Royalty Rates Made Easy – The Guide

Royalty Rates Chart

One of the most important steps in licensing a patent or idea is establishing the royalty rate you will receive in return for granting a licensee the right to manufacture and sell your invention. In this article we will explain what royalty rates are, how to calculate the proper royalty rates, elements that effect royalty rates, protections to put in place, and other important things to consider when licensing an idea.

What are Royalties?
Royalties are payments that are provided to a licensor by a licensee in exchange for the right to operate under your idea.

Royalty rates are affected by several criteria:

Criteria Description
Exclusive or Non-Exclusive Exclusive idea licensing will result in a higher royalty rate than non-exclusive licenses.
Upfront Sum The higher the up-front sum being paid to the licensee, the lower royalty rate the licensor will likely receive as it is an element of the overall compensation.
Industry Standard Royalty Rates Each industry tends to have an ‘industry standard’ royalty rate. See the end of this article for a list of industries and their average royalty rates.
Company Standard Rates Companies that have a good amount of experience in licensing ideas tend to have a standard package that they offer inventors. The larger the company is and the bigger their track record, the more leverage they will have in negotiating your royalty rate.
Intellectual Property Stage The further along the intellectual property is to commercialization, the less risk the licensee will face, and the higher the royalty will be paid to the licensor.
Market Potential The royalty rate will heavily depend upon the market potential of the idea you are looking to license. This can be difficult when you are trying to license an invention that is developing a new market or is part of a new market that has not yet shown it’s full potential.
Licensing to an Infringer If a company has been infringing on your idea, you can be entitled to damages, a % of past profits, and typically command a higher royalty rate.
Related Intellectual Property Included Packaged intellectual property can command higher royalty rates.
Testing/Certification If your intellectual property requires testing or certification prior to being brought to market, having these milestones completed will lead to higher royalty rates.
Investment Required All things being equal, the higher the investment required to getting a product to market, the lower the royalty rate that will be paid.

Exclusivity is when a licensor gives a licensee the exclusive right to market and sell a product by intellectual property.

Non-Exclusivity is when an intellectual property holder provides the right to market and sell a product to a licensee but retains the right to license it to others as well.

Exclusivity can be further broken down to regions or specific locations as is the common practice with franchises. The proper route often depends upon how a product will be delivered to the customer, the demand for the intellectual property, and the market size.

Protections for Idea Licensors:

  1. Performance Obligations
  2. Void Agreement
  3. Exclusive to Non-Exclusive

Performance obligations protect an inventor from getting stuck with a dud of a licensee. You will want to include these provisions in your idea licensing agreement that ensure certain milestones are being met. These milestones can be distribution in a number of stores, sales targets, royalty totals, or best efforts being made. If performance obligations are not met, an agreement can direct for a number of actions to occur. Such actions could include but are not limited to a voiding of the agreement, financial compensation, or for the licensee to switch from exclusive to non-exclusive license.

Licensing to a Company Infringing on Your Idea:

Often times, idea licensing takes place after it has become apparent that intellectual property is being infringed upon. This can be a sticky situation given that if the parties do not come to an agreement, it can often end in costly and lengthy litigation. As a note to inventors, it is important to keep in mind the overall short term and long term costs to litigation. While it may seem like a card to play, be careful not to send willing parties away from the table without giving negotiation a good faith effort.

Note:  It is important to note that royalty rates and damages determined by the court are generally higher. However, avoid litigation if you can – it often ends up ‘costing’ you much more than you anticipated.

If you do get into a position where a company that is infringing upon your intellectual property is unwilling to talk or to come to a reasonable agreement, you may want to consider partnering with a idea licensing law firm that may be able to command more respect at the negotiating table.

How to Command Higher Royalty Rates and Upfront Idea Licensing Fees:

These are several factors that lead to higher invention royalty rates.

- High tech invention ideas.
- Inventions that solve costly problems.
- Inventions that provide large benefits.
- Has already met industry testing requirements.
- Has already met industry certification requirements.
- Commitment for purchase orders.
- Existing sales.
- Lack of suitable substitute products/technology.

We will be continually updating this article with information on royalty rates. If you have any questions, feel free to contact us by submitting your contact information here. As always, we ask that you sign up for our newsletter for ongoing tutorials. If you are interested in an outright sale, read our article on Selling a Patent.

45 Responses to “Royalty Rates Made Easy – The Guide”

  1. Brian Says:

    Very informative article, but is says that there are “Industry Standard Royalty Rates” posted at the end of the article and I don’t see them.

    Where can I get this information?

  2. Kenneth Says:

    Great article! Thanks for sharing such invaluable knowledge and insight. However, as stated by the previous person, the “Industry Standard Royalty Rates” isn’t included in the article as promised. Would you please email me a copy of the latest industry rates. Thanks in advance for your immediate attention and prompt reply to my humble request. -Kenneth

  3. Jay Says:

    I agree with Brian. I know, maybe the text is really really small and we can’t see it.

