Royalty Payments Research Articles

Corporate taxation and the choice of patent location within multinational firms

Corporate patents are important assets in the modern economy, where knowledge is highly valued. In many multinational enterprises (MNEs), they constitute a major portion of the business's value. The intra-firm transfer pricing process for patent-related royalty payments is moreover often highly intransparent and patents thus represent a major source of profit shifting opportunities between multinational entities. For both reasons, MNEs have an incentive to locate their patents at low-tax affiliates to minimize the corporate tax burden. The purpose of our paper is to empirically test for this relationship by exploiting a unique dataset that links information on patent applications to micro panel data for European MNEs. Our results suggest that the corporate tax rate (differential to other group members) exerts a negative effect on the number of patent applications filed by a multinational affiliate. The effect is quantitatively large and robust to controlling for firm size and unobserved heterogeneity between the entities. The findings moreover prevail if we account for royalty withholding taxes and binding ‘Controlled Foreign Company’ rules.

The Customs Treatment of Royalties and License Fees with Regard to Imported Goods

A commentary issued by the International Chamber of GATT Customs Valuation Code states with regard to royalties and license fees: 'there is no part of the Code where so much is left to interpretation and implementation, and so little can be derived from a literal reading of the words used. Some critics have thought the authors of the Code did not explore the subject sufficiently, and it is true that the subject was only reached rather late in the Geneva negotiations and revealed considerable differences between governments (often as to what problems required attention, rather how they should be resolved)'. This article serves as a legal analysis of a variety of royalty payment scenarios and the resulting impact on final duty payments taking into account the legislation and practices in the Andean Community and Peru, the European Union (EU), and the United States. As a general matter, the term 'royalties' simply refers to a means by which consideration is paid for the right to use an intangible property. As such, royalty payments themselves are not inherently dutiable or not dutiable. Instead, one must look in particular to the nature of the intangible property that is being conveyed and the issue of whether it relates to the goods being valued and whether it must be paid, either directly or indirectly, as a condition of the sale.

Pay-per-view in interlibrary loan: a case study

Can purchasing articles from publishers be a cost-effective method of interlibrary loan (ILL) for libraries owing significant copyright royalties? The University of Nebraska Medical Center's McGoogan Library of Medicine provides the case study. Completed ILL requests that required copyright payment were identified for the first quarter of 2009. The cost of purchasing these articles from publishers was obtained from the publishers' websites and compared to the full ILL cost. A pilot period of purchasing articles from the publisher was then conducted. The first-quarter sample data showed that approximately $500.00 could have been saved if the articles were purchased from the publisher. The pilot period and continued purchasing practice have resulted in significant savings for the library. Purchasing articles directly from the publisher is a cost-effective method for libraries burdened with high copyright royalty payments.

Non‐renewable resource taxation: policy reform in Australia*

In July 2010, the Australian Government announced that, effective from 1 July 2012, the petroleum resource rent tax will apply to all offshore and onshore oil and gas projects (including liquefied natural gas and coal seam gas projects), and a minerals resource rent tax will apply to coal and iron ore projects. State/territory governments mainly apply ad valorem royalties to oil and gas, coal and iron ore projects; these royalty payments will be creditable under the Australian Government’s resource rent taxes. This paper argues that a hybrid system allows governments to collect a minimum return to the non‐renewable resource through the ad valorem royalty and a share of the rent from higher‐profit projects through the rent‐based tax. This paper also provides updated and expanded estimates of the potential shortfall in resource taxation revenue over the period 1992–1993 to 2009–2010 by comparing actual revenue with revenue under a range of hypothetical Brown taxes.

Indonesian Transfer Pricing Environment: A Prospect for More Certainty as to Royalties and Service Fees

This article focuses on related-party royalty payments and management service fees, and provides insights into the Indonesian transfer pricing environment relative to these types of transactions. Furthermore, it presents examples of relevant transfer pricing audit cases, and considers corresponding court rulings, as well as possible implications of newly introduced amendments to Indonesian transfer pricing regulations.The authors would like to thank Antonia Bunawan and Anggaris Priatna (both assistant at Ernst & Young, Jakarta) for doing research on this article.

Kentucky

Post-production costs, and whether or not they may appropriately be deducted from royalty payments, have recently become a hot topic of debate. Many states have considered the issue, but have arrived at different conclusions.

