Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.
The Troll Toll
Royalties paid by smartphone makers to license patents are costing almost the same as the BOM, says a report written by Intel’s vp and associate general counsel Ann Armstrong and two private practice lawyers.
“We estimate potential patent royalties in excess of $120 on a hypothetical $400 smartphone—which is almost equal to the cost of the device’s components,” say the lawyers.
LTE royalty rates are, per $400 device:
Alcatel- Lucent. 8
Via Licensing 2.10
These account for $54 of the price of the $400 smartphone and, in addition, there are other companies with necessary LTE patents which have not announced their LTE royalty rates like Samsung, InterDigital and LG.
Patent holders have been selling or licensing patents to companies which then use the patents to sue people and make a profit for themselves and the original patent holder. An example is MobileMediaIdeas owned by Sony and Nokia.
Such companies are called ‘Patent Privateers’ and are favoured by struggling companies, says the report. Their net effect is to drive up royalty rates. However their success rates in litigation are low.
Of 58 cases relating to standard essential patents (SEPs) necessary to manufacture a smartphone which were initiated by Motorola, InterDigital and Samsung, only 7 were found valid, 18 found invalid, 17 found not infringed, and 16 were withdrawn or dismissed.
Tech companies are plagued by trolls’ lawsuits, says the report. Apple has had 191 in the last five years, Samsung 152, HP 150, AT&T 147, Dell 140, Google 127, Amazon 125, Sony 125, Verizon 124, LG 117, HTC 115.
These figures do not include demands for royalties that never got to court.
The net result of all this trolling activity is, says the report, a reduction of profitability in phone manufacturing, the limitation of phone manufacturing to companies which already have a large patent portfolio and a consequent reduction in the smartphone industry’s competitiveness.