Hoover Insti tution Working Group on Intellectual Property, Innovation, and Prosper ity
Stanford University
www.hooverip2.org
WORKING PAPER SERIES NO. 16011
“A NEW DATASET ON MOBILE PHONE PATENT LICENSE ROYALTIES”
ALEXANDER GALETOVIC
UNIVERSIDAD DE LOS ANDES
STEPHEN H. HABER DEPARTMENT OF POLITICAL SCIENCE AND HOOVER INSTITUTION, STANFORD UNIVERSITY
LEW ZARETZKI HAMILTON IPV
REVISED: AUGUST 2017
ORIGINAL: SEPTEMBER 25, 2016
ANewDatasetonMobilePhonePatentLicenseRoyal6es 1
August2017Update 2
AlexanderGaletovic,StephenHaber,andLewZaretzki 3
Thisversion:August22,2017
WethankJonathanBarneH,AnneLayne-Farrar,TimLong,KeithMallinson,JorgePadillaandotherswhowishedto1
remainanonymousbutprovidedimportantperspecPveandhelpfulcomments.JordanHorrilloprovidedexcellentresearchassistance.
ThisnoteupdatestheSeptember2016releaseofourdatabase,whichnowincorporatesthefullcalendaryear2016.2
WehavealsowidenedcoveragewheneverfeasibleandimprovedandcompletedsomeesPmatesofpreviousyears.AdetaileddescripPonofthechangesisintab2017ImprovementsintheExcelworkbookthataccompaniesthisnote.
AlexanderGaletovicisProfessorofEconomics,UniversidaddelosAndes,SanPago,Chile.3
HiscurrentresearchfocusesonstandardessenPalpatents,compePPonpolicyandanPtrust.GaletovichasbeenaResearchScholarattheInternaPonalMonetaryFund,aTinkerVisiPngProfessoratStanfordandaRita-RicardoNaPonalFellowattheHooverInsPtuPon.StephenHaberisA.A.andJeanneWelchMilliganProfessorintheSchoolofHumaniPesandSciences,ProfessorofPoliPcalScience,ProfessorofHistory,Professor(bycourtesy)ofEconomics,SeniorFellowoftheStanfordInsPtuteforEconomicPolicyResearch,andPeterandHelenBingSeniorFellowattheHooverInsPtuPon,atStanfordUniversity.HaberdirectstheHooverInsPtuPonWorkingGrouponIntellectualProperty,InnovaPon,andProsperity(HooverIP2).HooverIP2succeededtheHooverProjectonCommercializingInnovaPon(PCI).Toensureacademicfreedomandindependence,bothPCIandIP2,alongwithallworkassociatedwiththem,haveonlybeensupportedbyunrestrictedgi^s.SomemajordonorshaveincludedMicroso^,Pfizer,andQualcomm.LewZaretzkiisManagingDirector,HamiltonIPVaSiliconValleyIPstrategyconsulPngfirmservingmanyoftheworld’sfinesttechnologycompaniesandleadingtechnologyinvestorsinmaHersofcorporatestrategy,IPstrategy,M&A,andIPtransacPons.
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1.IntroducPon
Mobilephonesintegrateawidearrayoftechnologies,fromcompuPngtoconsumer
electronicstocommunicaPons,andfromsemiconductorstohardware,so^wareand
services.Thismakesthemforalargeandbroadarrayofpatentsandlicensors.InaddiPon,
mobilephonesrelyontechnologicalstandardstomaketheminteroperable.Astandard-
compliantphoneuseshundreds,ifnotthousandsofstandardessenPalpatents(SEPs),
whichareownedbymanydifferentpatentholders. 4
WhilesomehaveclaimedthatdispersedownershipofSEPsleadstohighcumulaPve
royaltyrates,theesPmatesthatunderpintheseclaimsarebasedonthesimpleaddiPonof
publishedhandsetroyaltyrates.Thereareavarietyofreasonstobedubiousofthis
method,nottheleastofwhichisthatitconflates“rackrates”whichmightnotbepaidby
anybody,withactualmarkettransacPonrates.Indeed,justasfirmshaveincenPvesto
declareallpossiblepatentsasessenPal,theyalsohaveincenPvestoposthighroyaltyrates
tolicensetheirporjolio,eveniftheyneveractuallyearnanylicensingrevenuefromthat
porjolio. 5
ThisnotedescribesthedatasetweusedtoesPmatetheAverageCumulaPve
RoyaltyYieldpaidinthemobilephonevaluechain—thesumtotalofpatentroyalty
ItisesPmatedthatthereareabout150.000declaredmobileSEPsworldwide(issuedandappliedfor)intheso-called4
“4Gstack,”whichincludesLTE,WCDMAandGSM/GPRS/EDGE.Ofthese,about20,000areUSpatents.GaletovicandGuptareportthatin2013therewere128SEPholders.“RoyaltyStackingandStandardEssenPalPatents:TheoryandEvidencefromtheMobileWirelessIndustry,“HooverIP2WorkingPaper15012,2017.Oneshouldnotethatitmayhavebeenintheinterestsofpatentholderstodeclareallpossiblepatentsas“essenPal.”OnereasonisthatpatenteesrisklegalpenalPesfornotdeclaringapatentessenPal.Also,somefirmsmayhaveactedonthepercepPonthatalargeSEPporjoliobolsteredtheirreputaPonandincreasedtheirleveragewhennegoPaPngroyalPes.Moreover,theETSIIPRdatabasejustlistsdeclaredessenPalpatents,butneitherETSInoranybodyelseauditsthosedeclaraPons.Forthesereasons,itisnotclearhowmanyofthesepatentsaretrulyessenPal.IndustryparPcipantso^enesPmatetherateofover-declaraPonat50%ormore.OthersthinkthatfewSEPswouldpassalegaltestofessenPality.
