Smallest Salable Patent Practicing Unit and Component Licensing - Why 1$ is Not 1$

Journal of Competition Law & Economics, Volume 15, Issue 1, 2019, Pages 690–717

32 Pages Posted: 19 Apr 2017 Last revised: 13 Feb 2020

See all articles by Axel Gautier

Axel Gautier

University of Liege - Research Center on Public and Population Economics; Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Nicolas Petit

European University Institute - Department of Law (LAW)

Date Written: April 18, 2017

Abstract

The Smallest Salable Patent Pricing Unit (SSPPU) is a valuation method used by courts and some Standard Setting Organizations (SSOs) as a preliminary step towards the calculation of fair, reasonable and non-discriminatory (FRAND) royalties for licenses over Standard-Essential Patents (SEPs). Under SSPPU, royalties should reflect the value added to the smallest salable component implementing the patented invention. In this paper, we discuss plans to convert SSPPU into a pricing rule that not only assists the assessment of SEPs added-value, but also forces the specification of royalties terms as a share of component costs in SEP licensing negotiations (I). We call this rule SSPPU , and show that it distorts the distribution of surplus between SEP owners and implementers by laying down a hidden revenue-cap on standardized technologies (II). We then predict that the distributional effect of SSPPU may be accompanied by adverse efficiency effects when SEPs cover General Purpose Technologies (“GPT”) (III). This pleads against a generalization of SSPPU at early standardization and negotiation stages.

Keywords: patent, royalty, FRAND, SEP, standard-essential patent, damages, wireless communications, SSPPU

JEL Classification: J31, K20, O30, O34

Suggested Citation

Gautier, Axel and Petit, Nicolas, Smallest Salable Patent Practicing Unit and Component Licensing - Why 1$ is Not 1$ (April 18, 2017). Journal of Competition Law & Economics, Volume 15, Issue 1, 2019, Pages 690–717. Available at SSRN: https://ssrn.com/abstract=2954592 or http://dx.doi.org/10.2139/ssrn.2954592

Axel Gautier

University of Liege - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
+32-10-47.43.01 (Fax)

Nicolas Petit (Contact Author)

European University Institute - Department of Law (LAW) ( email )

Via Bolognese 156 (Villa Salviati)
50-139 Firenze
ITALY

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