Royalty Payments Research Articles

Counting Standard Contributions to Measure the Value of Patent Portfolios - A Tale of Apples and Oranges

Measuring the value of portfolios of Standard-Essential Patents (SEP) is a difficult and controversial exercise. It has recently been suggested to use counts of technical contributions to Standard Development Organizations (SDO) as an indicator of the share of the value of a standard created by an SEP holder. Analyzing a comprehensive database of contributions to the Third Generation Partnership Project (3GPP), I find that contributions are highly heterogeneous in technical significance, outcome, and impact. The standardization process is not intended to screen contributions for value or significance. Against this background, contribution counts are not a suitable basis for apportioning the value of a standard between different SEP holders. The measure is prone to be easily manipulated. Furthermore, apportioning royalty payments by contribution counts would exacerbate commercial considerations and opportunistic strategies, which could hamper or even derail the technical work of SDO working groups.

A DRM Solution for Online Content Using Blockchain - A Music Perspective

The amount of piracy in the streaming and static digital content in general and the music industry in specific is posing a challenge to digital content owners. The paper proposes a DRM system to monetize, track and control online content cross platforms. The system addresses the need to lowering the barriers of entry for music bands, content reconciliation for royalty payments, and controlling the content after dissemination. The paper benefits from the current advances in Blockchain and cryptocurrencies. In specific, the paper presents a digital currency (Asset Assertion (AA) Token) on a permission based Blockchain to enable the secure dissemination and tracking of the digital content. The paper presents the model, as well as its information schematics. The proposed solution provides the data owner the ability to control the flow of information even after she releases it, by creating a secure, self-installed, cross platform reader located on the digital content file header.

Follow the money: Aggregate, sectoral and spatial effects of an energy boom on local earnings

Many U.S. towns reportedly boomed after new technologies in oil and gas extraction led to rapid development of shale resources. Recent research on the expected economic impact mainly focused on the employment effects associated with new oil and gas jobs. Instead, our focus is on the impact of oil and gas industry growth on local earnings while paying attention to the spatial and sectoral effects and assessing whether an increase in earnings due to energy development seeps out due to the peculiarities of the industry. Our estimation results suggest that oil and gas earnings multipliers are modest and similar to oil and gas employment multipliers, with relatively large shares of the earnings leaving the county on average. Likewise, oil and gas multipliers tend to be smaller or comparable to the estimated multipliers for equal-sized shocks in the rest of the economy, suggesting that oil and gas is not a special industry case. Given the high wages in the sector (and potentially large royalty payments), these results may be surprising.

Inter-firm partnerships – strategic alliances in the pharmaceutical industry

In recent years, strategic alliances have become key to success in sectors such as pharmaceutical and high-tech industry. Strategic partnerships between start-ups and big pharmaceutical companies have become more prevalent and are typically motivated by the benefits that can be obtained from complementary capabilities. These contractual relationships typically use different financial incentives such as royalties, upfront or milestone payments. The best type of contractual conditions for these strategic alliances may not always be clear. We study three different types of contracts, milestone and optional upfront payment, royalty and optional upfront payment, and acquisition contract. We characterise the optimal decisions for each contract option and provide insights into the benefits each contract type offers for start-ups and big pharmaceutical companies.

Allergan seeks tribe’s help in patent case

In a novel arrangement, the pharmaceutical maker Allergan has enlisted the Saint Regis Mohawk Tribe to help protect the dry-eye drug Restasis against patent challenges by would-be competitors. The New York tribe, which could be immune from federal patent challenges, has taken ownership of six patents covering the cyclosporine emulsion eye treatment. Allergan retains exclusive licenses to the patents until they end in 2024. Allergan will make a one-time payment of $14 million plus $15 million in annual royalty payments to the American Indian tribe. If it succeeds, Allergan’s gamble will protect a $1.5 billion revenue stream representing about 10% of the firm’s annual sales. The deal could also be a harbinger of similar agreements by other branded pharmaceutical makers who had previously relied on “pay for delay” drug deals. Those deals pay competitors to delay the introduction of generic versions of drugs with disputed patents. Because the tribe is

