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The Smallest Salable Patent Practicing Unit And Component Licensing: Why $1 Is Not $1

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  • Axel Gautier
  • Nicolas Petit

Abstract

The smallest salable patent pricing unit (SSPPU) is a valuation method used as a preliminary step toward the calculation of fair, reasonable, and nondiscriminatory 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 policy-making proposals 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. We call this new rule SSPPU+ and we show that it distorts the distribution of surplus between SEP owners and implementers by laying down a revenue cap on standardized technologies. Therefore, a change in the royalty basis is not neutral and $1 is not $1. Furthermore, SSPPU+ imposes uniform pricing of SEPs across different industries and does not allow SEP owners to take advantage of complementarities between technologies. This pleads against a generalization of SSPPU+ at early standardization and negotiation stages.

Suggested Citation

  • Axel Gautier & Nicolas Petit, 2019. "The Smallest Salable Patent Practicing Unit And Component Licensing: Why $1 Is Not $1," Journal of Competition Law and Economics, Oxford University Press, vol. 15(1), pages 690-717.
    • Handle: RePEc:oup:jcomle:v:15:y:2019:i:1:p:690-717.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhz008
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    Cited by:

    1. Henkel, Joachim, 2022. "Licensing standard-essential patents in the IoT – A value chain perspective on the markets for technology," Research Policy, Elsevier, vol. 51(10).
    2. Bonani, Michela, 2023. "Essays on innovation, cooperation, and competition under standardization," Other publications TiSEM 1c87d7fc-2c24-430a-9d4e-1, Tilburg University, School of Economics and Management.

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