Google Promises EU Regulators it Will Play Nice While Motorola Goes After Apple

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A few days back a German court granted Motorola Mobility’s (NASDAQ:MMI) request to permanently ban Apple’s (NASDAQ:AAPL) push e-mail services, a key feature of its iCloud offering, and ordered Apple to remove the iPhone 4 and 3GS from its German online store as the models were believed to infringe certain patents (Read Google Cheers as Motorola Strikes a Blow to Apple in Germany). Google (NASDAQ:GOOG) is in the process of acquiring Motorola for a valuation of $12.5 billion, from which it will benefit indirectly.

Apple has appealed against the court ruling arguing that Motorola’s licensing agreements were unfair and did not follow the fair, reasonable and non discriminatory terms (FRAND). Interestingly, in a recent development, Google is seeking to assure EU regulators and standards bodies that it will continue to license Motorola’s patents under FRAND terms. [1] We believe this may be a proactive step by Google to gain approvals of EU regulators and avoid a conflicting situation regarding licensing practices for Motorola’s patents in the future.

Our $550 price estimate for Apple stock is about 20% above the market price.

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Google’s promise to follow fair licensing for Motorola patents is questionable

Although Google has promised that it will license Motorola’s patents at reasonable terms, Motorola’s suit against Apple probably cannot be termed as fair licensing. According to a report, Motorola is demanding from Apple a 2.25% royalty on iPhone sales related to a single patent involved with 3G/UMTS wireless standards. [2]

Considering that Apple sells the iPhone for an average price of more that $600, the royalty charge that Motorola is demanding comes to around $14 per iPhone. This amount is nowhere near the typical FRAND rate for licensing industry standards and Apple argues that this is no where near fair, reasonable or nondiscriminatory. So this raises a question on Google’s plan to following these fair licensing terms if the company that it is acquiring, Motorola, is found to not be following these guidelines.

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Notes:
  1. Google Is Said to Assure Fair Licensing for Motorola Patents, Bloomberg, February 8th, 2012 []
  2. What Motorola wants: 2.25% of Apple’s iPhone sales revenue, CNN Money, February 4th, 2012 []