Patent costs are 30% of a new phone's retail price

Patent costs are 30% of a new phone's retail price
According to a new report, 30% of the price you pay for a new smartphone represents the cost of acquiring licenses to use patented technology. Titled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones, the report was written by patent litigators Joe Mueller and Tim Syrett, along with Intel Vice President and Associate General Counsel Ann Armstrong.

Using publicly disclosed information, the authors came to the conclusion that $120 out of the cost of a $400 hypothetical smartphone is used to make royalty payments to patent holders. The average price of a smartphone was $450 at the end of 2012, but has recently declined to $375.

The paper reveals that phone manufacturers are paying $60 in royalty fees, for the rights to use components that support LTE connectivity on a smartphone. Yet, the actual baseband processor used for cellular functionality on a handset, costs just $10 to $13 for each phone. The paper also refers to "royalty stacking" in which multiple companies grab fees from a single device. This could drive the price of a product so high, it becomes unfeasible for the manufacturer to produce it.

Hopefully, we will see more deals like the one recently forged between Apple and Google's Motorola Mobility. If not, patent costs could continue to rise and get passed along to smartphone buyers like you.


source: WilmerHale, DigitalTrends via AndroidandMe

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49 Comments

1. Desmortibus

Posts: 66; Member since: Apr 04, 2014

Insanity !!!!

2. Droid_X_Doug

Posts: 5993; Member since: Dec 22, 2010

It is what it is. Apple demands royalties. Nokia/MS demand royalties. And, and, and. Everyone is guilty.

19. Liveitup

Posts: 1798; Member since: Jan 07, 2014

Not just Apple or MS/Nokia everyone demands it including Google and its OEM's.

10. InspectorGadget80 unregistered

and could care less bout patents. just stop giving B.S. exisiting patents to the greedy fruit.

11. Ashoaib

Posts: 3309; Member since: Nov 15, 2013

This is the reason I hate patents and love those companies who infringe patents

30. oboboy14

Posts: 51; Member since: Mar 27, 2014

You must not understand patents well. Without patents, you can say goodbye to innovation.

32. Augustine

Posts: 1043; Member since: Sep 28, 2013

How indeed could mankind make any innovation before the 18th century? Wasn't the wheel invented in the 19th century, along with the plow? Leonardo was an ammateur!

44. microsoftnokiawin

Posts: 1268; Member since: Mar 30, 2012

patents are there to make sure you earn credit for your hard work and no one else steals it unfortunately the american patent system is broken as ^%$# causing in a lot of patent trolls ! but theoretically patent used correctly are good

43. Ashoaib

Posts: 3309; Member since: Nov 15, 2013

You must understand patents, with patents you cannot innovate.... patents are putting hold on technology and creating monoply of big companies... patents are there to make sure for western countries specially USA, how to earn money when someone else earn money... it is to keep capitalism going, its not about innovation... what is the point of granting paten for 20yrs? Its ridiculous... patents must not be more than 5 years

50. oboboy14

Posts: 51; Member since: Mar 27, 2014

Without patents and property rights, there would be no incentive to innovate, because someone could take what you've invented, manufacture it, and take revenue from you. Patents help companies and individuals recover costs associated with research and development. Pharmaceuticals, technology, medical instruments, household innovations. The patent system does to be refined, but there is no perfect solution, nor will there ever be. But there is no reason to not let individuals take credit for their ideas, and have sole rights to it for a period of time.

51. Augustine

Posts: 1043; Member since: Sep 28, 2013

And when competitors start copying, a truly innovative company will about coming up with something else, as in innovating. Instead, what we have is companies just sit on their patent portfolio knowing that they don't have to innovate again for 20 years. Besides, I thought that we lived in a capitalistic economy, where the consumer is king. Only in a corporatist economy are companies kings.

53. oboboy14

Posts: 51; Member since: Mar 27, 2014

The consumer is king. How are companies king? Please explain. If you don't like it, then don't buy it, its that simple. But you alone won't be able to make a difference.

54. Ashoaib

Posts: 3309; Member since: Nov 15, 2013

5 years are more than enough to grant a patent... 20 years are ridiculous... 20yrs stops innovation and starts patent trolling like what apple is doing now... beside that it is more ridiculous to patent rounded edges, which insane says making rounded edges is an innovation?

