Mobile By James Plafke May. 30, 2014 2:01 pm
The modern-day smartphone is predicated on so many different patented ideas that a phone’s manufacturer has to pay a significant amount of money just for the privilege of their phone existing. A new study, performed by two lawyers from intellectual property firm WilmerHale with help from a top Intel legal officer, suggests that the royalties now paid for smartphones rival the phone’s manufacturing costs. This, in turn, suggests that the current manufacturing and royalty systems aren’t sustainable in the long-term.
For the paper, the authors didn’t hone in one any one smartphone, but instead applied*real-life, publicly available royalty and manufacturing pricing data to a hypothetical smartphone that costs $400 at full price without carrier subsidies. The researchers found that, for a phone packed with about $400 worth of tech, the royalties alone would cost around $120 per phone. Using that same publicly available data — which includes the existence of an estimated 250 million patents related to smartphones — the researchers found that the manufacturing costs for the same kind of phone would land in the range of $120 to $150.
Now, mainstream phones, such as ones from Apple and Samsung, aren’t exactly in danger of falling victim to their royalty costs. However, the costs are getting out of control, and the researchers suggest that, eventually, they could undermine the industry’s profits. This could easily cause companies to invest less in their products in order to raise (or maintain) profits, and thus could ruin the overall competitiveness and creativity. It doesn’t exactly take an industry analyst to notice that the only devices being released lately are, in fact, underwhelming wearables or extremely iterative phones and tablets.
As we saw a few years ago, Google purchased Motorola Mobility for what many assumed was Motorola’s extensive patent portfolio — and were proven right when Google turned around and sold Motorola Mobility to Lenovo for a fraction of*the initial purchase price. Patents and royalties affect the smartphone game as much as innovative new ideas or impressive hardware, and this new study suggests that the industry could be facing a giant problem down the road if that doesn’t change.
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For the paper, the authors didn’t hone in one any one smartphone, but instead applied*real-life, publicly available royalty and manufacturing pricing data to a hypothetical smartphone that costs $400 at full price without carrier subsidies. The researchers found that, for a phone packed with about $400 worth of tech, the royalties alone would cost around $120 per phone. Using that same publicly available data — which includes the existence of an estimated 250 million patents related to smartphones — the researchers found that the manufacturing costs for the same kind of phone would land in the range of $120 to $150.
Now, mainstream phones, such as ones from Apple and Samsung, aren’t exactly in danger of falling victim to their royalty costs. However, the costs are getting out of control, and the researchers suggest that, eventually, they could undermine the industry’s profits. This could easily cause companies to invest less in their products in order to raise (or maintain) profits, and thus could ruin the overall competitiveness and creativity. It doesn’t exactly take an industry analyst to notice that the only devices being released lately are, in fact, underwhelming wearables or extremely iterative phones and tablets.
As we saw a few years ago, Google purchased Motorola Mobility for what many assumed was Motorola’s extensive patent portfolio — and were proven right when Google turned around and sold Motorola Mobility to Lenovo for a fraction of*the initial purchase price. Patents and royalties affect the smartphone game as much as innovative new ideas or impressive hardware, and this new study suggests that the industry could be facing a giant problem down the road if that doesn’t change.
More...