AtonepointinPmeitbecamecommonforthemajorequipmentvendorstopublishadeclaredLTEroyaltyrate,usually5
withcaveatsthatitcouldbeadjustedinlightofgrantbacksorforotherreasons.Forexample,Norteldeclareda1%rate,butitappearstohaveneveractuallyreceivedanyLTElicensingrevenue.
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paymentsearnedbylicensors,dividedbythetotalvalueofmobilephonesshipped. We6
publishedthefirstversionofthisdatasetinSeptember2016.Thisversionimprovesour
esPmateinseveraldimensions. 7
Asinthefirstversion,webuilduponearlierworkbyMallinsonthatfocusedon
mobileSEPs. Butwegobeyondthatworkby:(i)analyzingpatentroyalPesintheenPre8
mobilephonevaluechain(i.,e,royalPesonmobileSEPs,butalsoaudioandvideocodecs,
imaging,operaPngsystems,semiconductors,andothercomponents);(ii)comparingour
resultsonpatentroyalPestoothercostsofmobilephonemanufactureandtoOEM
profits;(iii)generaPngPmeseriesthatpermitresearcherstoanalyzethestabilityofthe
AverageCumulaPveRoyaltyYieldbackto2007.Forsomefirms,ourcoveragegoesbackto
2000.
Ourpurposeistoprovideascomprehensiveandtransparentadatasourceasis
pracPcallypossibleforusebyotherresearchers,industrypracPPoners,andgovernment
officials.Thus,thisnoteshouldbereadasanadjuncttotheExcelworkbookthatwehave
postedtotheweb.Thatworkbookshowstheunderlyingdataandsources.Italsoexplains
thedecisionswemadewhenesPmaPngorapproximaPngvalues.
FollowingMallinson,weusethetermroyalty“yield”ratherthanroyalty“rate.”“Rate”referstotheactualroyaltypaid6
byalicensee,typicallyanOEMorEMs,toalicensorasapercentageofthelicensee’ssales.Yieldisthesumtotalofpatentroyaltypaymentsdividedbythetotalvalueofmobilephonesshipped,thelaHerofwhichmightincludetheproducPonofOEMsthatevadepatentlicenses.Someresearchersrefertoroyaltyyieldasthe"royaltystack,"atermweeschewbecauseitistheory-ladenandanoxymoron.
WedescribethemainchangesandimprovementsinTab2017ImprovementsintheExcelworkbook.7
SeeKeithMallinson,“CumulaPveMobile-SEPRoyaltyPaymentsNoMorethanAround5percentofMobileHandset8
Revenues,”IPFinance,August19,2015.J.GregorySidakbuildsuponMallinsonaswell,buttakesasomewhatdifferenttheorePcalapproach,includingpaymentsinkindandesPmatesofthevalueofcross-licenses.Thus,itisastudyofpotenPalIPvalue,ratherthanthecumulaPveroyaltyyield.SeeJ.GregorySidak,“WhatAggregateRoyaltyDoManufacturersofMobilePhonesPaytoLicenseStandard-EssenPalPatents?”CriterionJournalonInnova8on1(701). AnearlyesPmateofroyalPespaidbylicensorsis EricStasik,“RoyaltyRatesandLicensingStrategiesforEssenPalPatentsonLTE(4G)TelecommunicaPonsStandards,”LesNouvelles,September2010,pp.114-119.
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InthisnotewedonottakeaposiPononwhethertheesPmatesoftheroyaltyyield
wepresentinthisstudyare“toohigh,”“toolow,”or“justright.”Thatisanimportant
debate,butitcanonlybejoinedonthebasisofevidence.
