How much should I charge for an IP licence?

I have spoken before about licensing of intellectual property as an option both locally and internationally for those businesses who have a great idea but are terrible salespeople.

International licensing is becoming more and more common and I have had a couple of clients successfully license their IP to companies who wish to exploit the idea on both the product it was intended for plus develop new products.

The question I am most often asked is how much do I charge for a licence?

There is no concrete answer, but I put to you the following suggestions/ideas for working out how much to charge:

• Big initial licence fee/smaller ongoing royalty or vice versa;
• The likes of Disney, the BBC, etc will charge something like two instalments of $5,000-$7,500 as advances/initial licence fees and then charge between 10%-13% of sales as an ongoing royalty;
• Add up how much money you have invested in developing the IP – not just the costs of trademarking, etc but the labour. Imagine that you had charged yourself out at an hourly rate to develop the IP – how much would you have been paid for all of the hours you have been put in? If you had to go to university to obtain the skills and knowledge that went into the development of the IP – how much did that cost, HECS aside?
• What is the potential worth of the product sales in the next five years? Average that out to get a reasonable royalty percentage over each year of the licence.

People often underestimate the value of intellectual property, but I would vouch that the owners of say Dora the Explorer IP, make more money out of merchandising than the actual cartoon show.

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Lynda Slavinskis is an outgoing, intuitive and commercially savvy lawyer. She has worked in-house at Sussan Corporation and Tattersall’s and now assists small and medium businesses with import, export, leases, franchising, employment and general business advice as principal solicitor of Lynda Slavinskis Lawyers & Consultants. Lynda is on the Victorian State Government’s Small Business Advisory Council.