We are often asked by clients what royalty rate they should
negotiate in a licensing scenario, either by the licensee or
licensor. An interesting study was carried out between 1990 and
2007 which discovered that the most frequently negotiated royalty
rate is 5% of net sales.
We advise clients to take stock of the industry norms but
surprisingly this study has shown that the 5% royalty rate appears
to apply to a number of diverse industries including automotive,
chemical, communications, computers, defence, energy, electronics,
food, franchises, glass, household products, mechanical, medical,
photography, sports, toys and waste treatment to name but a
few.
There are various factors, which might affect the royalty rate
such as exclusivity and value of the underlying technology. Another
key consideration is the risk borne by each party in the
relationship. For example if an inventor is licensing the IP to a
business who intends to manufacture, supply and negotiate
