RoyaltyStat Blog

Royalty Rates Large & Small

Posted by Ednaldo Silva on Feb 12, 2016 4:03:39 PM

The claim that comparable royalty rates can’t be found is not well-informed, and needs revision.

RoyaltyStat has a larger number of unredacted license agreements than the number of listed companies available to find comparables among distributors, retailers, or service providers. RoyaltyStat contains over 16,995 unredacted license agreements, and this count increases by over 1,200 new agreements per year.  (See http://www.royaltystat.com/ourdatabases.cfm.) An unredacted license agreement contains a disclosed royalty rate, whereas a redacted agreement has no disclosed royalty rate. 

The quartiles of a large sample (count = 13,337) of license agreements based on net sales, excluding related-party agreements and agreements in the metal & mining and oil & gas (natural resources) industries, show a 5% median royalty rate. The blue rosetta on the chart below represents the median. As royalty rates based on sales > 20%, the data become sparse and outliers emerge. Up to 10%, the data cluster show a solid basis of license agreements to determine arm's length royalty rates or to create safe harbors.

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Ednaldo Silva (Ph.D.) is founder and managing director at RoyaltyStat. He helped draft the US transfer pricing regulations and developed the comparable profits method called TNNM by the OECD. He can be contacted at: esilva@royaltystat.com

RoyaltyStat provides premier online databases of royalty rates extracted from unredacted agreements, normalized company financials (income statement, balance sheet, cash flow), and annual reports. We provide high-quality data, built-in analytical tools, customer training and attentive technical support.

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Topics: Royalty Rates