Transfer Pricing, Licensing, Royalty Rate Study and IP meets Antitrust Technology

Licensing agreements represent a substantial segment of EU commerce and they must not fall foul of EU competition rules.

A 'competing undertaking' on the 'relevant technology market and product' is an undertaking which licenses out competing technologies. The relevant technology market includes technologies which are regarded by the licensee as interchangeable with or substitutable for the licensed technology by reason of the technologies' characteristics, their royalties and their intended use.

Like it or not, while the consideration and negotiation of such as the Arms Length Principle in Transfer Pricing appraisals and the required economic analysis can sometimes pay only little regard to industry norms the fact is that many business sectors have built up rule of thumb folklore.

Comparability and market based studies concerning royalty rates will be crucial under the EU Technology Transfer Block Exemption Regime and IP Interoperability.

This is nothing new for Valuation Consulting: our royalty rate and licensing databases contain worldwide information on licenses in every sector, including information about basic terms, particularly those of payment. These reasonable royalty rate appraisals are commonly used in our contentious IP expert witness reports and for help in relief from royalty calculations.

The databases will also be of considerable assistance for clients requiring royalty rate comparability studies for the purposes of this EU regulation. Exercises are relatively inexpensive.

There are two stages. First our searches source public domain information within our working files and the databases generally.

This research will inevitably produce a lengthy list which is examined with the client, in order to cherry-pick those agreements that are considered to be the most worthwhile for detailed analysis.

Stage two involves drilling deeper to extract detail about relevant terms and conditions including the structure of licensing payments whether it be lump sums, percentages, ratchets, etc. and other key terms, for example the extent of exclusivity.

The information is summarised in a spreadsheet format that is easily digestible for clients and authorities to whom the information may be shown.

Additionally we may be asked to write a short accompanying report to correlate these findings with economic analysis (if appropriate) or simply to assist presentation and justifications.

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