When are royalty agreements needed?

A royalty is a payment an individual or a company makes to the owner of an intellectual property for its usage. Sometimes, other entities are better suited to monetize an IP than its creator/owner. At the same time, an IP owner may not be willing to sell his product just to receive a one time payment and, instead, want to enjoy periodic income generated by IP exploitation. Royalty payments are different from license payments in the way that royalties are an agreed upon percentage of profits generated from the sales or licensing of the IP whereas license payments are a fixed sum of money the licensor receives periodically regardless of the profits the licensee generates through use of the IP. The amount of royalties an IP owner receives depends on the amount of his products sold or licensed (i.e. this number may differ every quarter). 

When a creator, author, or owner gives permission to a manufacturer, publisher, or other merchant to use their work in exchange for a percentage of profits generated from such use, a contract is created between the two parties. Royalty agreements are a necessity when the seller wants his or her name to be associated with someone else’s creation or to be a representative of the author. That way, they aren’t stealing anyone’s work nor do they take the credit for it since all ownership rights stay with the original IP owner, but rather, they are utilizing it with the goal of receiving profits and sharing these profits with the IP owner. Royalty agreement can be between an author and a publisher, a screenwriter and a movie producer, a singer and a music producer, an inventor and a manufacturer, a fashion company and a designer, and others. The creators are given royalties in exchange for granting another party permission to sell the copies of or re-produce their work in a way they themselves cannot. 

If IP creators intend to receive payments for their work, they would be better off registering their copyrights in order to secure their right to payment. Registered copyright not only grants extensive rights to the IP creator, but also upon death, his or her heirs will be able to continue licensing the IP and receive the profits from it.

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