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<\/figure><\/div>\t\t\t\t\tThis debate centers 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\u2014or even tens of times\u2014it has become a high-stakes, “do-or-die” issue for companies worldwide.<\/p>\n\n\n\n
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.<\/p>\n\n\n\n
1. Two Competing Perspectives on Patent Royalties<\/h2>\n\n\n\nConcept<\/strong><\/td>Definition<\/strong><\/td>Main Proponents<\/strong><\/td><\/tr><\/thead>SSPPU<\/strong> (Smallest Saleable Patent Practicing Unit)<\/td>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).<\/td> Original Equipment Manufacturers (OEMs) looking to minimize royalty costs, and component suppliers seeking to hedge non-infringement indemnity risks at a low chip-price level.<\/td><\/tr> EMV<\/strong> (Entire Market Value)<\/td>An approach that determines royalties based on the value of the final end product (such as a smartphone or an entire automobile).<\/td> Patent owners (licensors) who argue that the overall utility and added value brought by connectivity to the entire product should be fairly valued.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n2. Why EMV is Dominating the Landscape<\/h2>\n\n\n\n
While some lower-court rulings in the U.S. 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.<\/p>\n\n\n\n
2-1. Judicial Backing of “Licensor Choice”<\/h3>\n\n\n\n
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).<\/p>\n\n\n\n
In landmark litigations such as Nokia v. Daimler<\/em> 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 U.S. (e.g., the FTC v. Qualcomm<\/em> appellate decision) and India (e.g., Ericsson v. Lava<\/em>) have similarly rejected royalty calculations based on SSPPU.<\/p>\n\n\n\nAs 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).<\/p>\n\n\n
Concept<\/strong><\/td>| Definition<\/strong><\/td> | Main Proponents<\/strong><\/td><\/tr><\/thead> | SSPPU<\/strong> (Smallest Saleable Patent Practicing Unit)<\/td> | 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).<\/td> | Original Equipment Manufacturers (OEMs) looking to minimize royalty costs, and component suppliers seeking to hedge non-infringement indemnity risks at a low chip-price level.<\/td><\/tr> | EMV<\/strong> (Entire Market Value)<\/td> | An approach that determines royalties based on the value of the final end product (such as a smartphone or an entire automobile).<\/td> | Patent owners (licensors) who argue that the overall utility and added value brought by connectivity to the entire product should be fairly valued.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n | 2. Why EMV is Dominating the Landscape<\/h2>\n\n\n\nWhile some lower-court rulings in the U.S. 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.<\/p>\n\n\n\n 2-1. Judicial Backing of “Licensor Choice”<\/h3>\n\n\n\nThe 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).<\/p>\n\n\n\n In landmark litigations such as Nokia v. Daimler<\/em> 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 U.S. (e.g., the FTC v. Qualcomm<\/em> appellate decision) and India (e.g., Ericsson v. Lava<\/em>) have similarly rejected royalty calculations based on SSPPU.<\/p>\n\n\n\n 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).<\/p>\n\n\n |
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