In negotiations for Standard Essential Patents (SEPs), the most critical point of contention today is determining the appropriate royalty base.
This debate centres on two competing approaches: “SSPPU”, which calculates royalties based on component-level value, and “EMV”, which evaluates the value of the entire end product. Because the choice between these standards can cause the total royalty amount to fluctuate by multiples—or even tens of times—it has become a high-stakes, “do-or-die” issue for companies worldwide.
However, current global practices and judicial trends indicate that the EMV (end-product-based) approach is clearly becoming the global standard. This article examines the background of this debate and explains why EMV is gaining the upper hand, highlighting the case of Avanci, the patent pool for the automotive industry.
1. Two Competing Perspectives on Patent Royalties
| Concept | Definition | Main Proponents |
| SSPPU (Smallest Saleable Patent Practicing Unit) | An approach that calculates royalties based on the price of the smallest component implementing the patented technology (e.g. a baseband chip or connectivity module). | Original Equipment Manufacturers (OEMs) looking to minimise royalty costs, and component suppliers seeking to hedge non-infringement indemnity risks at a low chip-price level. |
| EMV (Entire Market Value) | An approach that determines royalties based on the value of the final end product (such as a smartphone or an entire automobile). | Patent owners (licensors) who argue that the overall utility and added value brought by connectivity to the entire product should be fairly valued. |
2. Why EMV is Dominating the Landscape
While some lower-court rulings in the US previously brought attention to the SSPPU approach, EMV (or valuation based on the end product) has now become the mainstream standard globally. This shift is driven by two distinct factors.
2-1. Judicial Backing of “Licensor Choice”
The most significant turning point occurred when major courts worldwide consistently upheld the principle that patent owners are free to choose their licensees (the “Access for All” approach).
In landmark litigations such as Nokia v. Daimler in Germany, courts ruled that patent owners have the right to determine which tier of the supply chain (component suppliers or end-product manufacturers) they negotiate with. Subsequent rulings in the US (e.g. the FTC v. Qualcomm appellate decision) and India (e.g. Ericsson v. Lava) have similarly rejected royalty calculations based on SSPPU.
As patent owners choose to negotiate directly with end-product manufacturers, the royalty base naturally shifts from individual components (SSPPU) to the value of the final product (EMV).
2-2. Connectivity as the “Heart” of Total Product Value
Another driver is how technical contribution is perceived in the IoT era.
In today’s connected world, wireless communication features are no longer just a “component”. For instance, connecting a vehicle to the internet enables autonomous driving, dramatically improves safety, and allows for post-purchase value creation via Over-the-Air (OTA) software updates.
Consequently, connectivity technology has become the core driver of a product’s overall added value and consumer demand. The global economic standard has converged on the idea that valuing this innovation solely on the price of a $15 chip is inadequate.
3. The Definitive Proof of EMV: The Avanci Automotive Pool
The automotive patent pool Avanci has successfully translated this EMV philosophy into a highly lucrative global business model, marking a definitive victory for the approach. Avanci’s licensing framework completely bypasses SSPPU to fully embody the EMV concept:
- Licensing to OEMs: Avanci signs agreements directly with the automakers (OEMs) who hold the brand and sell the final product, rather than individual suppliers.
- Per-Vehicle Flat Rates (EMV Approach): Royalties are set at a flat rate—such as $32 per 5G vehicle—reflecting the overall value the connected vehicle receives, rather than the cost of the underlying components.
- The De Facto Industry Standard: Nearly all major global automakers, including Toyota, Honda, Nissan, European OEMs, and Chinese manufacturers, have signed licenses with Avanci. In terms of market practice, this end-product-based EMV model has firmly established itself as the winner.
4. Conclusion: “Fair Value” in the IoT Era
The protracted debate between SSPPU and EMV has reached a turning point, with international litigation and market practices swinging decisively toward EMV—acknowledging the true value that technology imparts to the final product.
Furthermore, the European Commission’s proposed SEP Regulation, which aimed to increase transparency in a manner favourable to implementers, was officially shelved in 2025 after member states failed to reach an agreement. This effectively ends attempts to mandate LTA or SSPPU via top-down regulations, cementing EMV’s dominance in the market.
Current guidelines from various governments emphasise that the priority should not be forcing a specific tier to license, but rather engaging in good-faith negotiations to determine the “fair value” that patented technology contributes to the product. In the era of Beyond 5G and 6G, where all industries are becoming connected, end-product manufacturers must adopt robust strategies to manage EMV-based patent risks directly.
This text has been translated by a large language model (LLM).