March 22, 2017
SEP licensing has been a changing scene since the landmark case of Huawei and ZTE, and it looks like the Swedish telecoms giant could be about to change the game further after announcing their SEP license fees for 5G. They have announced that they will cap royalties at $5/phone for top-end devices, and as little as $2.50 for entry level ones. Analysts state that this is a move to increase transparency and reduce litigation risk for licensors in this market, and in doing so disarming critics of SEP licensors.
Why it Matters
Having one major player declare their license rates for 5G increases pressure on the other licensors, and they will be under immense pressure to justify any increase over Ericsson’s $5 maximum. If this turns out to be a success, it could be a landmark move in SEP licensing, and transparency could emerge as the new trend.
Many have tried to estimate the size of the royalty stack for a full-featured smartphone, which will use many standardised technologies and therefore need licenses to the associated SEPs. The standard and much-quoted estimate came from two Apple lawyers and an Intel exec, whose bottom-up approach concluded that SEP royalties are around $120 for a $400 phone, or 30%. This was considered bad for consumers and was cited by some as a reason to shake up the system.
However, a new study published by Stanford University finds a very different figure from research into past royalty data. From top level averages of total royalty revenues, total phone sales and average phone values, they were able to derive that the average royalty rate on a smartphone was just 3.4%. This suggests that there is actually very little monopolistic power being exploited in the smartphone market.
Why it Matters
Many of us will have heard the royalty stack figure of 30% used as a reason that patents are bad for consumers, but this study’s results suggest that the full royalty stack is rarely exploited in full. Instead, it serves as an example of how complex license agreements can be, and the authors speculate that a smartphone monopoly could only be achieved if a company fully vertically integrated into every aspect of the smartphone, rather than the current set up where many specialist companies create a subset of smartphone features, and therefore reduce their ability to seek lost profits through litigation.
According to the USPTO assignment records, Xiaomi’s 2016 patent buying spree wasn’t limited to the 3 transactions previously announced, as IAM reports, they have found assignment records for another 59 US assets from Casio coming Xiaomi’s way. The buying of older assets from established players is a widely used move for companies looking to expand, be it into new tech sectors or new territories. However, the fact that it was Casio selling the patents is of note, as they have historically not been much of a patent seller, but have sold a number of portfolios recently, which could be indicative of an increased importance of monetisation at Casio.
Why it Matters
Large portfolios accrued over time can lose relevance to a business that has since evolved into different sectors, and Casio’s recent shift to sales could well be aimed at raising some revenue whilst ridding themselves of the patent maintenance overhead costs. This is much to the benefit of Xiaomi, who can now enjoy some additional protection for themselves in the US using some earlier, and therefore broader assets.