Hey, Google! Hypocritical much?

Practice what you preach.

That simple adage has long been a staple of every parent's morality toolbox and its timeless advice will continue to last into the foreseeable future. Unfortunately, it seems that Google (Nasdaq: GOOG  ) has forgotten it.

Exhibit A: Open is better
Just over a year ago, Google announced  its intentions to drop support for H.264 in its popular Chrome browser, a video-encoding format used for high-definition video that facilitates 80% of videos, including many on the Web for HTML5 playback. The video codec's share has been rising precipitously as the new industry standard, especially since Adobe (Nasdaq: ADBE  ) ditched mobile Flash in favor of HTML5.

Source: MeFeedia.com.

H.264 has the backing of heavyweights Microsoft (Nasdaq: MSFT  ) and Apple (Nasdaq: AAPL  ) , among many others. Mr. Softy built it into Internet Explorer 9, and Cupertino officially adopted the standard in light of its famous Flash embargo, using it in QuickTime, iTunes, and on its iDevices.

Google's opposition was predicated on its view that H.264 is not an open standard, since it must be licensed from standards body MPEG-LA, even though the organization had already announced that the standard would be royalty-free until the end of time, but only when the content was free to end users (think YouTube). Commercial uses like Blu-Ray discs or paid streaming services aren't so lucky. The license includes access to an entire pool of patents that contribute to the standard.

The search giant contended that Microsoft and Apple were pushing H.264 in order to bring in dollars from it since they are significant contributors to its pool of IP. Apple's contributions are actually relatively minor and Microsoft says it breaks even with related royalties.

Exhibit B: "When patents attack Android"
Shortly before Google's announcement to acquire Motorola Mobility (NYSE: MMI  ) , Big G's Chief Legal Officer David Drummond described patent offensives in response to the auctioning of IP from Novell and Nortel, whose consortium of bidders were familiar names like Microsoft, Apple, Oracle, and Google itself, among others:

A smartphone might involve as many as 250,000 (largely questionable) patent claims, and our competitors want to impose a "tax" for these dubious patents that makes Android devices more expensive for consumers. They want to make it harder for manufacturers to sell Android devices. Instead of competing by building new features or devices, they are fighting through litigation.

Source: Official Google Blog, Aug. 3, 2011.

Microsoft had already launched its Android licensing campaign, starting its victories with HTC in Apr. 2010 and steadily growing its list, recently welcoming LG Electronics and now milking royalties from over 70% of Android smartphones sold domestically.

Drummond concluded his initial words with: "We're also looking at other ways to reduce the anti-competitive threats against Android by strengthening our own patent portfolio." Then, less than two weeks later…

Exhibit C: Motorola vs. Apple
Enter Moto. Following a German court win, it was able to temporarily win an online sales injunction against Apple after the Mac maker was found guilty of infringing on an industry-standard patent related to 3G/UMTS wireless technology, reminding us of why Google wants it in the first place, while Apple called it an "old pager patent."

Apple was able to get the block lifted since it claims Motorola isn't playing fair game with its patent, which is covered by FRAND, or fair, reasonable, and non-discriminatory, terms. FRAND terms require holders of essential patents to license them at reasonable terms for the sake of competition.

Motorola's ransom amount? It "demanded" 2.25% of select iPhone and iPad sales. That's an absurdly high royalty rate, and just for perspective would have totaled almost $1.4 billion over the past four quarters if applied to all iPhone revenue, although it's not clear which specific 3G-capable devices are included or if Motorola is asking for retroactive payments.

Apple is now asking the European Telecommunications Standards Institute (ETSI) for clarity on what constitutes fair, reasonable, and non-discriminatory, since lack of transparency in the industry regarding royalty rates makes it difficult to gauge fairness.

Exhibit D: Motorola vs. Microsoft
We're still in Germany, but now we're moving to a different court case involving Motorola and Microsoft this time. Remember that H.264 patent pool? Well, Motorola is included in there and claims Mr. Softy is infringing on two of its H.264-related patent families that are essential to the codec standard.

