Google Legal Problems Come Together With Motorola Acquisition

Apr. 3.12 | About: Alphabet Inc. (GOOG)

With the coming together of Google (GOOG) and Motorola Mobility (MMI), the search giant's legal troubles will now be in one place, and it's not a good place.

Motorola is under fierce attack from European Union investigators for its aggressive use of patents, on Google's behalf, against Android rivals. The company's financial demands for patents that should be licensed under Free, Reasonable And Non Discriminatory (FRAND) terms are excessive, critics like Florian Mueller of FossPatents say.

The Motorola patents represent Google's offensive punch against Apple's (AAPL) efforts to either force apart Android and Apple, on a technical level, or enforce a "killer patent" that forces Android out of the market entirely. Hearings on a "touchscreen heuristics" patent before Judge Richard Posner are Apple's last, best hope for a knock-out, and that case is proceeding against Motorola's smartphones.

Once the acquisition is complete, both these problems will be housed in the same corporate office. It will be Google who is being called unfair by European regulators. Given the wealth of possible issues - privacy, antitrust, etc. - facing Google in Europe, that's very bad news.

Google will also become the defendant before Judge Posner, and will also be facing a trial in California, now due to start April 16, in which Oracle (ORCL) will try to establish control of the Java version created for Android. Google has reportedly offered billions of dollars to Oracle in settlement talks.

What it all adds up to is considerable legal expense, considerable regulatory uncertainty and the potential of losing, not just billions of dollars, but those aspects of the Android technology that make it valuable to OEMs - its low-cost and near-Apple compatibility. Should Google lose both cases badly, the main beneficiary may turn out to be Microsoft (MSFT) , whose Windows Phone will look like a cheaper, safer alternative.

My own view is that Google will ultimately find a way out of all this, but the issues represent considerable risk to Google shareholders and need to be considered when looking at new investments.

Disclosure: I am long GOOG, AAPL, MSFT.