2.Methods—“FollowtheMoney”
Allmethodsofanalysisdependonanunderlyingtheory,andunderlyingtheoriesare
createdinordertoanswerparPcularquesPonsofinterest.ThebasicquesPonresearchers
areaskinginthiscaseishowdoroyalPespaidbyfirmsinthemobilephonevaluechain
affectproducPonanddecisionsatthemargin?Thatis,ifroyaltyrateswereXpercent
pointshigher,byhowmuchwouldoutputfallandpricesincrease?IftheywereX’percent
pointslower,byhowmuchwouldoutputriseandpricesfall?Microeconomictheory
providesaguidetotherelevantfactsnecessarytoanswerthisquesPon;ittellsusthatwe
needtoapproximatepaidper-unitroyalPes. 9
Inanidealworldforresearchers,mobilephoneOriginalEquipmentManufacturers
(OEMs),ElectronicsManufacturerServices(EMSs),OriginalDesignManufacturers(ODMs)
andcomponentmanufacturersinthemobilephonevaluechainwouldreportthe
idenPPesoftheIPholdersfromwhomtheylicenseandthevalueofthepaymentstoeach
ofthoselicensors.Itwouldthenbepossibletodeterminethe“IPBillofMaterials(BoM)”
paidbyeachfirmintheinthemobilephonevaluechain.Fromthere,onecouldcalculate
aweightedaverageBoMforeveryfirminthevaluechain,withtheweightsdeterminedby
theirrelaPvecontribuPontototalmobilephonesales.
Onemightclaimthatthisapproachtodataignoresothereconomiccostsbornebymanufacturers.Forexample,wedo9
notincludetheopportunitycostbornebyamanufacturerthatbuyspatentstopreventclaimsofinfringement,ortheopportunitycostbornebymanufacturerswhocrosslicensetheirpatents(inacrosslicensingagreementfirmsmayforegosomeoranyroyaltypaymentinexchangeforaccesstoanotherfirm’sporjolio),orthemembershipsubscripPonspaidtodefensiveaggregatorsofpatents.Suchexpenditureswillincreaseafirm’sfixedcosts.Theywillnot,however,affectmarginalcostsofproducPon,andthusdonotaffectproducPonandpricingdecisionsatthemargin.
� 4
Nevertheless,researcherscanneverworkwiththeidealdata,andthedataon
mobilephonepatentlicensesarenotanexcepPontothisrule.Thefundamentalproblem
isthatlicenseeshaveveryweakincenPvestodisclosetheirpatentlicenseroyalty
paymentssomostofthemdonotdisclosethem.
AsamaHerofaccounPng,however,paymentsbylicenseesmustshowupas
revenuesforlicensors,andlicensorshavestrongincenPvestodisclosetheirpatent
licensingrevenues.Forpublicly-tradedfirmswithlicensingrevenuesthatareanon-trivial
componentoftheirtotalrevenues,thoseincenPvesarelegalandregulatory;thesources
ofrevenuemustbedisclosedtoinvestors.Evenlicensorswithoutlegalandregulatory
incenPvestodisclosetheirrevenues,however,suchaspatentpoolsadministeredbyfirms
thatspecializeinpooladministraPon,havemarket-basedincenPvestodisclose,andthis
allowstheesPmaPonofapproximateroyaltyrevenues.
ItisthereforepossibletoesPmatethetotalcostofpatentlicensesinthemobile
phonevaluechainbyidenPfyingthemajorlicensorsandretrievingtheinformaPon
necessarytoesPmatetheirlicensingrevenues.Onecanthendividethesumofthese
revenuesacrossalllicensorsbythetotalvalueofmobilephonessoldtoobtainanaverage
cumulaPveroyaltyyield.
Therefore,therearethreenumbersthatoneneedstoknowinordertoesPmate
theAverageCumulaPveRoyaltyYield:(i)themobilephonepatentlicensingrevenue
earnedbyeachlicensor;(ii)thetotalnumberofmobilephonessold;(iii)theaverage
selling(wholesale)priceofamobilephone(ASP).
2A.EsPmaPngtheSizeoftheMarket
ThenumberofphonessoldandtheASPareeasytocomeby:anumberofdata
analyPcsfirmsesPmatethem,andissuepressreleasesthattheyposttotheweb.Firms
suchasICInsights,IDC,Gartner,andGFKproducetheseesPmates.TheesPmatestendto
� 5
bewithinafewpercentagepointsofoneanothersuchthatresultswouldnotbesensiPve
towhichsourceisused. ThesesamefirmsalsoproduceesPmatesofthequanPtyand10
valueoftablets.WedonotincludetheseinthesecalculaPons.Ifwewouldinclude
tablets,itwouldincreasethevalueofdevicesales,andthusdrivedowntheAverage
CumulaPveRoyaltyYield.
ThesesameenPPesalsoesPmatedevicesalesandpricesbymajorOEMs,and
providethisdatainpressreleases,whichtheyposttotheweb.TheseesPmatesalsotend
tobewithinafewpercentagepointsofoneanother. Weusethisdatainorderto11
esPmatetherevenuesearnedbypatentpools,whichtendtohavePeredroyalty
schedules.
