les high tech sector royalty rate & deal terms survey march … · 2018-04-15 · les high tech...
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Licensing Executives Society (USA and Canada), Inc.
March 29, 2018
1 © 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
LES High Tech SectorRoyalty Rate & Deal Terms Survey
2017
Today’s Presentation Objectives
• Introduce & Recognize the 2017 HTS Survey Team of Volunteers
– Explain the Survey Methodology
– Overview of the Key Findings
• Review of the Non-Financial Deal Terms
• Review of the Royalty and Financial Terms
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Experienced Team of Volunteers
Core Team
• Lewis Stark, CPA, CFE, Partner, Royalty Audit & Contract Compliance, Prager Metis CPAs, LLC
• Robert F. Held, CLP, 2018-19 LES President-elect & Chair-elect Nominee; President, Held Intellectual Property, LLC
• Jack Lu, PhD, CFA, Partner and Chief Economist, IP Market Advisory Partners (IPMAP)
• Dr. Joseph J. Daniele, CLP, Chief Operating Officer, Acorn Technologies, Inc.
Data Analyst
Manta Zhang, Applied Economics Consulting Group, Inc.
Advisors
• Vault Consulting– Ian Santo-Domingo
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Goal & Methodology
Goal
“The High-Tech Sector Royalty Rate Survey provides recent deal data crowd-sourced primarily from the LES membership that deal makers can use for benchmarking and to inform their license negotiation..”
- Stefan Tamme (USA & Canada) High Technology Sector Chair
Methodology• Focus on deals completed for the period 2014 through 2017
• Core LES Survey Team assembled from the HTS membership to provide industry context
• Survey questions developed by the Core LES Survey Team
• Conducted by independent research firm, Vault Consulting to ensure confidentiality
– ONLY Vault was privy to the respondents’ submittals received July thru September 2017
– No company names can be associated with the data
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Survey Highlights
• Survey launched July 28, 2017 and closed September 30, 2017. Open for 64 days.
– Surveys were sent out to 2,469 LES members (44 companies responded) and 17,431 non-members (26 companies responded); 155 complete deals were submitted by 70 companies for an overall LES member response rate of 6.3%.
• In comparison, in 2014 1855 surveys were sent out; 94 complete deals were submitted by 53 companies for an overall 5% response rate. Open for 60 days.
• New this year is the addition of data on whether more or fewer issues
around IP were coming before company Boards of Directors.
5© 2017 Licensing Executives Society (USA and Canada), Inc.
All rights reserved.
Thank you all for your participation!
Number of Deals per Year from 2008 to 2017Based on 2011, 2014 and 2017 surveys
52
61
68
54
15
36
66
39
46
40
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Deals by Payment or Royalty Type
Payment Method Count Percentage
Percentage Rate 82 52.90%
Flat Rate 65 41.94%
Tiered Rate 17 10.97%
Unit Rate 8 5.16%
Flat Rate 6 3.87%
Tiered Rate 2 1.29%
Patent Sale 3 1.94%
Lump Sum 38 24.52%
Milestone Payment 4 2.58%
No Royalty Payment 17 10.97%
Other percentage rate 3 1.94%
Total 155 100.00%
Average and Median Royalty Rates:2011, 2014 and 2017 Surveys
5.9
7%
4.8
8%
5.6
9%
5.7
3%
5.0
0%
5.0
0%
5.0
0%
5.0
0%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2011 Survey 2014 Survey 2017 Survey Combined
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Average and Median Royalty Rates –Exclusive v. Non-Exclusive Deals: 2017 Survey
Average Royalty Rate: 5.69%
4.94%
6.80%
5.00%
4.50%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Exclusive Non-Exclusive
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Part 1: Preliminary
Non-Financial Analysis
Survey Results Cover A Wide Range of Technologies
See complete report for technology that makes-up “other”
Aerospace7%
Clean Technology8%
Computer Hardware
2%
Communications2%
Consumer Electronics 3%
Digital2%
E-Commerce1%
Industrial8%
Medical Dev/Healthcare
24%Mobile
Applications2%
Mobile Devices3%
Nanotechnology3%
Semiconductor3%
Software13%
Telecom2%
Transportation3%
Other11%
Aerospace
Clean Technology
Computer Hardware
Communications
Consumer Electronics
Digital
E-Commerce
Firmware
Industrial
