A royalty (sometimes, running royalties, or private sector taxes) is a usage-based payment made by one party (the licensee) to another (the licensor) for the right to ongoing use of an asset, sometimes an intellectual property (IP). Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or a fixed price per unit sold of an item of such, but there are also other modes and metrics of compensation.[1][2][3][4][5][6][7] A royalty interest is the right to collect a stream of future royalty payments, often used in the oil and music industries to describe a percentage ownership of future production or revenues from a given leasehold, which may be divested from the original owner of the asset.[8] A license agreement defines the terms under which a resource or property such as petroleum, minerals, patents, trademarks, and copyrights are licensed by one party to another, either without restriction or subject to a limitation on term, business or geographic territory, type of product, etc. License agreements can be regulated, particularly where a government is the resource owner, or they can be private contracts that follow a general structure. However, certain types of franchise agreements have comparable provisions.[clarification needed] Contents [hide] 1 Non-renewable resource royalties 2 Patent royalties 2.1 Patent royalty rates 3 Trade mark royalties 3.1 Trade mark royalty rates 3.2 Franchises 4 Copyright 5 Book publishing royalties 6 Music royalties 6.1 Print rights in music 6.1.1 Brief history 6.1.1.1 American contribution: The Origins of Music Copyright and Royalties 6.2 Print royalties (music) 6.3 Foreign publishing 6.4 Mechanical royalties 6.5 Performance royalties 6.5.1 Conventional forms of royalty payment 6.6 Royalties in digital distribution 6.6.1 US regulatory provisions 6.6.2 UK legislation 6.7 Synchronization royalties 6.8 Audio Home Recording Act of 1992 7 Art royalties 7.1 Resale royalty or droit de suite 7.2 Artwork royalties 8 Software royalties 9 Other royalty arrangements 9.1 Alliances and partnerships 9.1.1 Technical Assistance and Technical Service in technology transfer 10 Approaches to royalty rate 10.1 Intellectual property 10.2 Rate determination and illustrative royalties 10.2.1 Cost approach 10.2.2 Comparable market approach 10.2.3 Income approach 10.3 Other compensation modes 11 See also 12 References 13 External links Non-renewable resource royalties[edit] The owner of petroleum and mineral resources may licence a party to extract those resources while paying a resource rent, or a royalty on the value or the resultant profits. When a government is the owner of the resource the terms of the licence and the royalty rate are typically legislated or regulated. In the United States, Fee simple ownership of the mineral is possible by a private individual, therefore payments of mineral royalties to private citizens occurs quite often. Local taxing authorities may impose a severance tax on the unrenewable natural resources extracted (or severed) from within their authority. The Federal Government receives royalties on production on federal lands, managed by the Bureau of Ocean Energy Management, Regulation and Enforcement, formerly the Minerals Management Service. An example from Canadas north is the federal Frontier Lands petroleum royalty regime. The royalty rate is determined as an incremental rate from 1–5% of gross revenues until costs have been recovered, at which point the royalty rate increases to 30% of net revenues or 5% of gross revenues. In this manner risks and profits are shared between the government of Canada (as resource owner) and the petroleum developer. This attractive royalty rate is intended to encourage oil and gas exploration in the remote Canadian frontier lands where costs and risks are higher than other locations.[citation needed] In many jurisdictions oil and gas royalty interests are considered real property under the NAICS classification code and qualify for a 1031 like-kind exchange.[9] Royalties are paid as a set percentage on all revenue, without regard to profits or revenues to the operator. As a standard example, for every $100 bbl of oil sold on a U.S. federal well with a 25% royalty, the U.S. government receives $25. The U.S. government does not pay and will only collect revenues. All risk and liability lie upon the operator of the well. Royalties in the forestry industry are called stumpage. Patent royalties[edit] Licensing of patents Overviews Licensing Royalties Types Compulsory licensing Cross-licensing Defensive Patent License Defensive termination Fair, reasonable, and non-discriminatory (FRAND, RAND) Shop right Strategies Catch and release Defensive patent aggregation Patentleft Patent monetization Patent pool Stick licensing Clauses in patent licenses Field-of-use limitation v t e A patent[4][5] gives the owner an exclusive right to prevent others from practising the patented technology in the country issuing the patent for the term of the patent. The right may be enforced in a lawsuit for monetary damages and/or imprisonment for violation on the patent. In accordance with a patent licence, royalties are paid to the patent owner in exchange for the right to practise one or more of the four basic patent rights: to manufacture with, to use, to sell, or to advertise for sale of a patented technology. Patent rights may be divided and licensed out in various ways, on an exclusive or non-exclusive basis. The licence may be subject to limitations as to time or territory. A licence may encompass an entire technology or it may involve a mere component or improvement on a technology. In the United States, reasonable royalties may be imposed, both after-the-fact and prospectively, by a court as a remedy for infringement. Patent royalty rates[edit] The following are prevalent rates for gross sales within the United States pharmaceutical industry:[10] a pending patent on a strong business plan, royalties of the order of 1% issued patent, 1%+ to 2% the pharmaceutical with pre-clinical testing, 2–3% with clinical trials, 3–4% proven drug with US FDA approval, 5–7% drug with market share, 8–10% With regards to the actual rates of royalty payments in the industry, the Licensing Economics Review,[11][12] reported in 2002 that in a review of 458 licence agreements, over a 16-year period, it found that an average royalty rate of 7.0%. However, the range extended from 0% to 50%. All of these agreements may not have been at arms length. In the Arab countries, it may be found, that a royalty as a percentage of sales may be difficult to transact; a flat fee may be preferred as percentages may be interpreted as percentage of profit.