide Google with a treasure trove of mobile phone patents — 17,000 patents and 7,500 pending patents, according to the Bedford Report — they would not likely be applicable to any current lawsuits against Android OEMs, including Motorola and Samsung.

Meanwhile, Motorola's patents may not be as strong as is generally perceived, notes Mueller. Josh Lowensohn, writing in CNET, seems to agree. The story includes an infographic showing Motorola patent litigation since 2010, which reveals far more ongoing patent lawsuits against Motorola during that time than the company has imposed on others.

The litigation against Motorola, which include major suits from security firm Gemalto and others, "could result in costly settlements and licensing agreements long after the Google-Motorola deal is closed," writes Lowensohn.

Reducing fragmentation and lead times

If Motorola's patents are likely to bring trouble as well as protection, Google must see other benefits in acquiring the mobile device vendor. As we noted in our earlier coverage, some possible benefits include Motorola's potential assistance with the struggling Google TV platform, and possibly even help with web-based operating systems. 

Another advantage to acquiring Motorola would be strengthening Google's efforts to reduce Android fragmentation and deliver a standardized skin-free platform. Google has played favorites at various times with Google-branded phones free of UI skins, first from HTC and then from Samsung.

This year, Google gave Motorola a head start on Honeycomb tablets with the Motorola Xoom (pictured), but with less success for either party. And now, the acquisition strongly suggests, Motorola will always be the go-to vendor.

A number of observers have suggested that Google is right to enter the hardware business and crack down on fragmentation in order to better compete with Apple. Controlling manufacturing could also help Google accelerate product development. The long lead times required by device vendor partners to bring the latest Android versions to market have been a continual annoyance for Google's executives, who apparently feel they can do better.

CNET's Marguerite Reardon echoes this favorable response to the acquisition. She writes that the deal could "pave the way for the company to create an end-to end mobile experience akin to what Apple has done with its iOS devices."

Wayne Rash, writing in our sister publication eWEEK believes Motorola's patents will help Google — and Android vendors in general– compete in the legal battles of the future. In addition, he notes, Motorola has always been known as a quality manufacturer, even if its marketing and decision-making has been shaky at times.

Motorola Mobility has the "manufacturing knowledge to change the face of smartphones," writes Rash. Mot could also help Google bring Android into the IPTV market (via Google TV) and other areas where Apple doesn't compete, he adds.

Although Motorola thrived on Android power in the first year after the smash-hit Motorola Droid reached market in Nov. 2009, Mot has more recently seen its Xoom tablet struggle in the market, while Samsung, HTC, and relative Android newcomers like LG, Sony-Ericsson, and ZTE eat away at its smartphone share. Yet, with Google's considerable funds and leadership behind it, not to mention the advantages of early access to technology, Motorola would have clear advantages.

A Windows Phone of opportunity?

Other observers, including eWEEK's Nicholas Kolakowski, suggest that OEM vendors will now more actively move to Microsoft's Windows Phone platform. Samsung, HTC, and other major OEM vendors have all formally, but somewhat tepidly, endorsed the acquisition. In reality, they likely see themselves at a disadvantage in the Android arena, despite Google's claims of improving patent protection for all.

Therese Poletti, writing in MarketWatch supports the theory that Microsoft will gain advantage from the acquisition. "Even a small amount of perceived advantage to Motorola could swing critical momentum away from Android — and towards Microsoft," writes Poletti. "Motorola was the only major Android handset maker that does not also develop devices for Windows Phone."

Meanwhile, Don Reisinger, writing in eWEEK, joined others in suggesting that the acquisition could motivate Microsoft to acquire its own hardware company: Research in Motion (RIM).

"With the potential for future consolidation in mind, it's entirely possible that Microsoft will acquire a handset vendor to keep up with Google," writes Reisinger, who then notes that RIM is the most logical candidate. "For RIM, it's a prime opportunity and for Microsoft it might just be a necessity."

For a visual look at some of the potential ramifications of Google's acquisition of Motorola Mobility, see this eWEEK slide show.

---

This article was originally published on LinuxDevices.com and has been donated to the open source community by QuinStreet Inc. Please visit LinuxToday.com for up-to-date news and articles about Linux and open source.