Royalties
From Wikipedia, the free encyclopedia
Royalties, sometimes simply referred to as "royalty", is typically the sum of money paid to the proprietor or licensor of intellectual property (IP) rights for the benefits derived, or sought to be derived, by the user (the licensee) through the exercise of such rights. Royalties may be paid for the use of copyright, patent, trademark, industrial design, procedural knowledge or a combination of them. However, the term has also a much wider application and can cover mining royalties, performance of art royalties, etc.
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[edit] Intellectual property
The express rights granted to the licensee, and the amounts to be paid to the licensor for the exercise thereof, are set out in a documented license agreement. The agreement specifies the method of calculating the royalties and the period over which the payments become applicable. Normally, the agreement is for a specific period after which it may be renewable for a further period, but equally, it may be a fixed-term licence, subsequent to the termination of which the licensee cannot continue to derive benefits from the rights originally granted. In the typical case, however, agreements are renewed until the licensee and the licensor consent to terminate the agreement. It is to be noted, however, that unless the license is exclusive, the licensor may have a number of co-existing licensees who may pay the same or different royalties for the licensed IP depending on the circumstances prevailing at the time each agreement was negotiated.
The royalty amount is calculated by a formula specified in the licence agreement which defines the royalty rate and the unit base on which it is to be applied. For example, the royalty rate (sometimes also simplified to royalty) may be stated to be 3% of the 'annual sales value' of the product sold by the licensee in a territory. The latter identification, the 'annual sales value' is then the 'unit base' for the calculation. Or,equally, the base may be x cents per kilogram of the licensed product manufactured or sold (the context being important). Or the royalty could be just stated as $ XXX per year without any elaboration of the base (seldom done).
The royalty rate applied is, generally, not an arbitrary determination of the licensor (See Royalty rate assessment). It is the typical practice for both parties to the agreement to negotiate all factors which apply to the license, one component of which is its cost ie.the royalty. The length of the license period, the benefit to the licensee in the territory (or territories) over which the license rights apply, the 'permanence' and quality of the technology or rights conferred, the size of markets, the reputations of the licensor and licensee, the risk of licensing to the licensor and other related factors are considered.
[edit] Copyright royalties
Book authors may sell their copyright to the publisher. Some photographers and musicians may choose to publish their works for a one-time payment. This is known as a royalty-free license.
[edit] Performance royalties
Copyright law extends protection to each public performance of a copyrighted work. In the United States, performance royalty rates are set by the Library of congress' Copyright Royalty Board. Mechanical rights to recordings of a performance are usually managed by one of several performance rights organizations. Payments from these organizations to performing artists are known as residuals. Royalty free music provides more direct compensation to the artists. In 1999, recording artists formed the Recording Artists' Coalition to repeal supposedly "technical revisions" to American copyright statutes which would have classified all "sound recordings" "as works for hire", effectively assigning artists copyrights to record labels.[1] [2]
[edit] Patent royalties
In the United States, a patent owner, or patentee, is legally entitled to no less than a "reasonable" royalty from an entity that infringes said owner's patent. If the patent owner has lost profits due to infringement, and if said lost profits are more than a reasonable royalty, then the patent owner is entitled to a royalty up to the amount of lost profits.
Normally, a patent owner and a patent infringer will negotiate a mutually agreeable license so that the patent owner will give the patent infringer the legal right to make, use, or sell the patented invention, and the patent infringer will compensate the patent owner in some manner.
If they cannot come to agreement, the patent owner may sue the patent infringer in a U.S. federal court. 70% of the cases that are filed are settled before the court reaches a decision. [3] If the case does go to trial, however, then evidence will be presented related to validity of the patent, whether or not it was infringed, what a "reasonable" royalty is in the field of the patented invention and what the patent owner's lost profits are. Evidence will also be presented as to whether or not the alleged infringer "willfully" infringed the patent. If the court finds that the infringement was willful, then punitive damages may be assessed. Punitive damages may be up to three times actual damages.[4]
"Reasonable royalty" is a legal term in United States patent law. It is the minimum amount of royalty that a patent owner is entitled to from an infringer.
The maximum amount that a patent owner is entitled to is their lost profits.
[edit] Royalties as a means of financing and investing in companies and projects
A patent pending approach to investing and financing companies using royalties is described at [1]. Investors, directly or through an underwriter or investment banker, purchase from companies an agreed percentage of the company's future revenues, for an agreed period of time, for an agreed consideration. The royalty contract units issued by the companies are fully negotiable and transferable. Royalties are agreements between two or more parties and are not securities.
