Finding a royalty fee for licensing, franchising, transfer pricing and valuation analyses
Article – December 2020 | RoyaltyRange
When you draft license or franchise agreements, negotiate royalty rates, set transfer prices or value intellectual property, analyzing third-party royalty rates helps you determine a fair royalty fee, value or arm’s length rate for transfer pricing purposes. Doing so lets you to see what other parties charged for similar transactions. Read on to find out where to find accurate royalty fee data and how to use it for your analysis.
Royalty fee definition
A royalty fee is a regular payment made by a licensee to a licensor as part of an intellectual property licensing deal. In return for the royalty fee, the licensee is granted the right to use the licensor’s intellectual property as per the terms of the licensing agreement. A royalty fee is usually set as a percentage of the income generated by the intellectual property, or as a fixed fee.
Setting royalty fees for licensing deals
When calculating a fair royalty fee for a licensing deal, it can be helpful to analyze the royalty rates set in similar licenses. This can give you an idea of the market rate for the intellectual property and what can be reasonably charged. Understanding this will strengthen your negotiating position.
It can be difficult to find real royalty fees that are both recent and relevant to your own intellectual property license. It’s important that the license agreements you analyze have similar terms to your license, as well as similar intellectual property. Differences in these can affect the royalty fee.
The most reliable option for finding recent royalty fees is to use a royalty rates database like RoyaltyRange. This enables you to filter your search by the specifics of your licensing deal, ensuring you find licensing agreements and royalty rates that are relevant to your license.
Determining fair franchise royalty fees
Setting franchise royalties requires a similar approach to determining royalties for licensing deals. After all, a franchise is a type of licensing deal. A franchise royalty fee depends on a wide range of factors, including whether the franchisee will pay other fees as part of the contract, and whether they will need to meet certain volume thresholds. Such factors will affect the franchise royalty fee.
As with licensing deals, a good way to determine a fair franchise royalty fee is to look at what other franchisers are charging in similar deals. You can use a database like RoyaltyRange to search for the latest franchise agreements and franchise royalty fees relevant to your franchising deal.
To learn more, read our blog on using third-party franchising data to draft franchise agreements.
Finding royalty fee comparables for transfer pricing
If you are using the comparable uncontrolled price (CUP) method to carry out a transfer pricing benchmarking analysis, you need reliable comparables data. The CUP method involves comparing the compensation set in comparable uncontrolled transactions (between unrelated parties) and using those to determine an arm’s length price for the controlled transaction. As such, it is essential to have access to recent, relevant data on comparable third-party licensing agreements.
You can use our royalty rates database to find the latest comparables data for transfer pricing. Simply narrow your search by the relevant licensing terms (including intellectual property type, geography and exclusivity) or by keyword. Our data is checked against 50+ comparability factors.
To learn more about the CUP method, see our blog on what the CUP method is and how to use it.
For more information on using royalty fees for transfer pricing purposes, read our blog on royalties in intercompany transactions.
Using royalties for intellectual property valuation
You can also use third-party royalty fee data to help you calculate the value of intellectual property or intangibles. There are various valuation techniques you can use with this data. One of these is a market approach, which involves determining the market value of the asset by analyzing similar transactions on the open market. Like with transfer pricing, the accuracy of this approach relies on being able to find up-to-date, reliable comparables data involving similar intellectual property.
By searching the RoyaltyRange database, you can find the latest royalty fees set in comparable intellectual property licensing deals, to support your valuation. All our data is fully analyzed, clean and structured, which means that you can conduct a valuation analysis in a matter of hours.
Find the latest royalty fees in our royalty rates database
Using the RoyaltyRange database is quick and easy. Just enter your search criteria into the One Search form (which you’ll also see on the right) and submit. Within a few hours, we’ll send you a preview of the comparable license agreements we’ve chosen. If you’re happy with our selection, you can download the full report (for just €500) and see the royalty fees set in each agreement.
Ready to search for royalty fees? Simply fill out the One Search form (also to the right) to begin.