Did you know that about $60 of the cost of a $400 smartphone goes to holders of something called "standards-essential patents" (SEPs)?
And, when you consider that up to 250,000 patents could affect smartphones, you can see why there are such rich pickings for patent trolls ... more politely known as non-practicing entities.
Little wonder there is so much litigation in this sector.
Royalty commitments to many sources – for the same technology – is known as royalty stacking and it is a big problem, albeit under-reported, with the current system.
A gadget you design, make and sell may infringe on a stack of patents, so you'll have to cough up some money to the organizations that own those patents. People already making similar technology to you have most likely had to sign deals with those organizations too – but such deals are usually kept secret, which makes it harder for you to research the market and ensure your product is litigation-free.
The "licensors require companies to enter into confidentiality agreements, so giving a company concrete examples of royalty stacking isn't possible," explained Robert Pocknell, an intellectual property lawyer based in the UK.
Robert is also chairman of the Fair Standards Alliance, a European group based in Brussels, which opened for business this week to campaign for clearer, more transparent licensing as well as seeking licensors to comply with their fair, reasonable, and non-discriminatory (FRAND) legal commitments for all.
Members of the FSA include BMW, Cisco, Dell, Fairphone, HP, Intel, ip.access, Lenovo, Micromax, Peiker, Sierra Wireless, Telit, ublox, and VW. The FSA says the aggregate turnover of the founding members is more than €430bn. They collectively spend more than €32bn on R&D and have more than 164,000 patents that are either granted or pending.
In an email to The Register, Pocknell said: I know "[FRAND] is an old subject, but the difference with this alliance is that it has a broad membership – from SMEs to multinationals – across different parts of the value chain; they all have concerns about the current licensing practices."
In an introductory position paper, the FSA writes: "Abuses of commitments to license standards-essential patents on fair, reasonable and non-discriminatory terms are the Fair Standards Alliance's primary concern. Where such abuses occur, or where the possibility for them to occur is tolerated, the ability of standards to contribute to innovation and economic growth at large is at risk.
The FSA intends also to address the prevalence of portfolio fragmentation, which makes royalty stacking such a big thing. It says the diffusion of SEP portfolios over "more and more independent owners can exacerbate the problem of royalty stacking – namely that the royalties independently demanded by multiple holders of SEPs on the same standard do not account for the presence of other SEPs on the same standard and thereby lead to an inappropriately high overall royalty." ®