Royalty rates can be fixed or variable. If the royalty rate is fixed for the duration of an agreement, this tempers the incentive for the licensee to expand its market share as well as limiting the ability to react to changing market circumstances. Variable royalty rates can be employed in a contract to act as an incentive. A low initial royalty eases cash flow during the launch phase. Similarly, a lower rate for higher tiers of sales encourages the licensee to hit these sales targets.
Royalties do tend towards an industry norm.
The degree of protection has a major influence on the royalty that a product or technology can command. Similarly, the validity and enforceability will also influence the royalty rate. If the licence granted is a global, exclusive licence then royalty will be at a higher level than for a regional non-exclusive licence. This would ensure parity in the market-place in terms of the royalty burden of the product or technology. If the technology is intended as a basic platform technology, it is often licensed very broadly to many companies on a low royalty rate which encourages companies to take a licence.