2B.EsPmaPngPatentLicensingRevenue
EsPmaPngpatentlicensingrevenueisstraighjorwardinprinciple,thoughitcanbe
difficultinpracPce.Firmsthatearnsignificantrevenuesfrompatentlicensingreportthose
figuresinfinancialreports(e.g.SECforms10kand20-f).Privatefirmsarenotobligatedto
disclosesuchinformaPonabouttheiroperaPons.InthesecasesweesPmaterevenues
basedoninformaPonthatfirmsmakepubliclyavailable.Forexample,successfulpatent
poolstypicallydisclosetheidenPPesoftheirlicensorsandlicensees,thepatentscovered
bythepool,andthefeescheduleforlicensees.EsPmaPngroyaltyrevenuewiththis
informaPonispracPcal,althoughito^entendstooveresPmateroyalPes.However,thatis
consistentwithourchosenbias,andsoweexpectit. 12
Therearesomepublicfirmsthatearnpatentlicensingrevenueinthemobile
phonevaluechainbutinamountsthataremodestrelaPvetotheirotherrevenuesources.
Forthedata,seeTab1.8,DeviceSales,intheExcelworkbook.10
Forthedata,seeTab1.9,OEMSales,intheExcelworkbook.11
Forthedata,seeTab1.7,RevenuesbyLicensor,intheExcelworkbook.12
� 6
Theythereforedonotbreakoutthisrevenueasareportablesegmentintheirpublic
filings.Therearealsoprivatefirms,andthesearenotobligatedtodisclosetheirrevenue
sources.WhenitispracPcable,weesPmatetherevenuesofbothtypesoffirmsonthe
basisofinformaPonontheirwebsites,reportsinthetradeandfinancialpress,and
interviewswithindustrypracPPoners. WhennotpracPcable,weenumeratethosefirms13
thatmayhavegeneratedroyaltyrevenue,butforwhichwehaveneitherdatanora
plausibleesPmate. WethendoasensiPvityanalysisinwhichweassignaseriesof14
plausibletotalrevenuesforthesefirmsasagroupinordertoseerobustnessofour
results. ThatsensiPvityanalysisshowsthatevenanupperboundesPmateofthe15
cumulaPvemobilephonepatentlicensingrevenuesofthesefirmswouldnothavea
significanteffectontheresults:ifthemobilephonepatentlicensingrevenuesforthese
firmsasagroupwere$2billion,theAverageCumulaPveRoyaltyYieldwouldincreaseby
roughly0.5percentagepoints.
Thecoreofourmethod,then,isto“followthemoney.”Infollowingthemoney,
wemakenodisPncPonsastowherealicensorisearningrevenuesinthemobilephone
valuechain,nordowemakedisPncPonsamongthedifferentpatentedtechnologiesina
mobilephone.Wecapture,forexample,revenuesearnedfromlicensestakenby
semiconductorandbasebandchipproducers,aswellastheOEMsandEMSsthat
assemblephones.Wealsocapturerevenuesearnedfromlicensesonpatentsthatenable
video,imaging,audio,andotherfuncPons,aswellastheSEPsthatenablemobility.We
capture,aswell,therevenuesofamajorso^warecompanythatearnsrevenuefromits
patentsthatreadonthemostpopularmobilephoneoperaPngsystem.
Forthedata,seeTab1.7,RevenuesbyLicensor,intheExcelworkbook.13
Forthelistoffirms,seeTab6.0,OtherFirms,intheExcelworkbook.14
See,Tab1.6Sensi8vity,tableformobilephones,intheExcelworkbook.15
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2C.BasicPrinciplesofDataCollecPon
Infollowingthemoneyweareguidedbyfourprinciples.First,totheextentthatit
ispossible,theesPmatesshouldusepublicly-availablesourcessothatourresultscanbe
replicatedandimproveduponbyotherresearchers.Indeed,weinviteusersofthedatain
theExcelworkbookthataccompaniesthisdocumenttoshareinformaPonwithussothat
wecanimproveouresPmates.Second,ouraimistohaveaslongaPmeseriesforeach
licensorasispracPcallypossible.Third,decisionsabouthowtotreatdatashouldbiasin
favorofobtainingalargerroyaltyyield.Thisimpliesthatweerronthesideof:(i)including
licensorsthatlicensetoavarietyofindustries,notjustmobilephones,whichmeansthat
wemaybecounPngtheirrevenuesfromotherproductsasroyalPesonmobilephones;(ii)
aHribuPngroyalPestomobilephonesthatmayhavebeenpaidonothermobileproducts,
suchastablets;(iii)doublecounPng,whichmeansthatwemaybeincludingboththe
royaltyrevenuesdeclaredbyalicensorandtheroyaltyrevenuesearnedbyapoolwhere
thelicensorisamember;(iv)biasingesPmatesupwards. 16
3.DataQuality
Thequalityofdatavariesacrosslicensors.Weclassifylicensorsinfourcategories
accordingtheaccuracyoftheirlicensingdata:Confirmed,Documented,Approximated,
andResearched.Table1showsthelicensorsclassifiedineachcategory. 17
Asasageneralrule,thelargestlicensorsarealsothosewhichreportlicensing
revenuesseparatelyfromotherrevenues,andforwhichwehaveaprimarysource
Forexample,inthecaseofHuawei,whichisarelaPvelynewlicensorwhoselegalstatusasaprivatelyownedcollecPve16
meansthatitisnotsubjecttothesamereporPngrequirementsasU.S.orEuropeanfirms,weliberallyassumethatitsmobilephoneroyaltyrevenuesarethesameasawell-established,U.S.-basedtechnologycompany,Interdigital.Indoingso,weassumethatHuaweiisearning,onitsmobilephonepatentsalone,roughly30percentofallpatentrevenuesearnedbyallChinesecompaniesinanylineofeconomicacPvity.SeethediscussioninTab5.6,Huaweiintheworkbook.