Drug Discovery 2012 and Beyond

Drug Discovery 2012 and Beyond

Not invented here: technology licensing, knowledge transfer and innovation based on public research

Using a new dataset encompassing more than 2,200 inventions made by Max Planck Society researchers from 1980 to 2004, we explore the way in which inventor, technology, and licensee characteristics affect the commercialization of academic inventions. We find limited evidence suggesting that domestic and external licensees outperform foreign licensees and inventor spin-offs in the commercialization of academic inventions. Controlling for selection, spin-offs are indistinguishable from external licensees. Patented technologies and inventions by senior scientists are more likely to be licensed, but patent protection is related to lower commercialization odds and royalty payments.

Rethinking Royalty Rates: Why There is a Better Way to Tax Oil and Gas Development

When provinces raise royalties charged on oil and gas production, the result can be less, not more tax revenues. The authors show how resource-rich provinces would be better off relying more on auctions for exploration and development rights and relying less on royalties levied on output. Oil and gas taxation in Canada consists of two main elements: an auction payment and royalties that apply to the value of resources extracted. The authors examine the results of Alberta’s short-lived decision, in 2007, to increase royalty rates on oil and gas production. Accounting for differences in bonus bids across provinces in the same geological zones, the authors report that Alberta government revenue, collected through bonus bids, declined by nearly as much as the projected increase in royalty payments.

Productivity in the Era of Trade and Investment Liberalization in India

Over recent years India has witnessed wide-ranging economic reforms in her policies governing international trade and FDI flows. Consequently, both trade and FDI flows have risen dramatically since 1991. Using firm-level panel data this paper finds that significant productivity improvements have taken place in the period since 2000. The paper further explores the important determinants of productivity improvements across a range of different categories. As per the findings of the paper, some of the important determinants of productivity measured by total factor productivity (TFP) include imports of raw materials and capital goods, size of operation, quality of employment captured by wage rates and technology imports measured by royalty payments. It also emerges that R&D in organized manufacturing remains at a nascent stage possibly because of the inadequate emphasis this sphere has been given by the private sector. However, further exploration of this issue is required in order to draw any firm conclusions. Broadly, foreign firms have catered to the Indian domestic market and as a result India is yet to develop as an export platform. Finally, the import-export linkage is not shown to be significant in the sample of import-dependent firms. However, the paper emphasizes that the issue of productivity gains needs to be kept in a balanced perspective. Towards the end, the paper makes some broad policy suggestions in the realm of regional integration focusing on trade in goods and services, investment cooperation, R&D cooperation and human resource development in order to harness regional sources of demand impulses.

Coordination via cost and revenue sharing in manufacturer–retailer channels

The problem of establishing efficiency in a manufacturer–retailer channel (channel coordination) is extensively discussed in the industrial economics, the marketing and the operations research literature. However, studies considering consumer demand to be simultaneously affected by price and non-price variables are scarce. One subset of models investigates efficient contracts with non-linear tariffs, but requires mechanisms which are rarely observed in managerial practice. The other subset analyses channel efficiency effects of alternative royalty payments, but omits to design an efficient contract. We contribute to this literature by investigating a contract of royalty payments that is sufficient for channel coordination. Based on the analysis of the underlying vertical externalities, we show that channel coordination requires cost and revenue sharing via a revenue sharing rate and marketing effort participation rates on both manufacturer and retailer level. Some surprising findings are highlighted: there exists a continuum of efficient contracts. Efficiency requires a retailer’s participation of at least 50% in the manufacturer’s cost of marketing effort. Moreover, the elimination of double marginalisation is not necessary for channel coordination. Manufacturer and retailer can choose an efficient contract via bargaining over the wholesale price. The main challenge for managers will be to create acceptance of new types of royalty payments based on a trustful manufacturer–retailer relationship. We also discuss the cases of the Apple iPhone market launch and of innovative restaurant franchising to further illustrate and underline the relevance of our results.

To Drill or Not to Drill: Does Pennsylvania Recognize an Implied Covenant of Further Exploration?

