Making its biggest deal ever, Google is acquiring Motorola Mobility Holdings for $12.5 billion, which analysts see as an attempt to fend off increasingly aggressive legal attacks from rivals like Apple.

After losing out to Apple, Microsoft and others in a recent auction of bankrupt Nortel's assets, Google was under pressure to boost its patent portfolio. It's this pressure that led Google to stun the mobile phone industry on Monday by paying a 63 percent premium to gain access to one of the largest patent libraries in the industry. The deal values Motorola Mobility at $40 per share in cash.

"Our acquisition of Motorola will increase competition by strengthening Google's patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Google CEO Larry Page told Reuters.

"No matter how you think about this, you have to look at it through the spectrum of the Android ecosystem under incredible attack from an IP (intellectual property) perspective. And this is Google going out and trying to fix that," said Jim Tierney, W.P. Stewart Advisors' chief investment officer. "The biggest implication here is that Google wants Android to be one of the dominant phone operating systems for years to come."

Last year, the search engine giant co-developed the Nexus One phone with HTC, making its first foray into hardware. But Nexus got mixed reviews and faded. But analysts believe this Google-Motorola deal could mark the beginning of an Apple-style model, assimilating mobile hardware with underlying software, Reuters reported.

Impact on other Android players

There is a growing concern among analysts that since Motorola is a fairly minor player, the deal could make other handset makers feel threatened.

"The deal will make most Android players realize how dependent they are on Google and how quickly Google's plans can change their businesses," said Francisco Jeronimo, an analyst at research firm IDC. "Samsung, HTC, and Sony Ericsson may now look at other platforms as a way to diversify the risk of being so dependent on one platform."

Page tried to reassure investors Monday this would not happen. He said that like other players, such as HTC and LG Electronics, Motorola will also be run as separate company licensing Android software.

Microsoft could turn out to be a winner in this deal, with Windows benefiting if the acquisition alienates other phone makers that depend on Android, and make them ponder other options.

Google also acquires Motorola's set-top box businesses under the deal, which it expects to close by the end of 2011 or early in 2012.

Monday's deal sent Nokia's shares up 17.35 percent and Research In Motion's up 10.3 percent, with revived merger and acquisitions hopes. Taiwan stocks rose 0.86 percent on Tuesday, with HTC trading higher after Google's proposed bid to acquire Motorola Mobility Holdings.

The Legal Battle Continues?

According to analysts, Google's rivals are expected to carry on with the legal means to enforce their patent rights on mobile devices. While Microsoft recently settled a case with HTC over its Android devices, Oracle has also joined the party, seeking a huge amount from Google for infringing on Java patents. Apple is also likely to continue with its patent war against Google, which could upset the search engine giant by increasing licensing costs that it needs to pay to the phone-maker.

As per latest Gartner data, Android leads the smartphone market with 43.4 percent share in the second quarter, followed by Nokia with 22 percent. Apple came third with 18 percent share of the market.

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