Definition of royalties in license agreements: criteria, approaches and data sources

Abstract

In the article, the author examines the problems associated with the justification of the cost of the license agreement, which provides for royalty payments. The solution to this problem is aimed at improving the management of intellectual property in Russian high-tech companies to ensure the technological sovereignty of the country. The purpose of the study is to determine criteria, approaches and data sources for calculating royalties for subsequent use when concluding license agreements for the disposal of rights to the results of intellectual activity of the company. Methods used in writing the article: methods of empirical research (comparison, collection and study of data from various sources), comparative and statistical analysis, synthesis of theory and practice in the field of intellectual property valuation. The author has identified the following criteria for the accrual of royalties: (1) scientific and practical orientation of the approaches and methods used; (2) relevance and availability of information when calculating royalties; (3) simplicity of procedures and objectivity of the results obtained. The following approaches to determining royalty rates are considered in detail: (1) the approach of "industry standards" (the method of standard royalty rates), based on the search for published ranges of royalty rates obtained by statistical methods; (2) the market approach (the method of analogues), based on the search and analysis of similar contracts, information on which is available; (3) the calculation approach (the Novoseltsev method), involving the derivation of royalty rates based on the licensor's share of the licensee's profit and the profitability of production and sale of products under the license. The main sources of information used in valuation practice to determine the range of royalty rates are analyzed, their advantages and disadvantages are given. The results obtained will allow companies to make informed decisions when concluding license agreements in terms of determining the amount of royalties, the accrual base and royalty rates, taking into account the specifics of the result of intellectual activity.