Bad example. It wouldn't be based off the car it's in, but on the radio unit in the car. Also, there's a pretty low royalty cap.
You guys need to remember that charging by price is a common practice for things that add value. It allows higher profit makers to subsidize lower profit makers. Same as what's done for say, the Apple App Store. Everyone pays 30%. If your price is lower, you pay less. And vice versa.
Heck, Apple's own initial royalty rate for MFi (Made for iPod/iPhone/iPad) devices was 10% of their retail price, with a $10 minimum. Much higher than Qualcomm's 3.25% rate Apple complains about.
Like Qualcomm, Apple is no stranger to the idea of charging by percentage, or wanting high royalties.
It's not a false analogy. If the royalty rate were based solely on the value of the car's radio, you'd have exactly what Apple would
like to have - a rate isolated to the immediate component/subsystem. Sure, the royalty would be higher if Ford sold a deluxe radio radio than the standard radio, but the royalty rate wouldn't (and shouldn't) go up if they put premium tires on the vehicle, or added heated, hand-stitched leather seats, air conditioning, supercharged V-8 engine, etc.
To be fair, the radios in a smartphone have a value that goes beyond simple telephone calls. The cameras in a smart phone are more compelling because the radios make it easy to share those photos with others. The value of having a pocket-sized portable computer is enhanced by its ability to connect to the office (and office servers) when away from a wifi/ethernet network. Gaming on smartphones is more compelling because of its multi-player capabilities. And so on.
However, that argument is a two-way street - None of those features are useless in the absence of a radio. It's a case of the sum being greater than the parts. In such a situation, does any one contributor have a superior claim? If those capabilities were not popularized by Apple, everyone would still have a $50 flip phone, and Qualcomm would be the poorer for it. There's a case to be made for a lower royalty rate for those "value-added" uses, as they depend on other patented technologies and hardware in order to be practical.
This isn't about social justice. High profit margin vs. low profit margin is a business strategy, not a social welfare system. The low cost/low profit margin maker expects to sell far more units, therefore making as much or more profit in the long run. While a lower price certainly benefits those of poorer means, it also benefits those of greater means. Royalty rates are not set with the end user's well-being in mind; they are limited by the price the manufacturers can reasonably expect to get for the products they sell. That price is always going to be higher than the price the customer would
prefer to spend.
Qualcomm's preferred royalty system doesn't exist for the benefit of the customer, it's for the benefit of the patent-holder - if every device was sold at a very low price, the patent-holder makes less money. The patent-holder depends on the existence of higher-priced makers to maintain their desired level of revenue. If lower-priced makers force
all prices lower, the villain for Qualcomm becomes the low-priced makers. Apple's remarkable ability to maintain or even increase premium device prices defies the conventional Wall St. wisdom - commoditization has yet to come to mobile devices, to Qualcomm's benefit.
While Qualcomm is certainly within its rights to try to make as much money as it can, they're taking quite a gamble. Not only do they risk being paid the same royalty for high-priced phones as they receive for low-priced phones, they also give the competition incentive to cut them from the loop altogether - receiving only standards-essential patent royalties, while other makers walk away with the chip revenues. There's no point tossing accusations of greed around - everyone in this game is doing it for the money.
One way to look at this battle is that Qualcomm claims it's all about the cell phone, while Apple claims it's all about the portable computer. That's not surprising, considering each company's history. My personal bias is in Apple's favor - Steve Jobs certainly didn't set out to put a telephone in everyone's pocket, he set out to put a computer in every pocket - a truly
personal computer.
From Apple's perspective, just as ethernet and wifi enhanced the usefulness of the desktop computer, wifi and cellular enhance the usefulness of the pocket computer. Qualcomm, of course, would prefer to say that the cell phone makes the pocket computer possible. Somewhere in the middle... For years I carried pocket computers that had no connection to the outside world - originally, it was an HP 41-C pocket programmable calculator; later, a succession of Palm devices. For a time, I wore a pager on my belt; by the time the Age of Palm came along, I also had a cell phone in my pocket. So it was nice to have all of those rolled into one nice, neat package. It's not chicken-or-egg, it's the more clear-cut evolution from single-cell organisms to symbiotic, multi-cellular organisms.
