Patent Wars Heat Up as Google Courts InterDigital - TheStreet

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (

Trefis

) -- With

Google

(GOOG) - Get Report

already having lost out on Nortel's 6,000-strong patent portfolio, the company is entering yet another race to boost its intellectual property. Google recently held talks about buying

InterDigital

, a U.S. wireless chip technology firm that owns and licenses about 8,800 patents that are mainly focused on the mobile handset space. This makes it an attractive target for Google as well as Google's competitors such as

Apple

(AAPL) - Get Report

,

Microsoft

(MSFT) - Get Report

,

Research in Motion

(RIMM)

and

EMC

(EMC)

.

We currently hold a

$596 price estimate for Google's stock, which is around 6% ahead of the current market price.The Android OS has swept across the global smartphone market, and Gartner projects its market share will reach around 50% by 2012. However, the success has come at a price, mainly in the form of expensive patent lawsuits against Google.

Although Google indicates that these lawsuits act as a threat to innovation, Google is really looking to acquire more patents to give itself strategic fire power since it currently has just about 730 U.S. patents to its name compared to Apple's 4,000 and Microsoft's 18,000.

Given Android's threat to other incumbent smartphone players such as Apple, RIM and

Sony

(SNE) - Get Report

, it can bet that Google's competitors will also want a crack at acquiring InterDigital's patents -- at the very least just to keep them out of Google's hands -- much like the consortium did with Nortel. In its attempts to acquire more patents, Google needs to build a "moat" of its own patents to avoid these litigation battles in future.

What Does InterDigital Mean for Google's Stock?

Consistent with our previous note on

Google's rivals scooping up Nortel, a weak patent portfolio could adversely impact profit margins for Google. The margin decline could mainly happen due to higher licensing fees and royalty-based costs for patents that Android uses but does not own. Additionally, expensive patent lawsuits would only serve to distract the company from its daily operations and can hamper Google's innovation-led practices and product development.

See our complete analysis for

Google stock.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.