Patent Wars: Attack Of The Clones

This morning, Google GOOG announced it was buying Motorola Mobility MMI at a whopping premium, over 60%. Many are questioning why would Google, a software provider, go after a hardware company? Patents, patents, patents and more patents. Ever since a group led by Apple AAPL, Research in Motion RIMM and others bought the Nortel patents earlier in the summer for over $4 billion, there has been a revaluation on patents. Companies are taking a page out of the Apple playbook (not to be confused with the awful RIM Playbook, which doesn't even sell), and trying to control as many aspects of the electronic as possible. The lawsuit between Apple and Samsung has been instrumental in this as well. Carl Icahn was extremely instrumental in getting this transaction done, as he came out in July suggesting the company do something with its patents. "This is a great outcome for ALL shareholders of Motorola Mobility, especially in light of today's markets. In the past three years we have fought long and hard to separate Motorola Mobility from Motorola Solutions, as well as bring Sanjay Jha., as co-CEO." "Additionally, we have been strong proponents of the company exploring multiple ways to enhance the value of its patent portfolio. Motorola is activism at its best and we applaud management and the Board for acting so responsibly," said Icahn. Motorola Mobility has over 17,000 patents and 7,500 pending, and Google had nowhere close to that. It was rumored that the company was looking at InterDigital, Inc. IDCC as a result of adding patents to its war chest. Google CEO Larry Page was very positive on the deal, saying, “Motorola Mobility's total commitment to Android has created a natural fit for our two companies. Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers. I look forward to welcoming Motorolans to our family of Googlers.” Gabelli & Co. was positive on the deal, saying, "We believe GOOG and MMI will create a stronger hardware/software integration to compete with Apple, Samsung, and HTC." The company said the the deal does not affect Google's core business or profit. No, it is all about patents, and that's that. It is going so far as leave Motorola alone, and let it run as a standalone business. A 62% premium for a patent portfolio is a huge premium, and it shows that the patent war is in full force, with both the Nortel deal and now Motorola. This has become Apple versus Google in a battle of patents. Microsoft MSFT and others are left standing with their hands in their deep pockets, and it will be interesting to see where Microsoft goes after this. Could Nokia NOK get picked off? It is possible. The same can be said for Research in Motion RIMM. While this may not be as exciting as Star Wars; Attack of the Clones, this "patent war" has the heaviest of the heavyweights in the tech industry going toe to toe with each other. Get your popcorn ready. Steve Jobs is not about to sit idly by. ACTION ITEMS:

Bullish:
Traders who believe that patents will continue to be valued extremely high might want to consider the following trades:

• Use today's dip in InterDigital to purchase shares. There are still plenty of other potential suitors for IDCC, including Samsung.

• Also consider Nokia, and Research in Motion for the same reason.

Bearish:
Traders who believe that patents are going to be a bubble may consider alternate positions:

• This is not good for patent law, and there could be a revision to patent laws, making them worth less.
  
  

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.