What is a typical IP licensing royalty rate?
Royalty rates vary widely by industry and IP type. Rough benchmarks: 2–5% of net sales for consumer products, 5–15% for patented technology, 4–10% for trademark and brand licences, and higher for pharmaceuticals and software. Rates depend on the IP's strength, exclusivity, and the licensee's margins. The '25% rule' (licensee keeps 75% of profit) is a discredited but still-cited rule of thumb.
What is the difference between a running royalty and a lump sum?
A running royalty is a recurring payment tied to the licensee's sales (e.g. 5% of net sales). A lump sum or paid-up licence is a single fixed payment for the whole term. Running royalties share risk and upside with the licensor; lump sums give certainty. Many deals combine an upfront fee plus running royalties.
What is a minimum annual royalty?
A minimum annual royalty guarantees the licensor a floor payment regardless of the licensee's actual sales. If the running royalty on sales is below the minimum, the licensee pays the minimum. It protects the licensor against a licensee that under-performs or sits on an exclusive licence without commercializing the IP.
Are IP royalties taxable in Canada?
Yes. Royalty income is generally taxable. Royalties paid by a Canadian payer to a non-resident are typically subject to a 25% withholding tax under the Income Tax Act, often reduced by treaty (for example to 0–10% for many royalties under the Canada-US tax treaty). Structure and characterization matter — consult a tax advisor.