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Where is it written that it needs to be royalty free to be a standard? Just because it hasn't happened doesn't me an it can't.

On the standard organisation side, the W3C ensures that its specifications can be implemented on a Royalty-Free (RF) basis.

The World Wide Web Consortium (W3C) is the main international standards organization for the World Wide Web (abbreviated WWW or W3).

Founded and headed by Sir Tim Berners-Lee, the consortium is made up of member organizations which maintain full-time staff for the purpose of working together in the development of standards for the World Wide Web. As of 8 September 2009, the World Wide Web Consortium (W3C) has 356 members.

In accord with the W3C Process Document, a Recommendation progresses through five maturity levels:

1 Working Draft (WD)
2 Last Call Working Draft
3 Candidate Recommendation (CR)
4 Proposed Recommendation (PR)
5 W3C Recommendation (REC)

A Recommendation may be updated by separately published Errata until enough substantial edits accumulate, at which time a new edition of the Recommendation may be produced (e.g., XML is now in its fifth edition). W3C also publishes various kinds of informative Notes which are not intended to be treated as standards.

W3C leaves it up to manufacturers to follow the Recommendations. Many of its standards define levels of conformance, which the developers must follow if they wish to label their product W3C-compliant. Like any standards of other organizations, W3C recommendations are sometimes implemented partially. The Recommendations are under a royalty-free patent license, allowing anyone to implement them.

At this time, AFAIK, HTML5 is only a Candidate Recommendation (CR), or perhaps even earlier.

The HTML5 specification was adopted as the starting point of the work of the new HTML working group of the World Wide Web Consortium (W3C) in 2007. This working group published the First Public Working Draft of the specification on January 22, 2008. The specification is an ongoing work, and is expected to remain so for many years, although parts of HTML5 are going to be finished and implemented in browsers before the whole specification reaches final Recommendation status.

According to the W3C timetable, it is estimated that HTML5 will reach W3C Recommendation by late 2010. However, the First Public Working Draft estimate was missed by 8 months, and Last Call and Candidate Recommendation were expected to be reached in 2008, but as of April 2010 HTML5 is still at Working Draft stage in the W3C. HTML5 has been at Last Call in the WHATWG since October 2009.

Where is it written that it needs to be royalty free to be a standard? Just because it hasn't happened doesn't me an it can't.

Goals and Overview
This current practice has evolved in order to satisfy the goal held by a number of W3C Members and significant parts of the larger Web community: that W3C Recommendations should be, as far as possible, implementable on a Royalty-Free basis. The current practice described here seeks to:

- establish Royalty-Free implementation as a goal for Recommendations produced by new and re-chartered Working Groups;
- encourage maximum disclosure of patents that might prevent a W3C Recommendation from being implemented on a Royalty-Free basis;
- provide a process for addressing situations in which the goal of Royalty-Free implementation may not be attainable.

This document relies on the definition of Royalty-Free licensing as described in the W3C Patent Policy Framework Last Call Working Draft. Note that current W3C patent practice does not require any W3C Member to make a Royalty-Free licensing commitment for essential patents it may hold. Such a commitment is under discussion in the Patent Policy Working Group for possible inclusion in of the final patent policy, but has not been implemented.