What percent of a smartphone’s price comes from patent royalties?

by: William Neilson JrJune 1, 2014
Patent litigation is nothing new with smartphone makers and distributors. Apple, Samsung, Google and virtually every other major player in the tech industry seems wrapped up in patent disputes these days. Now, Digital Trends points out specifically how much these patent wars are costing consumers when they buy a new device:

According to two Apple lawyers and an Intel executive, over one-fourth of the cost of a smartphone is tied directly to patent royalty fees. – Digital Trends

The paper, written by WilmerHale intellectual property litigators Joe Mueller and Tim Syrett and Intel Vice President and Associate General Counsel Ann Armstrong, used public information to calculate patent royalty costs. In their book titled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones, it is noted how a consumer that buys a $400 smartphone will be paying about $120 in patent royalties, or 30% of the total cost.

So, that means that in some cases, the patent royalties meet or exceed the cost of the actual device hardware.

Last year, it was reported that Microsoft was generating $2 billion per year in revenue from Android patent royalties. In fact, if you take out the Android profits, Microsoft is likely losing around $2.5 billion on Skype, Xbox, and Windows Phone. Android handset makers pay between a reported $5 and $10 to Microsoft on every sold device.

trolls Vox.com

Then there is this:

Even more troubling is “royalty stacking”, where multiple companies with interests try to steal away fees from a handset. To that end, a single smartphone could end up having, say, three royalties for LTE connectivity alone. That threatens to drive the price up to the point it’s no longer affordable. – Digital Trends

Of course, Slashgear mentions a very easy solution for some companies:

Companies can sidestep these rules, as Samsung and Google recently did, offering up a truce and cross-licensing agreements. Save for agreements like those, FRAND is the only thing saving OEMs from being torn apart by patent trolls. – Slashgear

lawsuits_filed Vox.com

In the book, it is stated that the royalties for LTE cellular functionality alone comes to about $60 per phone while the baseband processor, which implements the cellular functionality, cost around $10 to 13 per phone.

Unfortunately, it seems unlikely that patent disputes about Android devices will decrease in the near future with fighting expected against Rockstar, Oracle and others.

  • Guest123

    Most of these patent costs balance out via cross licensing deals, unless you have no significant patents.

    So, it’s really not like they say. and apple still makes, what, 50⅝+ profit on the iPhone…

    • MasterMuffin

      Of course it does, Apple doesn’t sell anything unless they get huge profit :)

      • Corbin Crutch

        Which is why their prices are so high

  • fahadayaz

    So what about a new company, say OnePlus. How are they managing to sell their phone so cheap despite these high costs? Or are they still having to pay these too? (which would mean the actual hardware is significatly cheaper, were it not for these patents)

    • Luka Mlinar

      I think this is where Google steps in.

    • Jbg

      OnePlus isn’t a new company it’s owned by a larger Chinese company.

      • MasterMuffin

        It is a new company, even though it’s owned by Oppo :)

    • Abed Nadir

      OnePlus is owned by OPPO, a larger Chinese company. Also, patent litigation and trolls are cut off in other parts of the world where the loser has to pay the attorney’s fees. Here in America, each side pays its own fees. So it’s not surprising that more OEMs are moving overseas to get away from patent litigation and that Motorola is shutting down its plant here.

  • Alu Zeros

    patent system and royalty system needs revamped period.

    • Abed Nadir

      A reform of the patent litigation that was passed by the house last year is now stalled in the senate: http://www.vox.com/2014/5/28/5745770/the-patent-lawsuit-crisis-in-5-charts

    • BruceLeeRoyJenkins

      Sony seems to be one of the bigger OEM’s missing from here

      • VivianTeasdalegyi

        Josiah .
        although Jacqueline `s stori is surprising, last week I bought themselves a
        Chrysler from having made $5060 thiss month and-in excess of, 10/k last-month .
        it’s realy the easiest-work I have ever done . I started this 4 months ago and
        pretty much straight away was bringin in at least $78 per-hour . why not look
        here C­a­s­h­d­u­t­i­e­s­.­C­O­M­

      • WhoaManWtF

        Japan doesn’t negotiate with terrorist!

  • wric01

    That’s why google, apple and the rest of the companies diversify and move their assets and company elsewhere. Paying an arm and a leg for patents just to cater to USA’s meager 300 million shrinking consumers does not make sense long term wise.

  • Jonathan TAM

    Sony isn’t in here… which I guess is a good thing.

  • s2weden2000

    30% of manufacturing cost ..not end price

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