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FAQ Licensing |
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1) How much may I ask, or do I have
to pay as a license-fee for a certain technology?
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Some professional organizations are collecting statistical
data for royalties. Tax authorities are also collecting statistical
data to verify license-payments between firms. In connection with
the German Law about employment inventions there are royalty-numbers
listed between 1.5 and 8 or even 10 percent. However, in practice,
there are four major aspects for determining reasonable license-fees:
- As a rule of thumb it may be said that licensor should
be entitled to a fee corresponding to about 25 to 30 percent of
the profit of licensee.
- This corresponds to the rule that mass-products creating
huge turn-over-figures are bearing less royalties than special
engineering products or small volume goods having lower turn-over
and higher profit margins.
- In practice, each case has its own facts and merits:
Time savings, cost savings, huge amounts spent for R&D, marketing
advantages, specific needs on the side of licensee and many other
considerations will finally define an individually appropriate figure.
Also, the mode of payment varies greatly: Down payment, minimum payments,
maximum payments, sliding scale for royalties, paid-up license and many
other forms can be chosen.
- Royalties may be heavily taxed depending on country and situation:
Prior to bargaining over royalties, the parties should evaluate all possible
ways to reduce tax burdens.
Maybe, lower payments of licensee may lead to higher income of
licensor if tax-planning is optimized.
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2) Is there a standard license agreement?
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No. License transactions are based on specific technology,
individual rules for transfer of know-how, training, warranty
for patents, trademarks, technology, market penetration; the
law varies, even the requirements of licensor or licensee may
change in the course of any transaction.
The transactions are too different to be covered by a standard contract.
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3) What happens, if my licensor
sells the patent licensed to me?
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This is a question, which leads to different
answers and requires different actions depending on the country:
There are situations, where the license agreement may be considered
as a contractual right between licensor and licensee only. If the
patent is assigned to another party, the agreement loses its effect.
Of course, in many instances licensee may then claim damages from
its earlier licensor.
However, this does not bring the license back. In other countries, e.g. Germany, according to national patent law, a transfer of patent rights does not have an influence on licenses, which have been granted before the transfer. To the extent possible, license agreements should be registered in the patent register of each country. Particularly in case of exclusive licenses, registration may even grant the licensee a right of its own to sue infringers (if the license is exclusive, this would mean that licensee may even sue the patent owner for patent infringement in case he should use the licensed patent contrary to the agreement). |
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4) I am negotiating a license contract. The license agreement covers technology and patents. What is there to consider?
(1) Royalties for the use of the patents and
(2) royalties for the use of know-how?
(3) Or is it preferable
to combine the two fees?
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That depends... first of all, tax rates for services in
connection with know-how royalties and for patent royalties
may differ substantially. In many cases, this calls at least
for differentiation between service- or consultancy fees on one
side and down payment and royalties for IP on the other side.
Differentiating royalties may help, in case part of the know-how
or the patents in a combined license agreement should become
obsolete: The parties know-how to reduce royalties to adapt
to a situation where only part of the originally granted rights
continue to exist.
If properly worded, the royalty rate agreed for a combined
license may even be kept at the original level, even if part of
the know-how or the patents should become obsolete or be
invalidated. This may be to the advantage of licensor.
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5) Is it possible to prevent parallel
imports into Switzerland based on patents?
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This situation occurs when original products are sold by
a manufacturer outside Switzerland and a third party buys
the goods (such as perfume, cars, films, etc.) at a lower
price level outside Switzerland and imports the goods into
Switzerland.
A recent supreme court decision in Switzerland enables the
original manufacturer and patent owner to prevent parallel
imports into Switzerland based on patents (the "Kodak" case).
However, if the manufacturer uses its monopoly position
granted by the patent, Anti-trust issues may arise
(note: in its Chanel - Decision, the Swiss Supreme
Court has decided that trademarks may NOT be used to
prevent parallel imports).
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6) Why do I have to consider Anti-Trust
Law in connection with granting or taking a license or entering
into a joint venture?
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Almost every license agreement or joint venture agreement
limits the licensee (or sometimes the licensor) in certain
aspects: Scope of use, technical field, territory of use,
duration of use, exchange of improvements, even non-compete
obligation may be contained in the agreement.
As a basic rule, Anti-Trust Law prohibits the prevention,
restriction or distortion of competition. Particularly it
is prohibited to fix prices, limit or control production,
markets, technical development or investment, or to split
markets or sources of supply.
Agreements which are prohibited by law are, according to
EEC Law, automatically void.
Anti-Trust law of most countries (and the EU, of course)
applies to all agreements which have or may have effect
in said country or territory (e.g. an license agreement
between a US- and a Japanese company may fall under EU-Anti-Trust
Law, if the agreement has effect in the EU, e.g. by price
arrangements or non-compete obligations.
There is a specific body of law and there are regulations
and exemptions for specific obligations in agreements
(please see our Client Info for more detailed information).
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