Washington, D.C. Location

McNeely, Hare & War LLP
5335 Wisconsin Ave, NW, Suite 440,
Washington, DC 20015
(202) 274-0214

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Princeton, NJ Location

McNeely, Hare & War LLP
12 Roszel Road, Suite C104,
Princeton, NJ 08540
(609) 240-2533

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Determining Royalties

A royalty rate is the formula by which compensation is paid to the owner or licensor of the patent rights.  The following factors are relevant to setting a appropriate royalty:

  • strength of the patent
  • availability of competing technology
  • cost of developing the invention and obtaining protection of the same
  • savings or profit to be realized
  • cost of bringing suit for infringement
  • type of license being granted
  • negotiating costs
  • desirability of a relationship with the licensee and the possibility of obtaining cross licenses with respect to patents assigned to the licensee
  • the investment required by the licensee
  • the desirability of licensing the patent on a worldwide basis to the licensee

A common royalty base is the sales volume of the patented component.  Sales volume-based royalties are easy to calculate, the licensee is obligated to pay only when it has made of a sale of the product using the licensed patent, and the sale volume basis is the least capable of manipulation to the licensor’s disadvantage.  A general guideline is that one-quarter to one-third of the anticipated profit from the use of the invention is usually an appropriate royalty.