Royalties are the remuneration that the holder of intellectual property rights receives when its rights are licensed to other parties. Authors, composers, inventors, artists and photographers are examples of occupational groups which can receive income from royalties.
The royalties could concern the right to print and distribute a book, play music in a club or use a patent, design or trademark. The amount of royalties that is paid does not need to be a fixed amount, but can be based on sales or the number of times a song is played or the number of products manufactured. In the case of sales, royalties are often calculated as a percentage of the income generated through sales, e.g. in connection with franchising. An alternative to remuneration in the form of royalties is a oneoff fee paid by the licensee when it purchases the right to use a licence for software, for example. It is common for licensees to initially pay a one-off fee and then pay royalties based on sales. The amount of royalties paid, the way in which they are paid and other conditions are regulated in a licence agreement between the holder of the rights (the licensor) and the party that wishes to use the rights (the licensee).
When you work with a client, it can be a good idea to cross-check agreements and deals with an independent specialist lawyer, rather than trust the legal competence of a business partner.
Royalties can also be inherited. As copyrights apply for 70 years after the death of the author, the author’s relatives can inherit royalties for a long period of time.
The word ‘royalties’ originates from the Old French word “roialté”, which used to mean the rights of royalty to extract natural resources.
Test your business
In the test, we will help you identify your intangible assets: