How to set license fees
In patent license agreements, the type and amount of fees are set by negotiation between the patent owner and the potential licensee. Here are some common types of license fees:
One-time payment
The licensee pays the license fee in one lump sum.
Milestone payments
Licensees pay a fixed amount upon achieving predefined milestones in the development or deployment of the product.
Regular fixed payments
You make regular, pre-agreed payments. Great when you want predictable spending.
Percentage of sales or profits
In this method, the patent owner receives a percentage of the sales or profits of the licensed product, and as sales or profits increase, the license fee also increases, so both parties share the risks and rewards.
Fixed amount per item sold
When the selling price or profit margin of a product is difficult to measure, a fixed license fee per item sold is common.
Combination
You can also combine the above payment types, allowing you to balance your initial guaranteed income with additional income as your sales grow.
The appropriate method will be selected depending on the nature of the patent, market conditions and negotiations between the parties involved.
Key points for drafting a contract
In a patent license agreement, you need to carefully consider various outcomes and contingencies and define the terms very carefully. You should hire a lawyer or expert with experience in patent license agreements. Points to discuss with a lawyer or expert include: each party’s contribution and compensation, scope of use of the patent, structure and amount of license fees, payment terms, contract duration, and termination terms. It is also important to include how to deal with problems that may arise. When drafting an agreement, advice and documentation from an expert in the field will help protect your rights.
Patent Sales and Licensing Quotes
How to understand your sales market
Understanding the patent sales market is not easy. Most patent sales agreements are confidential.
However, by searching patent databases, you can learn which patents have been sold and the names of both sellers and buyers. Prices paid for patents are almost always confidential, but some organizations provide estimates of the average selling price of patents based on surveys. The data is not necessarily reliable, but it can provide a general guide for pricing. Patent prices vary depending on the technology field and the quality of the patent. Therefore, the best way to estimate pricing is to consult with experts who are involved in patent transactions.
What is the market price for license fees? Factors that determine patent sales prices and license fees
The selling price or license fee for a patent portfolio depends on many factors, including the remaining term of the patent, the scope of the patent claims, whether the patented features are essential or minor features of the product, whether it is easy to avoid patent infringement by using an alternative design, the market size of the patented product, the number of existing patents related to the product, and whether there is a history of patent licensing and litigation in the target industry. For example, in the pharmaceutical industry, the value of patents related to blockbuster drugs is very high because the sales of these drugs are huge, there are only a few patents related to a particular drug, and the patent protection is very strong. In contrast, in information technology, product sales are very high, but the complexity of the product may require product manufacturers to license tens of thousands of patents. Although the total value of patent licenses is high, the license value of each individual patent is relatively low.
