The Smallest Salable Patent-Practicing Unit (SSPPU): Theory and Evidence

Abstract

In the recent past, U.S. courts have begun to require that litigating parties base patent infringement damages on sales of the “smallest salable patent-practicing unit,” or SSPPU, in an effort to constrain the patentee’s damages claim to the true “economic footprint” of the invention. We ask whether this legal requirement can be grounded in economic theory, industry licensing practices, or the scope of actual patent claims. We find significant theoretical reasons to reject the mandatory imposition of the SSPPU rule, because the economic impact of an invention is not, in general, limited to the sales price of an input that allegedly embodies it. In the telecommunications industry, where the SSPPU rule has assumed additional policy significance in the context of FRAND commitments by owners of standard-essential patents (SEPs), we find overwhelming evidence that: (1) major licensors and licensees reject the ostensible SSPPU — the baseband processor — as a royalty metering device, regardless of their place in the supply chain; and (2) for one representative patent portfolio, the scope of the claims cannot be limited to the baseband processor itself. In short, we find that the pricing of telecommunications inventions is not limited to the “smallest” component, nor are such components necessarily “salable,” or “patent-practicing.”