How much extra money to consumers pay for phones thanks to royalty fees?

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With all the patent litigation flying around, it’s reasonable to assume it will affect the price of a smartphone. If a case is lost or settled out of court, one or both sides typically have to pay a patent fee to the other company. That added cost is not blindly absorbed by the company, and a new document shows just how much we’re paying for patents when we buy a 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. 

A working paper on smartphone royalties has calculated from a “bottom up” analysis that the potential patent royalties on a hypothetical $400 smartphone could be over $120. This is more than the cost of the components. The authors say that the cost of the royalty stack “may be undermining industry profitability and, in turn, diminishing incentives to invest and compete”. This is the opposite of what patent royalties are supposed to do. The Smartphone Royalty Stack is a 69-page paper that goes through all the elements of a smartphone, and adds up the potential payments based on the rapidly-increasing number of patent lawsuits. Because the smartphone is a converged device, this doesn’t just include royalties on obvious mobile technologies, such as baseband or LTE. It also includes royalties on file formats such as JPEG, MP4, and AAC; Wi-Fi, Bluetooth, and GPS; RAM and SD memory cards; DLNA and NFC, and the operating system.

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