Medical Dev/Healthcare
Mobile Applications
Mobile Devices
Nanotechnology
Semiconductor
Software
Telecom
Transportation
Other
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Survey Deal Results Cover A Wide Range of Technologies –New Software Subcategories
See complete report for technology that makes-up “other”
Enterprise26%
Personal2%
Governmental or Military 3%
SaaS13%
Shrink-wrap3%
Operating System3%
Applications18%
Mobile Applications 5%
Cyber Security/Privacy
3%
User Interface10%
Artificial Intelligence
8%
Augmented Reality
3%
Gaming3% Enterprise
Personal
Governmental or Military
SaaS
Shrink-wrap
Operating System
Applications
Mobile Applications
Cyber Security/Privacy
User Interface
Artificial Intelligence
Augmented Reality
Gaming
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensor Profile by Organization Type/Business
See complete report for “Who” that makes-up “Other”
Academic50%
Government18%
Aerospace & Transportation
8%
Medical Devices/Healthcar
e8%
NPE/IP Firm6%
Communications2%
Semiconductor1%
Software1%
Other6%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensee Profile by Org/Business Type
See complete report for “Who” that makes-up “Other”
Medical Devices/Healthcare
33%
Academic 13%
Aerospace & Transportation 11%
Clean Tech 6%
Technology-based (or -enabled) Services 5%
Software, 4%
Computer Hardware &
Personal Electronics3%
Semiconductor 3%
Internet, Online Commerce, and Applications 2%
Nanotechnology
Communications
Industrial
Internet/Platform-based
Mobile Devices
Pharmaceuticals,1%
Other, 11%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensor Size Profile: 2016 Annual $ Sales
Unknown74%
$1 Bil+11%
$0 to < $57%
$100 to < $5002%
$25 to < $1002%
$5 to <$252%
$5 to < $251%
$500 to < $1 Bil1%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensee Size Profile: 2016 Annual $ Sales
Unknown33%
$0 to < $527%
$1 Bil+19%
$100 to < $5008%
$25 to < $1006%
$5 to <$253%
$500 to < $1 Bil3%
$5 to < $251%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
The Principle Rationale for Licensor/Seller Entering this Deal?
10%
35%
3% 5%
35%
28%
10% 11% 12%
0%
5%
10%
15%
20%
25%
30%
35%
40%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
The Principle Rationale of the Licensee/Buyer Entering Deal?
23%
56%
12%
5% 4%
37%
5% 3%
12%
0%
10%
20%
30%
40%
50%
60%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensors'/Sellers' Estimated Total Value of the Deal
71%
11% 9%
3%6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
$100K < $5M $5M < $10M $10M < $50M $50M < $200M >= $200M
The estimated total value of the deal including all forms of payment or receipts over the term ($ Millions)
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Licensees'/Buyers' Estimated Total Annual Sales for the Licensed Product/Technology (US
Millions)
See complete report for “Who” that makes-up “Unknown or Other”
45%
10%6% 8% 6%
5% 4%
16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
$0 to < $10 $10 to <$25
$25 to <$50
$50 to <$100
$100 to <$500
$500 < $1Bil
$1 Bil+ Unknown,Patents
sold/acq,NPE deal,
etc.
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Survey Highlights –Some Key Deal Statistics
• The deals included both large and small company deals roughly equally
• 88% of respondents were licensors, with 35%of them entering the deal for monetary gain in addition to 28% for a strategic relationship, 10% were for an assertion strategy, 11% for SEP licensing
• Multiple IP assets were licensed in the majority of the deals reported
– 61% of them included patents
– 34% had know-how and trade secret components
– 36% also licensed software, copyrights or trademarks
• 63% of reported deal territories were WW, 12% N. Amer. only
• 48% of the 155 deals were exclusive, and 45% non-exclusive
• NPE’s were roughly 6% of the respondents
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
2017 Survey: Exclusive vs. Non-exclusive Deals
25%23%
26%
19%
5%3%
0%
5%
10%
15%
20%
25%
30%
Exclusive AllFields of Use
Exclusive perField of Use
Non-exclusiveAll Fields of
Use
Non-exclusiveper Field of Use
Sold/Acquired Other inclOption on
future deals
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Optional Question, (38) Respondents - Does the PTAB have an effect on the relative value of US patents?
