Can patent licensing fees derail the Android express?

38 Comments

The Android Express has taken Google (s goog) 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 (s msft) 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 (s orcl) 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 (s db).

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 (s aapl), 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 (s rimm) 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.

38 Comments

thr1xp

I was surprised that google didn’t try more aggressively to acquire the Nortel patents. If google wants to maintain the android momentum it needs to beef up its patent portfolio. Apple and Microsoft are now in a better position to extract licensing fees from android handset manufacturers, and as some are already paying microsoft, it represents a strategic opportunity for them to push alternative mobile os.

Brendan

This is standard operating procedure. Google has some good lawyers too.

This will have little to no effect on Android’s success as a platform.

Sathish

Dude, I think you are missing the point. There are lots of lawsuits going between phone manufacturers on patents that related to mobile phone technology. Android is only a software and Google is not going to loose anything on these suits. The only law suit between oracle and Google is on android where Google could come under fire. You need to put things clearly on such articles.

TJGodel

One very important point missing from this article is that Google has a legal case against the winners of thr Nortel patent auction. Because if a lawsuit is filed against any Android handset maker using those patent it will show that license was acquired to restrain trade.

Like Apple, Google will be forced to depend it’s platform from patent trolls.

Lucian Armasu

I think it would be ridiculous for Samsung to bow down to Microsoft’s claims without taking them to court as B&N and Motorola did. They are a big company, they can afford it, and will probably save them a lot of money down the road as they become the #1 phone manufacturer thanks to Android.

I understand why some of the small companies accepted the patents. They couldn’t afford to risk spending hundreds of millions in court, even if there is just a 10% chance they’d lose.

As for HTC, they accepted because they were being hunted by Apple, so they made the deal with Microsoft to get that patent protection against Apple. But Samsung doesn’t need it, especially if MS charges them 3x as much.

And related to Oracle’s licensing fees, I think manufactures would be really stupid to accept to pay Oracle, BEFORE the court decides in the trial with Google. Why? Because Oracle will lose. Their claims are completely bogus. Java is open source, and as such forks can happen. It’s the whole point of being open source. They’ve already gotten most of their patent claims thrown out of court. Oracle will lose the trial.

christopher

And yes I noticed the errors too mad to bother correcting them. :-P:-P:-P I wrote this one cause I know captain obvious apple users are gonna miss my point just to point out grammer errors. Its a shame but true. :'(

christopher

Ultimately its the consumer who’s pays, and with companies like micropuff n flapple putting out substandard products at outrageous prices and selling every little feature for more of course they are pissed at google here’s an idea Gates n Jobes get better products and stop riping us off. Oh and of course carriers are quietly wishing they are having a hard time ripping Droid users off and more and more people are finding out you can do more with google products at little to no cost and carriers can’t lock the phones down and sell us features as a monthly add on for more which should be included. I for one am fed up with corporations ypu guys hardly pay taxes and moved your job over seas so get over it make a better product and stop ripping us off.

Jdub

How hilarious is this????? An Android fan complaining about being ripped off???? Whatever POS Android phone u carry WOULDN’T EXIST if not for the iPhone. I don’t have enough time to list all if the things that Android has ripped off from iOS…..

Pot, let me introduce you to Kettle…..

Adam

Is it just me or do software patents these days seem non-innovative and just designed to create monopolies and stifle innovation? Apple is one of the biggest offenders (patent troll) IMO.

someinternetdude

I love to sit by and see how iSheep fanboys post wish full thinking gibberish that they know nothing of. Even if that patent suet goes in favor of oracle, Android will still be the number one Mobile and Tablet OS in the world as it is now. The patent suit will not affect the end user.

Jdub

I love to sit by and see how fandroid dufuses continue to stick their head in the sand about Android. One of the main reasons why manufacturers jumped all over that fake iPhone OS was bcuz it’s free. Now if they have to pay a per-handset fee to Oracle on top of the fee than they are starting to pay Microsoft, then many of them will decide it’s bot worth the investment. The high end handsets will survive; however, Android became #1 bcuz of the cheap low end, not the high end. Those $150 off-contract Android phones??? You can kiss them goodbye…..and there goes your marketshare lead. Not that marketshare really matters that much to Apple anyway; not when 1 phone commands 50% of all smartphone profits….

