The cost of the existing system of patents is pricing smartphones off the market as manufacturers are spending a bomb trying to avoid trolls.
A new report compiled by Ann Armstrong, Joseph Mueller and Timothy Syrett said that it costs manufacturers more to buy patents for their products than it does to make the gear.
There has been a focus on “royalty stacking,” in which the demands of patent holders across the relevant technology or the device threaten to make it economically unviable to offer the product, the report said.
“The data show that royalty stacking is not a theoretical concern. Indeed, setting aside off-sets such as “payments” made in the form of cross-licences and patent exhaustion arising from licensed sales by component suppliers, we estimate potential patent royalties in excess of $120 on a hypothetical $400 smartphone—which is almost equal to the cost of device’s components,” the report said.
The result is that the smartphone royalty stack across standardised and non-standardised technology is significant, and those costs may be undermining industry profitability—and, in turn, diminishing incentives to invest and compete, it said.
The report added that the magnitude of the potential royalty burdens on a smartphone were getting extremely high. The smartphone royalty stack may be one important reason why selling smartphones is currently a profitable endeavour for only a small number of suppliers who already own shedloads of patents.
Many of the largest royalty demands rely on the methodology of seeking a royalty based on a percentage of the sales price of the entire smartphone, as opposed to the modest price of the component within the phone itself.