Our members are interested in technology transfer and the licensing of intellectual property rights. These are important business activities. As reported in the UK Office for National Statistics publication International Trade in Services 2009: ‘Royalties and licences were the second biggest type of services traded internationally’. They accounted for 13% of exports (at around £10.9 billion) and 16% of imports (at around £6.7 billion).

Licensing and technology transfer can be used for a number of different purposes. They may be ‘outward’, ‘inward’ or ‘collaborative’.

‘Outward Licensing’ is where the licensor is not able (or doesn’t want to) satisfy the entire market itself. Instead the licensor leaves some or all of the development, manufacturing and marketing to someone else and receives royalties, or other income.

‘Inward Licensing’ is where the licensee wants to enter a new market. Rather than invest totally in start-up research and development itself, the licensee uses the licensor’s tried and tested technology or established intellectual property rights, and is prepared to pay for it.

‘Collaborative Ventures’ are where two or more parties work together putting a joint input into the development of a new product or process, and a licensing (or similar commercial) agreement is used to ensure that benefits are fairly shared between them.

In all cases, the agreement between the licensor and licensee or other parties is important. There are standard terms and conditions and there may be laws and regulations that have to be taken into account, although often it is mostly a matter of negotiation. LES helps its members keep up to date with best practice and sharpen their skills through the educational, networking and mentoring activities of the society.

Licensing can apply to a wide range of fields from drug development to character merchandising, and agreements can differ significantly from case to case.  The check list mentions example royalty rates and refers to the ‘standard’ mechanical engineering royalty of 5%, and also to one of the ‘rule of thumb’ calculations – royalty = 25% of gross profit. In practice, royalty rates cover a wide range and, in particular differ from sector to sector.

Legal decisions can provide an interesting open source for information on royalty rates and other licensing terms. The decision of the UK Patent Office (UKIPO) in the application made by E-UK Controls Ltd for settlement of a compulsory copyright licence for a range of electrical control buttons contains a helpful review of royalty rate determination methods for mechanical engineering products. The decision refers to the 5% ‘standard’ rate and the 25% of profit rile of thumb. The decision mentions the Gerber v Lectra court case in which the 25% ‘rule’ was discussed.

LES often has meetings in which royalty rates and other terms are discussed in relation to legal decisions and practical best practice. See for example Royalty Rates in our Past Presentations.