Patent Pending royalty
If you decide to license your patent pending number, you can typically expect to receive a royalty calculated at about:
5% of the licensee's sales price
Note: the "licensee's sales price" is not the "sales price to the end‐customer" ‐ there usually is a retailer and (potentially) a distributor in between.
This 5% royalty assumes that the licensee will make about 20% profits before interest and tax (PBIT) (i.e. not "gross profits") from the manufacture and sale of the licensed product. If the licensee's profits are higher / lower, your royalty should be adjusted proportionately.
Royalties typically yield about 25% of the profits that you would otherwise have made if you had supplied the product. But then again, you are doing far less work.
The tables below show average royalties (based on licensee's sales price) for various categories:
| Category |
Average Royalty |
|
Category |
Average Royalty |
| Aerospace |
4% |
|
General Manufacturing |
6% |
| Apparel |
7% |
|
Machine/Tools |
5% |
| Automotive |
3% |
|
Maintenance Services |
7% |
| Baby Goods |
6% |
|
Media & Entertainment |
7% |
| Food |
5% |
|
Novelties / Gifts |
8% |
| Books – Softcover |
8% |
|
Pharmaceuticals / Drugs |
8% |
| Building & Construction |
6% |
|
Animal Health Products |
5% |
| Chemicals |
4% |
|
Plant/Agriculture Products |
4% |
| Consumer Goods |
5% |
|
Printing |
5% |
| Education Related |
8% |
|
Publishing |
11% |
| Electronics |
5% |
|
Biotechnology |
7% |
| Energy & Environment |
8% |
|
Semiconductors |
4% |
| Entertainment |
16% |
|
Software |
10% |
| Diagnostics / Medical Equipment |
4% |
|
Sporting Goods |
8% |
| Footwear |
10% |
|
Stationery / Paper |
10% |
| Furniture / Home Furnishes |
7% |
|
Toys & Games |
10% |
| Healthcare Products / Equipment |
6% |
|
Travel |
6% |
| Industrial Products |
6% |
|
Greeting Cards & Giftwrap |
4% |
| Internet |
8% |
|
Posters & Prints |
10% |
| Category |
Average Royalty |
| Aerospace |
4% |
| Apparel |
7% |
| Automotive |
3% |
| Baby Goods |
6% |
| Food |
5% |
| Books – Softcover |
8% |
| Building & Construction |
6% |
| Chemicals |
4% |
| Consumer Goods |
5% |
| Education Related |
8% |
| Electronics |
5% |
| Energy & Environment |
8% |
| Entertainment |
16% |
| Diagnostics / Medical Equipment |
4% |
| Footwear |
10% |
| Furniture / Home Furnishes |
7% |
| Healthcare Products / Equipment |
6% |
| Industrial Products |
6% |
| Internet |
8% |
| General Manufacturing |
6% |
| Machine/Tools |
5% |
| Maintenance Services |
7% |
| Media & Entertainment |
7% |
| Novelties / Gifts |
8% |
| Pharmaceuticals / Drugs |
8% |
| Animal Health Products |
5% |
| Plant/Agriculture Products |
4% |
| Printing |
5% |
| Publishing |
11% |
| Biotechnology |
7% |
| Semiconductors |
4% |
| Software |
10% |
| Sporting Goods |
8% |
| Stationery / Paper |
10% |
| Toys & Games |
10% |
| Travel |
6% |
| Greeting Cards & Giftwrap |
4% |
| Posters & Prints |
10% |
A licence can include:
- a "running royalty" (e.g. 5% of the licensed product sales price); and/or
- a "license fee" (e.g. $1,000 within 5 days of signature of the license).
The license fee is generally used to cover your cost to: (i) draft and conclude the licence; and (ii) secure intellectual property protection in the licensed territory. To simplify the licensing negotiation, we suggest dispensing with the license fee and charging only a running royalty. Alternatively, asking for a non‐refundable running royalty pre‐payment ‐ royalty pre‐payments are far more palatable to potential licensees than license fees.
A licence is the most versatile, flexible document. It can take any form you wish.