Bill

Actually, Android is nowhere close to number one in the tablet market. I believe the iPad still has over 80% of that market.

Matt

Uh ohh.. I see there’s some crApple fans in here looking to pick on Android. Given the expansion rate of Android activations, (a few hundred thousand a week with a 4.4% weekly increase if you missed that article) I don’t really think Google has much to worry about. Although this could cause a slow down to occur. Android may only have 45% market share by the end of 2012 instead of the currently estimated 50%…OHH NOOOOO!!

PXLated

Or be priced out of the bulk of the smartphone market, the low cost, low end.
Android exploded onto the market but it could just as easily and fast implode. Don’t count your chickens just yet.

Lava

Yet Android developers have yet to make 1/10 the revenue that iOS developers have raked in despite Android having all those activations.

Yet Apple owns 50% of the profit share of the entire smartphone market while “big” Android makers like Samsung have single digit profit share and others like Motorola and LG are losing money.

Android activations are worth as much as having pimples. In other words all those activations are noticeable, but not in a way that you want.

Android = no profit.

katiepea

i don’t care about the profit margins, apple’s will drop as winmo and android pick up even more, android has more room to grow, the margins of profit for androids marketplace will narrow between them and apple. it’s an inevitability. apple can’t sustain what they have when they offer a product that is lesser for as much, often more, like paying for mobile me and similar services that google offers for free. whether google charges for it or not, developers will go where their largest audience is, just like they did from RIM>Apple, it will go from Apple>Android. they’re simply failing at innovation. sorry i love a lot of things about apple, been using their desktops for years, owned 4 iphone models, but compared to what other phones are doing, the iphone just launches apps, and doesn’t even let me choose where i get them from. this isn’t the future, even if steve jobs really really wants it to be.

katiepea

let me help your point, android activates 500,000 new devices every DAY

Mart

And Apple was selling 400,000 iOS devices a day during November and December last year and sales have only been increasing this quarter.

Android’s global sales growth rate dropping to 3 percent in the March quarter from 7.5 percent in the fourth quarter and 9.5 percent in the September quarter. 

IDC reports that Android’s share of the US smartphone market dropped for the first time from 52.4% in Q4 2010 to 49.5% in Q1 2011, a drop of 2.9 points or 5.5% quarter to quarter.  

In contrast, the iPhone gained significantly larger share going from 17.2% to 29.5%, an increase of 12.3 points or 42%.

NPD agrees reporting that Android’s share of quarterly sales in the US smartphone market shrank 6% quarter-to-quarter in Q1 2011 to 50%.  In contrast Apple’s iPhone grew 47% to capture 28% of all smartphone sales in the USA.  

IDC also reports that Apple had the highest growth of any mobile phone vendor worldwide in Q1 2011 year over year of 115% with second place ZTE growing 45%, Samsung growing 9% and HTC and Moto not even on the chart.

And these figures all include Android tablets because the vast bulk of them also include cellular radios and carrier subscriptions.  

In contrast, Apple’s figures don’t include the iPod touch or iPad (which should of course be included when comparing operating systems and app platforms).    iOS and Android as a whole are neck and neck in quarterly unit sales.  

Iin terms of installed base Apple is far ahead of Android with 200 million iOS devices sold versus only 100 million Android as confirmed by ComScore who reported in April that *active* iOS devices outnumber Android devices by 59% in the  USA and by 116% in Europe.

Of course even if Android does eventually surpass iOS in installed base, the question is – will it matter?  It certainly didn’t for Symbian who for years had vastly larger sales and installed base than everyone else.

With iOS continuing to make 11x more income for developers and 14x more app downloads (free and paid), 3.4x larger web browser share and 10x larger music and media store market share and vastly more 3rd party hardware peripherals than Android – on current evidence, having larger unit sales means absolutely nothing.

