CLP CLP Licensing Valuation & Financial Analysis 3

Question 1

Which approach to IP valuation is most appropriate when the IP has no comparable market transactions and generates no direct revenue yet?

Accepted Answer

Cost approach

Answer

The cost approach values IP based on the expense to recreate or replace it, useful when market data and income projections are unavailable.

Question 2

A royalty rate expressed as a percentage of net sales is reduced by a 'royalty stack deduction.' What is this deduction for?

Accepted Answer

To account for royalties owed to third-party IP holders whose rights are also used in the product

Answer

A royalty stack deduction allows the licensee to reduce the agreed rate when additional royalties must be paid to other IP owners for the same product.

Question 3

What financial document would a licensor primarily review to verify reported royalties are accurate?

Accepted Answer

Licensee's royalty statement and supporting sales records

Answer

Royalty statements paired with underlying sales records (invoices, ERP data) are the primary documents reviewed to verify royalty accuracy.

Question 4

In discounted cash flow (DCF) analysis for a license deal, a higher discount rate will:

Accepted Answer

Reduce the present value of future royalty streams

Answer

A higher discount rate reduces NPV because future cash flows are penalized more heavily for time and risk.

Question 5

What is a sublicense fee, and how does it differ from a running royalty?

Accepted Answer

A fee paid by the licensee to the licensor when granting sublicenses, separate from product-based royalties

Answer

A sublicense fee is a percentage of revenue the licensee receives from sub-licensees, shared back to the licensor, distinct from royalties on the licensee's own sales.

(CLP) Certified Licensing Professional Practice Test

(CLP) Certified Licensing Professional Practice Test

CLP CLP Licensing Valuation & Financial Analysis 3