PAYMENT
- In most licensing agreements, there are no conditions with respect to price. The licensor assumes that the licensee will determine the best price to ensure the greatest return on investment.
- The price could be specified when the licensor has detailed technical knowledge of the production, marketing, and distribution costs.
Types of Payment
- Up front, paid-up licenses (LUMP SUM)
- Sliding scale based on performance
Basis for royalty payments
- Net sales
- Net profits
- Percentage of service work
- Percentage of R&D contracts
Royalty Stacking
- EXAMPLE: A biotechnological product might have multiple patents attached, and thus require multiple licenses in order to make, use, or sell the product.
Royalty Packing
- EXAMPLE: With some biotechnolog methods, it usually is necessary to combine one technology with many other technologies. (In this situation, the royalties imposed on each of the proprietary products that are administered will be “packed” together.)
Royalty Ceiling: Licensee may seek a ceiling for royalties in agreements it makes with licensors.
Royalty Floor: Licensor may seek a floor below which its share of the royalties may not be reduced.
Variable Royalties: Licensees and licensors might agree to have variable royalties conditioned on the importance of the technology in relation to the creation of the product.
Fixed Rate: the most common remuneration system. It requires knowledge of the seed business in the territory and the farmers’ ability to pay for the seed. The fixed rate is independent of the sales price and is calculated per weight unit of seed bags containing a specified quantity. One can also calculate a fixed royalty based on the units of a specified number of seeds.
Minimum Royalty Rate: paid annually--less common form of royalty and must be combined with some other royalty system. In this system, the royalty is calculated on one of the calculation principles described above, but a minimum royalty is added to it.
ESCROW
- Required by licensee for protection in the event that licensor should go out of business.
- Licensor agrees to place confidential and other proprietary material in escrow and allow for its release only in the event of catastrophe.
- Usually a three party agreement, but can be done by having each party have an agreement with escrow agent.