AlsoseeTab6.0,Others,intheExcelworkbook.17
� 8
documentthatwasgeneratedasalegalrequirement.Qualcomm,Interdigital,Nokia,and
Ericsson,areexamplesoftheselicensors.Giventhehighqualityandaccountability,their
knowledgeoftheiroperaPonsandtheirreporPngunderSECauspices,weconsiderthese
figures"Confirmed.”In2016thiscategoryaccountedfor75.2percentoftotalrevenues.
OtherlicensorsprovidesufficientinformaPoninpubliclyavailabledocumentsto
esPmatetheirlicensingrevenues.Insomecaseswehavetoseparatelicensingrevenues
frommobilephonesfromotherlicensingrevenues,basedoninformaPoninfootnotesto
SEC10k’s.Inothercases,wehavelicensingfeeschedulesandtheidenPPesofthe
licensees,andcanesPmatethelicensingrevenuesofeachlicensee.Wedenotetheseas
"Documented."EnPPesinthiscategoryincludethemajorpatentpoolssuchasMPEGLA
MPEG4;MPEGLAAVC/H.264,andViaLicensing’sAACpool.ItalsoincludesMicroso^,
whichlicensesitspatentsthatreadontheAndroidOperaPngSystemtoOEMs.In2016
thiscategoryaccountedfor8.5percentoftotalrevenues.
TherearesomeenPPesthatarenon-trivialmobilephonevaluechainlicensorsfor
whichwehaveinformaPonabouttheirtotallicensingrevenues.Wehavetomake
assumpPons,however,basedonotherdataorinterviews,aboutthepercentageoftheir
totallicensingrevenuesthatcomefromthemobilephonevaluechain.Wedenotethese
as"Approximated."TheyincludeXperi(formerlyTessera),Quarterhill(formerlyWiLAN)
andRambus.In2016thiscategoryaccountedfor11.9percentoftotalrevenues.
Finally,therearesomeenPPeswithliHleornodisclosurebutuponexaminaPonit
seemsthattheyhaveverymodest,somePmeszero,revenues. Wedenotetheseas18
“Researched.”In2016thiscategoryaccountedfor4.3percentoftotalroyaltyrevenue.
TheoneexcepPontothegeneralizaPonaboutsizeanddataqualityisIntellectualVentures.Inthiscase,wehave18
esPmateditstotalrevenuesfrominformaPononitsownwebsiteoverPme(usingtheweb-toolsthatallowresearcherstolookatarchivedwebpages)andfrominformaPoninthetradepressaboutitsfinancialperformance.WehavetoapproximatethepercentageofthisrevenuefromthemobilephonevaluechainbasedoninformaPononthefirm’swebsiteaboutitspatentporjolio,aswellasinterviewswithindustrypracPPoners.
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InaddiPon,therearefirmsthatappeartoearnsomepatentlicensingroyalPesfrom
themobilephonevaluechain,butthereislimitedinformaPoninthepublicdomainabout
themagnitudes.Somelarge,publiccompanies(someofwhicharemobilephoneOEMs)
earnsomepatentlicensingrevenues,buttheirlicensingacPviPesarenotsignificant
enoughtobeareportablesegmentintheirfinancialstatements.Someofthesefirms,or
EMSsthatproduceforthem,arealsomajorsourcesoflicensingrevenueforotherfirms
coveredinthisstudy.Therearealsosmallprivatecompaniesthatappeartoearnsome
patentlicensingroyalPesfromthemobilephonevaluechain,butthepubliclyavailable
informaPonabouttheirrevenuesandoperaPonsisfragmentary.Wecallthose“Other
idenPfiedfirms.”Theavailableevidencedoesnotsuggestanyoneofthesefirms—public
orprivate—individuallyhaslicensingrevenuessignificantenoughthatitsaddiPonwould
haveamaterialeffectontheoverallmagnitudeofthecumulaPveroyaltyyield.
