Apple offered Samsung $30 per smartphone, $40 per tablet patent license
Late Apple CEO Steve Jobs may have wanted to go all thermonuclear on Android over their alleged infringement of Apple's patents, but that doesn't mean they didn't try a pocketbook-based approach behind the scenes. If the current trial between Apple and Samsung over this very matter is any indication, there's a lot that happened behind the scenes that we didn't know about until now. Case in point: the release of a late 2010 Apple slide deck detailing a proposed licensing deal with Samsung that, if accepted, would have put this whole ordeal behind us.
The basic details of the proposed licensing agreement are that Apple wanted for $30 per smartphone and $40 per tablet from Samsung. There are some discounts available, though, with Apple knocking 20% off if Samsung were to cross-license their not-as-formidable patent portfolio back to Apple, a 20% discount for devices that have features that aren't "Apple Proprietary", and a 40% discount for smartphones that run an OS that's already licensed patents from Apple (i.e. Microsoft, not Google). In total that could bring the royalty per device down to $6, assuming it was a smartphone that runs Microsoft software and has key differentiating features from Apple's devices (the proposal cites Samsung's BlackJack smartphone, with its Windows Mobile OS and hardware keyboard as an example). Considering that Apple's primary beef with Samsung is over Android, however, the best discount the company could manage would be down to $24 per device. The tablet licensing fee would also be reduced to $30 per device over the course of two years.
How that compares to other licensing deals in the mobile space, like Microsoft's dealings with HTC, Samsung, LG, Acer, and others, we're note entirely sure. It's been reported that Microsoft's licensing agreements range between $5 and $15 dollars per device, but it's never been confirmed (Samsung's been rumored to be on the high end of that scale). In fact, this is one of the few times we've been able to get the nitty-gritty details of what exactly one company was trying to ask of another for patent licensing.
As other court documents have revealed, Samsung between June 2010 and June 2012 sold 21.25 million smartphones and $1.4 million tablets, generating just over $8.1 billion in revenue. Assuming the vast majority of those were Android devices and only qualified for the 20% discount per Apple's proposal, Samsung would have been looking at licensing fees of $554 million during that time.
Half a billion is a relative drop in the bucket for Apple, with their $8.8 billion in profit - not revenue, that was $35 billion - just this past quarter. But for Samsung, $554 million is a big chunk of change for their smartphone business, while Samsung did register a profit of $5.9 billion for the last quarter, it's worth noting that Samsung also makes a wide range of consumer devices, including high-priced televisions, refrigerators, washing machines, and cameras. They do share an overlap with Apple in the smartphones, tablets, and personal computers space, but only in smartphones is Samsung's marketshare competitive with Apple's. But Samsung also produces a wide variety of smartphones, limiting the economies of scale that Apple enjoys by producing only a handful of different smartphones, and making the same model (see: iPhone 3GS) for years.
With that all in mind, we still don't know what exactly sort of profit Samsung's enjoyed off their smartphone and tablet success, but we can be all but certain their profits haven't been nearly as strong as Apple's when the company as a whole can't generate as much profit across their wide range of products. An approximately $250 million-a-year hit to Samsung's mobile electronics business would have likely been devastating to the division's bottom line, hence the lack of an agreement on Apple's proposed licensing terms.
Amusingly, Apple expected that Samsung would respond favorably to the proposed licensing terms.
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