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Royalty Rates & License Fees For Technology

Russell L. Parr

IPRA, Inc., President, Yardley, PA, USA

The focus of this article is on the compensation terms in technology license agreements. Specially discussed are royalty rates and upfront license fees.

Royalty rates permeate many aspects of business beyond the completion of licensing transactions. They are also often used in technology valuation assignments where a relief from royalty calculation defines the value of a technology. As such, royalty rates are important for technology acquisition pricing and also for when valuation conclusions are used in financial reporting. Royalty rates are also the foundation of intellectual property infringement damage awards. U.S. law states that when a plaintiff cannot prove the amount of lost profits they suffered because of the infringer’s activities, they are entitled to at least a reasonable royalty on the sales made by the infringer. So, royalty rates are used for completing license agreements, pricing the purchase and sale of technology, financial reporting and settling legal disputes. Consequently, we maintain a database of license agreements focused on the compensation terms. Recently, we embarked on a research study to expand and enhance our database. This article presents some interesting results of the study.

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