57. oboboy14

Posts: 51; Member since: Mar 27, 2014

You are right, giving a patent for having rounded edges does sound ludicrous. But there is much about patents I do not know, and I don't even know if what is reported is true regarding that. Either way, property rights are important.

3. PBXtech

Posts: 1032; Member since: Oct 21, 2013

This is why small companies struggle and big companies thrive, the system favors those with the deeper pockets.

31. 0xFFFF

Posts: 3806; Member since: Apr 16, 2014

Well said. Almost everything in the world is designed this way, now. America had the last patent system that was friendly to small companies and individuals and it was legislated out of existence by the big tech corporations and replaced with "first to file". Of course, "first to file" is nothing more than a massive incentive to steal IP.

4. fzacek

Posts: 2486; Member since: Jan 26, 2014

I guess that explains why Apple products are so overpriced...

5. sipha

Posts: 440; Member since: May 12, 2012

This just cant be right... It makes no economic sense whatsoever!! O.o

8. tedkord

Posts: 17452; Member since: Jun 17, 2009

And this is just the licensed patents, it doesn't include the legal costs, which probably add at least as much, if not more.

16. Augustine

Posts: 1043; Member since: Sep 28, 2013

Reading an article by a venture capitalist, he described how he analyzed a start-up, including their patents. He discarded any start-up from investing in it which neglected to put in their business plan at least $5 million to defend their patents. For otherwise they were worthless. And this, boys and girls, is what the patent system is about. It is about big corporations, not the consumer. It is the state awarding a monopoly to the highest bidder. It is, as Mussolini explained, Fascism, "the merger of state and corporate power."

6. Gasteasoro

Posts: 25; Member since: Apr 02, 2014

And THIS is the reason for which we should ALL care about the Samsung vs Apple patent drama. In the end each and every penny any of them is "forced" to pay will come from our pockets. Not from theirs.

22. fzacek

Posts: 2486; Member since: Jan 26, 2014

That's why Apple needs to STOP being a legal bitch...

35. willard12 unregistered

Thank you. There are some commentors (one in particular) who continues to insist that no one should care about companies abusing the patent system. This is in spite of the fact that they are told over and over that these costs and the cost of the litigation gets passed on to the consumer.

7. tedkord

Posts: 17452; Member since: Jun 17, 2009

'Hopefully, we will see more cross-licensing deals like the one recently forged between Apple and Google's Motorola Mobility. " Ummmm. There was no cross licensing deal. They simply dropped litigation, but reserve to the right to sue later. This was simply Apple attempting to look like they weren't going after Google, since Samsung was so effective at showing that in the last trial.

9. Nokia1100user

Posts: 19; Member since: Aug 14, 2013

Patents are viruses to the tech industry, sure it helps out the people who deserve credit for their work (which they should) but it gets abused (patent trolls who buy patents and do nothing with them and charge a crap load). Patents are on of the key factors that prevent innovation because when you try to build something with amazing specs you have to pay ridiculous fees or if you think you can make something better you better prepare yourself for a lawsuit. As a programmer who shares and uses many code from others who created them, it helps me and others build better applications because we dont need to worry about others saying we we took something of theirs and just focus on building something amazing.

13. Ashoaib

Posts: 3309; Member since: Nov 15, 2013

Agreed... this is the reason all patents must be infringed

14. Augustine

Posts: 1043; Member since: Sep 28, 2013

The people who invent things do not benefit from their patents. Most employment contracts awards any invention to the employers automatically. In other words, the company, which contributed nothing directly to the patent creation, gets all the tangible credit. Surely, the inventor name figures in the patent, but its ownership and any financial benefit from it is the company's.

12. Augustine

Posts: 1043; Member since: Sep 28, 2013

Patents do not benefit the consumer, only the companies. When it came about, patents would provide monopoly for 14 years, then it was progressively increased to 17 and now 20 years, even though the pace of obsolescence is much faster. Initially, only innovations were matter of patent, now variations on one are too. All this hinders innovation, because even minor changes are granted a monopoly for decades. The loser is the consumer who gets less benefit from true innovations and pays through the nose for rounded-corner squares.

15. Ninetysix

Posts: 2965; Member since: Oct 08, 2012

http://images.dailytech.com/nimage/Nokia_v_HTC_Patents_Wide.png Bow down to your patent hoarders Nokia and Samsung. Also combine Motorola + Google together.

17. networkdood

Posts: 6330; Member since: Mar 31, 2010

lol, nice - no Coolpad or Oneplus on that graphic, so I am good...

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