Transfer Pricing: 25{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rule of thumb not applicable to determining royalty rates

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Transfer Pricing: 25{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rule of thumb not applicable to determining royalty rates

Attached please find a recent U.S. Court of Appeals for the Federal Circuit case (September 16, 2014 in VirnetX, Inc. v. Cisco Sys., Inc.) in which a U.S. court finds again the “25 percent rule of thumb” to determine royalty rates inadmissible:

“[W]e agree with the courts that have rejected invocations of the Nash theorem without sufficiently establishing that the premises of the theorem actually apply to the facts of the case at hand. The use here was just such an inappropriate “rule of thumb.” Previously, damages experts often relied on the “25 percent rule of thumb” in determining a reasonable royalty rate in a hypothetical negotiation. That rule hypothesized that 25{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} of the value of the infringing product would remain with the patentee, while the remaining 75{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} would go to the licensee. [W]e held the “25 percent rule of thumb” to be inadmissible “because it fails to tie a reasonable royalty base to the facts of the case at issue.” In so doing, we noted that the rule did not differentiate between different industries, technologies, or parties. Rather, it assumed the same 25/75 royalty split regardless of the size of the patent portfolio in question or the value of the patented technology. The problem as that the 25{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rule made too crude a generalization about a vastly more complicated world.”

US TP 25{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rule of thumb Virnetx vs. Cisco (Reasonable royalties)

Ednaldo Silva, Ph.D.

Managing Director

RoyaltyStat

1-202-468-3102

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Dimension Transfer Pricing International Taxation South African Tax Law
Jurisdictional audience Global audience, covers all jurisdictions Global audience, covers all jurisdictions South Africa specific, relevant to SADC region
Ideal for TP managers, advisors, in-house tax teams, analysts moving into TP Advisors and managers dealing with cross-border rules, treaties, planning Practitioners working with the SA Income Tax Act, cases, compliance
Core focus Methods, comparables, DEMPE, documentation, audits, dispute defence Treaties, source vs residence, anti-avoidance, PE, relief from double tax Statutory interpretation, case law, assessments, objections, local practice
Primary tools OECD TP Guidelines, UN Manual, BEPS Actions 8–10, 13, case law OECD and UN Models, MLI, BEPS 1.0 and 2.0, domestic rules, cases Income Tax Act, SARS practice notes, Tax Administration Act, SA cases
Assessment style Case-based assignments, file reviews, short written defences Problem questions, treaty interpretation, position papers Problem questions, statutory analysis, case commentary
Typical outcomes Build defensible TP files and strategies, improve audit readiness Design cross-border structures within rules, mitigate double tax Apply SA tax law accurately, manage reviews and disputes
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Dimension Conducting a Transfer Pricing Trial Effectively Managing Tax Teams Indirect Taxation Tax Risk Management
Jurisdictional audience Global audience Global audience Global audience, with local adaptation Global audience
Ideal for In-house tax, TP managers, litigators, advisors preparing for audits, ADR, trial Heads of tax, managers, team leads, controllers, emerging leaders VAT, GST, customs, finance managers, AP, AR, compliance specialists Tax managers, risk officers, controllers, advisors building governance
Core focus Case theory, evidence files, expert reports, witness prep, courtroom strategy Operating models, KPIs, workflows, stakeholder management, coaching VAT design, place of supply, input credits, exemptions, WHT interactions Risk identification, controls, documentation, audit readiness, dispute playbooks
Delivery mode Online, live sessions plus guided self-study Online, live sessions plus guided self-study Online, live sessions plus guided self-study Online, live sessions plus guided self-study
Duration 16 weeks, part-time 16 weeks, part-time 16 weeks, part-time 16 weeks, part-time
Outcomes Confident litigation preparation and defence for TP disputes Stronger execution, clear roles, measurable team performance Reduced VAT errors, better cash flow, fewer surprises at audit Structured governance, fewer findings, faster dispute resolution
Prerequisites TP fundamentals recommended Supervisory experience helpful Basic VAT knowledge helpful General tax experience helpful
Pathway Progress to PG Certificate in Transfer Pricing Progress to Mechanics of Leading Tax Teams, PG Certificate (leadership) Progress to PG programmes, International Tax or SA Tax Law Progress to PG Certificate in International Taxation or Transfer Pricing
Assessment End of module progress assessment

5000-word assignment if PG-Cert option elected
End of module progress assessment

5000-word assignment if PG-Cert option elected
End of module progress assessment

5000-word assignment if PG-Cert option elected
End of module progress assessment

5000-word assignment if PG-Cert option elected