Royalty Agreement

What is a royalty agreement?

A royalty agreement, also known as a royalty payment agreement, is a legally binding contract when the owner of a licensed property grants another person to use that property in exchange for compensation, known as royalty fees.

The present royalty contract agreement could be used for various types of licensed property, including:

• trademarks and patents;
• copyright (e.g., music, songs, photos, recordings);
• creative content.

This template defines clear financial terms, duration, and confidentiality obligations of both parties, as well as legal warranties and representations.

The parties to a royalty agreement form are the grantor and the grantee. The grantor is an owner of a licensed property with all applicable rights, interests, and title in it. The grantor could be a property creator or an owner of intellectual property rights in it. The grantee is a person who wants to commercialize a licensed property by using it in exchange for remuneration. Both parties could be either individuals, businesses, or entities.

How to draft a royalty agreement template?

Drafting a royalty agreement template from scratch might be a daunting task. The first important thing is to clearly outline all important terms.

Below we prepared a list of key components a sound royalty agreement contract should have:

Licensed Property Description

The text of a document shall contain a detailed description of a licensed property. A detailed description includes:

• a property’s title or name;
• description of its content;
• date of first publication (for a copyright);
• date of registration (for a patent or a trademark); and
• details of a registration certificate, etc.

Duration of the Agreement

A royalty agreement contract shall define the period of time within which royalties shall be paid. The parties may choose the following duration:

• indefinite period of time, until terminated by either party;
• until a specific date;
• for a specific period of time;
• until the occurrence of specific events (e.g., insolvency of the grantee).

A royalty agreement contract for a licensed property cannot be longer than the main licensing agreement (if such exists). At the same time, a royalty agreement can be concluded for the same duration as the main licensing agreement or for any shorter period.

Another important consideration is the termination provisions. The text of a contract shall define the list of events when a contract shall end immediately.

These events are also known as a default or a material breach and may include:

• the grantee’s insolvency or bankruptcy;
• failure to pay royalties by the due date several times in a row;
• termination of the original license, and many more.

Besides that, either party should be able to end the contract at any time by sending a prior written notice to the other party. A notice period varies from 15 to 30 days.

Payment Terms

At the heart of every royalty agreement are payment terms. This is the reason why the present document is also known as a royalty fee agreement. This section of a document’s template includes:

• the type of payment model (e.g., fixed fee, regular royalty payments, fee per sold unit);
• exact amount of a royalty payment and applicable currency;
• detailed payment schedule;
• acceptable payment methods (e.g., cash, PayPal, bank transfer).

It is also common for a royalty payment agreement to include a late fees clause. This clause defines a penalty the grantee shall pay in case of the delay of the main payment. A late fee could be of two different types—a one-time fixed fee or a fixed fee for each day of the delay.

Confidentiality Clause

A well-drafted royalty agreement sample shall also protect sensitive information each party may receive during the duration of this agreement. It does not matter if the original licensing agreement provides a general confidential obligation. Inclusion of a separate confidentiality clause in a royalty agreement helps to protect:

• information related to payment arrangements and royalties; and
• information about the grantee’s financial solvency and internal records.

A confidentiality clause survives the termination of the main agreement. Thus, parties to a royalty agreement sample may include a one-, two-, or even three-year post-termination non-disclosure obligation.

Right to Audit Financial Documentation

A good royalty agreement example shall provide the grantor with the right to audit the grantee’s financial documentation, including:

• accounting books;
• financial records;
• royalty calculation reports; and
• other available documentation.

This clause ensures that the grantor receives a fair portion of royalties from all profits and/or sales deriving from a licensed property.

Usually, a royalty agreement shall define the exact number of times per one calendar year the grantor may perform such an audit. The grantor’s right to audit has its contractual limitations as well:

• First, the grantor shall perform such an audit during the grantee’s normal working hours; and
• Second, such an audit shall not interfere with the grantee’s business operations.

What is the difference between a royalty agreement and a licensing agreement?

From the first sight, both documents are similar to each other. These documents are dealing with the licensing of various intellectual property objects, such as patents, copyrights, or trademarks.

However, the difference between them lies within the various aspects of licensing that are being covered by each document.

A licensing agreement has a broader scope of application. Apart from payment provisions, it defines the type of a granted license, usage of a licensed property and its modification, territorial scope of application, and many more. As the practice shows, not all licensing agreements include payment provisions. Considering the complex nature of intellectual property rights, most businesses and creators tend to outline payment terms in a separate royalty agreement.

A royalty agreement form is focused exclusively on the amount of royalty payments, payment schedule, late fees, and acceptable payment methods. All in all, it is a more robust legal document that deals with all financial matters arising from the licensing of intellectual property rights.

How to customize a royalty agreement at Faster Draft?

To get a customized legal document template, follow a few easy steps below:

1. Click the button “Create Document.”
2. Answer simple questions in the form.
3. Select a document’s format—royalty agreement PDF or Word.
4. Make a payment.
5. E-sign, download, print, and use your customized document in minutes.