25 Percent Rule
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Projected gross revenues
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• Means to predict gross revenues and profits
• Varying degrees of investment and risk
• Differences in go-to-market and sales costs for different technologies
• Alternative (competing) technologies
• Empirical data that show unwillingness to pay more than 10% of net profits in royalties
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Industry Standard Royalty Rate
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Royalty rates in past transactions in an industry
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•Inherent dissimilarity of IP assets (patentability requires uniqueness)
•Published royalty rates cover broad industry classifications and vary widely within each industry
classification
•Terms such as upfront payments, license fees, minimum and maximum royalties and cross licenses
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Ranking (often used with industry standard royalty rates)
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• Scoring criteria (most popular being Georgia Pacific)
• Scoring system
• Scoring scale
• Score weights
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•Subjectivity in selecting scoring criteria, scoring system, scoring scale and scoring weights
•Subjectivity in translating final score into royalty rate percentage or dollar amount
• Inability to accurately identify comparable IP
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Surrogate Measures
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• Prior Art Citations
• Total royalty income
• Patent maintenance fees
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• Uncertain relationship between value of individual patents and value of patent portfolio
• Uncertain relationship between factors considered and IP value
• Potential for manipulation of factors
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Monte Carlo
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• Range of values for NPV variables
•Probability for each value
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• Difficulty in obtaining information on value
• Expense to maintain databases to store necessary information
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Real Options
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• Decreased risk over time
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• Mathematical complexity
• Extensive database to use real options
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