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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.


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

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


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)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.
References in periodicals archive ?
Fifty percent of the royalties a song generates are considered the "writer's royalties." The remaining 50% are the publishing royalties." The writer's royalties are never up for negotiation and remain the property of the songwriter.
Seeing a trend of inconsistent treatment by both taxpayers and IRS exam personnel, on May 7, 2007, the IRS issued an industry directive that elevated treatment of royalties (among other costs) to a Tier II issue.
Imposing withholding tax on software royalties would also draw an improper distinction between the sale and licensing of intangible property and is contrary to the principle that each Contracting State is entitled to taxing jurisdiction over business profit attributable to activities conducted within its borders.
Gold Royalties has approximately CDN 2m in cash and a portfolio of 18 royalties on 13 mining projects located in Canada, including one royalty that is generating cash flow from gold production.
The company has received the Australian Foreign Investment Review Board approval for the acquisitions of royalties, and has announced that the existing first rights of refusals for these royalties have expired as well.
Such income includes foreign personal holding company income (FPHCI), generally consisting of dividends, interest, rents and royalties. Sec.
MMS took the remaining 6 million barrels of oil in kind and all the gas in kind under a series of pilot projects to evaluate whether there are additional circumstances under which taking royalties in kind is in the best interest of the federal government.
Under its licensing agreement with P&G, AG paid P&G royalties with respect to the exploitation of the intangibles by AG's sublicensees.
M2 EQUITYBITES-March 13, 2019-SilverStream SEZC to Acquire Mineral Royalties Online
(NYSE: SAND) (TSX: SSL) has entered into an arrangement agreement with Gold Royalties Corp.
These properties include royalties in units at Seven Persons, Bellshill Lake, Viking Kinsella, Beaverhill Lake and Plain, as well as royalty interests in oil and natural gas properties at Medicine Hat, Killam, Wainwright, Viking Kinsella and Skaro/Redwater.