By Robin Baraud
Translation: Lawrence Myers
Passage au crible n°107
On Wednesday, January 29, 2014, Google announced the sale of Motorola to Lenovo for only 2.91 billion dollars, while the group had acquired it in 2012 for 12.5 billion. This resale of a pioneer of mobile telephony, which has not been corrected despite the significant job cuts, at first seems therefore to be an ill-fated transaction. But this observation must be tempered since only 2,000 of the 17,000 patents held by Motorola will ultimately be ceded to Lenovo. Besides, the latter will benefit from use agreements for part of the 15,000 others.
Lenovo acquired international renown with its purchase of IBM’s laptop computer department in 2005. The cost of the operation proved to be equal to more than two times its own value. After having achieved the integration of this service and having changed directors – both with difficulty – in mid-May 2013, Lenovo attained the status of first producer in the world in this sector. From the beginning of this acquisition, the company was seeking a transfer of technologies as well as of the IBM image, in part thanks to the name ThinkPad, already well implanted in western markets.
About 70% of smartphones sold in the world today are equipped with an operating system developed by Android. Google makes this system available to its manufacturers as a software base; manufacturers are then able to make a certain number of modifications, which allow for adaptation to the needs of their products. Google’s partners – including the Taiwanese company HTC, the Japanese company Sony or the South-Korean company Samsung – were worried about the purchase of Motorola in 2012, fearing that the brand would eventually become the lone distributor of their products. In 2010, Google had begun to release in partnership with its manufacturers – first of all HTC, then Samsung, Asus and LG – a line of top-end model smartphones and tablets at low prices, using a non-modified operating system by Android. It was therefore logical for these firms to see Google’s strategy as a way to exclude them.
In the war that Google waged against its principal competitors, it nonetheless used the patents that it had acquired with Motorola. On February 27, 2012, it lost a major lawsuit against Apple. In the proceedings, it asked for the removal of the iPad and the iPhone, since Apple had used certain industrial properties belonging to Motorola. It clearly understood, however, the power of their control. With the sale of each one of its Android terminals, manufacturers must pay Microsoft a sum of 5 to 15 dollars to pay back the use of inventions patented by Microsoft.
From now on, thanks to the acquisition of Motorola Mobility, Lenovo has passed from the fifth to the third rank of world smartphones producers, behind Apple and Samsung. Already well-established in China on the low-end market, it currently foresees also investing in the mid-range market in order to make its appearance in American, or even European markets, starting in 2014. In this situation, Motorola’s brand image and its already-significant presence could facilitate its access. In other words, the technology transfer seems to be of secondary importance in this transaction. While on the other hand it had determined on Thursday, January 23, 2014, the purchase of an aging server farm for 2.3 billion dollars. For reasons similar to those of the Motorola Mobility dossier, Lenovo had shown Blackberry ambitions in November 2013. However, Canadian authorities had forbidden these aims, fearing that the company may become Chinese.
1. Intellectual property as a weapon of transnational competition. The deregulation of world trade was realized in parallel to the homogenization of national legislation in matters of protection of intellectual property. This concept allows firms that hold patents to legally prohibit their competitors from producing goods – material or immaterial – equivalent to theirs.
2. Research by transnational firms for a return on their monopoly. For an economic actor finding itself in a situation of monopoly, by definition no competition in its business sector is to be feared. Hence, it no longer seeks to win comparative advantages, but rather strives to unilaterally perpetuate its dominance. In fact, resisting the toughness of competitive logic always proves to be costly; this is why it appears rational to establish a monopoly to bolster its profits.
The regime for the protection of intellectual property defended by the WTO authorizes the establishing of monopolies on patented technology. The objective involves assuring remuneration to companies on their investments in research and development. This regulatory measure of the global economy, which attempts to encourage innovation and progress, confirms the nonexistence of the ideal type of perfect competition. In the mobile telephone sector, these provisions have favored the emergence of an oligopoly composed of transnational firms. They benefit from such financial means that they hold or negotiate the utilization of numerous indispensable patents for the development of competitive products. These titles of industrial property useful for the production of portable telephones can be classed into two main categories. On the one hand, those which concern the physical part of the device, on the other hand, those relative to the software assuring their operation. However, the current competition between smartphones primarily concerns this second group. Despite the marginal contributions to existing technology – unlocking by tactile recognition by Apple for example –, the improvement of performances of the material components of the telephone remain limited due to battery life, an aspect difficult to develop.
Google has positioned itself exclusively in the realm of software development and therefore makes use of the situation. In order to set themselves apart, smartphone manufacturers using Android have developed more and more elaborate accessories. Proposed by certain smartphones, the suspension of the telephone’s sleep mode while the user is looking at the screen is an example one such strategy by Samsung. But this practice progressively hides the software base Android which becomes difficult for the consumer to recognize. This appears problematic for Google, since the products that assure its collection and analysis of personal data (Gmail, Google Maps, Google Calendar, etc.), which make its economic model viable, cease, consequently, to be highlighted. Its principal objective continues to be the establishing of a norm around which its products, like Microsoft was able to do with its computer operating systems. The interest in a global framework of this type is linked to the fact that it would be difficult to compete in so far as a large majority of users have adopted it. In other words, the conditions for a return on monopoly have been brought together.
By acquiring the Motorola patents, Google has reinforced its monopolistic capacity on the development of smartphone operating systems. Its advantage appears to be twofold. First of all, from now on, it holds the possibility of putting its primary competitors in a difficult situation by rendering innovation efforts more difficult and more costly. Otherwise, it accentuates the dependence of its partners on its Android operating system. Beyond the Motorola brand, Lenovo also possesses precious technological knowledge and benefits from the good integration of its new branch into the American market. As China is a member of the WTO, it is indeed indispensable for companies currently in China to purchase their entrance into protected markets by numerous patents, like with mobile telephony.
Andreff Wladimir (Éd.), La mondialisation, stade suprême du capitalisme ? Mélanges en hommage à Charles-Albert Michalet, Paris, PUN, 2013.
Chiu Justin, “Worldwide Anarchy in the Mobile Phone Market Patent War between Smartphone Manufacturers”:
Le Monde, « Google revend Motorola au chinois Lenovo mais garde les brevets », January 30, 2014, [March 2014].