A cost-based approach for calculating royalties for standard-essential patents (SEPs)

We propose and discuss a novel approach for calculating FRAND royalties based upon average total cost per patent plus a reasonable return for the patent holder. Our approach relies upon principles common in regulated industries such as telecommunication networks. Compared to existing approaches that use net sales or fractions thereof as the basis for royalty calculation, our approach has the advantage of arriving at an estimate for FRAND royalties without the need to rely upon comparable licensing transactions. Thus, our approach helps to more accurately define royalty ranges that are FRAND compliant.