what is the 25 rule 
there are two common uses of the 25 rule one uses it to refer to long term government debt in relation to its annual budget and the second is to determine intellectual property royalties understanding the 25 rulein both uses of the term the 25 rule is more a matter of customary practice or heuristic i e a rule of thumb rather than an absolute or optimal threshold or a strict legal requirement in the public finance setting the 25 rule is a rough guideline for fiscal planning based on the confidence of bondholders and credit rating agencies in the intellectual property arena the 25 rule evolved from the customary rates negotiated between intellectual property holders and licensees 25 rule for municipal debtlocal or state governments looking to fund projects through municipal bond issues have to make assumptions about the revenues they expect to bring in often through taxation or projects like toll roads which in turn will allow them to support bond payments if revenue falls short of expectations those municipalities may not be able to make bond payments which can cause them to default on their obligations and hurt their credit rating municipal bondholders want to make sure that the issuing authority has the capacity to pay which can be jeopardized by getting too deep in debt bondholders are thus cautious about purchasing bonds from local or state governments that are in violation of the 25 rule tax exempt private activity bonds bonds issued by municipalities on behalf of private or non profit organizations also have a 25 rule applied to the proceeds from the bonds this rule states that no more than 25 of bond proceeds may be used for land acquisition 125 rule for intellectual propertypatent or trademark owners use the 25 rule as a yardstick for defining a reasonable amount of royalty payments the rule assumes that a licensee should retain at most 75 of the profits of a patented product given that s he took on the bulk of the risks of developing the product and bringing the intellectual property to the market the patent owner takes the remainder as a license royalty setting the value of intellectual property is a complex matter although royalties are typically assessed against revenues the 25 rule applies to profits furthermore the 25 rule does not closely define what gross profit includes which creates ambiguity in the valuation calculation because it s a simple rule it does not take into account the costs associated with marketing the product for example the holder of a copyright will receive a 25 royalty though the party doing the selling usually incurs the cost of attracting demand in the market through advertising in the 2011 court case of uniloc usa inc v microsoft corp the court of appeals for the federal circuit ruled that the 25 percent rule may not be used as a starting point for a patent damage analysis bound for the courtroom the appeals court concluded that the rule does not rise to an admissible level of evidence and may not be relied upon in a patent lawsuit in federal court while the 25 rule may still be used by other parties in estimating a proposed patent royalty it should not be considered a legal mandate 2