Technology Licensing Royalties

Businesses often prize their patent portfolios, and for good reason. Patents grant exclusivity and a strong competitive advantage. There’s even a set of businesses -- commonly known as patent trolls -- that exists solely to acquire patents and sue patent infringers. This importance to business has made technology licensing the most economically important type of royalty agreement.

Technology is typically licensed for an upfront fee and a royalty, the rates of which vary. The technology licensing market, or the total yearly value of U.S. technology license payments, grew from $33 billion in 1994 to $68 billion in 2002 and is likely over $100 billion today. This increase has to do with the historical trend of American businesses moving away from manufacturing and towards value added industries such as technology research. The technology licensing market is not only increasing in value, but is efficient, meaning that royalty rates on technology licenses have been shown to be properly valuated.

Not Just Patents

Most organizations and individuals engaged in research don't rely solely on patents to protect their discoveries, but use a mixture of the four types of intellectual property rights to cover their technology.  For example, a pharmaceutical company developing a new drug may seek:

  • Patent protection for the drug;
  • Patent protection for the process of creating the drug;
  • Trademark protection for the drug’s name; and
  • Trade secret protection for market research and know-how related to the drug’s manufacture.

Technology Transfer

The process of identifying a new technology, securing intellectual property protection and pursuing licensing agreements is called technology transfer. Most universities and government programs involved in research have a technology transfer office dedicated to protecting and licensing technology developments. Proponents of technology transfer claim that the licensing process leads to benefits like the production of jobs, increased marketability of new technology and attraction of corporate research support.

Related Articles

IPHandbook: Technology and Product Licensing

IPHandbook: Valuating Early Stage Technologies

USPTO General Patent Information