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Royalty Rate Determination

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  • Dawson Peter

Abstract

Courts require royalty rate calculations based on rigorous economic foundations. The licensing literature provides limited guidance for royalty rate determination, leaving appraisal report readers wanting a more tangible and objective lens through which to judge the credibility of royalty rate analyses. This article develops the standard, core model for calculating market royalty rates for intangible asset licenses where royalty rates are determined ex ante in the actual market, or ex post in a hypothetical market under a Market Value Standard. The model forms a consistent basis for performing and evaluating licensing royalty appraisals. Not being distracted with the question of how to combine the input values when calculating a royalty rate, the court can focus on understanding and verifying an appraiser’s calculations of the input variable values.

Suggested Citation

  • Dawson Peter, 2013. "Royalty Rate Determination," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 8(1), pages 1-29, October.
    • Handle: RePEc:bpj:jbvela:v:8:y:2013:i:1:p:29:n:2
    DOI: 10.1515/jbvela-2013-0003
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    References listed on IDEAS

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    1. Sujitha Subramanian, 2007. "Different Rules for Different Owners: Does a Non-Competing Patentee have a Right to Exclude? A Study of PosteBay Cases," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2007-18, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
    3. Padilla, Jorge & Schmalensee, Richard & Layne-Farrar, Anna, 2007. "Pricing Patents for Licensing in Standard Setting Organisations: Making Sense of FRAND Commitments," CEPR Discussion Papers 6025, C.E.P.R. Discussion Papers.
    4. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
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