A new HTC Android-based smartphone "Sensation" is displayed during a news conference for the launch of the product in Taipei
A new HTC Android-based smartphone "Sensation" is displayed during a news conference for the launch of the product in Taipei May 27, 2011. REUTERS

Google's plans to acquire Motorola Mobility to expand its reach gives it as many as 17,000 new patents for technology in the wireless market but the $12.5 billion price is rather steep.

If the search engine colossus had followed the traditional Silicon Valley pattern, it might have reached a cross-licensing deal with many of the players in the smartphone market, especially litigation-happy rival Apple.

When the deal closes, Google may end up with nearly as many patents as Apple, estimates MDB, an intellectual property investment bank in Santa Monica, Calif., despite Apple's 20-year longer history.

Since 2007, the biggest players in the sector, including Apple, HTC and Samsung Electronics have been in court or before national agencies such as the U.S. International Trade Commission alleging patent infringement and piracy.

Meanwhile, the manufacturers, computer makers and others have complained to the U.S. Federal Trade Commission and the Justice Department, as well as the European Commission, about Google, alleging the Mountain View, Calif., company is behaving like IBM and Microsoft did in earlier eras, when both used their muscle to bar competitors.

Google acknowledges the probes, which haven't yielded any decisions yet. IBM and Microsoft long ago settled with the U.S. Government, although Microsoft's scrutiny only lapsed this year.

Google struck now, as its Android OS for smartphones is dominating the smartphone sector. In the second quarter, Android phones accounted for about 43 percent of the market compared with only 19.2 percent for Apple's iOS for the iPhone and iPad, Gartner estimates.

At stake are burgeoning markets and new opportunities to hook consumers for the long run. Smartphone sales are expected to leap 62 percent this year to 478 million units, estimates IHS iSuppli, compared to a meager 13 percent growth for all mobile phones.

Growth for tablets, like Apple's iPad, HP's TouchPad, Samsung Electronics' Galaxy, is much faster --- about 300 percent to 69.5 million, Gartner estimates.

The usual practice in technology is that unit prices will decrease but manufacturers make money on volume as well as services, much like Apple's iTunes and iStore.

Big money is at stake. In July, the so-called "Rockstar Bidco" group shelled out $4.5 billion for 6,000 wireless patents from defunct Nortel Networks of Canada. The members were Apple, Microsoft, Research in Motion, EMC, Sony and Ericsson, who outbid Google, Intel and RPX in a round that started at only $900 million.

So Google's response --- buying Motorola Mobility --- is clearly a counter-move. While Apple has not yet responded, one might think it would urge the Justice Department to bar the acquisition on anti-competitive grounds. It's not as if Apple director Al Gore can't place a call to Attorney General Eric Holder, who worked in the Clinton-Gore Administration

Or, if prior practice holds, Apple and all the others could declare a truce and cross-license one other.

For now, it appears as if Google may have also been a better shopper. Youssef Squall and other analysts at Jefferies estimates it paid only $560,000 per Motorola Mobility patent vs. $700,000 the Apple group paid per Nortel Networks patent.

One company that watched the Nortel auction and then put itself up for sale may now not be as valuable. That's InterDigital, a King of Prussia, Pa., holder of 1,300 wireless patents, which hired investment bankers to auction its IP on July 18. The company's market capitalization had soared 73 percent to around $3.4 billion. Since Monday, its value has shriveled to only $2.84 billion.

Intellectual property is one reason why 36 percent of all U.S. patent lawsuits filed in the U.S. this year by the Fortune 100 have been in the tech sector, along with an additional 11 percent for telecommunications, according to Ocean Tomo, the Chicago-based intellectual property investment bank.

"When you have hot products, the competitors all stand around in a circle and fire at each other," said Dan Scovel, of Tokeneke Research. "The only solution is an armistice."

That's what happened in the PC wars of the late 1980s and the 1990s, as the x86 microprocessor that fueled the explosion of PCs, was fought over by rival developers Intel and Advanced Micro Devices. The two California semiconductor giants fought for years in every conceivable court and spent tens of millions on litigation.

Finally, they settled in 1999. Intel and AMD cross-licensed each other and dropped the case. The deal has held ever since, although Intel expressed concern when AMD, of Sunnyvale, Calif., sold its manufacturing lines and other assets to GlobalFoundries, a holding company controlled by Abu Dhabi interests.

But a truce may not happen this time, lawyers and bankers say, because the sector is so dynamic. As well, governments outside the U.S. are vigorously defending their IP, especially in emerging markets.

"When a business is growing quickly, the market share gets very sensitive," said Michael Molano, a partner with Mayer Brown in its Silicon Valley practice. "If a company detects it's losing market share, the first thing management says is, 'I'm going to call my lawyer and tell him I want to see what patents have been infringed and I want you to start a war.' "

Tech companies with deep pockets, like an Apple, Google, IBM, Microsoft or Samsung, can easily afford the $3 million average cost of a lawsuit, said S. Gregory Boyd, a patent lawyer with Davis & Gilbert in New York.

Boyd believes the chip precedent will ultimately prevail among the smartphone and tablet developers, with the possible exception of small "patent trolls" or entities like Lodsys, whose sole purpose is to sue for patent rights.

"Peace is always better than war," Boyd said. Besides cross-licensing, settlements could include royalty payments or straight cash settlements, which allow the technology players to get back to work,

Ocean Tomo CEO James Malackowski is not so sure. Noting a surge in IP cases over the past 25 years, he said the "détente" or "mutual assured destruction" strategy of the chip wars may not hold now.

"The big gladiators are still fighting each other," Malackowski said. "But there are new kids on the block, Asian manufacturers have nothing to lose by suing about IP."

Some of the biggest players, including Apple, no longer manufacture their own products, effectively entrusting their crown jewels to contract manufacturers, like a Foxconn in Taiwan and China, or HTC in Taiwan.

"Today the companies are fighting over a product that has consumer appeal," so each vendor wants to differentiate among products that often share similar technologies, he said.

Malackowski, whose firm participated in the Nortel Networks auction, said "it doesn't take a rocket scientist" to see that the big vendors are also concerned their IP might migrate away from the U.S. to China but then to even less-developed venues like Africa.

As well, while the U.S. International Trade Commission plans to evaluate claims by Apple that Samsung violated its patents, it's not likely to bar Samsung from U.S. markets. On the other hand, the European Union appears to take a tougher line

Last week, a German court issued a preliminary injunction barring Samsung from shipping its Galaxy tablets in most of Europe, accepting a complaint by Apple that it had "slavishly" copied its IP. On Tuesday, it relaxed the ban, at least until an Aug. 25 hearing.

In the U.S., Congress has been working on patent reform but generally maintains "a laissez faire attitude," said Ocean Tomo's Malackowski. That could mean it will be up to the companies to sue, settle and battle in the marketplace.