See complete report for “Who” that makes-up “Other”
No effect24%
Major negative26%
Minor negative21%
Major positive8%
Minor positive8%
Other13%
No effect
Major negative
Minor negative
Major positive
Minor positive
Other
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Survey Highlights –Some Key Deal Statistics
Technology Breakdown
• About 36% of licensed technology was either already in production or fully developed, 52% was in R&D or prototype
• 32% of the reported deals included independent rights to improve the licensed technology, 22% included grantbacks,13% included collaborative development of IP, and 3% included co-production
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Survey Highlights –Key Deal Statistics
Other Terms of Note:
• 6% included co-marketing rights or the right to opt-in
• 34% expire after last patent expires, 15% after a set time period or expiry of the agreement, and 20% expire after “other”, i.e., completion of litigation etc.
• 88% of respondents were sellers, 10% buyers, 2% both (cross-licenses)
• Compared to 2014, more of the respondents were industry- based, and more were start-ups, Government, Academic institutions and NPE’s were fewer.
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Preliminary Financial Analysis
Jack Lu, PhD, CFAIntellectual Property Market Advisory Partners (IPMAP)
Deals by Payment or Royalty Type
Payment Method Count Percentage
Percentage Rate 82 52.90%
Flat Rate 65 41.94%
Tiered Rate 17 10.97%
Unit Rate 8 5.16%
Flat Rate 6 3.87%
Tiered Rate 2 1.29%
Patent Sale 3 1.94%
Lump Sum 38 24.52%
Milestone Payment 4 2.58%
No Royalty Payment 17 10.97%
Other percentage rate 3 1.94%
Total 155 100.00%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Royalty Rates Reported in 2017 Survey: Descriptive Statistics
# of Complete Deals 65
Min 0.31%
Max 50%
Average 6.29%
Average excl. outliers 5.69%
Mean 5%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Average Royalty Rate by Technology Type2017 Survey
9.29%
4.5%
6.4%
3.8%
6.5%
3.2%3.5%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Average Royalty Rate by Major Technology Type (2017 Survey)
Average Royalty Rate: 5.69%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Technology Development Stage and Royalty Rate
5.5
7%
10
.36
%
4.1
9%
4.5
4%
3.9
6%
7.1
1%
8.2
6%
1.5
0%
4.5
6%
3.6
6%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Fully Developed In Production Patent(s) Prototype R&D
Average Royalty Rate by Technology Development Stage
Combined 2017
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Average and Median Royalty Rates by Licensor Organization
2017 Survey Samples
Type Count Mean Median
Academic 32 5.80% 5.00%
Government 14 3.68% 2.75%
Aerospace &
Transportation 5 10.20% 5.00%
NPE/IP Firm 4 7.88% 3.00%
Medical Devices/Healthcare 2 3.50% 3.50%
All Others 7 4.62%
Total 64
Combined Samples
Type Count Mean
Academic 102 4.93%
Government 40 3.37%
Aerospace & Transportation 36 11.00%
Communications 6 4.83%
NPE/IP Firm 6 6.67%
Start-up/New Venture 4 4.75%
Technology-based (or -enabled) Services 4 6.50%
Semiconductor 3 3.37%
Biotech 2 6.00%
Medical Devices/Healthcare 2 3.50%
All Others 9 4.48%
Total 214
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Average and Median Royalty Rates by Licensee Organization
2017 Survey Samples
Type Count Mean Median
Medical
Devices/Healthcare22 6.91% 5.00%
Indus, Equip. & Mfg 7 4.21%
IT and related 7 3.05%
Technology-based (or -
enabled) Services6 4.50% 4.00%
Aerospace & Transportation 5 10.20% 5.00%
Clean Tech 5 4.20% 2.50%
Software 4 5.88% 5.75%
Nanotechnology 3 3.50% 4.50%
Academic 2 6.50% 6.50%
Others 3 3.33% 3.00%
Total 64
Combined Sample
Type Count Mean Median
Bio/Med/Pharm 39 5.73%