4.Results
4.AThe2016Update
WeareabletoesPmate,withvaryingdegreesofaccuracy,themobilephone
patentlicensingrevenuesof39licensorsinthemobilephonevaluechain.WeesPmate
thatthe39licensorsasagrouphadcumulaPveroyalPesin2016ofalmost$14.2billion
(seeTable2). Ofthese39,10havelicensingrevenuesofeffecPvelyzero.In2016Royalty19
revenuesoftheremaining29firmsvarybetween$1.6millionand$7.7billion.
OnewaytoputthesenumbersintoperspecPveiscomparethemwiththevalueof
mobilephoneshipments.In2016originalequipmentmanufacturers(OEMs)sold1.97
billionmobilephonesfor$425.1billion. ItfollowsthattheASPwas$215.5,andthatthe20
Forthedatabylicensor,seeTab1.7,RevenuesbyLicensor,intheExcelworkbook.19
AccordingtoIDC.Forthedata,seeTab1.8,DeviceSales,intheExcelworkbook.20
� 10
AverageCumulaPveRoyaltyperphonewas$7.2.TheAverageCumulaPveRoyaltyYieldis
totalpatentroyalPesdividedbythevalueoftotalphoneshipments,or3.3percent. 21
YetanotherwaytoputthesenumbersintoperspecPveistoaskhowtheycompare
withthosefromearlieryears.BecausewetakeaPme-seriesapproach,someofourfirm-
levelrevenueesPmatesgobackto2000.By2007,wehavedatafor17licensors,which
accountedfor78.2percentofallroyaltyrevenuesin2016.By2009,wehavedataon22
firms,andtheseaccountedfor92.5percentofallroyaltyrevenuesin2016 .AsFigure122
shows,bothofthoseseriesareremarkablystable.The2009-2016series,forexample,
hoversataround3percent,fallingonlymarginallyduringthelastthreeyears. 23
YetanotherwaytoputthesedataintoperspecPveistoaskhowtheycompareto
esPmatesthatotherresearchershavemadeabouttherestofthecostsincurredto
manufacturephones,suchassemiconductorsandbasebandprocessors,aswellasOEM
operaPngmarginsonmobilephones.Figure2presentsthatdata.Theresultsindicate
thatpatentlicensingisthesmallestofthecategories:somewhatlowerthanthecostof
basebandprocessors,slightlylessthanone-seventhofthecostofsemiconductors,and
aboutone-fourthofOEMoperaPngmargins. 24
4.B.2016and2015Compared
AscanbeseencomparingFigures2and3,theAverageCumulaPveRoyaltyYielditissPll
3.3percent---itdidnotvarybetween2015and2016.Nevertheless,theshareof
manufacturers’profitsintheaveragesellingpriceofaphonefellfrom14.9percentto11.8
percent,andsemiconductorcosts(basebandprocessorsandothersemiconductors)rose
ForthecalculaPons,seeTab1.3,RoyaltyYieldSummary,intheExcelworkbook.21
Someofthesefirmsdonotreportanyrevenues.22
Forthedata,seeTab1.4,RoyaltyYieldSeries,intheExcelworkbook.23
Forthedataandsources,seeTab1.5,EconomicAnalysis,intheExcelworkbook.24
� 11
from19.1percentto25.1percent.Last,theshareofothercostsfellfrom62.6percentto
59.8percent.
Tables2and3decomposethecumulaPveroyaltyyieldbyqualityofdataandtype
oflicensorin2015and2016.WhilethetotalcumulaPveyieldfellfrom$14.5billionin
2015to$14.2billionin2016,thecomposiPonbarelychanged. AtthesamePme,the25
royaltyyieldsofsomeindividuallicensorsvariedalotfrom2015to2016.Forexample,
Ericson’sroyaltyyieldfellby$536million,from$1,701millionin2015to$1,165millionin
2016.Interdigital’sroyaltyyield,bycontrast,roseby$223million,from$432millionin
2015to$655millionin2016.
5.SensiPvityAnalysis
OurresultsdonotseemtobesensiPvetohowonetreatsthedata.Forexample,
whatwouldhappenifweassumethatonlysmartphonespaidroyalPesandallfeature
phonespaidnoroyalPesatall?ThenallthecumulaPveroyalPesof$14.2billionin2016
wouldbespreadacross1,474millionsmartphoneswithatotalvalueof$415.2billion
(insteadof1.97billionsmartandfeaturephoneswithavalueof$425.1billion).The
AverageCumulaPveRoyaltypersmartphonewouldrisefrom$7.20perphoneto$9.60
andtheAverageCumulaPveRoyaltyYieldwouldrisefrom3.3percentto3.4percent. 26
WhatwouldhappenifweimputedtheroyalPesoffirmsthatweknowearnsome
licensingrevenues,butthatdonotprovideenoughinformaPonforustoesPmatethose
revenuesonafirm-by-firmbasis?AsTable4shows,theresultswouldbeamodest
ThenumbersreportedinTable3areslightlydifferentofwhatwereportedabout2015inourSeptember2016release25
ofthedatabase.ThereasonisthatinthisupdatewehavecorrectedsomeofouriniPalesPmatesfor2015andaddedpatentholdersintothedatabase.