[13] Trade mark royalties[edit] Trade marks are words, logos, slogans, sounds, or other distinctive expressions that distinguish the source, origin, or sponsorship of a good or service (in which they are generally known as service marks). Trade marks offer the public a means of identifying and assuring themselves of the quality of the good or service. They may bring consumers a sense of security, integrity, belonging, and a variety of intangible appeals. The value that inures to a trade mark in terms of public recognition and acceptance is known as goodwill. A trade mark right is an exclusive right to sell or market under that mark within a geographic territory. The rights may be licensed to allow a company other than the owner to sell goods or services under the mark. A company may seek to license a trade mark it did not create in order to achieve instant name recognition rather than accepting the cost and risk of entering the market under its own brand that the public does not necessarily know or accept. Licensing a trade mark allows the company to take advantage of already-established goodwill and brand identification. Like patent royalties, trade mark royalties may be assessed and divided in a variety of different ways, and are expressed as a percentage of sales volume or income, or a fixed fee per unit sold. When negotiating rates, one way companies value a trade mark is to assess the additional profit they will make from increased sales and higher prices (sometimes known as the relief from royalty) method. Trade mark rights and royalties are often tied up in a variety of other arrangements. Trade marks are often applied to an entire brand of products and not just a single one. Because trade mark law has as a public interest goal of the protection of a consumer, in terms of getting what they are paying for, trade mark licences are only effective if the company owning the trade mark also obtains some assurance in return that the goods will meet its quality standards. When the rights of trade mark are licensed along with a know-how, supplies, pooled advertising, etc., the result is often a franchise relationship. Franchise relationships may not specifically assign royalty payments to the trade mark licence, but may involve monthly fees and percentages of sales, among other payments. Trade mark royalty rates[edit] In a long-running dispute in the United States involving the valuation of the DHL trade mark of DHL Corporation,[14] it was reported that experts employed by the IRS surveyed a wide range of businesses and found a broad range of royalties for trade mark use from a low of 0.1% to a high of 15%. Franchises[edit] While a payment to employ a trade mark licence is a royalty, it is accompanied by a guided usage manual, the use of which may be audited from time to time. However, this becomes a supervisory task when the mark is used in a franchise agreement for the sale of goods or services carrying the reputation of the mark. For a franchise, it is said, a fee is paid, even though it comprises a royalty element. To be a franchise, the agreement must be a composite of the items: the right to use a trade mark to offer, sell or distribute goods or services (the trademark element) payment of a required royalty or fee (the fee element) significant assistance or control with respect to the franchisee’s business (the supervisory element) One of the above three items must not apply for the franchise agreement to be considered a trade mark agreement (and its laws and conventions). In a franchise, for which there is no convention, laws apply concerning training, brand support, operating systems/support and technical support in a written format (Disclosure).[15] Copyright[edit] Copyright law gives the owner the right to prevent others from copying, creating derivative works, or using their works. Copyrights, like patent rights, can be divided in many different ways, by the right implicated, by specific geographic or market territories, or by more specific criteria. Each may be the subject of a separate license and royalty arrangements. Copyright royalties are often very specific to the nature of work and field of endeavor. With respect to music, royalties for performance rights in the United States are set by the Library of Congress Copyright Royalty Board. Mechanical rights to recordings of a performance are usually managed by one of several performance rights organizations. Payments from these organizations to performing artists are known as residuals. Royalty-free music provides more direct compensation to the artists. In 1999, recording artists formed the Recording Artists Coalition to repeal supposedly technical revisions to American copyright statutes which would have classified all sound recordings as works for hire, effectively assigning artists copyrights to record labels.[16][17] Book authors may sell their copyright to the publisher. Alternatively, they might receive as a royalty a certain amount per book sold. It is common in the UK for example, for authors to receive a 10% royalty on book sales. Some photographers and musicians may choose to publish their works for a one-time payment. This is known as a royalty-free license. Book publishing royalties[edit] All book-publishing royalties are paid by the publisher, who determines an authors royalty rate, except in rare cases in which the author can demand high advances and royalties. For most cases, the publishers advance an amount (part of the royalty) which can constitute the bulk of the author’s total income plus whatever little flows from the running royalty stream. Some costs may be attributed to the advance paid, which depletes further advances to be paid or from the running royalty paid. The author and the publisher can independently draw up the agreement that binds them or alongside an agent representing the author. There are many risks for the author—definition of cover price, the retail price, net price, the discounts on the sale, the bulk sales on the POD (publish on demand) platform, the term of the agreement, audit of the publishers accounts in case of impropriety, etc. which an agent can provide. The following illustrates the income to an author on the basis chosen for royalty, particularly in POD, which minimizes losses from inventory and is based on computer technologies. Book-publishing Royalties - Net and Retail Compared Retail Basis Net Basis Cover Price 15.00 15.00 Discount to Booksellers 50% 50% Wholesale Price, $ 7.50 7.50 Printing Cost,$ (200 pp Book) 3.50 3.50 Net Income,$ 4.00 4.00 Royalty Rate 20% 20% Royalty Calcn. 0.20x15 0.20x4 Royalty,$ 3.00 0.80 Hardback royalties on the published price of trade books usually range from 10% to 12.5%, with 15% for more important authors. On paperback it is usually 7.5% to 10%, going up to 12.5% only in exceptional cases. All the royalties displayed below are on the cover price. Paying 15% to the author can mean that the other 85% of the cost pays for editing and proof-reading, printing and binding, overheads, and the profits (if any) to the publisher. The publishing company pays no royalty on bulk purchases of books since the buying price may be a third of the cover price sold on a singles basis. Unlike the UK, the United States does not specify a maximum retail price for books that serves as base for calculation. Music royalties[edit] Unlike other forms of intellectual property, music royalties have a strong linkage to individuals – composers (score), songwriters (lyrics) and writers of musical plays – in that they can own the exclusive copyright to created music and can license it for performance independent of corporates. Recording companies and the performing artists that create a sound recording of the music enjoy a separate set of copyrights and royalties from the sale of recordings and from their digital transmission (depending on national laws). With the advent of pop music and major innovations in technology in the communication and presentations of media, the subject of music royalties has become a complex field with considerable change in the making. A musical composition obtains protection in copyright law immediate to its reduction to tangible form – a score on paper or a taping; but it is not protected from infringed use unless registered with the copyright authority; for instance, the Copyright Office in the United States, administered by the Library of Congress. No person or entity, other than the copyright owner, can use or employ the music for gain without obtaining a license from the composer/songwriter. Inherently, as copyright, it confers on its owner, a distinctive bundle of five exclusive rights: (a) to make copies of the songs through print or recordings (b) to distribute them to the public for profit (c) to the public performance right; live or through a recording (d) to create a derivative work to include elements of the original music; and (e) to display it (not very relevant in context). Where the score and the lyric of a composition are contributions of different persons, each of them is an equal owner of such rights. These exclusivities have led to the evolution of distinct commercial terminology used in the music industry. They take four forms: (1) royalties from print rights (2) mechanical royalties from the recording of composed music on CDs and tape (3) performance royalties from the performance of the compositions/songs on stage or television through artists and bands, and (4) synch (for synchronization) royalties from using or adapting the musical score in the movies, television advertisements, etc. and With the advent of the internet, an additional set of royalties has come into play: the digital rights from simulcasting, webcasting, streaming, downloading, and online on-demand service. In the following the terms composer and songwriter (either lyric or score) are synonymous. Print rights in music[edit] Brief history[edit] While the focus here is on royalty rates pertaining to music marketed in the print form or sheet music, its discussion is a prelude to the much more important and larger sources of royalty income today from music sold in media such as CDs, television and the internet. Sheet music is the first form of music to which royalties were applied, which was then gradually extended to other formats. Any performance of music by singers or bands requires that it be first reduced to its written sheet form from which the song (score) and its lyric are read. Otherwise, the authenticity of its origin, essential for copyright claims will be lost as has been the case with folk songs and American westerns propagated by the aural tradition. The ability to print music arises from a series of technological developments in print and art histories over a long span of time (from the 11th to the 18th century) of which two will be highlighted. The first, and commercially successful, invention was the development of the movable type printing press, the Gutenberg press in the 15th century. It was used to print the well-known Gutenberg bible and later the printing system enabled printed music. Printed music, till then, tended to be one line chants. The difficulty in using movable type for music is that all the elements must align – the note head must be properly aligned with the staff, lest it have an unintended meaning. Musical notation was well developed by then, originating around 1025. Guido dArezzo developed a system of pitch notation using lines and spaces. Until this time, only two lines had been used. Guido expanded this system to four lines, and initiated the idea of ledger lines by adding