  4. Brian Says:

    I would also like to access the information about the “Industry Standard Royalty Rates” too. Can you please send me the same information, link or ? that you Brian was asking about in his earlier reposnse so that I too can better educate myself with this regard?

    Thanks for the very informative article. Great Job!

  5. Gary Says:

    Looking for the average industry royalty rates.
    Please provide more info

  6. Julius Julian Says:

    Very informative article, but it says that there are “Industry Standard Royalty Rates” posted at the end of the article and I don’t see them.

    Where can I find this kind of information?

  7. Bob Says:

    I would also like to access the information about the “Industry Standard Royalty Rates” too. Can you please send me the same information, link or ?

  8. Karen Morris Says:

    Looking for ‘Industry Standard Royalty Rates”. Can you email to me please?

  9. Paul Says:

    Could you kindly email me the industry standard royalty rates.

  10. Hannah Says:

    Would love industry standard royalty rates emailed to me, if possible. Thank you!

  11. Ozzy Says:

    Hi. I have a graphic design that a sports team wants me to make a mascot out of it. They also mentioned that they are planning to use it on official merchandise too. If all goes well, we will sit down and talk. I have no intention of selling the design. My question is, what percentage of a royalty cut I can ask from their gross sales on the products that they use my design on their logo product. And , how can I audit/check to see the numbers they’ll be giving me will be accurate. (My product is already copyrighted). Thank you all.

  12. Elma Says:

    Can you send me also an email copy of the industry standard royalty rates? Thanks.

  13. Yvonne Venter Says:

    Could you kindly provide me with the Industry Standard Royalty Rates as referred to in this article?

    Kind Regards

  14. George Skopis Says:

    Can you kindly send me an email copy of the industry standard royalty rates? Thank you.

  15. Marty Says:

    Very informative article. I also would like to have access to the “industry standard royalty rates”. Please advise as of where I may find these.

  16. Roger Badger Says:

    Could you please email me a copy of the “industry standard royalty rates”. Good article by the way.

  17. GC Says:

    It seems that everyone wants you to honour your commitment to advise on industry standard royalty rates. Me too! I look forward to receiving these from you. Thank you.

  18. Rey Uresti Says:

    I would also like the”Industry Standard Royalty Rates. Would you please let me know where I can look these up?

    Thank You, Rey

  19. michael jay Says:

    Ditto on the standard rates please.

  20. WH Says:

    I would like the Industry Standard Royalty Rates document. Thanks!

  21. gary Says:

    I would also like to see the industry rates. specifically the hobby industry.

  22. rob colenbrander Says:

    I would like the Industry Standard Royalty Rates document as possibly used in the packaging business. Thanks

  23. Jennifer Says:

    Requesting the industry standard royalty rates please.

  24. Alex Says:

    I’d like a copy of the Industry Standard Royalty Rates document as well. Please send.

  25. eric Says:

    I would like a copy of the industry standsrd royalty rates. Hardware products. Thanks

  26. Beverly Says:

    Would also like the rates, please and thank you. Informative article.

  27. patrick collins Says:

    Could you kindly email me the industry standard royalty rates.

  28. Alex Says:

    I too would like an email of the standard royalty rates. Great writeup and thanks for sharing.

  29. Armineh Says:

    Would you be so kind as to forward me the industry standard royalty rates.

  30. N.k.rathi Says:

    Interested to now industry standard royalty rates. Thanks

  31. Holly Says:

    Fantastic sharing, also interested in industry standard royalty rates. Thanks!

  32. Russ Nicholson Says:

    Informative article…I, too am mostly interested in ‘industry standard royalty rates’ – advertising / branding. Please email. Thanks in advance.

  33. Bob Norman Says:

    Could you please email me the standard royalty rates. Good article, I enjoyed it.

  34. MJ Ignatius Says:

    Please send industry standard royalty rates. Thanks!

  35. Jose mendez coll Says:

    Would you be so kind as to forward me the industry standard royalty rates. -

  36. Rex Says:

    Fantastic sharing, also interested in industry standard royalty rates. Thanks!

  37. Eva Says:

    I would be happy to receive information on the standard royalty rates as well. Thanks!

  38. Rodger Calder Says:

    I would like to receive a copy of the Industry Standard Royalty Rates.

    Thank you!

  39. sam tate Says:

    Please provide me information on standard royalty rates.

    I am specifically interested in royalty rates for selling a patent for a new tool for the seismic exploration industry.

  40. johnny ham Says:

    Could I also get the industry rate. specifically the cosmetics industry

  41. R Durrant Says:

    Could you please forward to me the industry standard royalty rates.
    Many thanks

  42. ben Says:

    great article, great info. Can you please email the industry standard royalty rates? Thanks

  43. Tracy Says:

    Could I please have the industry standard royalty rates based on field as indicated above?

  44. Harry Says:

    Please could I get the industry standard royalty rates too?

    Many thanks for great article.

  45. Product Scout Says:

    Hi Tracy, surely. Simply email *toms@ideabuyer.com* and he will share them with you.

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