Question
Good evening
Thank you very much for your previous advice. I would like to ask about license royalty rates. In the course of our considerations of expanding into the EU market, we would like to discuss licensing options with our business partners there.
When going into licensing negotiations, how do we determine a reasonable royalty rate? Which approach would the prospective licensee employ? So far we have only been distributing our products directly to end-users.
We are a small company operating out of Tokyo. We develop software solutions that create top-speed, highly efficient software interfaces between smartphones and IoT Devices.
Answers: 3 public & 0 private
I suggest you look for comparable deals on www.techagreements.com and/or www.royaltysource.com. There are also some good publications in the journal Les Nouvelles published by the Licensing Executives Society International on royalty determination. There is an old rule of thumb, which while recently down played by US courts, is still used in practise by licensing professionals called the 25% rule - introduced by Robert Goldscheider. More than happy to do some kind of royalty rate determination calculation for you, but that is work we charge for! good luck!
In addition to the sites that Simon mentioned, I think that there is some Royalty rate data at various KtMine data points and you can buy a "one-day" pass for them.
The general answer to this question from a pricing perspective is to ask yourself the following questions:
1. What is the cost of the alternative solution from a competitor (data sources mentioned by Simon and Blair could help you there)
2. What is the commercial benefit your customer can gain with your solution (10% of that benefit is generally considered a maximum fair share)
3. What is the cost for your customer to develop a similar solution by themselves.
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