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
Date Written: April 18, 2017
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: Suggested Citation