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Android licensees: If you're not paying, you're being sold

The latest litigation lollapalooza over Android reminds one of the old web adage that if you’re not paying for content, you’re the asset being sold.

That’s certainly one of the consequences of the Android licensing model. The mobile phone vendors with no software intellectual property are pawns in a game between IP holders. It’s clear that Microsoft and Apple and Oracle (and perhaps Nokia) have IP issues with Google. But it’s the licensee device vendors which are most often the accused. Whether Google indemnifies or not is an open question, but the evidence is that the vendors are exposed.

The proof is in the fact that HTC is paying Microsoft for the use of Android. It’s conceivable that Microsoft also asked Motorola for Android royalty payments but were rebuffed. It’s also possible that since HTC is still a large scale Windows Mobile licensee, they were given a way out of the Android IP trap by Microsoft. We don’t know if there were confidential deals between LG and Samsung on this issue (as they are both committed to the Windows Phone platform but shipping Android). In either case, Motorola may be forced to do the same and pay (Microsoft) for Android.

It’s understood that Google gains some value from Android but also has hidden costs from it as well. Now the licensees have to recognize their hidden costs of the platform as well. There is the IP tax but also the question of control over one’s destiny. Google is selling the vendors as an asset class to advertisers. Is that a positive consequence for their brands?

  • Vikram

    The big question is why doesn’t Google indemnify Android handset makers? Microsoft does so with WP7. It seems to me if Google is serious about Android and their partner’s success that they would stand behind their product.

    The fact that they aren’t suggests to me that Android will simply go down as a half-assed attempt by Google to do “something” – like Wave – and some of their other efforts.

    The fact that they aren’t indemnifying their partners is basically admitting that you know that you are in patent violations but don’t care and are throwing stuff up against the wall to see what sticks.

    By not backing up their “free” phone OS, ironically they have led their partners into real trouble that they otherwise would likely not have had, had they paid Google something.

    It’s as if Google has wittingly or not, screwed over their partners.

    I expect an en masse switch to WP7 in the future if people handset makers have to pay to use Android – at least they then don’t have the aggravation of dealing with Microsoft.

    Google needs to step up and show that they are serious about their partners success and not just be interested in their own success.

    • FalKirk

      As an attorney, I get cold chills just thinking about your suggestion that Google voluntarily jump into the bottomless pit that is indemnification.

      Which just reinforces your point that Google is not really leading the Android war, they’re just cheering from the sidelines. They’ve got no skin in the game.

      • Vikram

        Exactly – you hit the nail on the head "They've got no skin in the game"

        Microsoft is willing to indemnify WP7 handsetmakers and yet Google isn't…

        …Somebody needs to ask Mr. "Openness" Eric Schmidt, why he doesn't stand behind his product like Microsoft.

      • twilightomni

        But then why is Microsoft willing to assume responsibility for its platform, yet Google isn't?

      • Rhadamanthys

        But then why is Microsoft willing to assume responsibility for its platform, yet Google isn’t?

        The good question is "will Microsoft have to assume responsibility for its platform?". The answer to that question is the reason why Microsoft is willing to assume responsibility for its platform.

    • Chris Harris

      As I have always suspected Chrome OS is their future. Android is just a stop gap.

      • airmanchairman

        Precisely, Chrome has to be the Plan B (or indeed the Holy Grail) because in a game where the prime players have both large patent portfolios and deep litigation pockets, they don't appear to have much by way of cross-licensing leverage, having burned their bridges with any trusted partners they may have had before their headlong dive into the mobile fray. Should they have bought Palm, an abundant IP source? Or Motorola?

        Where will Plan B leave hordes of Android developers burning the midnight oil over various code revisions and upgrade paths for an increasingly fragmented platform?

      • http://www.asymco.com Horace Dediu

        I am guessing here, but my intuition is that Chrome is backed by completely different factions at Google than those which back Android. I would not be surprised that the two are in severe competition for resources and strategic attention.

    • Yowsers

      I don't think it's quite accurate to view the Google and handset makers who license Android in terms of an active business relationship. It's a passive relationship (and not really a "business" one at that).

      The only thing between Google and the handset makers is an open license — on a take-it-or-leave-it basis — and, as far as I know, there is no other contract is used.

      If it were active (say, like what MSFT will have with vendors using WP7), you get contracts actively negotiated between parties beforehand where costs, risk analysis, exchanges of reps & warrants, limitations of liab., indemnities, etc. are all factored in and negotiated. And money and other consideration is exchanged.

