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Chapter 5. Intangible Capital and Intell... > Considerations in the Granting of Li...

Considerations in the Granting of Licenses

Licenses Defined

This section will review the main methods for pricing licenses to use intellectual property. It will focus on the granting of licenses to use technology in consideration for payment, as distinguished from licenses to use other information, such as customer lists. In many cases, a technology is leased or sold, in which case the difficult problem of pricing arises due to the complexity of the parameters involved. In practice, the legal and economic significance of the sale of software is the granting of a license to use the technology.

There are several methods for pricing the lease or sale of technology. One customary method is based on the payment that is common in the field. According to this method, which is undoubtedly the simplest to implement, the pricing is based on the accepted rate of royalties in the specific market and is adjusted to the expected return on the technology and to the current stage of its development. The contracts themselves will often be written based on the revenues or different profit measures, while taking into consideration the projected profit margins in the sale of the ultimate product or service. In the drug market, for instance, royalties in the amount of 15–20% of the sales are not uncommon, since drugs often carry high gross profit margins exceeding 80%.


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