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December 11, 2020

How to determine an appropriate royalty rate

Another must-read piece is “Determination of Royalty Rates” by Tim Heberden, Valuation Partner of Deloitte Australia, published as chapter 4 in International Licensing and Technology Transfer: Practice and the Law, Wolters Kluwer 2018. The piece is available through Deloitte’s website here.

Tim describes the factors that guide the determination of royalty rates for licensed intellectual property (IP) rights. Key principles of IP valuation are also discussed, since royalty rates and value are flip sides of the same coin; both are driven by the earnings capability and risk profile of the asset.

Tim discussed different methods of how to determine royalty rates and value. Tim advocates that the output of the valuation exercise must be sense-check by additional methods, whatever the primary method of valuation is.

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