Comparable third-party license agreements often aid in IP due diligence

BVWireIssue #102-3
March 16, 2011

During last week’s BVR webinar “Finding & Analyzing Royalty Rates” David Jarczyk informed listeners that the Uniloc/Microsoft ruling emphasizes the need for valuation practitioners to do their due diligence rather than relying on rules of thumb.  “Appraisers will need to perform more stringent analysis and documentation to develop a position that can withstand the new precedent and a higher level of scrutiny set by Uniloc,” says Jarczyk.  

“A more defensible approach for determining reasonable royalty rates for infringement damages, for intercompany licensing, and for the transfer of intangibles may involve the examination of third-party license agreements that are sufficiently similar to the subject situation or tested transaction,” Jarczyk adds. One aspect of that research when valuing an intangible asset is to consider comparable royalty rates.  Some of the factors of comparability are:

  • Being used in connection with similar products or processes within the same general industry/market
  • Have similar profit potential (this is difficult to quantify)
  • Terms of transfer
  • Stage of development
  • Rights to receive updates, revisions, modifications
  • Uniqueness of the property
  • Duration of the license/contract/agreement
  • Risks assumed by the transferee (i.e. economic and/or product liability)
  • Existence/extent of any collateral transactions
  • Functions and/or services to be performed by each party

ktMINE is the only interactive IP database that provides direct access to royalty rates, source licensing agreements, and detailed agreement summaries. For more information on ktMINE’s direct access to royalty rates, source licensing agreements, and detailed agreement summaries from over 13,000 public royalty rate, licensing, and lump sum agreements—contact Randy Cochran.

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