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Calculating royalty rates for patents, trademarks and other intellectual property may be a subjective, often negotiable process, but it's not arbitrary. So how does Gleason & Associates determine royalty rates in business valuation, patent infringement and damage claim engagements?

According to Ivan Hofmann, senior manager for Gleason & Associates, proprietary databases, independent research of companies within certain industries and a client's own license agreements are important royalty rate determinants. Another reliable resource is Gleason's membership in the Licensing Executives Society (LES), a professional association with more than 6,000 members engaged in the transfer, use, development, manufacture and marketing of intellectual property.

To facilitate global intellectual property commerce through education, networking, standards development and certification, LES performs regular studies of royalty rates in a variety of industries. For example, last summer LES released a study of 155 licensing deals in the biopharmaceutical industry that has informed Gleason's analysis of royalty rates in several recent engagements involving pharmaceutical clients.

According to Hofmann, "The detail of the information presented in the study allows us to accurately compare the terms and circumstances of each license agreement to the terms and circumstances of a client's case."

For instance, LES segregated the data from the license agreements it studied on a number of levels, including:

  • Fixed vs. tiered royalty rates
  • Exclusive vs. non-exclusive agreements
  • Deals with upfront and no upfront payments
  • Type of compound/drug
  • Development stage of the compound/drug
  • Sales volume for each licensee
  • Specific industry, e.g. academic, biotech and pharmaceuticals
  • Geographic location of the deal

"The more detailed the data," notes Hofmann, "the more confident we can be that our analysis accurately reflects actual industry conditions."

Another valuable benefit of LES membership is the ability for Hofmann and his colleagues at Gleason to network and interact regularly with other professionals involved in intellectual property licensing. "This ensures that our intellectual property analyses consider the real life issues and problems encountered by licensing professionals so that we're not dealing strictly in hypotheticals," he says.

Excerpted from Briefly Speaking, a complimentary newsletter published by Gleason & Associates. .
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