Property Values and Risks: Evidence from Shale Development

The profitability of extracting oil and gas trapped within the nation’s extensive shale formations has generated a boom in the oil-and-gas industry. Operators are pushing to drill close to populations and sensitive resources, and many states are facilitating such extensive drilling with laws that preempt local land-use control. On one hand, shale production has the potential to enrich local land owners who can collect lucrative royalty payments from operators. On the other hand, shale production is not without potential local risks. Some of these risks are speculative, and the magnitudes of the risks are uncertain. Using property sales data from Washington County, Pennsylvania, this paper finds that an additional horizontal well within a mile of a property tends to increase the property’s value. This positive effect, however, is diminished for properties that rely on private water wells for drinking water. In addition, all properties with nearby horizontal wells lose value as the number of recent environmental, health, and safety well violations increases in the county.

Conditional Withholding Tax: A Tax on Tax Planning

This article discusses the merits of a conditional withholding tax on intra-group payments of interest and royalties. The authors argue that a conditional withholding tax would help to counter base erosion and profit shifting and would establish an international minimum norm for corporate income tax rates.

Transfer pricing regulation and taxation of royalty payments

AbstractThe digital economy is characterized by the use of intellectual property such as software, patents, and trademarks. The pricing of such intangibles is widely used to shift profits to low‐tax countries. We analyze the implications of different OECD methods to regulate transfer pricing and the role of a source tax on royalty payments for abusive transfer pricing. First, we show that under the traditional transfer pricing methods mispricing of royalty payments does not affect investment behavior. In contrast, the Transactional Profit Split Method that is promoted by the OECD for evaluating firms in the digital economy triggers higher investment in order to facilitate higher profit shifting. Second, royalty taxation is effective in reducing (such) abusive profit shifting, but always reduces investment. Third, a royalty tax rate below the corporate tax rate leads to overinvestment in a tax system with allowance for corporate equity (ACE).

Commercial harvests of saltwater crocodileCrocodylus porosuseggs by Indigenous people in northern Australia: lessons for long-term viability and management

AbstractSustainable commercial use of native wildlife is an alternative economic means of land use by Indigenous people in remote rural areas. This situation applies within large tracts of land owned by Indigenous people across northern Australia. The commercial use of saltwater crocodilesCrocodylus porosusis a growing industry in Australia's Northern Territory. Although Indigenous people sell crocodile eggs and hatchlings, the majority of harvesting and incubation is done by non-indigenous people from less remote areas. One Indigenous community has been heavily involved in this industry and now manages its own harvest and incubation programme. We present a case study of this programme, which has transitioned from outside agencies managing the harvest, to complete local ownership and management. Egg harvests and incubation success rates declined by 40% following the switch to local management. Income increased, as did production costs; in particular, royalty payments made to Indigenous landowners. The declines reflect the community's motives for engaging in the industry, which have been socially rather than commercially driven, and damage to nesting habitat by feral animals. The increase in royalties reflects the need to compete with non-indigenous harvesters from outside the township, who are strictly commercially driven. Harvesting, incubation and trade in crocodile eggs and hatchlings can form a viable and sustainable enterprise for remote Indigenous communities. However, efficiency needs to be improved to fulfil the need for a reliable and dependable supply chain, and regulatory institutions should give Indigenous harvesters sufficient freedom to pursue innovative and viable livelihood options.

Patent Trespass and the Royalty Gap: Exploring the Nature and Impact of Patent Holdout

This paper studies the problem of patent holdout. Part I reviews the economic theory of holdout, with a specific emphasis on patents. It shows that the ordinary concept of holdout refers to the non-transacting conduct of a property owner, and that “patent trespass” is a better characterization for technology implementers’ attempt to evade the conclusion of licensing agreements. Part II proposes a definition and provide illustrations of patent trespass. To that end, the paper relies on the qualitative data gathered during interviews with industry stakeholders as well as on an analysis of holdout in case-law. Part III exposes the factors that determinatively make patent trespass transactional, systematic and/or systemic. Part IV records the results of of a quantitative study of patent trespass, based on the intuitions that arose from received theory and qualitative interviews as exposed in previous parts. The preliminary empirical results show a correlational link between the nature of patent trespass and the heterogeneity of market actors and markets. In particular, MNCs operating in developed markets seem to primarily deploy extensive delaying tactics with the main goal of reducing their royalty payments, while large firms in emerging markets (LFE) and small to medium-sized enterprises (SMEs), especially the “long tail” of microvendors, seek to avoid payment altogether.

