Caveat: Unbundling royalty rates from bundled license agreements

Recently, IPSCIO/Royalty Source released a contribution on how to isolate trademark royalty rates from bundled license agreements. Accordingly, the availability of market-based trademark royalty rates is said to be low. To expand this availability, IPSCIO consultants propose to use bundled license agreements and to separate (split) the technology and trademark related elements contained in them (see full document here.)

One very simplistic approach says to split the two elements 50 : 50 (!). Another approach says to use benchmarking from bundled agreements where both the royalty rates for both elements are disclosed separately. IPSCIO proposes one (!) license agreement in the dairy sector dated 2002 to justify this approach. Accordingly, the royalty rates in this agreement were 1.5% on refrigerated products, and 3.0% on shelf-stable products. IPSCIO’s conclusion is that 50% of the royalty rate on self-stable products (the percentage above the 1.5% on refrigerated products) is for technology (the aseptic packaging), and 50% for the trademark, and to use this split as a “general rule of split” in bundled agreements. IPSCIO errs.

Firstly, making this conclusion from just on sample case is rather bold. And we know well enough from the profit split rule of thumb (Uniloc decision) that such simplifications do not hold before court. Secondly, IPSCIO does not interprete the license agreement properly. The agreement does not include technology, only trademarks. The higher royalty rate for shelf-stable products is the result of higher profitability in this category.

MARKABLES suggests to use the unbundling approach with utmost care, and certainly not based on simplistic rules of thumb.