Royalty Rates for Licensing Intellectual Property E-Book

Russell Parr

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 287

Veröffentlichungsjahr: 2012

Beschreibung

Royalty Rates for Licensing Intellectual Property includes critical information on financial theory, rules of thumb, industry guidelines, litigation based royalty rates, and tables of actual rates from real deals for different industries.

Leseprobe

Contents

About the Author

Acknowledgments

Preface

Chapter 1: Intellectual Property and Corporate Value

Patents

Trademarks

Copyrights

Trade Secrets

Chapter 2: Licensing Intellectual Property

Forces Behind Licensing

Licensing Motivation

Reasons Companies Engage in Licensing

Chapter 3: Use of the Twenty-Five Percent Rule in Valuing Intellectual Property

Introduction

History of the Rule

Explanation of the Rule

Illustration of the Rule

Application of the Rule

Justification for the Rule

Criticisms of the Rule

Empirical Test of the Rule

Royalty Rates

Industry Profits

Licensee Profits

Royalty Rates and Licensee Profits

Conclusions

Chapter 4: Royalty Rate Guidelines

Royalty Rates for Technology, Third Edition

Royalty Rates for Trademarks and Copyrights, Third Edition

Royalty Rates for Pharmaceuticals and Biotechnology, Sixth Edition

Chapter 5: Comparable Licenses

Internal Licenses Are Often Self-Serving

Relevant Time Period

Financial Condition of Both Licensing Parties

Relevant Industry Transactions

International Transactions

Non-Monetary Compensation

Exclusivity

Package Licenses

Comparative Analysis Summarized

Chapter 6: Technology Royalty Statistics

Automotive

Chemicals

Communications Equipment and Services

Computer Hardware

Computer Software

Construction

Electronics

Food and Beverage

Medical Equipment

Pharmaceuticals and Biotechnology

Semiconductors

Waste Management

Chapter 7: Trademark and Copyright Royalty Statistics

Apparel

Artwork

Personal Care

Publishing

Restaurants

Chapter 8: Profit Differentials and Royalty Rates

Business Enterprise Framework

Driving Forces Behind Royalty Rates

Infringement Damages Analysis

Generic Pricing

Chapter 9: Investment Rates of Return and Royalty Rates

Basic Principles

Investment Rate of Return Royalty Rates

Royalty Rates

Royalty Rate for the Specific Patented Invention

Benefits of Investment Rate of Return Analysis

Chapter 10: Discounted Cash Flow Analysis and Royalty Rates

Generic and Mature Commodity Corporate Value

New Pharmaprod Corporation Royalty Rate

Risk-Adjusted Net Present Value

Success Rates

Success Rate Adjusted DCF Example

Valuation Using the Relief-from-Royalty Method

Inputs for the Relief-from-Royalty Method

Remaining Life of the Patent Protection

Forecast Revenue

Royalty Rate

Tax Rate

Discount Rate

Present Value Calculation

Chapter 11: Court-Awarded Royalty Rates

Top Ten

Frequency of Rates Awarded

Industry Categorizations

Considerations Cited by the Courts in Determining a Reasonable Royalty

Federal Circuit Decisions on Royalty Rates

Conclusion

Chapter 12: Litigation Rates Are Higher

Comparison of Litigated and Non-Litigated Licenses

Chapter 13: Royalty Rate Services

RoyaltySource®™

RoyaltyStat®

Intellectual Property Research Associates (IPRA)

Securities and Exchange Commission EDGAR Archives

Chapter 14: Monitoring License Agreements and Financial Compliance

Introduction

What Is a Royalty Audit?

Auditor Selection

How Is the Royalty Audit Done?

Desk Audits

Drafting a License Agreement to Lower the Likelihood of Mistakes

Common Errors

Communications Between Licensor and Licensee

Conclusion: Benefits of a Sound Monitoring Program

Index

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Library of Congress Cataloging-in-Publication Data:

ISBN: 978-0470-06928-8

Amy Lynne Shanahan saved me during the summer of 2006. This book is dedicated to her, with gratitude and love.

Thank you Amy

About the Author

Russell L. Parr, CFA, ASA is president of IPRA, Inc. (Intellectual Property Research Associates). He is a consultant, author, publisher, and lecturer focused on the valuation, pricing, and strategic management of intellectual property. For over twenty-five years, he has advised his clients about the value and pricing of patents, trademarks, copyrights, and trade secrets. His books are published in Japanese, Korean, Italian, Chinese, and Russian. Mr. Parr’s opinions are used to accomplish licensing transactions, mergers and acquisitions, transfer pricing, infringement damages litigation support, and joint venture equity splits. His clients include multinational corporations, universities, and private inventors.

Past assignments have included the valuation of the Dr. Seuss copyrights and the patent portfolio of AT&T. Mr. Parr has also conducted valuations and royalty rate studies, for technology and trademarks related to pharmaceuticals, semiconductor processes and products, agricultural formulations, automotive, biotechnology, photography, chemical formulations, communications, computer software and hardware, drug delivery systems, flowers, incinerator feed systems, lasers, medical instruments, and motivational book copyrights.

