The Smartphone Royalty Stack: Surveying Royalty Demands for the Components Within Modern Smartphones

Are patent trade wars impeding innovation and development?

“…A recent study reported that approximately US$ 120 must be paid for a stack of patent royalties for an average US$ 400 smartphone. The entire royalties cost about the same as the total cost of physical components for building a smartphone [33]. Essential patents are traded through design houses or patent pools and licensed either independently or through consortiums.…”

“…The threat of litigation will push small smartphone companies to license SEPs and direct research innovation to niche areas, such as outer designs, user interfaces, and applications [33]. Winners of the legal patent battles (after settlements through negotiation and licensing) are using the outcomes to maintain leading market positions in the US which can be argued are not in the best interest of the consumer [35].…”

“…According to both USPTO annual US patent activity report and None Practice Entity (NPE) litigation statistics [33,39], both granted utility patents and patent infringement suits have sharply increased since 2010. The increasing IP legal activities are commonly recognized as the results of smartphone patent applications and grants during the same period of time account for more than 20% of the USPTO patents [40].…”

The impact of patent litigation on shareholder value in the smartphone industry

“…Second, the portion of patent royalty in smartphone device is quite high. Armstrong et al (2014) estimated that a potential patent royalty of smartphone is around 30% of its hypothesized retail price.…”

“…This may be because one smartphone includes thousands of patented technologies. Armstrong et al (2014) argued that there are two main factors which drive this enormous amount of Technological Forecasting & Social Change 95 (2015) 182-190 litigations in the smartphone industry. First, a modern smartphone is a converged device which includes a variety of functions that were once in separate devices.…”