SeeTab1.3RoyaltyYieldSummary,intheExcelworkbook.26
� 12
increaseintheAverageCumulaPveRoyaltyYieldofsmartphones. Forexample,ifwe27
assumethatthesefirmsasagroupearned$1billioninlicensingrevenuesin2016,which
wouldbeagenerousassumpPon,thentheroyaltyyieldonasmartphonewouldincrease
from3.4percentto3.7percent(seethefirstrowinTable4).Ifwemaketheextremely
generousassumpPonthatthecombinedroyalPesofthesefirmscameto$2billion,then
thecumulaPveaverageroyaltyyieldwouldsPllonlybe3.9percent.
WhathappensifwerelaxtheassumpPonthateverysmartphoneshippedin2016
paidlicensingroyalPes?WhatifitwasthecasethatsomeOEMsevadedlicenses,such
thatthe$14.2billionisactuallyspreadacrossfewerthan1,473millionsmartphones?Asa
firststep,wefinddetermineanupper-boundevasionrate,whichweputat30percent. 28
WethencalculatetheAverageCumulaPveRoyaltyYieldassumingthatonly70percentof
smartphonespaidlicensingroyalPes.ThelastrowinTable4showstheresults.Underthe
assumpPonsthat:(i)allroyalPesarechargedonsmartphones(noneonfeaturephones);
and(ii)that30percentofsmartphoneproducPonevadesroyalPes,theaverage
cumulaPveroyaltyrateonasmartphonewouldincreasefrom3.4percentto4.9percent.
WhatifwepushedhardersPll,andmadethreestrongassumpPons:allroyalPes
areearnedonsmartphones;theevasionrateis30percent;andtheroyalPesfirmsinthe
“Other”un-enumeratedcategoryin2016equaled$2billion?Howhighcouldwepushthe
esPmateoftheAverageCumulaPveRoyaltyYield?AsTable4shows,theansweris5.6
percent.
6.ConcludingRemarks
SeeTab1.6,Sensi8vity,intheExcelworkbook.27
ForadiscussionofhowweesPmatedthatupper-boundevasionrate,seethefootnoteinTab1.6,Sensi8vity,inthe28
Excelworkbook.� 13
Acrucialinputtoanyacademicinquiry,policydebate,orindustrystudyisthefacts,
dispassionatelygathered.OurpurposeincreaPngthedatasetweoutlineinthisnoteisto
dothat.TheinformaPoninthisdatasetisthereforenotmeantasajudgmentofanysort
uponthemeritsoreffecPvenessofanyenPtyoritsoperaPons.Weinviteusersofthis
datasettosharetheirideas,suggesPons,andcorrecPonswithussothattheymaybe
includedinfutureversions.Aswehavedonewiththefirstversionofthisdataset,we
wouldliketoimproveupontheseesPmatesbymakingcorrecPonswhenwehaveerred
andtoobtainsuperiordatasourceswhentheyexist.Wewillbethefirsttoseek
improvementinourthirdediPon,andhopetobenefitfromthesupportofothers.
PerhapswithongoingcooperaPonwithinthecommunityoverPmewemayallgain
greaterclarityastothefuncPoningofindividualfirmsandtheindustry.
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Table1:TypesofLicensorsClassifiedbyTypeandtheQualityofTheirData
(TabsintheWorkbookinparentheses.)LicensorsincludedintheCumula6veRoyaltyYieldes6mateinboldface.Technologyleadersinitalics.**Addedinthe2017update.Source:seetab1.7RevenuesbyLicensor,intheExcelworkbook.
