Innovate or Perish: Managing the Enduring Technology Company in the Global Market

Appendix 9A. Determining Fair Royalty Rates for University-Developed Technology Exclusive License Option

For this example, it is assumed that the university has no patented background in the field of R&D of interest to the industrial sponsor and that the industrial sponsor funds the foreground R&D 100%—the typical case. The example also assumes the company is in the chemical industry; the methodology can be extended to other industries. The situation that maximizes the probability for an R&D agreement between a university and a company is one in which the industrial sponsor owns the foreground IP in a program that was 100% funded by the sponsor. If this is not possible, an exclusive license is the next best option.

A literature review on the profitability of chemical industry companies, the costs and success probabilities of industrial R&D, and actual royalty rates is presented. Two approaches are developed to determine fair royalty rates for an exclusive license. The appendix concludes with a moving-forward proposal for fair running royalty rates.