lines above or below these lines as needed. He used square notes called neumes. This system eliminated any uncertainty of pitch which existed at that time. Guido also developed a system of clefs, which became the basis for our clef system: bass clef, treble clef, and so on. (Co-existing civilizations used other forms of notation). In Europe, the major consumers of printed music in the 17th and 18th centuries were the royal courts for both solemn and festive occasions. Music was also employed for entertainment, both by the courts and the nobility. Composers made their livings from commissioned work, and worked as conductors, performers and tutors of music or through appointments to the courts. To a certain extent, music publishers also paid composers for rights to print music, but this was not royalty as it is generally understood today. The European Church was also a large user of music, both religious and secular. However, performances were largely based on hand-written music or aural training. American contribution: The Origins of Music Copyright and Royalties[edit] Until the mid-18th century, American popular music largely consisted of songs from the British Isles, whose lyric and score were sometimes available in engraved prints. Mass production of music was not possible until the movable type was introduced. Music with this type was first printed in the US in 1750.[18] At the beginning the type consisted of the notehead, stem and staff which were combined into a single font. Later the fonts were made up of the notehead, stems and flags attached to the staff line. Until that time, prints existed only on engraved plates. The first federal law on copyright was enacted in the US Copyright Act of 1790 which made it possible to give protection to original scores and lyrics. Americas most prominent contribution is jazz and all the music styles which preceded and co-exist with it – its variations on church music, African-American work songs, cornfield hollers, wind bands in funeral procession, blues, rag, etc. – and of innovations in church music, rhythmic variations, stamping, tapping of feet, strutting, shuffling, wailing, laments and spiritual ecstasy. Until its recent sophistication, jazz was not amenable to written form, and thus not copyrightable, due to its improvisational element and the fact that many of the creators of this form could not read or write music.[19] It was its precursor, minstrelsy, which came to be written and royalties paid for the use of popular music. Blackface minstrelsy, in which white men parodied black music of the day with makeup-blackened faces was the first distinctly theatrical form. In the 1830s and 1840s, it was at the core of the rise of an American music industry. For several decades it provided the means through which white America saw black America. The blackfaces were not products of the American South, but first prevailed in the midwest and the north, starting in low-level white establishments, and later moving to upscale theaters. White, working-class northerners could identify with the characters portrayed in early performances with images of white slavery and wage slavery.[20] In 1845, the blackfaces purged their shows of low humor. Christys Minstrels, formed by C.F. Christy, among the major minstrels of that time, was to epitomize the songs of its best known composer, Stephen Foster. Stephen Foster was the pre-eminent songwriter in the United States of that time. His songs, such as Oh! Susanna, Camptown Races, My Old Kentucky Home, Beautiful Dreamer and Swanee River) remain popular 150 years after their composition and have worldwide appreciation.[21] Foster had little formal music training. While he was able to publish several songs before he was twenty, his sophistication came from Henry Kleber and Dan Rice. Kleber was a classically-trained German immigrant, and Rice was a popular blackface performer who befriended Foster. But it was his joining the Christy Minstrels which made him, and his songs, favorites in North America. W.C. Peters was the first major publisher of Foster’s works, but Foster saw very little of the profits. Oh, Susanna was an overnight success and a Goldrush favorite but Foster received just $100 from his publisher for it - in part due to his lack of interest in money and the free gifts of music he gave to him. Fosters first love lay in writing music and its success. Foster did later contract with Christy (for $15 each) for Old Folks at Home and Farewell my Lilly Dear. Oh, Susanna also led Foster to two New York publishers, Firth, Pond and Co. and F.D. Benson, who contracted with him to pay royalties at 2 cents for every printed copy sold by them.[22] Minstrelsy slowly gave way to songs generated by the American Civil War, followed by the rise of Tin Pan Alley and Parlour music,[23] both of which led to an explosion of sheet music, greatly aided by the emergence of the player piano. While the player piano was to make inroads deep into the 20th century, more and more music was reproduced through radio and the phonograph, leading to new forms of royalty payments, but leading to the decline of sheet music. American innovations in church music also provided royalties to its creators. While Stephen Foster is often credited as the originator of print music in America, William Billings is the real father of American music. In 1782, of the 264 music compositions in print, 226 were his church-related compositions. Similarly, Billings was the composer of a quarter of the 200 anthems published until 1810. Neither he nor his family saw any royalties, although the Copyright Act of 1790 was in place by then. Church music plays a significant part in American print royalties. When the Lutheran Church split from the Catholic Church in the 16th century, more than religion changed. Martin Luther wanted his entire congregation to take part in the music of his services, not just the choir. This new chorale style finds its way in both present church music and jazz
Posted on: Sun, 24 Nov 2013 21:51:49 +0000
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