Patent costs are 30% of a new phone's retail price

According to a new report, 30% of the price you pay for a new smartphone represents the cost of acquiring licenses to use patented technology. Titled The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones, the report was written by patent litigators Joe Mueller and Tim Syrett, along with Intel Vice President and Associate General Counsel Ann Armstrong.

Using publicly disclosed information, the authors came to the conclusion that $120 out of the cost of a $400 hypothetical smartphone is used to make royalty payments to patent holders. The average price of a smartphone was $450 at the end of 2012, but has recently declined to $375.

The paper reveals that phone manufacturers are paying $60 in royalty fees, for the rights to use components that support LTE connectivity on a smartphone. Yet, the actual baseband processor used for cellular functionality on a handset, costs just $10 to $13 for each phone. The paper also refers to "royalty stacking" in which multiple companies grab fees from a single device. This could drive the price of a product so high, it becomes unfeasible for the manufacturer to produce it.

Hopefully, we will see more deals like the one recently forged between Apple and Google's Motorola Mobility. If not, patent costs could continue to rise and get passed along to smartphone buyers like you.


source: WilmerHale, DigitalTrends via AndroidandMe