Aerospace &
Transportation31 10.89% 12.50%
Start-up/New Venture 26 4.17% 4.25%
Indus, Equip. & Mfg 24 4.96%
Cleantech Energy and
Environmental18 3.56%
Imaging and other tech
based tech17 4.85%
Computer Hardware &
Personal Electronics11 3.89%
Software 10 8.75%
Semiconductor 8 4.69%
Nanotechnology 5 3.70%
Academic 4 5.13%
Communications 4 4.75%
Internet & e-commerce
related4 4.00%
NPE/IP Firm 3 2.70%
Government 2 5.00%All others 8 3.25%Total 214
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Type Count Mean
One Type of IP Only 21 5.43%
Patent Only 12 3.48%US 11 3.52%Foreign 1 3.00%
Know-how/Trade Secret 2 3.38%
Software 3 4.33%Industrial Designs 1 5.50%
Other 3 15.67%
Multiple IP 44 6.70%
Patents plus any other IP 35 4.89%
Patents plus know-how 16 6.05%
Patents plus software 5 6.66%
Patents plus drawings 4 4.88%
Patents plus industrial designs 2 4.50%Know-how plus drawings or designs 9 13.26%
Type Count Mean
Patents/Applications 47 4.53%
Know-how/Trade Secret 25 8.46%
Trademark(s) 7 10.97%
Copyright(s) 4 5.08%Software 12 5.97%
Firmware 2 4.95%
Drawings 9 13.26%
Industrial Designs 5 4.87%
Customer/Consumer data 4 5.63%
Other 7 8.88%
1. By Number of IP Types Licensed
2. By Type of IP Licensed(Standalone or with Other IP)
Types of IP Licensed and Royalty Rates
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Summary of Lump Sum Payment Deals
Survey # of Deals # of Patents PaymentAverage
Payment DealMedian Payment
Per Deal
2011 43 N/A $2.5K to $80 million $3 million $516K
2014 24 1 to 10K $240K to $95 million $9.8 million $3 million
2017 38 1 to 100 $100 to $9 million $1.35 million $165K
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Summary of Patent Sales & Transfers
Survey # of Deals # of Patents # of Patent App PaymentAverage
Price/PatentMedian
Price/Patent
2014 12 1 to 114 1 to 35$400K to $20
million$358K $375K
2017 3 2 to 17 assets $100K to $3 million $175K* $64K*
* Sample size is too small and statistics may not be meaningful.
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Three Surveys, A Decade Journey:What have we witnessed in licensing market?
Median Royalty Rate: 5.0%
4.9
0%
4.8
3%
7.0
6%
6.6
5%
5.0
0%
4.1
1%
6.4
4%
6.0
7%
5.1
6%
4.3
2%
5.0
0%
4.0
0%
5.0
0%
5.0
0%
5.0
0%
4.0
0%
5.0
0%
4.0
0%
4.5
0%
3.5
0%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Average Median
Average Royalty Rate: 5.73%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Three Surveys, A Decade Journey:What have we witnessed in licensing market?
Median Royalty Rate: 5.0%
4.9
0%
4.8
3%
7.0
6%
6.6
5%
5.0
0%
4.1
1%
6.4
4%
6.0
7%
5.1
6%
4.3
2%
5.0
0%
4.0
0%
5.0
0%
5.0
0%
5.0
0%
4.0
0%
5.0
0%
4.0
0%
4.5
0%
3.5
0%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Average Median
AIA Enacted and EffectiveEconomic downturn& financial crisis
Alice
Average Royalty Rate: 5.73%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Econometric Analysis
R2
Coef. p-value Coef. p-value Coef. p-value Coef. p-value Coef. p-value Coef. p-value Coef. p-value
Intercept 3.37% 0.002 3.15% 0.000 2.94% 0.000 3.09% 0.001 3.24% 0.000 2.93% 0.000 2.67% 0.007
Aerospace 4.36% 0.000 4.52% 0.000 4.65% 0.000 4.55% 0.000 5.06% 0.000 5.35% 0.000 5.46% 0.000
Software 2.13% 0.045 2.24% 0.034 2.16% 0.042 2.17% 0.042 2.09% 0.048 2.03% 0.056 2.03% 0.057
Knowhow/drawing/Design 1.88% 0.058 1.75% 0.068 1.76% 0.067 1.74% 0.072 0.99% 0.257 0.87% 0.323 0.98% 0.283
Fully developed & in production 3.25% 0.000 3.19% 0.000 3.26% 0.000 3.19% 0.000 3.08% 0.000 3.11% 0.000 3.22% 0.000
Exclusive 1.81% 0.088 1.61% 0.066 1.79% 0.050 1.94% 0.063 1.19% 0.150 1.48% 0.091 1.34% 0.151
Governmental licensor -4.47% 0.003 -4.07% 0.001 -4.03% 0.002 -4.23% 0.004 -3.77% 0.003 -3.69% 0.004 -3.40% 0.016