Confirmed Documented Approximated Researched OtheridenPfiedfirms
PubliccorporaPon
Qualcomm(2.1)Ericsson(2.2)
Nokia(2.3)(incl.Alcatel-Lucent,
2.3.1)1
Interdigital(2.4)ParkerVision(3.9)UnwiredPlanet
(3.10)2VirnetX(3.11)
MicrosoL(2.5)
Philips(3.1)3Xperi(3.5)4
Rambus(3.6)AcaciaTechnologies
(3.7)Quarterhill(3.8)5
MarathonPatentGroup(3.12)IBM(3.13)**
Tivo(3.14)**
Technicolor(3.15)**
Blackberry(3.16)**
AT&T802.11(3.2)AT&TMPEG4(3.3)Broadcom(3.4)
Apple(6.0)Google(6.0)Infineon(6.0)
SamsungElectronics(6.0)
Siemens(6.0)TexasInstruments(6.0)
SonyCorp(6.0)LGElectronics(6.0)
PrivatecorporaPon
Huawei(5.6)
SISVELWireless(5.1)IPCom(5.2)7
PanOp6s-Op6s(5.3)2
IPBridge(5.4)IntellectualVentures
(5.5)Conversant(5.7)8
FormHoldings(6.0)11
FranceBrevets(6.0)12ETRI(6.0)13ITRI(6.0)14
LongitudeLicensing(6.0)15
MobileMediaIdeas(6.0)
Rockstar(6.0)VoiceAge(6.0)
RoundRock(6.0)
Patentpool
ViaLicensingAAC(4.1)
MPEGLAMPEG4(4.3)MPEGLAAVCH.264
(4.4)MPEGLAHEVC(4.9)**
HEVCAdvance(4.10)**
ViaLicensingLTE(4.2)6SISVELLTE(4.5)SISVELWiFi(4.6)ViaLicensingWCDMA(4.7)9
Vec6sWiFi(4.8)10VelosMediaHEVC
(4.11)**
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NotestoTable1
(1)NokiaacquiredAlcatel-LucentinJanuary2016.(2)PanOpPsrecentlypurchasedUnwiredPlanet.BothlicensepartofEricssons’spatentporjolio.(3)Philipsisamajorlicensor,butismorediversifiedwithmajortrademark/brandlicensingoperaPons,andalsomajordigitalA/VlicensingwhichincludesmajorpoolparPcipaPon.However,ithassomemobileSEPlicensingbusiness.(4)XperiistheformerTessera.ItchangeditsnameinFebruary2017.(5)QuarterhillistheformerWiLAN.ItchangeditsnameinApril2017a^eracorporatereorganizaPon,butitslicensingbusinesssPlloperatesunderWiLAN.(6)GooglelicensesitsLTEpatentsthroughVia.DolbyownsViaLicensing.(7)IPCommanagestheformerBoschmobilepatents.(8)CoreWireless/ConversantlicensespartofNokia’spatentporjolio.(9)ViaLicensingreplacedSiprolabasadministratoroftheWCDMApool.(10)VecPslicensessomeofEricssons’sWiFipatents.(11)FormHoldingsistheformerVringo.(12)FranceBrevetisaFrenchsovereignfundwithaporjolioincludingnear-fieldcommunicaPon(NFC)patents.(13)ETRIisaSouthKoreanresearchinsPtute.(14)ITRIisaTaiwaneseresearchinsPtute.(15)LongitudeLicensingrepresentsSandiskandothermajortechcompanies.ItwasacquiresbyVectorCapitalin2016.
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Table2:Cumula6veRoyaltyYieldClassifiedbytheQualityoftheData(in2016)
Source:Seetab1.7RevenuesbyLicensor,intheExcelworkbook.
Type1Public
company
Type2Privatecompany
Type3PatentPools Total
Confirmed$10,679,127,886
(75.2%)- - $10,679,127,886
(75.2%)
Documented$828,185,000
(5.8%)- $378.780.681
(2.7%)$1.206.965.681
(8.5%)
Approximated$1,035,503,336
(7.3%)$655,360,000
(4.6%)- $1,690,863,336
(11.9%)
Researched$382,000,000
(2.7%)$145,683,346
(1.0%)$86,982,900
(0.6%)$614,666,246
(4.3%)
Total$12,924,816,222
(91.1%)$801,043,346
(5.6%)$465.763.581
(3.3%)$14.191.623.148
(100%)
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Table3:Cumula6veRoyaltyYieldClassifiedbyQualityofData(in2015)
Source:Seetab1.7RevenuesbyLicensor,intheExcelworkbook.
Type1Public
company
Type2Privatecompany
Type3PatentPools Total
Confirmed$11,280,132,214
(73.6%)- - $11,280,132,214
(73.6%)
Documented$1,134,500,000
(5.7%)- $311.408.407
(2.6%)$1.445.908.407
(8.3%)
Approximated$871,263,710
(7,1%)$432,488,000
(4.5%)- $1,303,751,710
(11.7%)
Researched$245,000,000
(2.6%)$144,461,024
(1.0%)$86,982,900
(0.6%)$476,443,924
(4.2%)
Total$13,530,895,924
(89.1%)$576,949,024
(5.5%)$392,183,807
(3.2%)$14.506.236.255
(100%)
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Table4:ASensi6vityAnalysisoftheAverageCumula6veRoyaltyYield(2016,smartphonesonly)
Source:seeTab1.6Sensi8vityintheworkbook.
%Unlicensed EffecPveSmartphonesRoyalPesChargedby"Other"licensorsasagroup($m)
Phones $0 $500 $1,000 $1,500 $2,000
0% 3.4% 3.5% 3.7% 3.8% 3.9%
5% 3.6% 3.7% 3.9% 4.0% 4.1%
10% 3.8% 3.9% 4.1% 4.2% 4.3%
15% 4.0% 4.2% 4.3% 4.4% 4.6%
20% 4.3% 4.4% 4.6% 4.7% 4.9%
25% 4.6% 4.7% 4.9% 5.0% 5.2%
30% 4.9% 5.1% 5.2% 5.4% 5.6%
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