Year in review 2011: Google's Motorola acquisition, legal threats cloud Android's future

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The trend: Google's (NASDAQ:GOOG) Android closes out 2011 in command of the U.S. smartphone segment. As of October, Android powers 46.3 percent of all smartphones nationwide, up from 31.2 percent in January and far ahead of archrival Apple's (NASDAQ:AAPL) iOS at 28.1 percent. And with Google activating more than half a million additional Android devices every day, the platform's future is all but assured, right? Not so fast. The events of 2011 have called into question Android manufacturer and developer support, threatening the operating system's growth and stability.

For starters, there's the question of how Google's ownership of Motorola Mobility (NYSE:MMI) will impact the balance of the Android ecosystem as a whole. Google agreed to acquire Motorola Mobility for roughly $12.5 billion in mid-August and has vowed to operate the company as a separate business, promising Android will remain an open source platform. Conventional wisdom indicates Google will be able to leverage the deal to improve Android for both developers and consumers alike by more effectively integrating software upgrades with new hardware builds. But if Google grants Motorola Mobility favored nation status, giving Motorola engineers early access to new Android features and functionality, Motorola's rivals could balk. There seems little doubt most manufacturers will at least reconsider their commitment to the platform and mull producing devices running other operating systems, most likely exploring Microsoft's (NASDAQ:MSFT) Windows Phone OS.

More ominous is Android's increasingly precarious legal status. No fewer than five large, publicly traded companies--Apple, Microsoft, Oracle, eBay and British Telecom--have now brought patent infringement litigation against the platform. The Oracle suit, filed last year and slated to go to trial in 2012, seeks billions in damages against Google, alleging "approximately one-third of Android's Application Programmer Interface (API) packages" are "derivative of Oracle's copyrighted Java API packages" and related documents. (Oracle acquired Sun Microsystems and its Java programming language in April 2009.)

In August, Google senior vice president and chief legal officer David Drummond published a scathing blog post alleging that Oracle, Apple and Microsoft are attempting to "strangle" the Android platform by leveraging "bogus patents" that could drive up costs for devices running the OS. Google executive chairman Eric Schmidt has pledged support for manufacturing partners facing patent lawsuits related to Android, promising Google will offer allies information sharing, industry expertise and access to its patents for licensing and legal purposes. (Both Samsung Electronics--the world's largest Android device maker--and HTC Corp. are battling patent disputes with Apple.) Time will tell whether Google's reassurances are enough to maintain Android's momentum or whether device makers and developers shift their energies elsewhere. 

Why it was significant: With the Motorola acquisition, Google can exert greater control over the end-to-end Android user experience, which should yield significant improvements for both consumers and developers in addition to accelerating competition with Apple. But the deal also means Google is competing directly with the manufacturers who built Android into the world's most dominant mobile operating system, and if Motorola devices begin reaching stores with bells and whistles unavailable to other OEMs, Android support could plummet.  

Google built Android by attracting manufacturers to an open platform, but depending on the outcome of the courtroom battles ahead, the economics could change dramatically. "With so many major patent holders asserting their rights, obligations to pay royalties may force Google to change its Android licensing model and pass royalties on to device makers," intellectual property activist Florian Mueller forecasts. Forget the court of public opinion--the legal system could determine Android's ultimate fate moving forward.