News came this morning that Google is acquiring Motorola Mobility for a hefty $12.5 billion. Motorola Mobility which focuses its efforts on mobile phones and tablet computers is a spin off from Motorola. Here is the story from Bloomberg:

Google Inc. (GOOG), maker of the Android mobile-phone software, agreed to buy smartphone maker Motorola Mobility Holdings Inc. for $12.5 billion in its biggest deal, gaining mobile patents and expanding in the hardware business.

Motorola shareholders will get $40 a share in cash, the companies said in a statement today. That’s 63 percent more than Motorola Mobility’s closing price on the New York Stock Exchange on Aug. 12. Both boards have approved the takeover.

If this is not about patents(which it most likely is), then it is a completely crazy move on the part of Google. What kind of message does it send to other Android handset makers?

This also shows how well Microsoft has played its hands with their new Windows Phone platform. Analysts and pundits forecasted (and even pressured) a possible Nokia acquisition by Microsoft. Microsoft instead got what it wanted without an outright acquisition of Nokia – an exclusive Windows Phone deal. I have to say that this move by Google has increased the attractiveness of the WP7 platform to handset vendors.

Now, back to the topic of patents – Google’s Android ecosystem was under relentless attack from competitors – not by outsmarting and out-innovating Android, but suing them for patent infringements. Also Android rivals colluded in order to exclude Google and Android from getting their hands on Nortel’s portfolio of patents. Microsoft, arguably, has been making more money from Android than Google itself. Apple was successful in blocking Samsung’s tablet from sold in the European markets. Something is badly broken in the patent system.

These companies are spending money on lawyers and lawsuits instead of spending it on engineers and technology. One has to really question the utility of the patent system itself. All these companies are clearly in violation of each other’s patents, and they use their own patent portfolio as a deterrent(nuclear style) against potential lawsuits. The biggest loser in this system is innovation. Does a new upstart, without the protective shield of a large portfolio of patents, stand a chance against these behemoths? What usually happens is startups are ignored until it achieves a level of success where patent trolling becomes a lucrative strategy.

This blog post from the maverick,Mark Cuban, deserves a more serious consideration. At the very least, I think it is time to rethink the patent system.

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Apple Led Group to Buy Nortel Patents:

Apple Inc. (AAPL) joined with rivals Microsoft Corp. (MSFT) and Research in Motion Ltd. (RIM) to outbid Google Inc. (GOOG) for a patent portfolio from Nortel Networks Corp. and gain rights to technologies for mobile phones and tablet computers.

The group, which also includes Sony Corp. (6758), Ericsson AB and EMC Corp., agreed to pay $4.5 billion in cash for the assets, Ontario-based Nortel said in a statement. The companies aim to complete the sale this quarter pending approval from U.S. and Canadian courts, it said.

So who is the loser in this War?

The winning offer came after several rounds of bidding and was five times the $900 million Google had offered before the auction for Nortel’s remaining intellectual property.

What was Google’s response?

“This outcome is disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition,” Mountain View, California-based Google said in an e-mail. “We will keep working to reduce the current flood of patent litigation that hurts both innovators and consumers.”

Although I am very sympathetic to this view, I see double standards here from Google. Are they really open about innovation in areas that really matters to them as a company? Will they open source their search algorithm?