Three weeks ago, Bloomberg reported that Taiwan smartphone maker HTC has held takeover talks with Google, as the struggling business explores ‘strategic options’. More recently, several outlets have reported that a deal – either for the whole company or just its smartphone unit – is in late stages. Other options on the table include an investment by the US company. Whatever happens, there is a good chance that HTC’s days as a stand-alone smartphone maker are numbered. If Google does pull the trigger, this latest hardware deal won’t have patent implications as big as its previous Motorola turnaround, but it will mark the unification of two long-term patent partners.
There is one very compelling business rationale for Google to buy HTC, and that is price. The Taiwan-listed company’s share price has fallen by around 75%, leaving its market share just under $2 billion – a drop in the bucket for Google parent Alphabet. HTC has made Android phones from the very beginning, and it’s the US company’s OEM manufacturer for its own Pixel and Pixel 2 devices. Three years after it sold of the remnants of Motorola Mobility to Lenovo, some analysts say now might be the time for Google to push further into hardware in a bid to stay competitive with Apple and Samsung.
The patent alliance between Google and HTC goes back to the height of the smartphone wars. IAM readers may remember that Google assigned nine of its patents to the Taiwan company as it sought to avoid a US infringement lawsuit and ITC complaint filed by Apple. HTC promptly counter-asserted the Google assets against Apple, only to have most of them disallowed by the ITC for reasons of standing. The two sides soon after settled their differences, but not before an injunction had disrupted a major HTC product launch. Despite Google’s efforts, the smartphone wars did not go very well for HTC, and that is just one of a constellation of reasons why the company is in dire straits today.
More recently, it was no surprise to see HTC as one of the first participants in Google’s Android Networked Cross-License, PAX for short, which was announced this past April. HTC agreed to join Samsung, LG, Foxconn and other PAX signatories in granting royalty-free licences that provide members with freedom to operate with respect to Android and Google applications.
Patents turned out to be a major factor in Google’s 2011 purchase and subsequent 2014 selling of the Motorola Mobility unit to Lenovo, as it ended up holding onto about 15,000 Moto patents at a cost of several billion dollars. But IP assets would play a comparably small role if HTC becomes the Alphabet unit’s next major acquisition in the mobile hardware space. According to the most recent analysis from MDB Capital Group and IAM, HTC had just under 2,000 US patents and applications. The portfolio was growing at a decent compound annual growth rate of 20% and scored fairly highly on the ‘tech score’ used in the analysis to determine the portfolio’s positioning in important technology fields.
In addition to internally developed assets, HTC did make several large portfolio buys between 2011 and 2013 at the height of its legal troubles. These include 135 US grants from US telecom ADC, 167 granted patents from Hewlett-Packard, and around 200 rights it acquired from RPX (which appear to have originated with Japanese company NEC). It also picked up smaller portfolios from Nokia, Mindspeed and NPE Wiav, according to data from ktMINE. IAM understands that some of these purchases were in the high tens of millions of dollars, values the company has found difficult to match in subsequent attempts to test the market for the third-party assets in China. If the Google deal does not happen, perhaps those patents may be on the move again.
Of course a purchase of HTC would also put Google in the licensing and litigation crosshairs even more so than it is now. The Taiwan company remains a perennial NPE target despite its small overall smartphone market share – Lex Machina shows it as involved in 37 open patent infringement cases, 31 of which it is defending. It was one of two defendants (alongside Apple) selected for Fortress’ recently launched campaign, and in the Beijing IP Court it is fending off a suit from NPE Longhorn IP, which is looking to make an example of someone as it kicks off an enforcement campaign in China. With Google behind it, HTC might find it easier to combat these assertions, but it would likely become an even bigger target.