Converting Royalty Payment Structures for Patent Licenses

1 The Criterion Journal on Innovation 901 (2016)

15 Pages Posted: 29 May 2018

Date Written: 2016

Abstract

Basic economic techniques equip a damages expert with a reliable means of converting a royalty payment with one structure to a royalty of equivalent value under a different structure. I show that one can use reliable methodologies to convert royalty payments across structures both in cases where the parties have executed a one-way license — that is, a license in which the parties determine the conditions for the licensee’s use of the patent holder’s patents — and in cases where the parties have executed a cross license, which grants each party the right to use the counterparty’s patents. When the license uses a simple royalty structure, converting the royalty payment across different structures is also relatively simple. For example, information about the patent-practicing product’s projected price might suffice to convert a per-unit royalty fee to a derived royalty rate. However, when the license in question is a cross license or complex license, converting royalty payments to a derived royalty rate might be more burdensome, as it might require the estimation of additional parameters, such as relative portfolio strength. Nevertheless, with sufficient data, existing economic methodologies offer a reliable basis for estimating and comparing the derived royalty rates of different licenses. Courts can supplement the derived royalty rate with adjustments to account for a company’s bargaining power or market risk implicit in the different royalty structures.

Keywords: royalty rates, patents, damages expert, innovation

Suggested Citation

Sidak, J. Gregory, Converting Royalty Payment Structures for Patent Licenses (2016). 1 The Criterion Journal on Innovation 901 (2016). Available at SSRN: https://ssrn.com/abstract=3178356 or http://dx.doi.org/10.2139/ssrn.3178356

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

Register to save articles to
your library

Register

Paper statistics

Downloads
17
Abstract Views
177
PlumX Metrics