Since losing their exclusive bid for Nortel’s patent portfolio (after refusing to enter a joint bid with group of companies including Apple and Microsoft), Google managed to acquire Motorola’s mobility patent portfolio for $12.5 billion.  Motorola’s phone hardware division was thrown in for good measure, but the primary goal was the patent portfolio which Google needs for counter lawsuits against Microsoft, Apple, and Oracle.

Microsoft already collects royalties from several Android phone makers and is currently suing Motorola for its Android phones.  By acquiring Motorola mobility, Google hopes to have more ammunition against Microsoft and other patent litigants.  This should also put a stop to Motorola’s plans to start suing fellow Android phone makers.  Even if Google wanted to become an exclusive Android phone maker, it’s doubtful they can sue their own licensees for devices already shipped, however Google could stop licensing Android in the future.  Muddying the waters further is the the legal challenge from the GPL open source movement that might shut down most Android vendors.

The stakes for the smartphone market are now higher than ever.  Google’s Android has rapidly become the dominant smartphone operating system, and the company is willing to spend $12.5 billion dollars to fight patent lawsuits.  Apple still holds a solid and lucrative market share while Microsoft is desperately trying to catch up even while they collect more revenues from Android licensing settlements than they make from their own Windows Phone operating system.

UPDATE – Business Insider has a great analysis on the potential dangers of this deal because the hardware business is so different, competitive, and narrow margins.

UPDATE 2 – Daring Fireball has some good analysis on Motorola’s strategy for selling itself.

“Another way to look at this story, then, is that maybe Google really didwant those Nortel patents, and when they didn’t get them, they knew they were in a worse position than ever, patent-wise, with Android. And then Motorola started threatening — publicly, just this month — to wage patent warfare against other Android handset makers. And started talking about support for Windows Phone.”