Over the last 18 months, natural gas operators from all over the world have converged on Western Pennsylvania. Their goal has been to secure new leases from landowners holding valuable mineral rights in the deeper Marcellus Shale formation. This rush to access the Marcellus Shale is now creating tension between landowners with existing oil/gas leases and their respective lessees. The royalty payments generated from these older, shallow well leases pale in comparison to the large signing bonuses and high-volume royalties associated with deeper Marcellus wells. As such, many of these landowners are now trying to, “get out” of their existing leases and sign new, potentially more lucrative, Marcellus leases.Terminating a producing gas lease is difficult. Almost all gas leases have secondary terms of indefinite duration so long as gas is being produced, “in paying quantities.” Essentially, this means that an operator can maintain and hold the leased acreage with a single producing well. Does the operator, however, now have an obligation to explore the deeper Marcellus formation? Put another way, can the operator ignore the Marcellus formation and still maintain the lease? Some states have recognized an implied lease covenant which requires the operator to drill exploratory gas wells into unproven formations and strata or risk cancellation of the unexplored portions of the lease. This controversial covenant is popularly known as the, “implied covenant of further exploration.”

Creative Competition’ with a Pan-European Licensing Body: Reconsidering the European Commission’s Approach to Collecting Societies

Collecting societies are organisations which are responsible for managing the copyright licenses and royalty payments of right holders. In the European Union, collecting societies which manage the public performance of music rights have historically operated with reciprocal representation agreements, with many of them being national monopolies. These prima facie anti-competitive agreements were cirticised, particularly by commercial users, who felt that such a system was inefficient and a hindrance to digital music broadcasting. On 16 July 2008, following an investigation, the European Commission adopted a decision which introduces competition between collecting societies by prohibiting membership and territorial restrictions as well as a concerted practice among the societies. The decision is the subject of an ongoing appeal. The objective of this article is to critically evaluate the decision and its implications. It will be argued that the Commission has over looked several implications of its decision, which could have negative effects on the collecting societies themselves as well as on cultural diversity in the EU. A preferable solution is to retain the respective national collecting societies, but to establish a central licensing body to grant pan-European licenses. The dynamic concept of 'creative competition' should also be implemented within the framework of each collecting society to preserve cultural diversity in the European music industry.

Co-development ventures: Optimal time of entry and profit-sharing

We find the optimal time for entering a joint venture by two firms, and the optimal linear contract for sharing the profits. We consider risk-sharing, timing-incentive and asymmetric decisions contract designs. If the firms are risk-neutral and the cash payments are allowed, all three designs are equivalent. With risk aversion, the optimal contract parameters may vary significantly across the three designs and across varying levels of risk aversion. We also analyze a dataset of joint biomedical ventures, in which, in agreement with our theoretical predictions, both royalty and cash payments are mostly increasing in the smaller firm's experience, and the time of entry happens sooner for more experienced small firms.

Imaging Emotion in Schizophrenia: Not Finding Feelings in All the Right Places

Imaging Emotion in Schizophrenia: Not Finding Feelings in All the Right Places

Intellectual Property and Horticultural Science: The Path from Idea, Technology Development, Commercialization, and Impact

Intellectual Property and Horticultural Science: The Path from Idea, Technology Development, Commercialization, and Impact

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 entry, facilitating unregulated monopoly, or yield an aggregate-zero-profit 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. Interestingly, royalty payments with such royalties may be negative. Because of this, aggregate-zero-profit duopoly may be impossible to achieve if the planner must instead direct the courts to use such royalties.

KETERKAITAN PERJANJIAN LISENSI MERK DENGAN PERJANJIAN WARALABA DAN DISTRIBUSI

AbstrakThe exclusive rights of trademark, consisting of the right to use and tolicense to other people to use the trademark, must be protected. The licensingof trademark is one way to protect the rights. The trademark licensing existsas the result of an contractual agreement between a licensor and a licensee.The agreement consists of, for instance, the duration; the rights andobligation of the parties; and dispute resolution. The agreement must beregistered to the trademarks office as well as the trademark. The agreementis based on contract law which parties can stablish their right andobligation. The party must obey the contract regarding with the duration,payment of royalty, termination of contract and so on. The utility ofagreement is not only to give benefit to the owner of the marks as licensor,but also to the licensee and state. The license agreement is related to afranchising and distributions hip agreement. All of the agreement give anexclusive right.

