The Hidden Tax on Every Smartphone and Tablet You Buy

COMMENTARY | You weren't charged it when they rang your smartphone up at the register, and your receipt won't have any mention of it. But if you bought an Android smartphone in the last year or so, odds are you paid Microsoft $5 for the privilege of using Android, according to Citi analyst Walter Pritchard as quoted in Business Insider. Meanwhile, Google stands to collect about a billion dollars a year from Apple on account of people who buy the iPhone, according to John Paczkowski of AllThingsD.

Why? Because of patent deals, whether extortionary like Microsoft's or "Reasonable And Non-Discriminatory" like with the Google ones. That's where they "own" the exclusive right to make something important (like, say, the 3G radio), but have to license it out for a fee because it's an industry standard.

As MG Siegler explains on Pando Daily, Google made a big fuss last year over companies like Apple and Microsoft buying up patents, just to sue people over or charge licensing fees for. But now that it's bought Motorola, which owns a ton of patents and is responsible for several lawsuits, it seems to have forgotten that.

So that's part of why your smartphone or tablet costs so much

Another part of the reason? The money it takes to keep those huge legal departments running. The gadget companies use patents as weapons in their secret war against each other, and if one of them loses, it has consequences for everyone -- like, say, the iPhone and iPad getting banned, and Apple's iCloud service losing email sync. Which is exactly what happened in Germany thanks to Motorola's lawsuits, according to Florian Mueller of FOSS Patents.

Having big legal teams pays. Just ask Microsoft; it spends hundreds of millions on its legal department in the expectation of a return on investment, both for offensive and defensive lawsuits. And Motorola lost millions on smartphones last year, but is set to make it all back and then some just by suing people like Apple, whom the market says makes better smartphones.

Why does it work this way?

Or in other words, why are today's gadget companies suing the pants off of each other and restricting our freedom to buy what we want, instead of actually using that time and money to make new gadgets? Why are they hiring lawyers instead of engineers?

It's because the government grants them monopolies over a piece of hardware, or even ideas expressed in programming code ("Math You Can't Use"). These monopolies are called patents, and were originally designed to get secretive trade guilds to publish their secrets out in the open, in exchange for the right to prosecute people who used them without a license. But in today's world, you can patent such obvious things as "a button you click on to buy stuff," and all of a sudden anyone else who makes that gets in trouble.

The name of the game isn't "making cool gadgets," anymore. It's "making the people who actually make the cool gadgets give you money, just because you were the first to shout 'Dibs!'"