Intellectual Property License Agreement

** This information is not legal advice, you must consult a lawyer who has the proper opportunity to obtain instructions to give advice.

There are a few methods used to value intellectual property. One is the cost approach which is that the developer of intellectual property is entitled to be paid whatever it costs them to develop and maintain the property in question. The next is the market based approach which is used when there is a large, well-defined market with data about comparable products freely available. The price of the property concerned is then valued based on comparisons with other similar products in the market. The final common approach is the income approach which is based on the expected revenue which is to flow from the intellectual property created.

The most appropriate approach depends on the circumstances, but as a rule of thumb, the developer of intellectual property is usually entitled to about 25% of the price per unit sold by the distributor. It is important to be careful not to term the agreement as based on profits because this can easily be manipulated by a savvy accountant. A share of revenue per unit sold is usually preferable.