In addition to consulting, Mr. Parr publishes three royalty rate resource books sold all over the world. These books are Royalty Rates for Pharmaceuticals and Biotechnology, Sixth Edition; Royalty Rates for Trademarks and Copyrights, Third Edition; and Royalty Rates for Technology, Third Edition. These books are dedicated to reporting detailed information about the financial aspects of intellectual property transactions, including licensing and joint ventures.

Mr. Parr is a graduate of Rutgers University, having received a Bachelor’s in Electrical Engineering and a Masters in Business Administration. He has also been awarded the professional designations of Chartered Financial Analyst, from the CFA Institute, and Accredited Senior Appraiser, from the American Society of Appraisers. He is a member of the Licensing Executives Society and is on the advisory board of three professional publications, Licensing Economics Review, IP Litigator, and The Licensing Journal.

As an author and co-author, Mr. Parr has created seven books published by John Wiley and Sons, about the valuation, management, and pricing of intellectual property, including Intellectual Property: Valuation, Exploitation and Infringement Damages. In addition he has written twenty-six articles for professional publications such as Les Nouvelles and The Journal of Proprietary Rights. He has made forty-three seminar presentations for organizations including the Licensing Executives Society, the American Intellectual Property Law Association and the World Intellectual Property Organization. He has testified at deposition or trial fifty-five times regarding intellectual property infringement. More information about Mr. Parr, his firm, and its publications can be found at www.ipresearch.com.

Acknowledgments

The following accomplished professionals have kindly contributed insightful chapters to this book.

DEBORA R. STEWART, CPA

Debora Rose Stewart is a managing director with Invotex Group’s Intellectual Property (IP) Management and Finance practice, and leads the firm’s IP Advisory Services, which include licensing and license compliance, technology evaluation, asset management and enforcement of IP rights. She has more than twenty years experience working with corporations, universities, and their counsel on IP matters. Ms. Stewart’s experience includes IP compliance, valuations and licensing consulting, and reasonable royalty and lost profit damage calculations in patent, trademark, and copyright infringement. In addition she developed the proprietary Royalty Reporting Process™, to help clients manage royalty reporting and revenue, and the Audit Indicator™, a selection tool to identify licenses that should be audited. Ms. Stewart has worked with clients in a wide range of industries, from computer graphics and biotechnology to consumer goods. She has also authored several articles, and has given presentations and expert testimony on related topics. Ms. Stewart has been a member of the faculty of the Licensing Executive Society’s Professional Development series. She is a member of the American Institute of Certified Public Accountants (AICPA), Association of University Technology Managers (AUTM), International Licensing Industry Merchandisers’ Association (LIMA), Maryland Association of Certified Public Accountants (MACPA), and the Licensing Executives Society (LES). Ms. Stewart holds a BBA in industrial management from Kent State University, and an MBA in finance and marketing from Case Western Reserve University.

JUDY A. BYRD, CPA, CIRA

Judy Ann Byrd is a director with Invotex Group’s IP Management and Finance practice. She has more than fifteen years experience, providing a variety of accounting and consulting services including litigation, valuation, and royalty compliance services related to IP. Ms. Byrd’s IP experience includes litigation related damage valuations and royalty audits for IP licensors. She also has more than seven years experience providing tax, accounting, and auditing services (including royalty audits) to clients in manufacturing, construction, property management, and other industries. She began her career as an accountant and auditor, specializing in business start-ups and small to medium sized business development. Ms. Byrd has co-authored several articles and frequently speaks on IP topics. She is a member of the AICPA, AUTM, MACPA, and LES. She has a BA from the University of Pittsburgh, and an MBA from the University of Baltimore. Ms. Byrd is a CPA in Maryland and Pennsylvania, and is a Certified Insolvency and Restructuring Advisor.

MICHELE M. RILEY, CPA, CFE

Michele Riley is a director with Invotex Group’s Intellectual Property Management and Finance practice. She is responsible for providing a variety of consulting services, including bankruptcy and troubled company services, litigation services, business consulting, and business valuations. Ms. Riley’s litigation services experience has included damage valuations in the areas of breach of contract, unfair competition, and IP. She has prepared damage analyses relating to patent, trademark and copyright infringement, and unfair competition and breach of contract claims for clients in computer hardware/software, retail merchandising, durable goods manufacturing, telecommunications, waste management, pharmaceutical, and business process automation industries. Ms. Riley has testified regarding damages in both IP and commercial cases. In addition, she has performed royalty audits of technology licenses for clients in numerous industries, and has assisted clients with the financial aspects of license negotiations, for both copyright and technology licenses. Ms. Riley’s experience in bankruptcy and troubled company services has covered such industries as construction, manufacturing, hospital administration, and private medical practice. Her management and administration of these engagements have entailed developing financial models, preparing cash flow projections under varying scenarios, and analyzing business segments and operations.

