Bloomberg News

Google Said to Face U.S. Probe Over Motorola Patents

June 30, 2012

Google Said to Face U.S. Antitrust Probe

The Google Inc. homepage is seen on a Motorola Mobility Holdings Inc. mobile device, running on Google's Android software. Photographer: Tim Boyle/Bloomberg

A U.S. antitrust regulator has opened a formal probe into whether Google Inc. (GOOG:US)’s Motorola Mobility unit is honoring pledges it made to license industry- standard technology for mobile and other devices on fair terms, three people familiar with the situation said.

The Federal Trade Commission has issued a civil investigative demand, which is similar to a subpoena, to the owner of the Android mobile operating system as it scrutinizes whether Google is improperly blocking rivals’ access to patents for key smartphone technology, one of the people said.

The agency is also seeking information from companies including Microsoft Corp. (MSFT:US) and Apple Inc. (AAPL:US) as it investigates whether Google intends to license technology under patents that help operate 3G wireless, Wi-Fi and video streaming on fair and reasonable terms, another one of the people said. The people declined to be identified because they weren’t authorized to speak publicly about the matter.

Another focus of the FTC probe, the person said, is Google’s decision to continue litigation started by Motorola Mobility over industry-standard patents before Google bought the company. Those lawsuits could end up blocking imports of popular consumer products such as Microsoft’s Xbox and Apple’s iPhone and iPad.

Industry-standard technology helps ensure that different manufacturers’ products, such as mobile phone antennas and global-positioning system software, work together. Companies that create technology that helps develop the agreed-upon industry standard pledge to license patents for those inventions on reasonable terms.

Serious Commitments

“We take our commitments to license on fair, reasonable and non-discriminatory terms very seriously and are happy to answer any questions,” Niki Fenwick, a Google spokeswoman, said.

Patent litigation is escalating as handset and device makers vie for increasing shares of the worldwide mobile-device market, projected to reach $360 billion this year, according to estimates by Yankee Group, a Boston-based research firm. The global patent fights heated up in March 2010, when Apple filed its first complaint at the International Trade Commission against Android-phone maker HTC Corp. (2498)

“Antitrust agencies around the world are worried about this patent problem, which is particularly important as we shift to mobile technologies,” said Bert Foer, president of the American Antitrust Institute in Washington, which advocates strong enforcement of antitrust law. “An injunction against the use of a patent can destroy a company’s entire market strategy.”

Essential Patents

FTC Chairman Jon Leibowitz said March 30 the agency was “looking at” the legality of companies seeking to prevent rivals from using patents that cover technology considered essential for an industry.

Dominic Carr, a spokesman for Redmond, Washington-based Microsoft, confirmed the company received a civil investigative demand from the FTC, declining to comment further. Steve Dowling, a spokesman for Apple, based in Cupertino, California, and Cecelia Prewett, an FTC spokeswoman, declined to comment on the investigation.

The FTC investigation follows the opening of formal probes of Motorola Mobility and Samsung Electronics Co. (005930) for the same issues by the European Commission earlier this year.

U.S. antitrust regulators have agreed the FTC will focus on Motorola Mobility and the Justice Department will scrutinize Samsung Electronics Co.’s handling of industry-standard patent claims, said another person familiar with the matter. The person didn’t know if the Justice Department has issued information demands in connection with its review of Samsung.

Antitrust Probe

The FTC is already conducting a broad antitrust investigation into whether Google’s search-results rankings and other business practices harm competition.

Earlier this month, the FTC filed a statement with the ITC, which is charged with protecting U.S. markets from unfair trade practices, suggesting that companies should be limited in their ability to win orders blocking imports of competitors’ products over the use of patents built into industry-wide standards.

The ITC said June 26 it would review whether Apple, which gets about 75 percent of its revenue from the iPhone, iPad and related products, infringed four patents held by Motorola Mobility. A trade judge in April said Apple infringed one of the patents.

Blocked Imports

Should the ITC side with Motorola Mobility, the agency has the power to order U.S. Customs and Border Protection to stop iPhones and iPad computers made in Asia from entering the U.S. On July 2, the ITC is scheduled to announce whether it will review a trade judge’s findings that Microsoft’s Xbox gaming system infringes four of five Motorola Mobility patents.

In February, the Justice Department approved Google’s $12.5 billion purchase of Libertyville, Illinois-based Motorola Mobility, which gave the biggest maker of smartphone software more than 17,000 additional patents in the largest wireless- equipment deal in at least a decade, according to data compiled by Bloomberg.

At the same time, the department also approved the acquisition of Nortel Network Corp. patents by a group led by Microsoft and Apple, as well as Apple’s acquisition of some Novell Inc. patents.

In approving the deals, the Justice Department said it would monitor for potential misuse of those patents, which cover such technologies as location services, antenna designs and touch-screen motions.

Patent Pledge

Microsoft and Apple pledged they wouldn’t seek to block use of any standard-essential patents. Google said it wouldn’t, either, as long as good faith negotiations were under way, while maintaining the right to seek court orders if no agreement could be reached on licensing. Microsoft and Apple “seemingly won’t accept any price,” Kirk Dailey, vice president of intellectual property for Motorola Mobility, said June 20.

Makan Delrahim, an antitrust and intellectual property lawyer with Brownstein, Hyatt, Farber, Schreck LLP, said antitrust agencies shouldn’t be involved in what are essentially contract disputes.

“Determining whether someone has lived up to its commitments to the standard-setting organization isn’t an appropriate role for an antitrust agency,” Delrahim said.

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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