Royalty payments on intellectual property: a preliminary analysis of the principal policy issues facing India

Abstract

The objective of this study is to find out the trends of royalty payments made by Indian Companies over the period of 10 years. Further, the study also documents the share of royalty paid to that of specific variable, viz., net sales, cost of production, capital employed, profit and exports, in percentage terms. In addition, the study also examines statistically, the determinants of royalty accruing from patents, trademarks and copy rights. Totally, eleven sectors which have been making royalty payments are identified for the study. The results reveal that outflow of royalty payments from the mentioned sectors has increased over the 10 years period for the companies concerned. In general, the royalty payments made in terms of its relationships to net sales, cost of production, capital employed, net profit and export earnings shown an increasing trend over the period. Regression analysis reveals that net sales, cost of production, profit and exports are significant factors for determining royalty payments in certain sectors. The Report concludes by examining the potential of applying regulations on royalty rates for different patented and IP protected technologies and trademarks. It is argued that while regulations on royalty rates are desirable, it should not jeopardise the quest for modernising the Indian economy. A panel level data analysis is underway to overcome the limitations of the multiple time series regression undertaken in this paper.