ROBERT GOLDSCHEIDER

Robert Goldscheider is a specialist and recognized authority on the many commercial and legal aspects of the technology transfer process, both in the United States and worldwide. He has done pioneering work in the field of technology management, specifically corporate organization of research and development, to include marketing and acquisition of patented and unpatented inventions. As chairman and founder of the International Licensing Network, a technology management consultants firm, Mr. Goldscheider is a frequent lecturer on problems involving the transfer and commercialization of technology, addressing such topics as the creation of international joint ventures and strategic alliances, the Internet, and offering strategic advice on negotiations involving IP assets. Mr. Goldscheider graduated magna cum laude in 1951, with a BS from Columbia University and distinction in economics. He received his JD from Harvard Law School in 1954 and was a 1955 Fulbright scholar. His books and articles are widely read, and are foundations for the discipline of technology licensing. He has taught more people about this subject than anyone alive, having lectured on every continent of the world.

JOHN JAROSZ

John Jarosz specializes in applied microeconomics and industrial organization. He has given economic testimony, performed research, and provided strategy consultation in matters involving IP, commercial damages, licensing, and antitrust. Mr. Jarosz has significant expertise evaluating and testifying on damages in patent, copyright, trademark, trade secret, and unfair competition cases. He has also done substantial work in breach of contract and general tort litigation. Mr. Jarosz has assisted clients across a variety of industries, including semiconductors, telecommunications, computer hardware and software, medical devices, consumer products, biotechnology, and pharmaceuticals. He is a member of the American Law and Economics Association and LES. He has been a columnist and advisory board member for The IP Litigator, and is a frequent writer and lecturer on IP and damages issues. Mr. Jarosz holds a BA in economics and organizational communication from Creighton University, a JD from the University of Wisconsin, and is a Ph.D. candidate in economics at Washington University in St. Louis.

CARLA MULHERN

Carla Mulhern specializes in the application of economic principles to issues arising in complex business litigation. She has served as an expert witness on damages in commercial litigation matters, including IP and breach of contract cases. Her IP damages experience spans cases involving allegations of patent, copyright, and trademark infringement, as well as misappropriation of trade secrets. She has assisted clients in a variety of industries, including pharmaceuticals, medical devices, automotive, entertainment, consumer products, computer hardware and software, and semiconductors. In non-litigation matters, Ms. Mulhern has assisted clients in the valuation of IP and other business assets, in the context of strategic alliances and joint ventures. She is a member of the American Economic Association and LES, and is a frequent writer and speaker on issues related to intellectual property valuation and damages assessment. Ms. Mulhern holds an MSc in economics from the London School of Economics and Political Science, and a BS in mathematics from Bucknell University.

Preface

This book is all about royalty rate information. Over the years, I have collected articles, statistics, royalty rate data, and other key information about royalty rates. I have also collected, and tried to enhance, different financial models for deriving royalty rates. Rather than have this data scattered about my office, I created a central repository, which has served as the basis of this new book.

Intellectual property (IP) is the central resource for creating wealth in almost all industries. The foundation of commercial power has shifted from capital resources to IP. In fact, the definition of capital resources is shifting. No longer does the term “capital resources” bring to mind balance sheets of cash, or pictures of sprawling manufacturing plants. The definition of capital includes such IP as technological know-how, patents, copyrights, and trade secrets. Corporations once dominated industries by acquiring, and managing, extensive holdings of natural resources and manufacturing facilities. Barriers to entry were high because enormous amounts of fixed-asset investments were required, to attempt displacing well-entrenched players. Today companies that once dominated industries are finding themselves fighting for survival. Start-up companies are creating new products and services based not on extensive resource holdings or cash hordes, but on IP resources.

In this book I talk about the enormous contribution IP adds to corporate value. This is followed by a discussion about patent growth and licensing revenue. The remainder of the book presents royalty rate statistics, averages, and graphs. This is coordinated with information about the factors driving licenses and royalty rates. Real deal data is provided, along with models for deriving royalty rates from financial information.

I am also fortunate to be able to include three chapters from very knowledgeable friends. Chapter three, “Use of the Twenty-Five Percent Rule in Valuing IP” by Robert Goldscheider, John Jarosz, and Carla Mulhern, is the definitive article about the popular Profit Split Rule for estimating an appropriate royalty rate. The rule is clearly stated, and then tested against profit margin and royalty rate data.

Chapter eleven, “Court-Awarded Royalty Rates,” by Michele M. Riley, CPA, CFE, provides information and data about royalty rates awarded in patent infringement court cases. The chapter provides balance and context for the other chapters about court-awarded royalty rates.

Chapter twelve, “Royalty Audits,” by Debora R. Stewart, CPA, discusses the underpayment of royalties occurring through honest error and otherwise. The point of her article is to make it clear that, after all the effort put into negotiating a royalty rate, more effort is still needed to make sure proper payments are eventually collected.

Russell L. Parr

Townsend Inlet, New Jersey

Chapter 1

Intellectual Property and Corporate Value

In the last thirty years, intellectual property (IP) and intangible assets have become the dominant assets of major corporations. These assets are at the heart of competitive advantage. They are the foundation of new product categories and sometimes entirely new industries. They differentiate products, provide unique utility, and even permeate products and services with cachet. Often, they allow the manufacturer to obtain a premium price for an otherwise ordinary item. Other times, they provide the user with substantial cost savings.