Licensing Royalty Rates - what to expect

Licensing royalty rates vary depending on the industry, the project, robustness of the IP,  the terms of the licensing agreement, but ultimately are determined by the status of the project, the necessity for the licensee to have it and strength on your position.

 

For instance, if you only hold a patent that serves as a strong citation against another patent, the royalty rates offered by a potential licensee are likely to fall on the lower end of the spectrum. However, if your product is already in production and is directly impacting the financial performance or sales of a business, the potential licensing fees would be significantly higher.

 

Consumer Products and Technology

 

Rate : Typically between 3% and 10% of the net retained profit.

Example : If an inventor licenses a patent for a new kitchen appliance, the royalty might range from 5% to 8% of the product's retail price.

 

Pharmaceuticals and Biotechnology

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Rate : Generally 5% to 10% of the net retained profit or milestone payments based on sales thresholds.

Example : For a pharmaceutical drug or a biotechnological invention, royalties might be negotiated based on the product's performance in the market, with a lower initial rate that increases as sales rise.

 

Software and Apps

 

Rate : Usually 1% to 5% of gross revenue or net sales.

Example : A software inventor might earn royalties on each sale or subscription, but the rate could be lower due to the competitive nature of the software market.

 

Consumer Electronics (e.g., smartphones, hardware)

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Rate : Typically 1% to 5% of the net retained profit or licensing fees based on specific technologies.

Example : Royalties for an invention related to mobile technology (e.g., wireless communication) often fall within this range.

 

Automotive Industry

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Rate : 2% to 5% of the net retained profit for safety or performance-related inventions.

Example : Royalties for car safety features or mechanical innovations may be set at these rates.

 

Fashion, Textiles, and Apparel

 

Rate : Can range from 5% to 15% of the wholesale price or retail price, depending on brand value and market demand.

Example : Fashion inventions like unique fabrics or clothing designs often come with higher royalty rates due to brand appeal.

 

Considerations

 

• Advance Payments or Lump Sums : In addition to royalties, some licensing agreements include advance payments or lump sum payments at the time of signing.

• Minimum Royalties : Many contracts include a "minimum royalty" provision to ensure the inventor receives a baseline payment even if the product doesn't perform well.

• Exclusive vs. Non-exclusive Licenses : Exclusive licenses (where the licensee has the sole right to use the invention) may command higher royalties compared to non-exclusive licenses.

• Geographic and Market Variability : Royalty rates can differ based on the market (domestic vs. international) or specific regions (e.g., North America, Europe, Asia).

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Ultimately...

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Royalty rates are influenced by the strength of your position, the necessity for the licensee to have it and your negotiation skills.