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Royalty Rate Determination

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  • Peter Dawson

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 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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File URL: http://web2.uconn.edu/economics/working/A2013-03.pdf
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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Alumni working papers with number 2013-03.

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Length: 38 pages
Date of creation: Mar 2013
Date of revision:
Handle: RePEc:uct:alumni:2013-03

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Keywords: royalty rate; licensing; intangible asset; intellectual property rights; technology; valuation; bargaining range; royalty base; Georgia Pacific factors;

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  1. Sopher, Barry, 1993. "A laboratory analysis of bargaining power in a random ultimatum game," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 21(1), pages 69-90, May.
  2. 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, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 3(1), pages 13-19, April.
  3. James A. Brickley, 2002. "Royalty Rates and Upfront Fees in Share Contracts: Evidence from Franchising," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 18(2), pages 511-535, October.
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