Following up on a post from last month on the IEEE's Patent Policy, here are two more papers discussing whether it is preferable for the royalty base to be the sales revenue from the sale of the end product, or rather the smallest saleable patent practicing unit (SSPPU):
1. Anne-Layne Farrar published The Practicalites and Pitfalls of the Smallest Saleable Patent Practicing Unit in the December 2016 issue of les Nouvelles. Here is a link to the paper, and here is the abstract:
Dr. Anne Layne-Farrar reviews a paper by Teece and Sherry who assess the economics of the SSPPU doctrine. She summarizes each argument made in support of the application of SSPPU and evaluates their logical underpinnings. She also discusses the practical difficulties that arise in applying the SSPPU doctrine and discusses the policy implications. Many limitations raised by Teece and Sherry caution against a broad, automatic application of the SSPPU doctrine and suggest and more careful use of the doctrine when it is applied.
For another recent paper by Dr. Layne-Farrar on this topic, see here.
2. Gerard Llobet and Jorge Padilla have published The Optimal Scope of the Royalty Base in Patent Licensing, 59 J. L. & Econ. 445 (2016). Here is the abstract:
Legal scholars debate the merits of using the total value of the product, as opposed to the value of the component to which the technology contributes, as the base for a royalty in licensing contracts. In this paper we make use of the fact that these two royalty bases are equivalent to using ad valorem and per-unit royalties, respectively. We abstract from implementation and practicability considerations to analyze the welfare implications of the two rules. Ad valorem royalties tend to lead to lower prices, particularly in the context of successive monopolies. They benefit upstream innovators and do not necessarily hurt downstream producers. This benefit increases when there are multiple innovators contributing complementary technologies, as is typical of standard-setting organizations. Ad valorem royalties are even more desirable when enticing upstream investment is optimal. Our findings explain why most licensing contracts include royalties based on the value of the product.