One or two neurons firing over here that tell me what he's saying is sort of true. Or at least there were lawsuits about this problem in the past.
Remember? Someone sued Apple because the telephony chips that Apple bought used software (or maybe a hardware patent, I think) that the someone had made, and they demanded Apple pay them, but Qualcomm had ALREADY paid them their licensing fee and had passed that cost onto Apple in the price. Apple did NOT need to pay it separately.
To be more specific, the claim that Qualcomm charges ~4% of the cost of iPhones in royalties, a figure way out of the ballpark when it comes to standard essential licensing.
To be more specific, the claim that Qualcomm charges ~4% of the cost of iPhones in royalties, a figure way out of the ballpark when it comes to standard essential licensing.
I assume you're questioning that specific percentage and not whether Qualcomm's royalty is based on a completed device. You and I had that discussion before and I gave you numerous pieces of evidence pointing to the facts. Here's where you can find Qualcomm's own statement of the royalty basis again if you've forgotten about it, page two of the download if you don't like to read.: http://www.qualcomm.com/media/documents/ltewimax-patent-licensing-statement#node-10731
I'm more inclined to believe Apple is paying Qualcomm a royalty between 3% and 3.25% of the device cost (not just a chipset) with a potential credit for cross-licensing Apple's own applicable IP. That's been Qualcomm's standard royalty rate, their SEP patent package included, the past several years according to both them and financial articles. "Back in the day" it was a lot higher even than that, 4.5% on-going royalties on top of a one-time fee just to become a licensee. http://money.cnn.com/magazines/fortune/fortune_archive/2000/05/15/279766/index.htm
Anyway, they say they were charging Nokia more than 3% of the total phone build cost at the time of the iPhones release in 2007. Do you think they were feeling generous and told Apple they could pay a lot less? Not very likely IMO. With that said I do seem to recall that Apple's royalties to Qualcomm are computed from the Foxconn (or whoever) per-device BOM charge to them. That ended up with Apple paying Qualcomm perhaps $8 royalties on a basic iPhone. If I come across that again I'll link it for you.
To be more specific, the claim that Qualcomm charges ~4% of the cost of iPhones in royalties, a figure way out of the ballpark when it comes to standard essential licensing.
Yes, Qualcomm has the highest single ETSI figure, I believe. It's because they created most of the (W)CDMA technology.
It's hardly "way out of the ballpark", though. Other common rates include these (LTE rates are the same or very similar as the 3G rates, and include 3G):
Now, this 2010 chart says 3.25% for Qualcomm. The rate fluctuates each year.. it was above 4% a few years earlier, at which time many people think that Apple made a special deal, explained in articles such as this one:
"...the royalties paid to Qualcomm are based on the price Apple pays Foxconn for each iPhone – about $244, they estimate – not the wholesale price that Apple charges carriers like AT&T for iPhones, which they say averages about $590. Assuming those prices and a 4% royalty rate, they estimate that Foxconn pays Qualcomm about $9.70 per iPhone–compared to $23.60 per phone that Apple might pay directly, based on the higher wholesale price." - WSJ - Does Apple enjoy a Licensing Loophole?
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As I noted before, chips are priced separately, because they come with differing collections of features, and users only want to pay royalties on the IP they use... and royalties are based on phone price. Plus Qualcomm cannot live on royalties alone.
For example, if a 3G EVDO phone wholesales for $100, then Qualcomm only gets a little over $3 in royalties. That would be nowhere near enough to also cover the $16 chip cost... which itself sometimes includes a $6 per chip royalty payment from Qualcomm to Broadcom for use of their chipset IP!
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Agreed that starting IP rates are high. (OTOH, these companies spent billions in R&D and deserve compensation.) In theory, a newcomer who refuses to cross-license might pay up to 30% of the price of a phone in ETSI FRAND payments. A cell phone founder like Nokia, who cross-licenses everything to cut costs, is said to pay as low as 3% total. It's all about contributions and cross-licensing and negotiation.
Of course, if we think ETSI FRAND rates are high, consider that Apple revealed in court that they wanted $30 per phone or $40 per tablet (the equivalent of 5% of a $600 phone or 10% of a $400 tablet) for their IP... which, unlike ETSI patents, wasn't even necessary to create such devices.
KD, thanks for finding that mention of the specific dollar amount Apple may be paying Qualcomm. I knew I'd read it at some point.
Keep in mind too that there's not a standard across-the-board royalty basis either. While Qualcomm says they base theirs on the bill-of-materials for a completed device, [B]Ericsson would prefer to base their collection of SEP royalties on the much higher retail price[/B], ie 2% of a smartphone sales price to an end-user. IIRC Moto is somewhere in the middle, using wholesale cost, but I'm less certain of that.
Keep in mind too that there's not a standard across-the-board royalty basis either.
Google's letter (sorry, don't have a direct link.. I keep a lot of documents stored locally) to the Senate last year listed some of the rate basis, although it's not clear what the difference is between "end-device" and "price of the end-device", if any... e.g. the latter might be retail.
