Royalty Agreement

A Royalty Agreement is a document used by a person, known as the Grantor, who owns the property interest in intellectual property, such as copyrighted works or patented inventions, to give permission to someone, known as the Grantee who would like to use the property to make a profit.

A royalty is compensation that the Grantor receives from the Grantee in return for the use of their property. The royalty could be an amount per unit sold, a percentage of the profits generated by the Grantee's use of the property, a lump sum paid upfront, or some combination of all three of these options.

Authors, songwriters, writers, composers, inventors, and other individuals who make intellectual property and creative works usually own the rights over their work through copyrights or trademarks. Many times, these intellectual property owners turn to businesses to market their property. In addition, businesses often request to use the intellectual property of creators to incorporate into their own products that they then use to make a profit. When a business obtains the right to market these creations, the creator usually receives compensation in the form of a royalty.

The Royalty Agreement is specifically used by the Grantor and Grantee to negotiate this compensation arrangement. For a more general contract used to grant permission to someone to use intellectual property that includes provisions concerning exclusivity, modification of the licensed property, and license back arrangements, use a Licensing Agreement.

How to use this document

This document includes all of the information necessary to outline an agreement wherein a Grantor receives compensation, known as a royalty, from a Grantee in exchange for the use of their intellectual property.

The Agreement first allows the Parties to provide important identifying information, including their names and primary addresses. If either Party is a company, they may also specify the representative who will be signing the Agreement on behalf of the company. The Agreement then describes the intellectual property that is the subject of the Agreement in as much detail as possible, including when and by whom the Grantor originally received rights to the property from an authority such as the United States Patent and Trademark Office. The Agreement then describes how long the Grantee will have permission to use the property, whether it be for a specific period of time, such as a number of months, days, or years, or until a specific event happens, such as the Grantee making a certain amount of profit from their use of the property. Finally, and most importantly, the Agreement describes in detail how the royalty payments to the Grantee will be structured, including the form of these payments, whether there is a minimum royalty payment amount that must be paid under this Agreement, and any potential late fees the Grantee must pay if they do not make the royalty payments as agreed.

Once the Parties provide all of the information necessary to complete the document and review it for accuracy, they should both print and sign the document. They should then make copies of the Agreement with both of their signatures to keep for their own records during the course of the Agreement and for a reasonable period of time thereafter.

Applicable law

Though there are no specific laws dictating what must be included in a Royalty Agreement, most contracts concerning intellectual property are governed by federal law, such as the Copyright Act of 1976.

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