iTnews points to a study performed by Joseph J. Mueller and Timothy D. Syrett of IP firm WilmerHale, and Ann Armstrong of Intel, which concludes that for an average $400 smartphone (no subsidies), patent royalty costs may be higher than component costs.
Indeed, the royalty data shows that the potential royalties demands on a smartphone could equal or even exceed the cost of the device’s components. To be sure, for the reasons described above, many of the so-called “headline” rates on which these royalty figures are based may not withstand negotiation or litigation, but they have nonetheless been sought (and received) from some licensees. With the addition of royalties for the components/technologies for which we did not have sufficient data to include royalty figures, the total potential royalties would increase. Without access to the actual royalty figures paid by smartphone suppliers it is impossible to know for certain their magnitude. But our research demonstrates that they are likely significant. Indeed, the available data suggest that the smartphone royalty stack may be one important reason why selling smartphones is currently a profitable endeavor for only a small number of suppliers.
Let me repeat that last line for you – savour it and let it sink in.
Indeed, the available data suggest that the smartphone royalty stack may be one important reason why selling smartphones is currently a profitable endeavor for only a small number of suppliers.
Bingo. This is exactly why the patent system will never change: this construction benefits the large players immensely. Smaller players will have a hard time keeping up with the patent costs, since they most likely won’t have much to barter with patent-wise. The result is less competition for established players.