Let’s start with the question that I already referenced in my prior blog post. At ITR London recently, nearly 80% of participants responded to Mimi Song’s question that they would expect an exclusivity clause to cause a higher royalty rate in an agreement between two third parties, all else being equal. Data from RoyaltyStat, however, shows that across all trademark/tradename agreements within the Apparel and Textiles industry1, the median for non-exclusive agreements is actually higher than for agreements that provide some sort of exclusivity!
Using the Search Analytics tool in RoyaltyStat, we can expand this exclusivity experiment to not only include the Apparel and Textiles Industry, but also Beauty products and consumer products. Adding these industries where we would also consider trademarks and tradenames to have significance, we can run the same two searches—one for agreements with exclusivity clauses, and one for nonexclusive agreements—and compare the ranges.
In the figure above, we see exactly what Song found in the apparel industry but expanded to the aforementioned industries as well, with a statistically significant number of observations. Interestingly enough, the medians of the two sets of agreements are exactly the same—5%! And both the lower quartile and the upper quartile of the non-exclusive agreements set are actually higher than the set of agreements that contain an exclusivity clause!
So, what can we take away from this? Of course, the first thing is that using RoyaltyStat’s powerful analytics, layered over the comprehensive database of agreements, we are able to prepare our economic analyses for royalty CUPs more efficiently than ever—but I may be biased.
More objectively, a key takeaway is that should we find ourselves in need of more CUPs in our final set, we can consider relaxing exclusivity as a search parameter. With this tool at our disposal, we can further determine which other potential search parameters are lowering our comparable counts without any economic merit. And lastly, you can challenge any assertions tax authorities make regarding the search strategy, should it come to that, using this information.
In my next post, I’ll take a look at the duration of licensing agreements, and what impact that has on the royalty rates therein.
Myth: Busted
