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Google Blows It Big Time: Microsoft, Apple, RIM Get Nortel Patents

Google (GOOG) has pulled off a rare feat in business: blowing an opportunity so big that the company will be living with the fallout for a really long time. Microsoft (MSFT), Apple (AAPL), and RIM (RIMM) -- in a consortium with Sony (SNE), EMC, and Ericsson (ERIC) -- bought the Nortel patent portfolio for $4.5 billion in an auction. Google's original bid of $900 million simply wasn't enough.

You can debate whether the patents of the bankrupt Canadian communications company were intrinsically worth that much. However, value is relative. The winning group here will get more than its money's worth because it's managed to keep an important weapon away from its biggest mobile competitor. And Google lost its best chance to negotiate some healthy live-and-let-live agreements with rivals intent on putting it out of the mobile business -- a business that is critical to Google.

Hit us, please
Google has had a sloppy approach to patents when it comes to Android. That has given Oracle (ORCL) room to allege infringement and demand $2.6 billion in damages. But even worse is that Microsoft and Apple have threatened Android's existence with a series of patent infringement lawsuits.

Most have targeted Google's hardware partners because they have less money to defend themselves than the search giant, and so could become a choke point for Android's business. Make things too expensive for the hardware companies, and they might reevaluate whether the product is a commercially viable option.

It's expensive being Google's BFF
Microsoft already has at least four companies paying, one of which is HTC, a big name in mobile phones. Both Motorola (MMI) and Barnes & Noble (BKS) are fighting in court, but neither has Microsoft's deep pockets. Add a significant per-unit cost for Android, and suddenly licensing Windows Phone might look far more appealing, particularly since Microsoft indemnifies its users for patent infringement actions.

That's why the 6,000 Nortel patents were so important to Google. The entire mobile industry has worked on cross-licensing and the threat of mutual destruction. Only Google entered this nuclear arms race armed with a pea shooter. The Nortel patents would have given it a better negotiation position. (You also have to ask whether the consortium might now pursue Google and its partners for allegedly infringing any of the Nortel patents.)

Would Google's problems have disappeared with the patent portfolio? Not a chance. But as intellectual property analyst and blogger Florian Mueller wrote to a number of us that cover IP issues, "Google lost an unprecedented opportunity to acquire a major bargaining chip that would strengthen it at the mobile industry's intellectual property negotiating table."

No second chances
His use of the term unprecedented is anything but hype. This was a one-time chance Google needed to protect its investment in Android, which represents the company's entire future. The final price was stiff, and even with its big bankroll, Google would have difficulty in matching the combined resources of the companies in the consortium.

However, it should have been worth more than $4.5 billion to Google. This was a must-win for the company. Did it have the money to go higher? Without a doubt. Failing to ensure a successful bid is the single biggest mistake the company has made, because this is one from which it cannot recover.


Image: Flickr user Calgary Reviews, CC 2.0.