Royalties

The royalty is typically a sum of money to be paid to the owner 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. Royalty (the word is usually used in the plural - royalties) may be paid for the use of copyright, patent, registered design, knowhow or trademark or a combination of them. However, the term royalty has also much wider application and can cover mining royalties, performance of art royalties, etc.

The express rights granted to the licensee, and the amounts to be paid to the Licensor are set out in a documented License Agreement. The Agreement specifies the method of calculating the royalty and as to when the payments become due. Normally, an agreement is for a specific period of time; after which the agreement 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 renewable till the value of the rights corrode over time.

The royalty amount is calculated through a formula established in the licence agreement which defines the royalty rate and the 'base' on which it is to be applied. For instance, the royalty may be stated as 3% of the 'annual sales value' of the product sold(the 'base' for royalty calculation) Or.equally, it may be, say, 'x' cents per kilogram (or for each unit of product) of product produced or sold. Or just plainly, it could be '$ XXX' per year.

Typically, the royalty is paid for a period of time stated in the license agreement. It is beneficial to the licencee to evaluate the reasonability of the royalty rate unless such can be demonstrated by the licensor as a standard rate applicable to all licencees.

Compare to residuals and royalty free music.

Royalties are also taxes levied on minerals extracted in accordance with a mining licence.

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, user 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. 99% of the cases that are filed are settled before the court reaches a decision. 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 punative damages may be assessed. Punative damages may be up to three times actual damages.,

References

Intellectual property

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Patent royalties

References