When should I use RFR vs Loss of Licence?

Use RFR when the valuation subject is the owned intangible asset — typically in PPA, impairment testing, or IP-backed lending. Use Loss of Licence when the valuation subject is the specific licence held by the licensee — typically in damages quantification (where breach of licence is the underlying claim), licensee-side fair value (where the licence itself is a recognised asset), or contract negotiation. The two methods sit on opposite sides of the same licensing relationship and answer different questions.

How does Loss of Licence relate to the With and Without method?

Loss of Licence is conceptually a specific application of the With and Without framework — both build value by comparing two cash-flow scenarios. The distinction is in the comparison mechanism: Loss of Licence specifically uses licence termination as the alternative scenario, with royalty-rate dynamics as the basis of the cash-flow difference. W&W is the broader framework that can use any with-asset vs without-asset comparison (non-compete termination, customer churn acceleration, key-person departure). Loss of Licence is the right name when the licence itself is the asset and royalty rates anchor the comparison.

Can the same royalty rate evidence be used in both methods?

Yes, in part. RFR uses comparable arm's-length licensing transactions to derive the royalty rate the owner would charge / the licensee would pay in an arm's-length transaction. Loss of Licence uses current market re-licensing rates — which are often informed by the same comparable evidence but adjusted for current market conditions, scarcity dynamics, and the licensee's specific position. The same database of licensing transactions can support both methods, but the rates derived from it serve different purposes.

What is the typical "no licence" scenario in Loss of Licence?

Three common patterns: (a) re-licensing the same asset at a higher current rate, where the original licence was favourable to the licensee; (b) substituting an inferior asset where re-licensing the original is not available; (c) abandoning the use case where no adequate substitute exists. The choice depends on the specific licence circumstances. Audit and expert-witness focus concentrates on whether the chosen "no licence" alternative reflects observable market behaviour or has been constructed punitively to overstate the loss.

Does the licensor's RFR value equal the licensee's Loss of Licence value?

Not usually. The licensor's RFR value reflects the market-clearing royalty stream they would receive in an arm's-length licensing arrangement. The licensee's Loss of Licence value reflects the difference between their current royalty terms and the alternative they would face without the licence. In a market-clearing arm's-length licence with no favourable terms to the licensee, the two values would be similar. In most practical cases — where the licensee enjoys favourable terms (lower rate, broader exclusivity, longer duration than current market) — the licensee's Loss of Licence value exceeds the licensor's RFR value of the underlying asset.

Is Loss of Licence appropriate for damages quantification?

Yes, frequently. Damages claims in IP infringement and breach-of-licence disputes often centre on the licensee's loss when the licence is terminated or restricted. Loss of Licence provides a framework for quantifying that loss in present-value terms, anchored to observable royalty-rate evidence and market substitute pricing. Expert witnesses use the method routinely in commercial dispute resolution and litigation. The method's defensibility in court depends on the credibility of the "no licence" alternative scenario.

Does TAB apply to Loss of Licence?

Yes, where the licence is recognised as an intangible asset eligible for tax amortisation in the relevant jurisdiction. The TAB factor is applied to the Loss of Licence value the same way it is applied to RFR, MPEEM, or W&W results — calculated using the asset's tax amortisation period, the corporate tax rate, and the discount rate. The mechanics are identical; the difference is only in how the pre-TAB value was derived.

How does the Loss of Licence method handle uncertainty in the licence's renewal?

Through probability weighting. Where the licence has a defined renewal date and the renewal outcome is uncertain — the licensor may renew at market rate, may renew at the existing rate, may decline to renew — the Loss of Licence calculation can be probability-weighted across the possible outcomes. Each scenario contributes its expected cash-flow difference at its assessed probability. The defensibility test is whether the probabilities are grounded in observable behaviour (e.g. the licensor's track record of renewals, sector renewal patterns) or have been derived purely from management judgement.

Valuation Method

Royalty Relief vs Loss of Licence

RFR values an owned intangible by royalty avoided through ownership; Loss of Licence values an existing licence by cash flows lost if the licence ends.

Relief from Royalty (RFR) and Loss of Licence are two royalty-based valuation methods that share a structural similarity but answer different questions. RFR is owner-side — what is ownership worth, expressed as the royalty the owner avoids paying? Loss of Licence is licensee-side — what is this specific licence worth to the licensee, expressed as the cash flows they would lose if the licence ended? The two methods sit on opposite sides of the same licensing relationship.

Criteria	Relief from Royalty (RFR)	Loss of Licence Method
Valuation subject	The owned intangible asset	The licence held by the licensee
Question answered	What is ownership worth (vs licensing from a third party)?	What is this specific licence worth (vs losing it)?
Valuation logic	Present value of royalty payments avoided by owning	Present value of cash flows lost if the licence is terminated
Royalty rate source	Comparable arm's-length licensing transactions	Current market re-licensing rates, substitute pricing
Cash flow basis	Revenue × royalty rate (single stream)	Difference between 'with licence' and 'no licence' scenarios
Useful life	Asset's economic life, capped by legal life	Remaining term of the existing licence
Typical applications	Brand, technology, patents, software in PPA	Damages quantification, licensee-side licence valuation, contract negotiation
Audit treatment under IFRS 13 / ASC 820	Widely accepted; dominant for licensable intangibles	Accepted where the licence is the operative asset; less common
Defensibility profile	High when comparables are credible; weak when stretched	High when 'no licence' alternative is evidenced
Owner-side vs licensee-side	Owner-side valuation	Licensee-side valuation
Common pitfall	Stretching comparables across asset class or industry	Constructing punitive 'no licence' scenarios without evidence

When to Use Each Approach

Relief from Royalty (RFR)

Purchase price allocation under IFRS 3 (UK and global) or ASC 805 (US)
Impairment testing of recognised brand or technology intangibles
IP-backed lending where asset-level fair value is the collateral basis
Licensor-side valuation of an owned intangible asset

Loss of Licence Method

Damages quantification in IP infringement or breach-of-licence disputes
Licensee-side fair value of a held licence asset
Contract negotiation around licence renewal or termination
Cross-border transfer pricing on the licensee side

Our Verdict

RFR is the owner-side royalty-based method — used in PPA, impairment, and IP-backed lending. Loss of Licence is the licensee-side method — used in damages, licensee-side fair value, and contract negotiation. The two methods share royalty-rate evidence but answer different questions about different sides of the same licensing relationship. The defensible application requires correct identification of which side of the licence the valuation subject sits on.

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Royalty Relief vs Loss of Licence

When to Use Each Approach

Relief from Royalty (RFR)

Loss of Licence Method

Our Verdict

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