12. Frequently asked questions
Is it better to negotiate a royalty on future profits, or on sales?
A technology licensor generally prefers to base the royalty on sales, which are an objective and easily verifiable element, whereas a licensee will prefer to base it on profits, in order to ensure the profitability of the operation.
When the invention makes it possible to reduce the manufacturing costs of an existing product, how can the value of the invention be assessed?
In this case, the relevant basis for calculation is the savings achieved rather than sales, and the licensee may be required to pay back up to half of the savings achieved thanks to the invention, depending on the difficulties involved in implementing the technology.
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Frequently asked questions
Bibliography
R. Goldscheider, J. Jarosz and C. Mulhern, Use Of The 25 Per Cent Rule In Valuing IP , LES News, December 2002
Websites
http://www.ipresearch.com/index.htm Intellectual Property Research Associates website, offering information on licensing rates by industry sector.
www.lesi.org Licensing Executives Society website
Acronyms and abbreviations
CAPM: Capital Asset Pricing Model
WACC: Weighted Average Cost of Capital
DCF: Discounted Cash Flow
EBITDA: Earnings Before Interest Taxes and Amortization
ENPV: Expected Net Present Value
ISO: International Organization...
Vocabulary
Due diligence: financial audit
Cash flow: surplus of financial flows generated by the operation of intangible assets.
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