Royalty Rate Determination
AbstractCourts 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 understand and judge the credibility of royalty rate analyses. This paper 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.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Alumni working papers with number 2013-03.
Length: 38 pages
Date of creation: Mar 2013
Date of revision:
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More information through EDIRC
royalty rate; licensing; intangible asset; intellectual property rights; technology; valuation; bargaining range; royalty base; Georgia Pacific factors;
Find related papers by JEL classification:
- D00 - Microeconomics - - General - - - General
- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D46 - Microeconomics - - Market Structure and Pricing - - - Value Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- K00 - Law and Economics - - General - - - General (including Data Sources and Description)
- K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-COM-2013-06-04 (Industrial Competition)
- NEP-CWA-2013-06-04 (Central & Western Asia)
- NEP-INO-2013-06-04 (Innovation)
- NEP-IPR-2013-06-04 (Intellectual Property Rights)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andrea Fosfuri & Esther Roca, 2004. "Optimal Licensing Strategy: Royalty or Fixed Fee?," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
- Sopher, Barry, 1993. "A laboratory analysis of bargaining power in a random ultimatum game," Journal of Economic Behavior & Organization, Elsevier, vol. 21(1), pages 69-90, May.
- James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," Journal of Law, Economics and Organization, Oxford University Press, vol. 18(2), pages 511-535, October.
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