The Challenges at JSW Steel: Brand Valuation and Corporate Governance Issues

The shareholders of JSW Steel received a list of 24 items that would be put to vote in the AGM of the company, to be held on 31 July, 2014 along with the annual report of the company for the 2013–14 fiscal year. Item No. 23 of this list was a surprising addition, as the company stated that the brand name ‘JSW’ belongs to a private company called JSW Investments Private Limited (JSWIPL), promoted by Ms. Sangeeta Jindal, the wife of Mr. Sajjan Jindal, the Managing Director of JSW Jindal. It further stated that henceforth JSW Steel would pay 0.25% of the net consolidated turnover to JSWIPL for the use and promotion of the brand. The stock price fell in reaction to this news. JSW Steel justified its move by arguing that payment of royalties for the use of brand name is a common practice followed by Indian business groups. Many corporate governance experts, however, called this an abusive transaction and advised the shareholders to vote against the proposal. This case allows the examination of issues such as related party transactions and their corporate governance implications and the relevance of brand valuation for a steel company.

ANALISIS PENERAPAN ARM’S LENGTH PRINCIPLE PADA TRANSAKSI PEMBAYARAN ROYALTI ATAS PEMANFAATAN MEREK DAGANG (TRADEMARK) KEPADA PERUSAHAAN AFILIASI

Trademark is a unique marketing intangible. It does not only involve the expenses of marketing, advertising, and promoting, but the reputation of the trademark's owners also takes part in the development of trademark. Many parties involve in the development of trademark. In the context of transfer pricing, these parties entitle to some compensation. And arm's length principle must be applied to determine the reasonable compensation for the use of trademark. Transaction payment of royalties on trademarks is subject to taxes.The taxation of transactions payment of royalties on the use of the trademark among affiliated companies also created disputes between the taxpayer and Tax collector. Cases disputed are related to the fairness of the transaction relating to the determination of royalty payments on trademarks which cover: definition, identification, allocation and valuation between affiliated companies (Caroline Silberztein, 2010). The dispute raises the burden of the cost of compliance for taxpayers and cost of collection to the tax authorities.This study aims to determine how to identify ownership and economic benefits, as well as the best method which can be applied to determine the reasonable price of royalty payment transaction for the trademark use.The results shows that in order to determine the parties entitled to compensation/ remuneration are: Party who can be legally declared to have legal ownership (legal owner) which are parties that have control over decisions related to the exploitation of the intangible as well as the right to restrict others to use intangible; Parties that contribute to the value of the trademark by identifying the parties who bear the cost and risk of the development of the trademark.

Asset Ownership, Windfalls, and Income: Evidence From Oil and Gas Royalties

The recent oil and gas production boom in the contiguous United States generated tens of billions in additional royalty income for owners of oil and gas rights. We use the royalty income shock to study the local multiplier effect of unanticipated income and find that each royalty dollar received by county residents created an additional $0.50 in local income, mostly through greater wage income. The finding suggests that royalty payments and government transfers have similar local multiplier effects. In aggregate, the total income effect from royalties was $68 billion in 2014, or 0.5 percent of U.S. personal income. Over the 2000 to 2014 period, royalty income and its multiplier effect accounted for more than two-thirds of the local income effect of oil and gas development. The estimates help explain why the income effects of drilling may vary widely across regions based on patterns of resource ownership.