The products in question include Windows 7, IE9, Windows Media Player, and the Xbox 360. Motorola is similarly required to license these patents on FRAND terms, so guess what cut it wants on those sales: Again with the 2.25%. FOSS Patents' Florian Mueller estimates that what Motorola is demanding for just one of its H.264-related patents is over 70 times greater than what it costs to license the entire patent pool.

What does FRAND stand for again? Fearlessly Ransoming Another's Notable Devices?

Exhibit E: The status quo
Motorola's actions are its own, but Google is reportedly backing its would-be subsidiary's patent strategy. According to Bloomberg, it has told the ETSI that it plans to continue Motorola's FRAND licensing, as it tries to clear European regulatory hurdles for the acquisition.

A Google spokeswoman said that Motorola's patent-licensing strategy won't be affected by the deal, and that Google will continue to offer FRAND terms for Motorola's essential patents, which I'm assuming refers to my own FRAND acronym above.

Verdict: Hypocrisy
We started with Google preaching for open standards, like its own WebM video codec, and condemning H.264 because of its associated licensing and royalties. They publicly decried the use of patents to extract royalty dollars from gadget makers "instead of competing by building new features or devices."

Then, in practice, it's trying to acquire a company that is shamelessly doing exactly what it just denounced, with one case even tying back to the royalty-bearing standard (which Chrome still supports) that it was against in the first place! Further exemplifying its hypocrisy, Google has Motorola's back with its patent strategy.

I understand "fighting fire with fire," but I don't think that's a saying that a fireman would take literally. I may not be a scientist, but I'm fairly certain that if you actually tried it, you'd just end up with more fire.

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Fool contributor Evan Niuowns shares of Apple, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Google, Microsoft, Oracle, and Apple. Motley Fool newsletter services have recommended buying shares of Adobe Systems, Microsoft, Apple, and Google; creating a bull call spread position in Microsoft; creating a bull call spread position in Apple; and creating a diagonal call position in Adobe Systems. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 09, 2012, at 10:26 PM, joshpritchard wrote:

    @Evan if MSFT is extracting $10-15 per HTC and Samsung Android device, what does that equate to as a royalty rate? Assuming the average device sells for $450, that'd be ~3%. If the average Android device sells for less, the royalty rate is even higher.

    Who's the hypocrite?

  • Report this Comment On February 09, 2012, at 11:33 PM, dwilh51183 wrote:

    Google SUCKS. All Larry "pimple face " Page does is Copy AAPL. Can't these companies think of their own products and technology? RSW

  • Report this Comment On February 10, 2012, at 12:43 AM, WindsorSmith wrote:

    @joshpritchard: Microsoft would be hypocritical only if it were charging that high rate for a single patent, and only if the patent was part of a FRAND agreement. I doubt either is the case, but if you have evidence please share.

  • Report this Comment On February 10, 2012, at 11:21 AM, DJDynamicNC wrote:

    @dwilh51183 - Yes, Google is just drowning in money from their clone of Apple's wildly popular search engine.

    Apple should use its insanely successful advertising business (which Google must have copied) to get the word out.

  • Report this Comment On February 10, 2012, at 7:52 PM, H3D wrote:

    MSFT if getting ~$10 for hundreds of patents.

    Not for one FRAND covered patent where the breach is engineered by specifically revoking the ability of a chip supplier to license the patent, only to Apple, AFTER the device is already on sale.

    This isn't fighting fire with fire.

    Apple is using patents as they were designed to be used. Motorola is abusing them.

  • Report this Comment On February 11, 2012, at 9:36 PM, rfaramir wrote:

    "I understand "fighting fire with fire," but I don't think that's a saying that a fireman would take literally. I may not be a scientist, but I'm fairly certain that if you actually tried it, you'd just end up with more fire."

    Not your typical city fireman, but one who fights wildfires, yes. National Park Service and National Forest Service firefighters do have occasion to set 'backfires' which are meant to burn up the available fuel that a raging wildfire is moving towards. If all goes well (yes, it sometimes backfires), the wildfire ends up dying down due to moving into an already-burned area. Then it can much more easily be contained. This is fighting fire with fire, by firefighters.

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