-Mart

Your point is?

Jdub

@ Mart:

Beautiful…..could not have said it better myself

kirth

Is this worldwide or US market only because AFAIK most countries don’t have the same idiotic US laws on ‘software patent’.

christopher

That’s why the rest of the world is ahead of us in many areas not just software. It’s embarrassing, better yet a shame.

Jdub

This is what happens when u build an entire OS off of IP theft……the chickens are coming home to roost

Tom

No, this is what happens when the laws are messed up enough to allow lazy companies to bully actual innovators into paying fees.

PXLated

You really think Google (with android) is an innovator? What planet do you live on. First it was to be a Blackberry clone then Apple showed them a different way and it’s now a iPhone clone. Google might add some features but there was no innovation to get it rolling.

Ashy

I really dont see what innovation comes into Android. If it was truly innovative, it would have been a hit when it came out but it wasn’t. It gained all these popularity or hype i would say only after the update 2.2. Its not copied. Copying is when you just copy and paste the code. Android is uh.. what to say.. im searching for the word.. mmm.. couldn’t come up with anything.. we’ll use the word “Copied” for now. :D

Matt

PXLated: Erm…It’s Microsoft and Oracle that are suing over Android, not RIM or Apple. One of Microsoft’s patents that it’s suing over is for *double clicking* and was applied for in 2002. Some of the patents in question may actually be reasonable, but a lot of them are junk.

Jdub

Exactly PX…..Google is about as innovative as Microsoft

justin

Microsoft is asserting that idea such as
“selecting text”
“loading background images in a web browser”
and such are unique to their software and require licensing.
You don’t see car manufacturers squabbling over nonsense like “Foot actuated throttle control” because there is no patent law as absurd as software patenting.

Paul

Put another way, how much is it worth to be able to offer a customized version of a solid mobile OS that gives your customers access to the 2nd-largest mobile apps market?

And a question for the courts: If Microsoft licensed its mobile OS for $15/unit, how can they possibly justify stacked charges of $15/Android unit to Microsoft (what Samsung has apparently been told to pay) plus $15/Android unit to Oracle (what the courts might impose)?

Alberto

This just proves that Microsoft cannot compete with Google. They just can’t keep up with Google, so they end up resorting to these tactics. Google will outsmart Microsoft, they always do.

Ed

I’m not an Android fan. But it’s a good product. I hate saying this kind of stuff going on. I do think Google could end up paying for Java. This is the same type of issue Microsoft go into over Java. The started modifying it to the point it wasn’t compatible with Java.

Lava

You’re so funny. It’s Microsoft that is going around extracting hundreds of millions dollars in licensing revenue from Android makers but it’s all about Apple in your mind anyway.

Anshul

The only thing I’d say to trolls like you is- “show me the patents that are being violated by Android”? Especially to Microsoft. Lets see them get tested out in the courts. Oracle is pretty much left with only 4-5 patents (even less) after a lot of them got invalidated.

Microsoft has always rattled the patent saber against Linux. But never showed what patents it infringed upon. The reason being- going against Linux would mean going up against the OIN backed by IBM, RH etc.

katiepea

over time this patent nonsense will all go away, companies failing to innovate and making revenue from the courts is no way to run a business. patent laws will change when courts are overrun with this nonsense. at this point apple thinks they have a patent for all devices that you touch your finger to the screen on, absurd. RIM is eating what they cooked for failing to keep up, and i’m going to say apple will be next.. nothing new from them for years now, and the “new” stuff they’re putting out like FCX and Lion are bombing badly, terrible reviews and outrage alike. living inside a dome pretending everyone wants your candy is living a lie. it’s great that apple is raking in money right now, so is RIM and they’re considered to be dying. google and microsoft are the only people making anything interesting. windows phone mango looks great, so does windows 8, these systems provide an extremely large amount of function, as does android. but when people show me their iphones and what they do, i always end up saying ‘ so it launches apps, wow’ and there isn’t really a response to that, because that’s all they do.

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