Types and Distribution of Payments From Industry to Physicians in 2015

Given scrutiny over financial conflicts of interest in health care, it is important to understand the types and distribution of industry-related payments to physicians. To determine the types and distribution of industry-related payments to physicians in 2015 and the association of physician specialty and sex with receipt of payments from industry. Observational, retrospective, population-based study of licensed US physicians (per National Plan & Provider Enumeration System) linked to 2015 Open Payments reports of industry payments. A total of 933 295 allopathic and osteopathic physicians. Outcomes were compared across specialties (surgery, primary care, specialists, interventionalists) and between 620 166 male (66.4%) and 313 129 female (33.6%) physicians using regression models adjusting for geographic Medicare-spending region and sole proprietorship. Physician specialty and sex. Reported physician payment from industry (including nature, number, and value), categorized as general payments (including consulting fees and food and beverage), ownership interests (including stock options, partnership shares), royalty or license payments, and research payments. Associations between physician characteristics and reported receipt of payment. In 2015, 449 864 of 933 295 physicians (133 842 [29.8%] women), representing approximately 48% of all US physicians were reported to have received $2.4 billion in industry payments, including approximately $1.8 billion for general payments, $544 million for ownership interests, and $75 million for research payments. Compared with 47.7% of primary care physicians (205 830 of 431 819), 61.0% of surgeons (110 604 of 181 372) were reported as receiving general payments (absolute difference, 13.3%; 95% CI, 13.1-13.6; odds ratio [OR], 1.72; P < .001). Surgeons had a mean per-physician reported payment value of $6879 (95% CI, $5895-$7862) vs $2227 (95% CI, $2141-$2314) among primary care physicians (absolute difference, $4651; 95% CI, $4014-$5288). After adjusting for geographic spending region and sole proprietorship, men within each specialty had a higher odds of receiving general payments than did women: surgery, 62.5% vs 56.5% (OR, 1.28; 95% CI, 1.26-1.31); primary care, 50.9% vs 43.0% (OR, 1.38; 95% CI, 1.36-1.39); specialists, 36.3% vs 33.4% (OR, 1.15; 95% CI, 1.13-1.17); and interventionalists, 58.1% vs 40.7% (OR, 2.03; 95% CI, 1.97-2.10; P < .001 for all tests). Similarly, men reportedly received more royalty or license payments than did women: surgery, 1.2% vs 0.03% (OR, 43.20; 95% CI, 25.02-74.57); primary care, 0.02% vs 0.002% (OR, 9.34; 95% CI, 4.11-21.23); specialists, 0.08% vs 0.01% (OR, 3.67; 95% CI, 1.71-7.89); and for interventionalists, 0.13% vs 0.04% (OR, 7.98; 95% CI, 2.87-22.19; P < .001 for all tests). According to data from 2015 Open Payments reports, 48% of physicians were reported to have received a total of $2.4 billion in industry-related payments, primarily general payments, with a higher likelihood and higher value of payments to physicians in surgical vs primary care specialties and to male vs female physicians.

A Welfare Economic Interpretation of FRAND

Setting an industry-wide standard is crucial for information and communication technologies for interoperability, compatibility and efficiency. To minimize holdup problems, patent holders are often required to ex-ante commit to licensing their technologies under Fair, Reasonable and Non-Discriminatory (FRAND) terms. Yet, there is little consensus, in both courtrooms and industries, on the exact meaning of FRAND. We propose a welfare economic framework that enables a precise distinction: fairness in the distribution of royalty payments among patent users, and reasonableness in setting the size of the compensation to the patent holder, where both the size and the distribution of payments are determined in a non-discriminatory way making sure that similar firms are treated similarly. We illustrate our approach in various classic models from industrial organization, and discuss further potential applications.

An Assessment of the Draft Rule Limiting the Deduction of Royalties

On 25 January 2017, a draft bill was published of a rule limiting the deduction of royalty payments to foreign related parties. The intention of the draft bill is to disadvantage the use of such IP box regimes that are not in compliance with the OECD’s modified nexus approach. The draft bill provides guidance under which conditions the deduction of royalty payments is limited.

A Tax on Aggressive Tax Planning

While “aggressive tax planning” is conceptually elusive, tackling it does not require elaborate definitions. Much can be achieved by taxing income flows within multinational firms, to the extent that these flows go from high-tax to low-tax jurisdictions. Such a “tax on aggressive tax planning” can take the form of a conditional withholding tax on intragroup payments of interest and royalties. Assuming a rate of 15%, the tax is only applied if the intragroup payment is not effectively being taxed at that same rate in the recipient’s state of residence. We argue that a conditional withholding tax helps to counter base erosion and profit shifting and sets an international minimum norm for corporate tax rates. We also find that such a tax is not incompatible with EU law.

