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IP Fingerprinting Initiative from the ESD Alliance

Gabe Moretti, Senior Editor

I had occasion to discuss with Bob Smith, Executive Director of the ESD Alliance, and Warren Savage, General Manager IP at Silvaco, my March article “Determining a Fair Royalty Value for IP” (http://chipdesignmag.com/sld/blog/2017/03/13/determining-a-fair-royalty-value-for-ip/) as we addressed the IP Fingerprinting Initiative of the ESD Alliance.

I stated that there really was not a standard way to determine the amount of royalty that could be charged for an IP.

Bob Smith responded: “Royalties should be based on value provided. Value comes in many forms, such as how much of the functionality of the end product is provided by the IP, the risk and time-to-market reduction, and design and verification cost savings. There is no simple formula for IP royalties. In fact, they can be quite complicated.”

Warren added: “Business models used for licensing royalties are always a negotiation between the buyer and seller with each party striving to optimize the best outcome for their business. In some cases, the customer may be willing to pay more for royalties in exchange for lowering the upfront licensing costs. A different customer may be willing to invest more upfront to drive down the cost of royalties. Calculation of the actual royalty amounts may be based on a percentage of the unit cost or a fixed price, and each may have sliding scales based on cumulative volumes. Both parties need to derive the value that fits their own business model. The IP user needs to arrive at a price for the IP that supports the ROI model for the end product. The IP supplier needs to ensure that it receives sufficient value to offset its investment in IP development, verification and support. It is able then to participate in the success of the buyer’s product based (at least in part) on the value of the IP provided.”

Since it seems impossible to have a standard function to determine royalties, is there an intrinsic value for an IP?

Warren remarked: “An IP has zero intrinsic value in of itself. The value is completely dependent on the application in which it is used, the ability of the IP to offset development costs and risks and the contributions it makes to the operation and success of the target product. For example, an IP that is developed and ends up sitting on the shelf has no value at all. In fact, its value is negative given the resources and costs spent on developing it. Size doesn’t matter. An IP that has hundreds of thousands of gates may command a higher price because the IP supplier needs to sell it for that price to recoup its investment in creating it.  A small IP block may also command a high price because it may contain technology that is extremely valuable to the customer’s product and differentiates it significantly from the competition. The best way to think about intrinsic value is to think of it in the context of value delivered to the customer. If there is no apparent difference in this regard between an IP product from two or more suppliers, then the marketplace sets the price and the lowest cost supplier wins.”

In terms of the IP Fingerprinting Initiative of the ESD Alliance, I was curious to understand how the owner of the IP could protect against illegal uses.

Warren said: “This is the great problem we have in the IP industry today. Approximately 99% percent of IP is delivered to customers in source code form and IP companies rely on the good faith of their customers to use it within the scope of the license agreement. However, there is a fundamental problem. Engineers rarely know what the usage terms and restrictions of the agreement their company has with the IP supplier, so it is quite easy for a semiconductor company to be in violation, and not even know it. New technologies are coming into play, such as the IP fingerprinting scheme that the ESD Alliance is promoting. Fingerprinting is a non-invasive approach that protects both IP suppliers and their customers from “accidental reuse.”

Bob Smith added: “IP suppliers can utilize The Core Store (www.the-core-store.com) at no charge to showcase their products and register “fingerprints” of their technology. Semiconductor companies can use this registry to detect IP usage within their chips by means of “DNA analysis” software available through Silvaco.”

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