What is a license rate?
Article – April 2020 | RoyaltyRange
A license rate is a fee that is charged for the use of a licensed product or licensed intellectual property. In a typical licensing deal, the licensor gives the licensee permission to use their IP, under certain conditions, in exchange for a license rate that is set out in a license agreement.
There are a number of reasons a licensor might license their intellectual property in exchange for a fee. They might give a third party the right to manufacture the product on their behalf, either because the licensor doesn’t have the capabilities or because they want to focus on creating new intellectual property instead. License deals can be profitable for both parties, as the licensor generates income from license rates, while the licensee gets revenue directly from sales.
Is a license rate the same as a royalty rate?
A royalty rate is a type of license rate or license fee. So, yes, the terms ‘license rate’ and ‘royalty rate’ are often interchangeable. Saying this, there are many different types of license fees, such as upfront licensee fees, one-time payments, continuous lump-sum fees and milestone payments.
License agreements set out the exact type of remuneration being applied between two parties, so it should be clear what fee type was chosen when you look at recent examples of agreements.
Most license agreements ask for royalty rates or license rates to be paid – either on their own or along with upfront license fees or another fee type. Royalties are usually paid as a percentage of revenues generated by the licensed asset – either gross or net sales – although some licensing agreements use per-unit fixed royalty rates rather than royalty percentages.
How to determine an appropriate license rate
There are three main methods you can use to determine appropriate license rates: 1) the market approach; 2) the income approach; and 3) the cost approach. The market approach is a popular calculation method as it involves basing your license rate on those set in comparable transactions. The thinking is that, if you find a recent transaction that is suitably comparable with your own, then the royalty or license rate that was set will be a good starting point for your own royalty calculation.
Where to find real license rates to base yours on
If you want to use the market approach to set your license rates, you will need to access real, reliable and recent data on third-party license agreements. The RoyaltyRange database makes this quick and easy. All you have to do is enter your search criteria, and our team will find the most relevant license agreements to send to you. We check all our agreements against more than 50 comparability factors, ensuring that you only ever see the most relevant data for your search.
See what license rates other organizations charge
RoyaltyRange is here to support you with setting your royalty rates by making it quick and easy to see what other organizations charge in comparable circumstances. To get the license rates data you need today, simply fill in your details in the One Search box on the right. This gives you a one-off search of our database, conducted by our experts, with the results delivered in just a few hours.