Reasonable Royalties and Relief from Royalties

Royalties are usage related payments a) made by the user of an asset, b) to the owner of the asset for c) the ongoing use of an asset. Royalties can be for mineral interests, an intellectual property right, or other assets. Assets may include trademarks, copyrights, software or software code, trade secrets, or patents. Royalties may be determined as a percentage of dollar sales, or units sold, generated by the use of an asset.

The valuation of royalties and royalty rights for intellectual property requires an understanding of a myriad of matters, including but not limited to:

i) Exclusivity
ii) Geographical limits
iii) Competing technologies
iv) Sustainability of technology
v) Markets, demand and pricing
vi) Cost to create the underlying asset
vii) Cost to replace the underlying asset
viii) Cost to sustain the underlying asset
ix) Royalty rates for similar technologies

There is not one centralized source for royalty rates. However, there are numerous sources for intellectual property license royalty rates that are commonly used. Some of these include:

a) Print media source of Licensing Royalty Rates published by Aspen Publishers

b) The FVG IP Transaction information base, at www.fvgi.com

c) Licensing Economics Review, a bi-monthly newsletter, published by AUS Consultants

d) Royaltystat® information base, at www.royaltystat.com

e) RoyaltySource® information base, at www.royaltysource.com

The Hancock Firm regularly values and assesses intellectual property for purchase price allocations, fairness opinions, lost profits and other matters. When a lack of complete market royalty rates is present, The Hancock Firm has employed the relief from royalty method to estimate the value of intellectual property. The relief from royalty method is an accepted methodology in financial and economic circles.