Academic licensor -0.55% 0.672 -0.36% 0.771 0.55% 0.635
Variables Impacted by Survey-Specific Factors
Specific factors in 2014/17 Survey -0.90% 0.523
Medical tech/Healthcare/Biotech in 2017 Survey 2.42% 0.048 2.49% 0.036 2.34% 0.053 2.32% 0.055 2.07% 0.078 1.89% 0.112 1.96% 0.102
Exclusive in 2014 /17 Survey -3.40% 0.032 -3.06% 0.007 -3.56% 0.008 -3.75% 0.012
Governmental licensor in 2014/17 Survey 4.79% 0.027 3.61% 0.038 4.00% 0.029 4.11% 0.028 4.49% 0.058 4.71% 0.048 4.66% 0.051
Academic licensor in 2014/17 Survey 1.61% 0.343 0.80% 0.479 1.07% 0.466 1.60% 0.322 1.20% 0.509
Exclusive w governmental licensor in 2014/17 Survey -4.23% 0.097 -4.52% 0.079 -4.42% 0.087
Exclusive w academic licensor in 2014/17 Survey -2.10% 0.059 -3.56% 0.054 -3.40% 0.072
[7]
0.315
[1]
0.320
[2] [3] [4] [5] [6]
0.317 0.319 0.319 0.311 0.314
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Major Conclusions from Econometric Analysis (i)
The purposes of econometric analysis:- To decompose royalty rates reported in the surveys and identify the factors that
determine the royalty rate pricing (what are the common factors contributing to royalty rate pricing?).
- To detect any potential changes over the past 10 years in royalty rates.- To assess the impact of major events such as AIA/IPR and the Alice case.- The table above reports 7 sets of econometric analysis with coefficients for more
than a dozen factors that affected the royalty rate pricing.
ConclusionsTechnology premium: technologies with royalty premium in licensing market:- Aerospace: ~ 5%- Software: ~ 2.1%
IP premium: The characteristics of IP with royalty premium in licensing market:- Fully developed and In-production: ~3.2%- IP portfolio including trade secrets, know-how, drawings, & industrial design: ~
1.5%
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Major Conclusions from Econometric Analysis (ii)
Exclusivity: Exclusive licenses have an average royalty premium of ~ 1.5%Governmental-licensor discount:Governmental licensors were willing to take a royalty discount of ~ 4.0%The structural/fundamental changes detected by the econometric analysis- Exclusive licenses reported in 2014 and 2017 surveys had an average of ~ 3.4%
discount.- The reason: This is caused mainly by the exclusive licenses entered by
academic and governmental licensors for their underdeveloped technologies that required licensees to take risks and invest resources into further development. Discount in royalty rate with governmental licensors in 2014/17 survey: ~ 4.3%Discount in royalty rate with academic licensors in 2014/17 survey: ~ 3%
- Governmental licensors are SMART: For well-developed technologies, governmental licensors opt for non-exclusive licenses and actually charged a premium of slightly above 4% after 2011. Maybe: sovereign status in IPR??
- Similar effect was not found with academic licensors, but academic licensors, overall, charged fair market royalty rates to their licensees except for the exclusive licenses after 2011.
- Health-/med-/bio-tech had a premium of ~ 2.2%. Possible reasons: such techs fared better than other patents in IPRs??
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
Summary and CloseBob Held, CLP
Held Intellectual Property, LLC
Survey Highlights Key Deal Statistics
• A comprehensive Survey Report with all of the findings and related analysis will be made available in the next few months
• An article in LES Insights will be published
• The report will be available for sale to non LES members
© 2017 Licensing Executives Society (USA and Canada), Inc. All Rights Reserved
• Questions?
Licensing Executives Society (USA and Canada), Inc.
www.lesusacanada.org
44
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