The Great Patent Battle - Smart Phone War

Yesterday I was reading an article on Business of manufacturing Smart phones in ‘The Economist’. After reading it I came to conclusion that really it is difficult job to manufacture and maintain growth in this business realm.

I was shocked to read that device makers have to pay royalties for 200-300 patents for a typical smart-phone. Patent costs are 15-20% of its selling price, or about half of what the hardware components cost.

Hardly a week passes without a new case. Motorola sued Apple this month, having itself been sued by Microsoft a few days earlier. Since 2006 the number of mobile-phone-related patent complaints has increased by 20% annually.

Most suits were filed by patent owners who hail from another industry, such as Kodak (a firm from a bygone era that now makes printers), or by patent trolls (firms that buy patents not in order to make products, but to sue others for allegedly infringing them).

A year ago Nokia lobbed a lawsuit at Apple, alleging that its American rival’s iPhone infringes on a number of its “essential patents”. A couple of months later, Apple returned the favour, alleging that Nokia had copied some iPhone features. Since then both sides have upped the ante by filing additional complaints.

Lending ferocity to this legal firefight is the fact that competition in the smart-phone market is not merely about individual products, but entire platforms and operating systems (see chart). These are the infrastructures that allow other firms to develop applications, or “apps”, for these devices. Should any one firm gain an important lead, it might dominate the industry for decades—just as Microsoft has dominated the market for personal-computer (PC) software.

There is a new type of player: firms with open-source platforms. Google, for instance, which makes its money from advertisements, does not charge for Android (its operating system for smart-phones) and lets others modify the software. This makes life hard for vendors of proprietary platforms, such as Apple and Microsoft.