Can patent licensing fees derail the Android express?

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The Android Express has taken Google and a number of manufacturers on a dizzying ride to the top of the smartphone market. But with Android’s patent strength increasingly under fire and companies lining up for their share of licensing fees, is the platform headed off the tracks?

That’s becoming more of a pressing question. As I wrote about earlier this week, Microsoft could be poised to turn Android into its next billion-dollar business if it can get enough Android licensees to agree to pay royalties due to alleged infringed use of Microsoft patents. Oracle has now reportedly stepped up a similar campaign and is approaching Android manufacturers with an offer to join an early adopters program that would have them pay $15 to $20 a handset, according to Network World, which quoted Jonathan Goldberg, an analyst with Deutsche Bank.

Network World said none of the companies has taken up the offer, which Oracle has declined to confirm. But if true, it would signal a new headache for Google. The company is being sued by Oracle over Android’s use of Java, which Oracle acquired the rights to when it bought Sun. Oracle is reportedly seeking $2.6 billion in damages in the suit.

While Oracle may be looking to punish Google, it might be seeing a bigger prize in getting licensing fees from its Android manufacturing partners. If it can convince manufacturers that its lawsuit will prevail, it might be able to induce them into paying fees now, rather than face a potentially higher licensing fee later. It’s unclear at the end of the day how much Oracle would seek to extract from licensees. $15 to $20 could be a starting point.

But if Android makers feel like there’s little recourse and that they need to pay up, that could add up to a significant cost. Microsoft is getting a reported $5 from HTC on every Android smartphone and tablet it sells. It has also struck deals with a handful of other manufacturers for an undisclosed fee on each device they make and is reportedly hitting up Samsung for $15 per Android device. It’s possible Microsoft could be asking for $5 to $15 from Android makers, in line with what it charges Windows Phone 7 manufacturers. But what happens when one manufacturer starts paying out to multiple companies like Oracle, Microsoft and perhaps Apple, which is also suing some Android makers?

Larger manufacturers like Samsung may be able to absorb some of that. But it would definitely cut into the margins of bigger players and could be a big issue for smaller manufacturers. One of the promises of Android is that it’s free. But if its licensing fees pile up, eclipsing what OEMs might pay for something like Windows Phone 7 or webOS, if HP opens it up, it could cause some to reconsider how much effort they put into Android.

Of course, we’re still a ways from that day. A lot has to happen first. Manufacturers will still need to be able to see a profitable future in other platforms. But with Google’s weaker patent portfolio in mobile — which could have been bulked up with the purchase of the Nortel patents that went to Apple, Microsoft, RIM and others — it seems like it’s increasingly open season on Android manufacturers.

Does this mean Android crashes to earth? Hardly. But it may just open the door for Windows Phone 7 or another competitor to come in and steal away some of Android’s momentum. Some carriers and manufacturers would quietly like to lessen their dependence on Android anyway. If things keep up and Google doesn’t have a strong answer on the patent front or a way to work around infringing intellectual property, this might give manufacturers reason to keep their options open.

Image courtesy of Flickr user Stephen Baack.

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