The real cost of Android? Potentially $60+ per device in patent fees
For more then a year now, the growth of Google’s Android mobile OS seems unstoppable. It went from from 60K daily activations in February 2010 to 300K in December and 500K now. And it does not show any signs of slowing down. According to Andy Rubin, even from this huge 500K a day base, Android device activations are growing at an amazing 4.4% weekly rate.
But Android has an Achilles Heel, a vulnerability which, if not addressed soon, may bring Android growth to a halt very quickly. This week spot – is a very thin wireless intellectual property portfolio that Google has. And Google’s apparent indifference to the legal IP challenges Android device makers are facing right now.
All of Google’s Android partners are under rapidly growing pressure from multiple patent holders, claiming that Android devices infringe on this patent or that, demanding licensing fees. And, more often then not, Google seems to be content to watch it’s partners struggle from the sidelines , filing occasional brief in their defense, but refusing to commit real cash to cover legal costs or provide guaranties/insurance against damages, if Android is found to be infringing.
Yes, Google did try to buy a huge pool of Nortel patents that would have helped a lot to ease Android patent pain, but it lost the auction to Apple, RIM and Microsoft. And Google is fighting Oracle directly to make some key Android related patents invalidated, with some encouraging developments – USPTO rejecting a lot of Oracle patents/claims after reexamination. But it only takes one really strong and broad patent confirmed, to make all those early victories meaningless.
And that’s about it, as far as active Google involvement in patent fights goes.
Faced with this apparent Google indifference, Android device makers are already starting to fold, agreeing to pay licensing fees for each Android handset they sell. For now, only the most aggressive Android IP licensor –Microsoft – has had any success. And it’s winnings are pretty small. Except for HTC, which last year agreed without any fight to pay licensing fee to Microsoft for each Android handset sold, only a few wireless industry newbies like General Dynamics, Onkyo, Wistron and the likes , agreed to pay up.
But last week Reuters reported that Samsung may be ready to cave in to Microsoft, and is now only negotiating how big it’s license fee per Android device will be. And how to get it lower with promises of future Windows Phone commitment. If this report is true and Samsung signs a licensing deal with Microsoft, these could be a very bad news for the future of Android. Because, if Samsung folds without fight, and starts paying $10 for each Android device it ships, it’s a very strong confirmation that the patents Microsoft is asserting against Android, are really strong.
Samsung is not the industry newbie like HTC or Onkyo, with little to no IP in wireless. They’ve been in this business for almost 20 years, are one of the most prolific patent generators around, and probably have one of the strongest wireless IP portfolio in the industry. Samsung lawyers and engineers may have already looked into Microsoft claims, and decided that there is a very good chance they may lose the court battle, so they better settle it right now. If that happens, I don’t see how any other Android device maker, except Motorola, can avoid paying a license fee of $10 or more per device to Microsoft.
But the potential Android partner troubles do not end with Microsoft. They are only start there. We are already hearing that Oracle has put up Android IP licensing program, and is approaching Android device makers with an offer to license it’s patents for $15-20 per shipped device.
Then it gets much worse. Microsoft is only one of the big wireless IP holders hostile to Android, and not even the strongest. In anti Android camp we now also have: Nokia, Apple, RIM (with it’s share of 6000 Nortel patents) and HP/Palm. For now, only Apple has joined Microsoft in anti-Android litigation fray. But you can bet dollars to donuts others will too, soon.
And there is a good reason to believe that each of these players has a wireless IP portfolio, that is at least on par with Microsoft. So they may be able to demand, and get, fees similar to what Microsoft is getting now. Which means, that in a few years, every Android device maker may have to pay an average $10 licensee fee to Apple, Microsoft, Nokia, RIM, HP and Oracle. That’s $60 per device only for the rights to put Android OS on it.
How many device makers can sustain this additional cost? It would be taxing enough for the top of the line Android phones like Samsung Galaxy S2 or HTC Sensation. And it will effectively shut out Android from mid-to low end markets – that are the key for Android to grow or at least sustain the market share it has achieved today.
Which makes apparent Google passivity on this issue very strange.
Since Android exploded, Google already had 2 big opportunities to remedy it’s patent problem. It could have bought Palm last year for something like $1.5 billion. Which would have got them patent portfolio of the smartphone industry pioneer, IP cross-licensing deals with most of the old players, in addition to all WebOS assets and team.
Last week, they could have had 6000 patent strong Nortel portfolio for something upwards of 4.5B. Which sounds pricey, but would have netted to about $25 per Android device for 1 year of production at current 500K a day rate. Accounting for future growth, spreading it over a few more years, this cost per device would have become negligible, easily covered by advertising and other revenue streams Google can generate via Android. But Google let both of these tremendous opportunities slip through it’s fingers.
I don’t know, maybe Google has some secret plan to solve all Android related intellectual property issues and are only biding their time. Let’s hope so. Because it will be a huge loss to all of us if competitors succeed in destroying Android with their patents.
Even if Google’s inaction is partly to blame, the main problem here is the patent system. Instead of promoting innovation, patents today have become an innovation strangling litigation vehicle. If Google’s competitors succeed in derailing Android with them, maybe there is a silver lining to it. Maybe by then enough people in U.S. government will have and love their Droids, to sit up and notice. And start the badly needed real patent reform.