# RoyaltyStat Blog

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A very large sample of royalty rates (based on net sales) derived from unredacted license agreements, excluding related party licensor and licensee, shows a stable median of 5% or 6%. The sample count of 12,987 unique license agreements was retrieved from RoyaltyStat on February 29, 2016. This long-term stability supports my prior post conjecturing that royalty rates are "great ratios," i.e., stable ratios that can be treated as a "stylized fact" à la Kaldor. See Nicholas Kaldor in the proceedings of the "theory of capital" conference held in the Island of Corfu from Sept. 4-11, 1958, published in Frederich Lutz & D. Hague (eds.), The Theory of Capital (Macmillan, 1963), chapter 10. See also Lawrence Klein & Richard Kosobud, "Some Econometrics of Growth: Great Ratios of Economics," Quarterly Journal of Economics, Vol. 75, No. 2 (May, 1961). Stable URL: http://www.jstor.org/stable/1884198

It's difficult to ignore this long-term stability of royalty rates around a 5% or more recent 6% central value. The outlier values prior to 1984 and in 2015 reflect the smaller number of observations in those years. We will capture more unredacted license agreements having the effective date in 2015 as we progress in 2016. Thus, the higher median royalty rate observed in 2015 is expected to gravitate towards the long-term median of 5% to 6% as the 2015 sample size increases towards the historical annual count exceeding 1,200 new unredacted license agreements added to the RoyaltyStat database.

In physics, we benefit from the historical development of simple formulae describing basic phenomena, including Newton’s (1687) three laws of motion and the law of universal gravitation. Even the posterior extension of Newton’s second law of motion to accommodate particles moving at high velocities (comparable to the speed of light) has a simple formula. Newton's second law of motion can be interpreted to be a mathematical implementation of an earlier idea attributed to Buridan (1295-1363) that momentum (impetus) is proportional to a particle mass multiplied by its velocity. Buridan's simple definition of momentum finds many analogues in economics, such as the principle that price is proportional to cost, profit is proportional to investment, and royalties are proportional to the revenue of the licensee.

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.