(2003; 30 pages) [French] [Spanish]
Negotiation with patent holder about fee
After the granting of the compulsory licence, bona fide negotiations should be undertaken with the patent holder to establish the fee for the exploitation of the patent. Generally, fees are determined as a percentage of the net sales price of the product made under the licence (and not the patentee’s own product), but other modalities can be adopted, for instance, a fixed sum per unit sold.
The TRIPS Agreement requires that the compensation reflect the economic value of the licence.
Commercial practice in voluntary licensing is to use royalties ranging between 2% and 5%, though they may be higher in certain cases. There is some evidence available on the royalties determined by national authorities in Canada, the USA and other countries for the granting of compulsory licences10.
10 Niess, P. Technology evaluation and pricing. TECH MONITOR, November-December 1999, p. 16-17.
Factors that may be considered to negotiate the fee include: launch date of the product, possible substitutes, coverage and possible invalidity (total or partial) of the patent/s, pending challenges to the patent/s, if any, accumulated sales and recovery of R & D investment made by the patent holder, global and Chinese market for the product (units and value), expected volume of production and price under the compulsory licence, royalties agreed upon in voluntary licences on the same or similar products.
Of course, gathering this information will require considerable preparation and work by an inter-disciplinary team.