What is the RAND royalty rate for a single essential patent?

Deciding RAND royalty rate for a single patent

Written by Menno Treffers

Category: Intellectual Property Licensing

2016-05-22

Assigning value to individual essential patents

Let’s assume for the moment that the patent owners and the users of the standard have agreed on a combined RAND royalty rate for the use of all essential patents. What is a reasonable royalty rate for 10% of these essential patents, or for a single essential patent? 

You could simply charge 10% of the aggregate RAND rate (the hypothetical rate for all essential patents), but that assumes all essential patents are equal. There are, however, good reasons to differentiate between the value of individual essential patents:

  • An essential patent may be found invalid when challenged.
  • Some products may not infringe all essential patents.
  • Detection of infringement may not be feasible in practice for all essential patents.

Only patents that are valid and infringed will generate sustainable license income. The other essential patents play a marginal role. Manufacturers of products will want a license to reduce the risk of future claims, but they will pay far more for patents that have survived a validity challenge and are obviously infringed by the manufacturer’s products.

RAND royalty rate of a single patent based on its contribution to generate license income

In an article on IPWatchdog.com, I compare different methods that have been tried to determine the RAND royalty rate for a subset of all essential patents, and suggest a method that is based on each patent’s contribution to generating license income.

Read more: “The Royalty Rate for a Subset of Standard Essential Patents – What Is Reasonable?“

The article “The effect of patent royalties on the adoption of standards” analyses the impact of the cumulative royalty rate for the use of all essential patents.

By setting the right the terms and conditions for intellectual property licensing, standards development organizations (SDOs) create optimal conditions for the adoption of their standard. A RAND license policy invites contributions from owners of relevant technology but prevents royalties from getting so high that it prevents adoption of teh standard.

You may also like…

RAND royalty rate setting – leave it to the market?

RAND royalty rate setting – leave it to the market?

Market forces can determine RAND royalty rates for standard essential patents such that (a) the standard is rapidly adopted, (b) royalty rates are accepted by the majority of users without need for litigation, and (c) royalty rates are transparent and non-discriminatory.

Why Startups Fail

Why Startups Fail

Review of the book “Why Startups Fail” by Thomas Eisenmann. Data from Eisenmann’s survey suggests that lack of proprietary intellectual property plays a role in the failure of startups. Survival is harder when IPR doesn’t protect the first-to-market advantage.

Can patents prevent the use of a standard?

Can patents prevent the use of a standard?

Developers of standards don’t like it when a patent owner blocks the use of their standard. The considerable effort that goes into developing a standard, typically hundreds of man-years, is wasted when that standard is not used.