Royalty


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Royalty

Compensation for the use of property, usually copyrighted works, patented inventions, or natural resources, expressed as a percentage of receipts from using the property or as a payment for each unit produced.

When a person creates a book, song, play, or painting, the work is considered Intellectual Property. Similarly, when an inventor receives a patent on his invention, the inventor has intellectual property rights in the thing created. Typically, authors, songwriters, composers, playwrights, and inventors do not have the financial ability to fully exploit the commercial use of their creations. They must turn to businesses that specialize in the marketing of intellectual property. When a business obtains the right to market the creation, the creator usually receives compensation in the form of a royalty.

A royalty agreement is part of the contract that the creator of the work negotiates with the business that seeks to exploit the creation. A royalty can be as simple as a fixed amount of money for each copy of a book or compact disc sold by the business. For example, a novelist agrees to let a publisher publish her new book. For granting the publisher the rights to the book, the novelist will receive $3 for each copy sold. If the novelist is a best-selling author, the publisher may agree to a higher royalty rate. Book and music publishers sometimes give an advance against royalties to an author or musician when the contract is signed. For example, the novelist might receive $5,000 as an advance against her royalties. In this case the publisher will keep the first $5,000 of the royalties to cover the cash advance. Typically, if the book failed to produce enough royalties to cover the advance, the publisher would write off the difference as a loss. However, a publisher might sue an author to recover an advance if the author never produces a publishable manuscript.

A playwright's royalty may be based on a percentage of the box office receipts from each performance of the play. An inventor's royalty might be an amount per unit sold or a percentage of the profits generated by the invention. In some cases it might be both. Because a royalty is one of the terms negotiated in a contract, the type and amount will depend on the bargaining power of the parties.

Under the law royalties are Personal Property. When a person dies, the heirs receive the royalties. For example, when Elvis Presley died, his estate went to his daughter Lisa Marie, who now collects the royalties from the music company that sells her father's recordings.Royalty agreements are also used in the mineral and gas industries. These agreements have much in common with the origin of the term. For many centuries in Great Britain, the Crown owned all the gold and silver mines. A private business could mine these "royal" metals only if it made a payment, a royalty, to the Crown.

When, for example, a petroleum company wants to drill for oil on a person's land, the company negotiates a royalty agreement with the owner of the mineral rights. If the company strikes oil, the owner of the mineral rights will receive a royalty based on a percentage of the barrels pumped out of the wells. The owner may receive the royalty in kind (the actual oil) or in value (the dollar amount agreed to in the contract), based on the total production from the property.

The schedule for royalty payments is specified in the contract. Quarterly or annual payments are typical. The royalty owner has the right to make an independent accounting of the business records to ensure that the figures upon which the royalty is based are accurate.

Cross-references

Copyright; Entertainment Law; Literary Property; Mine and Mineral Law; Music Publishing; Patents; Publishing Law.

royalty

n. a percentage of gross or net profit or a fixed amount per sale to which a creator of a work is entitled which is determined by contract between the creator and the manufacturer, publisher, agent, and/or distributor. Inventors, authors, movie makers, scriptwriters, music composers, musicians, and other creators contract with the manufacturers, publishers, movie production companies and distributors, as well as producers and distributors for a license to manufacture and/or sell the product, who pay a royalty to the creator based on a percentage of funds received. Should someone use another person's creation either purposely or by mistake, the user could be found liable to the creator for all profits on the basis of copyright or patent infringement, which usually is far more than a royalty. However, a creator does not have to license his/her creation to anyone. (See: copyright, patent, infringement)

References in periodicals archive ?
The agreements will provide the CPA with the royalty rate, any applicable advances and the types of expenses deducted prior to computing the royalty amount, along with other information.
Royalty trusts promise high yields when compared with traditional equity investments and typically return no less than good quality bonds do.
Magna "has gotten virtually nothing from the royalty end we are not having a lot of activity at all online," he said.
According to Rosario, royalty sources can be broken down into four general categories: performance (which includes radio, venue and music video broadcasts, as well as concert and live television performances); mechanical (which is the standard $6.
Job losses do not occur the day the royalty is passed, but when ore is reclassified as waste.
On rehearing, the Tax Court rejected the IRS's belated attempt to to assert three alternative theories: (1) a section 482 allocation to Espana of AG's deductions for royalty payments to P&G under section 482, (2) a general disallowance theory, and (3) a general section 61 assignment-of-income theory.
This report contains links to online copies of actual royalty financing contract documents as submitted to the Securities Exchange Commission by biopharma companies and their partners.
Thus, the City Tribunal concluded that, although the State Tribunal did find that the royalty transactions at issue in Sherwin-Williams lacked nontax business purpose and economic substance, the taxpayer in the State case failed to establish that its royalties were arm's length.
For many observers, in Canada and other foreign countries as well as the United States, the enactment in 1986 of the super royalty rule (1) appeared to revolutionize the manner in which cross-border intercompany transfers of manufacturing or marketing intangibles would be required to be priced for U.
com/research/b4246d/the_licensing_lett) has announced the addition of the "The Licensing Letter Royalty Trends Report 2011" report to their offering.
Odell did not transfer ownership interests in her customer lists and contracts; rather, she entered into a licensing and sale agreement that set forth a royalty fee, based on gross receipts, stemming from the transfer of her "know-how," "existing contracts" and "woman owned-business status.