Welfare-optimal patent royalties when imitation is costly

We identify welfare-optimal patent royalties in a model of costly imitation, entry and imperfect competition. When the social planner may impose a compulsory license, optimal royalties either blockade imitation, facilitating unregulated monopoly, or yield an aggregate-zero-profit efficient duopoly. When duopoly is optimal, the optimal per-unit royalty pins the equilibrium price at the aggregate average cost and the optimal fixed royalty shifts surplus so the patentee and imitator break even. Efficient duopoly yields higher welfare than monopoly for sufficiently low invention cost, and may also yield higher welfare than a prize system. Interestingly, royalty payments may be negative. Because of this, efficient duopoly may not be feasible if the planner must instead direct the courts to use such royalties.

In search for support for the extension of copyright term under the Trans-Pacific Partnership Agreement

PurposeOne of the binding commitments under the Trans-Pacific Partnership Agreement is the extension of the copyright term to 70 years after the death of the author. This paper reports the preliminary findings of a research on the potential impact of the extension of copyright term on the music industry in Malaysia. As Malaysia is a user and net importer of intellectual property, it is feared that extending the copyright term will likely impede incentives for the creation of new contents, increase the cost of licensing/royalties, diminish the choice and creativity of film and music industry and increase royalty payments abroad. The purpose of this study is to determine whether the commercial lifespan of copyright works is long enough.Design/methodology/approachUsing a qualitative research method, in-depth interviews were carried out with key industry players between June and September 2015 to collect relevant information from the industry. The information obtained was analysed to gauge the market standing of the local music industry and how the proposed extension would bolster their financial and market power. The paper does not intend to explore the legal implications from the retrospective extension of copyright term and data on illegal use and piracy. The findings of the research will be purely drawn from the non-structured interviews and information gathered from respondents.FindingsThe paper concludes that there is not enough evidence to support the notion that the copyright extension will be economically advantageous to the local music industry.Research limitations/implicationsThe feedback from the interviews, although cannot be generalised to be considered as representing the whole music industry in Malaysia, can nevertheless be taken as preliminary conclusions and an eye-opener to the quest for concrete support in the debate for the extension of the copyright term in Malaysia. The paper also does no explore the legal implications from the retrospective extension of copyright and data on illegal use and piracy.Practical implicationsIn conclusion, more studies need to be conducted to understand the dynamics and needs of the music market in Malaysia for the extension of the copyright term to be really beneficial to them. As this study is only conducted using a qualitative research method, using open-ended and in-depth interview techniques on a small group of respondents, there may be a need to embark on empirical research with proper execution of survey instruments to a larger group of respondents.Social implicationsThe music industry is chosen as the case study because it may develop into a potential export interest. The music industry as a small component of the larger “creative industry” has been identified as one of the new economic drivers under the Tenth Malaysia Plan.Originality/valueThe paper was first presented at the ATRIP Congress 2015 at Cape Town on 27th September 2015. The paper has not been published. No studies have been done on the possible implications of copyright extension term on the music industry in Malaysia before.

The Direct and Indirect Costs of Tax Treaty Policy Evidence from Ukraine

This study combines macro and micro data to quantify the revenue effects of double tax treaties. First, drawing on administrative information, the study estimates the tax sensitivity of income flows (dividend, interest, and royalty payments) at an aggregate level. The analysis finds important direct revenue costs linked to treaty restrictions on taxing rights, especially for flows into a few major investment hubs. However, high elasticities of income flows also suggest that increases in withholding rates at the individual treaty partner level would not necessarily result in more revenue collection. Second, the study uses firm-level information to estimate the sensitivity of reported profitability to changes in the relevant treaty network. The analysis of the reported earnings of multinational enterprise affiliates in Ukraine suggests that the ownership structure and operations with affiliates in certain jurisdictions explain reported profitability, and should thus receive increased attention in risk assessment and transfer pricing audit activities.