      I may have some details wrong, but the release of Android in a semi-open license involves none of that — you accept the license, or you don't. It's not negotiated. An exchange of consideration, if it exists at all on a contract/license level, is limited or non-existent. Money does not change hands, and certainly not at a level that allows a company to get insurance and extend indemnification.

      Sure — Google's massive revenue stream from search is such that they could afford to self-insure and generously extend indemnities that are not funded out of a contract's revenue.

      From a business risk perspective, I don't see them doing that. Google has little control over who uses Android. I've read where they may not even know who will release a handset with Android on it until the press release. I can't see them extending un-funded indemnification support for handset makers whose product releases can escalate out beyond Google's control.

      Google may be turning evil to a certain extent (or devilishly cunning) but I can't really fault them on this issue. That is the handset maker's gamble. Which I suppose supports asymco's observation that the Android-adopters are the weak and the desperate players, or those without other options.

  • Rob Scott

    Android is going be a very costly undertaking for OEMs (and a huge risk for carriers). I do not think the platform has future. Apple is still to sue other Android OEM. Microsoft is going to get paid by all of them or they get sued. And there is the Oracle suit. The whole thing is a mess.

    But I am more interested in what is going to happen to Google. With Android they have forced vertical integrated companies to have their own Ad platforms, an area where Google ruled in PCs. They have made enemies of former friends. So their fear that Apple might turn against them, thus Android is quickly becoming a reality, and they are the one who provoked the beast.

    I think soon (especially if the WP7 launch is a success) we will have one of the Android OEMs dropping Android altogether and then the whole thing will start to unwind. What a mess.

    • Vikram

      That's an excellent point that Horace has also brought up: Would Apple even have created iAD if it wasn't for Google going after Android?

      This is coming back in all sorts of nasty ways at Google.

      I am all for Android in principle in that it drives competition and innovation but I am astounded that an Apple board member would have his company compete directly against a company that he is partnered with.

      Talk about a snake in the grass move…

      • Chris Harris

        It's tricky. Google had already purchased Android before the iPhone came out. The real problems came when they radically changed the interface to copy the iPhone OS rather than the BlackBerry on which it was originally based.

        As an iPhone developer I am troubled that I will have to produce for the Android platform despite it's problems. Customers just aren't aware of these issues. They want a port of the iPhone App thank you very much. Meanwhile I'm trying not to devote to much of my resource to a platform that I don't see as ever returning the kind of figures that iOS has.

        Having said that, the Windows Phone Platform presents three even greater problems.

        1. So far every App I have seen for Windows phone looks the same. Differentiation will be a big problem.

        2. Immature platform. We started developing for iPhone 3 months after the realse of the first SDK. Let's just say it was interesting.

        3. We've all moved to Mac. So that means we going to have to run the SDK using Parallels or dual booting. Hmm.

    • sha

      If that happens, in 5 years, like on the desktop, we will have a duopoly of operating systems in the mobile landscape. I hope this will not happen. I root for Android only because 3 competing OSes is better than 2, 4 is better than 3, etc.

      • Chris Harris

        The thought of developing for four separate and different OSes makes me feel like FalKirk above. I suspect that HTML5 will become the cross platform 'OS' of choice.

      • http://www.asymco.com Horace Dediu

        Better for whom? There are many examples where markets concentrate power in the hands of only a very few vendors. Why is Amazon so big? In a world where the barriers to entry for on-line retail are so low, why did one store become dominant? Same story with iTunes. Network effects cause concentration in value around a few platforms.

    • kevin

      And that's why Gartner projections beyond a few months are worthless. They've ignored the whole legal angle despite ample evidence (Apple's suit against HTC, MS agreement with HTC, Oracle's suit against Google) that was already before them when they made the projections.

      • Rob Scott

        Great point.

  • GoodyBird

    The fact is that any young [and successful] player is gonna get sued,
    it's not a question of licensing.

    Nokia sued Apple, and I don't remember them
    using android.

    • http://www.asymco.com Horace Dediu

      Perhaps I did not make a point clearly enough. The licensees of Android have exposure to IP issues because of use of Android. Google does not. As Google is a primary beneficiary of the licensing they are benefiting without IP risk while the licensees are risking without IP benefit.

      • GoodyBird

        Now I suppose to say something about consenting adults,
        but we're not having a morality discussion here, are we.

        The manufactures will have to weigh that [IP] against getting
        bound with a rigid stack WP7 UI, and decide what they prefer.

