John Sapsford Many technology companies enter into licensing arrangements as part of their corporate strategy - and with good reason. Licensing provides the means for doing just that. The licensor can combine its technology with the complementary assets of one or more licensees for mutual satisfaction and reduced risk. Typically, a licensing agreement involves a profit-sharing arrangement. In exchange for receiving the licence to sell the developer's software program, for example, the licensee will agree to share profits derived from sales.
Royalties are the most common means for calculating the transfer of a portion of the profits.
This rule can also be used persuasively in the presentation of expert evidence when a court requires a reasonable estimate of hypothetical royalties in a dispute involving intellectual property infringement. These factors will be different for the licensee and the licensor. For a mutually satisfactory arrangement, the concerns of both must be balanced. The rate and the base reflect all the essential factors mentioned in the preceding paragraph and could not be determined without having first considered the factors themselves. First, of course, a mutually agreeable expected profit must be determined, followed by a satisfactory apportionment of the same.