What’s a reasonable royalty rate?

That’s a question that I often receive from clients,  both in the litigation context and in the deal-making context.  Unfortunately, there is not often a simple answer to the question. 

The answer typically requires an analysis of what the market will bear, income streams and profitability, and/or the cost of using an alternate design, technology or product.

To help provide some guidance, Phil Brooks’ Patent Infringement Updates recently included a post about an article published in the Journal of Accountancy by Glenn Newman, Richard Gering, and Jeffery Press of Parente Randolph.  The article acknowledges that no single approach fits every situation, but it states: 

In the 1970 case of Georgia-Pacific v. United States Plywood Corp. (318 F. Supp. 1116), the U.S. District Court for the Southern District of New York used . . . 15 factors. 

These factors provide a structure for analyzing the licensor’s and licensee’s respective positions regarding a license for the intellectual property at issue.

Some CPA/damage experts may choose to look at each Georgia-Pacific factor individually, reaching a conclusion on the impact of each individual factor on the royalty rate. Other CPA/damage experts may choose to “group” certain factors and reach a single conclusion after considering the collective factors as a whole.

To read the complete article, which describes many of the factors in detail, click here.

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