Welcome to the RoyaltySource® IP Data Guide

At RoyaltySource®, we maintain a database of intangible property licenses that report a royalty rate. These benchmarks are used in valuation, license negotiations, and transfer pricing assignments. Here in the RoyaltySource IP Data Guide, we will offer some insight, frequently asked questions, and proposed solutions offered over the past 20 years from RoyaltySource.
Questions

  • What type of agreements are included in the RoyaltySource database?
  • Do public companies have to disclose their royalty deals?
  • What is the source of RoyaltySource information?
  • Why are most license agreements dated?
  • Does the database include agreements from around the world?
  • Do all transactions in the database report a royalty rate and what is the definition of Royalty Base?
  • What is a tiered royalty and why is there a tiered royalty structure?
  • What is royalty rate upfront fee?
  • Does RoyaltySource report if the parties to the agreements are related or unrelated?
  • What is the difference in rates/values between exclusive and non-exclusive royalty rates charged in technology/software industries?
  • Can you identify licenses in the database for patented and unpatented technology?
  • Can you use franchise agreements as a guide to gain insight into trademark royalty rates?
  • Does RoyaltySource have general royalty rates industry data?
  • Why RoyaltySource doesn't focus on SIC number but instead on the description of the licensed IP?
  • What is the 25% Rule?
  • How do I perform a RoyaltySource online database search?

    • What is a tiered royalty and why is there a tiered royalty structure?
    The royalty rate high/low fields represent the royalty rate provided by our source of information.  So if the number reported is the same for both the high and low royalty rate (e.g., 5%), then our source detailed that the royalty rate paid for that particular license was always 5%.

    If there is a tiered royalty rate (different high and low royalty rate), then our source reported that the rate is different which is determined by the license. Tiered royalty rates are designed to generate maximum revenue (and, eventually, profit) from a license agreement.  There could be many reasons why there are tiered royalty rates in the same license.  Listed below are some of the reasons why royalty rates vary in one agreement:

    -  licensed product revenue amounts
    -  time frame (ex the royalty rate is low in the early years and higher in the later years)
    -  licensed territory (i.e. different countries)
    -  different rights licensed (ex. exclusive vs. non-exclusive)
    -  different profit margins
    -  maturity of the technology (ex for pharmaceuticals it would be the phase of development before government approval)

    EXAMPLE: Tiered Royalty
    Compensation Detail:
    Upfront Fee: NeuroSystec shall pay to DURECT a one-time fee of US$50,000, due and payable within thirty days after the Effective Date.

    Royalty: NeuroSystec shall pay to DURECT where a Valid Claim within the DURECT Patent Rights exists a royalty of 2.5% of Net Sales of all Licensed Products covered by a Valid Claim, on that portion of annual Net Sales in a calendar year which does not exceed US$50 million; and a royalty of 3% of Net Sales of all Licensed Products covered by a Valid Claim, on that portion of annual Net Sales in a calendar year in excess of US$50 million;

    and if a Licensed Product includes a DURECT Drug Delivery Platform:  a royalty of 1.5% of Net Sales of all such Licensed Products covered by a Valid Claim, that include a DURECT Drug Delivery Platform, on that portion of annual Net Sales in a calendar year which does not exceed US$50 million; and a royalty of 2.0% of Net Sales of all such Licensed Products covered by a Valid Claim, that include a DURECT Drug Delivery Platform, on that portion of annual Net Sales in a calendar year in excess of US$50 million.

    NeuroSystec shall pay to INSERM, on behalf of DURECT, earned running royalties for net sales of Licensed Products by NeuroSystec, its Affiliates and Sublicensees where such products are covered by a Valid Claim under the Joint.Patent Rights. Such royalty shall be 1.0% of net sales of such products.  In this case, the royalty paid to Durect shall be reduced by that amount.