The question of whether the royalty base for standard-essential or other patents should normally be the smallest salable (or saleable--according to Webster's, either spelling is acceptable) patent practicing unit (SSPPU) is one that has elicited scholarly commentary recently. The other day I mentioned Nicolas Petit's new article The Smallest Salable Patent-Practicing Unit ('SSPPU') Experiment, General Purpose Technologies and the Coase Theorem and The IEEE-SA Revised Patent Policy and Its Definition of 'Reasonable' Rates: A Transatlantic Antitrust Divide? (see post here); and others including Greg Sidak and Richard Stern have also weighed in (see here and here). Here are two more recent papers on the topic:
1. David Teece and Edward Sherry have posted a paper titled On the ‘Smallest Saleable Patent Practicing Unit’: An Economic and Public Policy Analysis. Here is a link to the paper. From the introduction:
The “smallest saleable patent practicing unit” (SSPPU) doctrine was developed in the context of patent infringement damages awards. It provides that, in calculating patent infringement damages, the damages base should be the imputed revenues that the infringer would have earned had all of the actual sales been made of the “smallest saleable patent practicing unit” containing the patented invention. This article does not attempt to summarize the SSPPU doctrine from a legal perspective or examine its legal foundations (or lack thereof). A good summary of the doctrine, which the author characterizes as arising from “a recent series of confusing and contradictory opinions,” and many of the decisions, is found in Sidak (2014).
We show that the doctrine makes no economic sense and is completely at odds with the long standing view that in determining reasonable royalties one should mimic licensing practices in the real world. Such practice usually specify percentages removing royalties on the device revenues or per unit device royalties, but never a SSPPU. The reason is that the value from patented technology is manifested in many places besides components; moreover, transaction cost considerations make SSPPU licenses difficult to monitor and enforce. Accordingly, mandating SSPPU licensing would be a fool’s errand if the goal is a properly functioning natural (or global) system of innovation.
2. Anne Layne-Farrar has posted on ssrn a paper titled The Practicalities and Pitfalls of the Smallest Saleable Patent Practicing Unit Doctrine: A Review of Teece and Sherry. Here is a link to the paper, and here is the abstract:
In early 2016, David Teece and Edward Sherry released a new paper assessing the economics of the “Smallest Saleable Patent Practicing Unit” (SSPPU) doctrine. The doctrine was first espoused in 2009 by Judge Randall Rader in Cornell v. Hewlett Packard. In the simplest terms, the SSPPU doctrine calls for setting the revenue base for reasonable royalty patent infringement damages at the smallest possible product level that still reflects the patented invention. In their new paper, Teece and Sherry walk through the justifications expressed in support of applying the SSPPU doctrine and discuss the assumptions embedded within those justifications. The authors also explain a number of the limitations of the doctrine, both logical and practical. In this brief review, I summarize the key findings reported in the Teece and Sherry paper and highlight the policy implications.
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