Market approaches examine the terms of comparable technology transfers to arrive at a fair transfer price and terms for the intellectual asset under consideration. Arm’s-length transactions between nonaffiliated entities best cover the technology under evaluation. A host of related transactions within a limited price range provide strong evidence of what the market will bear.
The best way to come up with good valuations is to draw inferences of value from information about comparable transactions in the industry, proposed transactions, public firm valuations such as market capitalizations, and stock price movements. Considerations that add complexity and uncertainty to market valuation approaches are the nature of truly comparable technology, the extent of other bundled intellectual property in the comparables, the comparability of existing and projected market conditions, the existence of cross licensing already between the parties, the relative bargaining strength of the comparable parties, the existence or threat of litigation, and the nature of the firm ownership and owners incentives.
There are many database service providers who provide market comparables for many technologies. The example “Market Royalty Rates By Technology Segment” figure shows a variation in royalty rates by market.