Sound of Other Shoe Dropping

Am I nuts, or did Google just kind-of-sort-of admit that it would start collecting royalties from its Android alliance partners? I could swear I just heard the sound of that second golden slipper sliding off.

BACKGROUND: As soon as Google announced its intent to acquire Motorola, this paltry little blog questioned the widespread assumption that (1) Google wasn't interested in manufacturing and (2) Google was doing this to "protect" Android phone makers from lawsuits by Apple and Microsoft.

I predicted that (1) Google would be very, very interested in manufacturing and (2) Google would start charging fees to its Android partners for "patent protection."

We had no crystal ball, but simply knew that Google must be losing astronomical amounts on Android, because it was apparently throwing its best talent at the project, yet by all evidence making chump change -- less than 3% of  total sales -- from mobile ads. This isn't just embarrassing but a strategic disaster in the making, because the world by all evidence is moving to mobile. (It looks even worse for Google when you factor in analyst Henry Blodgett’s argument that even if Google were to cash in more effectively on mobile ads, the searchers won’t be spending more money in sum than they were in response to desktop ads – they’re just changing venues. So, rather like Alice Through the Looking Glass, Google must run faster and faster just to stay in the same place.)

In retrospect, the first big tipoff that Google will start collecting royalties came just four days before the merger news broke. In his Q2 2011 earnings call, Motorola CEO Sanjay Jha flatly stated:

“We have a very large IP portfolio, and I think in the long term, as things settle down, you will see a meaningful difference in positions of many different Android players. Both, in terms of avoidance of royalties, as well as potentially being able to collect royalties. And that will make a big difference to people who have very strong IP positions.”

So here we have Motorola’s CEO putting the world on notice that his company has to the potential to collect royalties from other Android players. 

Could there be any doubt that he discussed this “potential” with Google higher-ups prior to his speech? The merger was made official only a few days later, meaning he may even have reached an agreement. Some might argue that Google bought Motorola to prevent this – but I think it far more likely they paid their $12.5 billion to get in on the action.

FAST FORWARD TO NOW: The first shoe dropped last week. Google plainly has BIG manufacturing plans, involving not just phones and tablets, but also some kind of home media master unit.

And now it appears they have assured the European Union that royalties charged for Motorola’s basic phone patents would be FRAND – the legal acronym for "Fair, Reasonable and Non-Discriminatory.”

Well, my first take-away from this statement is that they WILL seek royalties for these patents. And I'm certainly no lawyer, but "Non-Discriminatory" sounds to me like "Everyone Pays the Same Amount," whether they happen to be Apple, Microsoft, Samsung, LG or HTC. Which means that EVERYONE will start paying something, and it probably will be closer to $10 a phone than fifty cents.

How do I know? Because the Wall Street Journal reports that Motorola asked Apple for 2.25% of iPhone sales.

That was last October, after the merger announcement. But Dan Seifert of Mobileburn has turned up a letter in which Google indirectly confirms it will be seeking this amount, which comes to as much as $19 per phone:

[Google] indirectly confirmed the 2.25 percent royalty fee that Apple claims Motorola asks of its patent licensees. Google also said that the 2.25 percent of per unit sales fee would continue to be the maximum that it would demand from licensees when it completes the purchase of Motorola and absorbs its patent portfolio.

Which means, according to FRAND, that EVERYONE should kick in the same 2.25% -- or Googorola risks the wrath of the EU. Non-discriminatory, right?

Maybe I’m wrong. I hope so.

But whatever transpires, it sure looks like Google is preparing to put on its troll suit and go trick-or-treating. Wasting truckloads more moola on lawsuits that could have been spent on inventing cool new stuff.

Which makes me sad. How about you?