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Royalty Rate Determination

Author

Listed:
  • 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 133-161, 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. 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.
    3. 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.
    4. 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.
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    More about this item

    Keywords

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    JEL classification:

    • D00 - Microeconomics - - General - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • D46 - Microeconomics - - Market Structure, Pricing, and Design - - - 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; Personnel Economics - - Business Economics - - - General
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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