Turning Pests into Profits: Introduced Buffalo Provide Multiple Benefits to Indigenous People of Northern Australia

Introduced species are a major driver of negative ecological change, but some introduced species can potentially offer positive benefits to society. Asian swamp buffalo (Bubalus bubalis) were introduced to the northern Australian mainland in 1827 and have since become a serious pest. However, buffalo have also supported various profitable industries, including harvesting for hides, meat, and live export. We investigate an indigenous wildlife-based enterprise that harvests wild buffalo from indigenous-held lands in remote northern Australia. We used ecological modelling and social research techniques to quantify the buffalo dynamics and to examine their contributions to sustainable livelihoods in a remote Aboriginal community. Results suggest that the current harvest rate will not drive the species to extinction and it is thus unlikely that the population size of buffalo will be reduced enough to alleviate ecological damage. This enterprise is profitable and provides regular royalty payments to traditional land owners and wage income for employees, along with several additional non-financial capital assets. We demonstrate that the commercial exploitation of introduced species can provide additional or alternative sources of protein and income to promote economic development for indigenous people. This type of enterprise could be expanded to more communities using harvest rates above maximum sustainable yield to provide greater positive social and ecological outcomes for indigenous communities.

Reverse Hold-Ups: The (Often Ignored) Risks Faced by Innovators in Standardized Areas

There is an abundant economic and legal literature on the interface between intellectual property and standardization. Following the footsteps of Mark Lemley and Carl Shapiro, the bulk of this literature (the “hold-up literature”) focuses on the risks of patent “hold-up” faced by firms implementing standards involving intellectual property rights (“IPRs”) by manufacturing standard-compliant products. This “hold-up” conjecture is usually described as follows. Once a standard has been adopted and manufacturers or users of standard-compliant equipment have incurred significant technology-specific sunk costs, switching to an alternative technology becomes too onerous. The industry in question will have become “locked-in” to the standard. The bargaining power of the owner of essential IPR will have thus increased as a result of standardisation and he will be able to extract more favourable licensing terms after standardisation than would otherwise have been the case. The patent hold-up conjecture is thus a claim that, due to the market power gained through standardization, essential patent holders are able to negotiate royalties in excess of their true economic contribution and are thus over-rewarded. Others, including the author of this paper, have, however, argued that the alleged risks of patent hold-up have been grossly exaggerated in this literature by ignoring the significant constraints faced by essential patent holders and the very limited set of circumstances in which hold-up can occur. Another problem with the hold-up literature is that, while it exaggerates the risks incurred by standard implementers, it entirely ignores the risks faced by innovators active in standardized fields. As will be shown in this paper, holding patents on valuable technologies does not by any means guarantee the innovator that it will be able to recoup its sunk R&D investments as it faces significant, and increasingly growing, risks. First, innovators have no guarantee that, however valuable, their technology will be selected to be part of the relevant standard(s). Technology selection is competitive and will be increasingly so now that “costs” considerations are taken into consideration. Second, even if their technology is selected, innovators have to negotiate with standard implementers, which as will be seen below are seeking through various means, including the exercise of monopsony power, to reduce the royalty payments they make to innovators. Third, standard implementers and their supporters are pushing for reforms that would weaken the bargaining power of essential patent holders, notably by depriving them of the ability to seek injunctive relief or by reinterpreting the definition of the commitment they give to SSOs to grant licenses on “fair, reasonable and non-discriminatory” (FRAND) terms in a manner that is unfavourable to them. Finally, as illustrated by recent competition law cases, innovators also face growing regulatory risks as implementers may seek to use competition rules to force royalties and other licensing terms down on the ground they would be contrary to FRAND, exploitative under the terms of Article 102 of the Treaty on the Functioning of the European Union (TFEU), etc.By exploring these risks, which may – as will be argued – may create “reverse patent hold-ups” (in that essential patent holders instead of being over-compensated will in fact be under-compensated by being forced to accept royalties that are lower than the value of the contribution of their technologies to a standard), this paper seeks to fill an important gap in the current standard-setting literature and give a more accurate perspective on the challenges facing innovators in standardized fields. This paper comprises V parts. Part II provides some background on SSOs involving technologies protected by IPRs and the IPR policies they traditionally adopt. Part III describes the patent hold-up conjecture as developed by its supporters and shows that the risks it creates for standard implementers and users of standardized products are grossly exaggerated. Part IV shows that, in contrast to the claims made by patent holdup theorists, innovators active in standardized fields face significant risks of being under-compensated and thus could become the victims of reverse hold-ups. Part V offers a conclusion in which it is explained that the efforts made by standard implementers to constrain the abilities of essential patent holders to generate revenues will harm innovation and prevent efficient specialization by particularly affecting firms that have a licensing business model.