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