Google's letter (sorry, don't have a direct link.. I keep a lot of documents stored locally) to the Senate last year listed some of the rate basis, although it's not clear what the difference is between "end-device" and "price of the end-device", if any... e.g. the latter might be retail.
Comments
To be more specific, the claim that Qualcomm charges ~4% of the cost of iPhones in royalties, a figure way out of the ballpark when it comes to standard essential licensing.
I assume you're questioning that specific percentage and not whether Qualcomm's royalty is based on a completed device. You and I had that discussion before and I gave you numerous pieces of evidence pointing to the facts. Here's where you can find Qualcomm's own statement of the royalty basis again if you've forgotten about it, page two of the download if you don't like to read.:
http://www.qualcomm.com/media/documents/ltewimax-patent-licensing-statement#node-10731
I'm more inclined to believe Apple is paying Qualcomm a royalty between 3% and 3.25% of the device cost (not just a chipset) with a potential credit for cross-licensing Apple's own applicable IP. That's been Qualcomm's standard royalty rate, their SEP patent package included, the past several years according to both them and financial articles. "Back in the day" it was a lot higher even than that, 4.5% on-going royalties on top of a one-time fee just to become a licensee.
http://money.cnn.com/magazines/fortune/fortune_archive/2000/05/15/279766/index.htm
Anyway, they say they were charging Nokia more than 3% of the total phone build cost at the time of the iPhones release in 2007. Do you think they were feeling generous and told Apple they could pay a lot less? Not very likely IMO. With that said I do seem to recall that Apple's royalties to Qualcomm are computed from the Foxconn (or whoever) per-device BOM charge to them. That ended up with Apple paying Qualcomm perhaps $8 royalties on a basic iPhone. If I come across that again I'll link it for you.
http://www.ecommercetimes.com/story/56757.html
Quote:
Originally Posted by hill60
To be more specific, the claim that Qualcomm charges ~4% of the cost of iPhones in royalties, a figure way out of the ballpark when it comes to standard essential licensing.
Yes, Qualcomm has the highest single ETSI figure, I believe. It's because they created most of the (W)CDMA technology.
It's hardly "way out of the ballpark", though. Other common rates include these (LTE rates are the same or very similar as the 3G rates, and include 3G):
Now, this 2010 chart says 3.25% for Qualcomm. The rate fluctuates each year.. it was above 4% a few years earlier, at which time many people think that Apple made a special deal, explained in articles such as this one:
"...the royalties paid to Qualcomm are based on the price Apple pays Foxconn for each iPhone – about $244, they estimate – not the wholesale price that Apple charges carriers like AT&T for iPhones, which they say averages about $590. Assuming those prices and a 4% royalty rate, they estimate that Foxconn pays Qualcomm about $9.70 per iPhone–compared to $23.60 per phone that Apple might pay directly, based on the higher wholesale price." - WSJ - Does Apple enjoy a Licensing Loophole?
--
As I noted before, chips are priced separately, because they come with differing collections of features, and users only want to pay royalties on the IP they use... and royalties are based on phone price. Plus Qualcomm cannot live on royalties alone.
For example, if a 3G EVDO phone wholesales for $100, then Qualcomm only gets a little over $3 in royalties. That would be nowhere near enough to also cover the $16 chip cost... which itself sometimes includes a $6 per chip royalty payment from Qualcomm to Broadcom for use of their chipset IP!
--
Agreed that starting IP rates are high. (OTOH, these companies spent billions in R&D and deserve compensation.) In theory, a newcomer who refuses to cross-license might pay up to 30% of the price of a phone in ETSI FRAND payments. A cell phone founder like Nokia, who cross-licenses everything to cut costs, is said to pay as low as 3% total. It's all about contributions and cross-licensing and negotiation.
Of course, if we think ETSI FRAND rates are high, consider that Apple revealed in court that they wanted $30 per phone or $40 per tablet (the equivalent of 5% of a $600 phone or 10% of a $400 tablet) for their IP... which, unlike ETSI patents, wasn't even necessary to create such devices.
Keep in mind too that there's not a standard across-the-board royalty basis either. While Qualcomm says they base theirs on the bill-of-materials for a completed device, [B]Ericsson would prefer to base their collection of SEP royalties on the much higher retail price[/B], ie 2% of a smartphone sales price to an end-user. IIRC Moto is somewhere in the middle, using wholesale cost, but I'm less certain of that.
Quote:
Originally Posted by Gatorguy
Keep in mind too that there's not a standard across-the-board royalty basis either.
Google's letter (sorry, don't have a direct link.. I keep a lot of documents stored locally) to the Senate last year listed some of the rate basis, although it's not clear what the difference is between "end-device" and "price of the end-device", if any... e.g. the latter might be retail.
Link to the letter is here:
http://ftc.gov/os/testimony/120711standardpatents.pdf
Ericsson actually wants up to 2% of the retail price now. The figure Google quoted was the old commitment to ETSI. They feel safe in being more aggressive now since dropping their phone manufacturing.
http://www.fosspatents.com/2013/03/standard-essential-patent-litigation.html
You're welcome;)
Quote:
Originally Posted by Gatorguy
You're welcome;)
Thank you!