      • Johhny Ives

        Could not Google be sued for distributing the N1, albeit in minisucle volume? In analogy to the US "war on drugs" MS is trying to erradicate the Android "crack," by going aftter mid level dealers rather than targeting the production cartels. Perhaps because other cartels will continue to pop up as long as there remains demand from addicted users (i.e. carriers)

  • MattF

    MS and Apple are clearly playing the FUD card, but it's not so obvious why Oracle is involved… Is there a reason why Google didn't license Java for Android?

    • airmanchairman

      I suppose they reckoned that Sun Microsystems wasn't the litigious kind of company that Oracle obviously is, although try telling that to Microsoft who ended up paying some steep billions to Sun for the licensing of Java.

      It may well be that Google's starving Sun Microsystems of licensing fees with the use of Dalvik and avoiding the JVM has, ironically, triggered this mess by hastening Sun's decline and eventual sale to Oracle.

    • Rob Scott

      How is protecting your IP, playing FUD?

      If a couple Google engineers were to take the code Google uses for search and other related properties and brand it as something else and start using it as their own, do you think Google would sit there admiring them for their guts?

      Why would any company invest in research if its competitors can just take their inventions as their own?

      • MattF

        Protecting IP and playing FUD are not mutually exclusive. It's quite likely that the whole matter will be resolved through negotiation– and putting Google on notice that its partners will be unhappy unless this gets fixed is part of the game.

      • http://www.asymco.com Horace Dediu

        Even war is negotiation by different means so I suppose you can say this is a form of negotiation.

        I quote from http://www.betaversion.org/~stefano/linotype/news

        "A good friend reminded me that there is no such thing as “routing around” IP licensing restrictions and that bigco routinely use shake-up moves like these to re-establish alliances or to call other bigco’s bluff. It is worth nothing that Sun has never made available a public list of the IP they own and that you need to license in order to legally be able to run Java (personally, I think they don’t know themselves: such things are really tricky to figure out, even internally). All their licensing deals (including the one with Microsoft) have been broad and very general and there is no way for us of knowing if Android infringes even just one of the patents that Sun owns around the Java platform (my friend suggests java’s internal security manager, which is clever and original, but that depends on whether Dalvik supports the same model or a sufficiently different one to stand in court)."

        This was written in 2007. You can be sure that Oracle's due diligence with Sun acquisition was very thorough in weighing all the IP they bought.

    • iphoned

      >>Is there a reason why Google didn’t license Java for Android?

      Well, of course, if you are going to give stuff away for free, you wouldn't want to get stuck with licensing costs you can't pass on to OEMs.

      Google at their best.

      • Tom

        And remember, Eric Schmidt came to Google in 2000 from Sun, where he had managed Java development. Of course, Google would watch Android development and then buy the company.
        And under Schmidt, Google has had an indifference toward not only IP but also copyrights of books. The company has been in and out of courts for years over the scanning of every book ever printed to make it available on the Internet.
        This is a corporate culture, part of their DNA. Laissez – faire at its worst.

    • kevin

      Once Apple (and now MS) sued, it was no longer FUD. If they had just threatened to sue but did not actually sue, then it would've been FUD.

  • berult

    Steve Jobs knows the inner working of a geek's mind. He partnered and grew his acumen with one. Google's mind set and strategic imperatives he can feel and integrate in real time into Apple's own development. Google's presence on Apple's Board must be seen in that light; Schmith was a beacon and a pawn to Apple, a mole he was into Google's mind frame. 

    Android wasn't meant to have a future. It is designed coarse grained for coarse grained patent infringement, manufacturing, and alternative consumption. A short but weighty half-life of throwing tantrum into an unsettled, fractioned market place. 

    A geek doesn't partner; a geek garners. Google doesn't create; it jailbreaks. It doesn't empower; it subverts.

    Steve Jobs once stumped: " Part of Google wants to kill the iPhone…"; that is a purposeful understatement. Those geeks would get the ultimate kick out of jail-breaking the whole of Apple. A one-on-one of smarting self-serving chaos with orderly patented ethos. 

    I'd wager a layman's pay on a half-breed over the born and bred geek; half-life over full greed…  

  • iphoned

    >>The licensees of Android have exposure to IP issues because of use of Android. Google does not.

    Why doesn't Google have IP exposure directly? Aren't they already being sued by Oracle? Surely, Apple could have sued Google, but chose the weakest link first – HTC?

  • iphoned

    >>The big question is why doesn’t Google indemnify Android handset makers?

    Is it because non-indemnification this is standard practice for open-source providers? I belive Android ships under an APL2 license that specifically disclaims any indemnification?

  • J Ives

    Horace, I can’t help but notice your abscence of commentary on the MOT v Apple suit.

    • asymco

      I would comment if there *wasn't* a lawsuit between two mobile phone companies.