Cost of Licensing Android Platform Could Rise As Patent Wars Escalate

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Cost of Licensing Android Platform Could Rise As Patent Wars Escalate
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The Nortel patent auction has been reported as the biggest patent auction in history, covering more than 6,000 separate patents on wireless and Internet technology. As reported on Bloomberg, and a bunch of other places, the final sale price was $4.5 billion. This was a staggering, and somewhat unexpected, increase on Google’s opening bid of around $900 million. After 19 rounds of bidding the winning group that emerged, dubbed Rockstar Bidco LP, included Microsoft, Apple, RIM, Sony, Ericsson and EMC.

Google’s press release response was to decry the result and claim it as a blow that is “disappointing for anyone who believes that open innovation benefits users and promotes creativity and competition.”

They went on to say that they will continue the fight against patent litigation because it “hurts both innovators and consumers.”

What’s the Argument?

The real crux of the argument is the idea that Android is infringing a bunch of patents – that Google are effectively copying innovators to create their freely distributed Android platform. Since it is proving very successful, the patent holders want their slice of the action.

Whatever your opinion on patent law it is no surprise that companies are using it to protect their intellectual property because the bottom line is more profit for them. Of course the result for consumers is increased prices.

Microsoft Hedge Their Bets

Microsoft is already bringing pressure to bear on manufacturers of Android devices. They have a patent licensing deal in place with HTC that reportedly means Microsoft earns $5 for every Android phone HTC sell. They’re now leaning on Samsung to sign a similar deal and it follows that they’ll expect the same from every Android phone manufacturer.

This patent acquisition strengthens their hand. As MG Siegler asks in a recent Tech Crunch article is Microsoft’s Android Plan: Evil Genius Or Just Evil? He points out that Microsoft could end up making more money from Android than Google and it’s tough to disagree.

It is undoubtedly a clever move on their part, they get to hedge their bets – if Android wins out in the smartphone wars then they’ll rake it in. If Windows Phone 7 can grow and compete then they’ll rake it in. Either way Microsoft profits in mobile are assured.

Apple Jump Into Bed with Microsoft

apple

It’s no surprise that Apple jumped into the fray considering their concerns over the growth of Android as it claims the number one smartphone platform spot. Apple has also recently fallen out of love with Samsung and they’re already bringing lawsuits to bear, left, right and center on manufacturers they claim are copying them.

Still it looks like more a case of my enemy’s enemy is my friend, rather than a healthy relationship between Microsoft and Apple. No doubt all of the members of the winning bid consortium effectively intend to buy absolution from any patent lawsuit that could be brought against them and to win free reign to sue everyone else in sight.

The thing is Apple is looking to protect their flagship iPhone brand and they are serious competition for Android. Microsoft’s WP7 hasn’t made much of a dent yet and if they can generate huge revenue from licensing deals for Android then it’s actually not really in their interest for the platform to fail. Apple and Microsoft aren’t likely to remain bedfellows for long.

What Does This Mean For Us?

Well Microsoft will continue to pursue licensing agreements and if they prove successful, or more successful than they’ve already been, then more manufacturers are going to feel like they have to cough up. The next big test case is Samsung. It won’t necessarily end there either because other companies may feel they can get their own slice of the action and start to threaten their own lawsuits. Oracle is already pursuing Android in the courts.

This will push up the price of selling Android handsets for manufacturers and it could potentially turn some of them off. Although it is worth pointing out that if the HTC $5 licensing fee for an Android phone is correct, that’s still less than Microsoft is charging manufacturers to license WP7.

If more lawsuits are won and more licensing agreements are put in place, then the cost for Android manufacturers could soar; licensing the Android platform could become an expensive prospect. There are rumors that Microsoft is asking $15 per Android handset from Samsung.

Will This Halt Android’s Growth?

There may be an element of ganging up on Google right now, but it’s also tough to imagine that after losing the Nortel patent auction they don’t have a plan B. It’s also worth pointing out that the reasons people buy Android smartphones are not impacted by any of this. Although, if the licensing agreements continue, then the price, certainly at the budget end of the Android smartphone eco-system, could start to rise. However, there is no budget end of the iPhone or WP7 market so it’s not like they’ll pick these customers up, they are just pricing them out of the market.

Ultimately it’s hard to disagree with that Google statement – this will have an impact on innovators and consumers. The cost of competing in the smartphone space is growing higher and the patent cold war looks set to explode into violence. The survivors will be well placed to dominate the market but who will they be? I don’t think this will stop Android from prevailing, it is still improving and it is giving a lot of consumers exactly what they want. Provided the licensing costs don’t get out of hand I can’t see manufacturers abandoning a platform they’ve had such success with. What do you think? Post a comment.

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