China tech has gotten away with low, low prices basically because they’ve avoided paying patent royalties. In some cases, they’ve outright refused — and have had the protection of the government in doing so.
But that Piper will have to be paid.
As companies try to expand outside of China into countries that respect laws and patents, each company is going to find itself on the receiving end of court actions that will block their sales until royalty agreements are signed and money is disbursed.
Xiaomi has already been on the receiving end of court injunctions in India. That’s a huge market they want to gain a foothold in, to launch into Europe and beyond.
I have no idea what the number and amount of royalty payments will be. But it’s sobering to consider that Microsoft has been making more money from Android — via patent payments — than it has from Windows RT!
And this doesn’t affect just phone manufacturers, either.
Every tablet that contains a processor for 3G and 4G will be blocked too until payments are made.
Some of the companies will never expand beyond China. Those that can will be able to crush their tiny domestic competitors.
Huawei and ZTE already know what patent payments involve.
But it can’t totally be bad news. The ZTE Zmax — fully compliant with patent royalties and sold in the U.S. — sells for US$249 (or as low as US$189 sometimes at Walmart). And there’s been Motorola producing low-priced compliant phones too (Motorola has its own patents it can cross-license, however).
This is why Xiaomi recently invested in Leadcore, a CPU producer. Patents. Building up a patent war chest enables companies to defray royalty costs via cross-licensing agreements.
Still, every Android tablet is also going to have to cough up money to Microsoft too! But with Microsoft giving away Windows for free to tablet makers in China, I bet some sort of royalty agreement has already been worked out there.
In the end, the China tech landscape is going to look vastly different from today. And as prices drop outside of China, tablets produced in that country by domestic brands might altogether lose their appeal.