Royalty Rate Valuation in Intellectual Property Licensing

In valuation of intellectual property licensing, calculation of royalty rate is an important issue. Based on earlier studies, this paper aimed to introduce a new simple and credible method for listed companies to value royalty rate in intellectual property licensing. The method was based on the PB ratio analysis. By comparing the PB ratios between different listed companies in the same industry, we calculated PB premium which was brought by the intellectual property. The analysis showed that royalty rates of the same intellectual property between companies with similar scale in the same industry were comparable. Royalty rate changed with the comprehensive circumstances of macro economy, industry, market, company development, licensing contract terms, technology factors and other transaction details.