Relief-from-royalty, explained with a worked example

Relief-from-royalty (RfR) asks a simple question: if you did not own this IP, what would you pay someone else to use it? The present value of the royalties you are "relieved" from paying is the value of owning the asset.

Step 1 — Forecast the royalty base

Usually revenue from products that use the IP, over its remaining useful life. Suppose revenue is ₹10 crore next year, growing at 8% a year, over a 5-year life.

Step 2 — Select a royalty rate

We look at comparable licence agreements in the same industry, then adjust for exclusivity, territory, stage and the specific strengths identified in our patent or brand scoring. Assume 5%.

Step 3 — Deduct tax and discount

The after-tax royalty saving in year one is ₹10 crore × 5% × (1 − 25.17%) ≈ ₹37.4 lakh. Each year's saving is discounted at an IP-specific rate — say 18% — usually using a mid-year convention.

Step 4 — Add tax amortisation benefit (where applicable)

For financial reporting, a hypothetical buyer could amortise the asset for tax, which adds value. Whether a TAB applies depends on the purpose and jurisdiction.

Step 5 — Test the sensitivities

Royalty rate and discount rate move the answer most. Every Ragulika IP report includes a tornado chart showing how value changes as each assumption moves within its reasonable range.

This article is general information, not valuation, legal or tax advice.