CLP CLP Licensing Valuation & Financial Analysis 2

Question 1

What is a milestone payment in a licensing agreement?

Accepted Answer

A payment triggered by achieving a defined development or commercial event

Answer

A monthly fixed fee paid to the licensor

Answer

A penalty for sublicensing without approval

Answer

An advance against future royalties at signing

Question 2

The relief-from-royalty method calculates IP value based on:

Accepted Answer

Royalties the owner is relieved from paying by owning the IP outright

Answer

The cost to recreate the IP from scratch

Answer

Recent sale prices of comparable IP assets

Answer

Projected EBITDA of the licensing business

Question 3

Which term describes a royalty base computed on the selling price of only the smallest saleable unit that practices the licensed patent?

Accepted Answer

Smallest saleable patent-practicing unit (SSPPU)

Answer

Entire market value rule

Answer

Reasonable royalty base

Answer

Per-unit royalty floor

Question 4

A stacking royalty problem occurs when:

Accepted Answer

Multiple licensors each charge royalties on the same product, making cumulative rates uneconomic

Answer

Royalty rates increase automatically year over year

Answer

The licensee sublicenses to multiple sub-licensees

Answer

Royalties are calculated on gross rather than net sales

Question 5

What does IRR represent when evaluating a licensing opportunity?

Accepted Answer

The discount rate at which the NPV of deal cash flows equals zero

Answer

The ratio of royalty income to total revenue

Answer

The annual growth rate of royalty payments

Answer

The internal risk rating of the licensee

Question 6

In a licensing deal, what is the purpose of a minimum annual royalty (MAR)?

Accepted Answer

To ensure the licensor receives a guaranteed income floor even if the licensee undersells

Answer

To cap the total royalties paid over the license term

Answer

To set the maximum running royalty percentage allowed

Answer

To replace milestone payments in early-stage deals