How Big is Licensing?
To get an idea of the size of the business of licensing, look at statistics gathered by the Internal Revenue Service (IRS). While this data cannot completely capture the entire picture, it can provide a reasonable approximation. The IRS has compiled data from Returns of Active Corporations—Forms 1020-F, showing the total amount of royalty income reported by active companies.* For 2013 (the most recent data available), companies in all the industries covered by the IRS reported a total amount of $195.3 billion in royalty income. The total number of tax returns associated with this data is 5.8 million.
To get an idea of the revenues associated with this level of licensing, the royalty income, representing payments by licensees, is divided by the average royalty rate associated with intellectual property licensing. Several studies have shown the most common royalty rate in many industries is 5%.** For the purposes of this calculation, 5% has been used. When the calculation is completed, revenues derived from licensed intellectual property nearly reach an enormous $3.9 trillion.
Historical information allows for detecting trends in the business of licensing. The IRS gathered the same royalty income for as far back as 1994. In 1994, the total amount of royalty income for all industries was almost $50 billion. Dividing the $50 billion by the same average 5% royalty rate indicates that revenue generated by licensed intellectual property was only $998 billion for 1994.
These huge amounts do not include revenue generated from licensed intellectual property where no royalty payment is due, such as when companies have completed cross-licenses allowing each party to use the others’ intellectual property without a royalty payment. Licensing is big business!!
** This rate is supported by the data contained in the new edition of Royalty Rates for Technology, 7th Edition.