IEEE amends it Patent (FRAND) Policy endorsing royalty payment on chip and not on the product.

Readers are familiar with court cases concerning royalty payments on essential patents for standards. Licensors like Qualcomm, Ericsson demand royalty of final product (mobile phone) whereas Indian Licensee feel royalty should be on the chip and not on the mobile or other form of finished products incorporating the chip. On February 8th the standard setting organisation IEEE voted to change patent policy and these changes largely relate to the commitment of IEEE members to license patents to users of IEEE standards on terms that are “fair, reasonable and nondiscriminatory” (FRAND). 
The contentious part says:

“Reasonable Rate” shall mean appropriate compensation to the patent holder for the practice of an Essential Patent Claim excluding the value, if any, resulting from the inclusion of that Essential Patent Claim’s technology in the IEEE Standard. In addition, determination of such Reasonable Rates should include, but need not be limited to, the consideration of:

• The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.
• The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation.
• Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.

The vigorous pubic debate over the IEEE amendments highlights a rift in the standardization world between Patent Centric and Product Centric firms.  The business models that these firms have adopted are different, yet they have co-existed for decades.  Some have predicted that important contributors will leave IEEE as a result of the recent amendments. 

Qualcomm argument; 

Defining a “reasonable” royalty using controversial and unworkable valuation methodologies—including tying a royalty rate to the “smallest saleable component” of a standard-compliant device—all of which are intended to minimize licensing fees for SEPs.

Indian perspective

 IEEE endorsed a calculation based on the value of the chip inside the device, even if many other aspects of the device benefit from or use the contributed technology. This benefits local assembly of mobile phones and most other network based products and can enable Make-In-India.