Question

In reviewing Money Matters please consider if licensing royalty rates increase, decrease, or have no effect on the selling price of any item. Explain your reasoning.

Answer 1

royalty is a fee paid for a license to the owner of the property, especially patents, copyrighted works, franchises or natural resources for their use. Licencing royalty rates does increases the selling prices of the item because franchisee needs to pay royalty fee to the owner of the IPR.

Licensing royalty rates are normally will have impact on selling prices of the products or services.

Normally various factors will effect the Royalty rates, there are a number of factors that can affect what rate can be reasonably proposed for patent royalties. These include:

Whether the licensee has paid upfront compensation
What stage the patent is at
The patented invention’s market potential
The industry
The level of competition in the market
The market size
How unique the invention is
The exclusivity of the patent license
As such, when it comes to determining fair royalty rates, the above factors must be taken into account. Whether you are analyzing transfer pricing, setting royalty rates for a license agreement or valuing a patent, the rate you set needs to reflect the individual circumstances of the patent.

Normally Royalties are paid based on the

1. Sales of the company

2. Royalties paid as cost (upfront/installments)

3. Based on quantity

4. Profit based royalties

If royalty rates increases, there is a requirement to increase the Selling prices.