Royalty payment
A royalty payment is a payment made by one party to another that owns a particular asset, for the right to ongoing use of that asset. 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.[8]
"Royalties" redirects here. It is not to be confused with Royal family. For the French company, see Royalties (brand management agency). For the TV series, see Royalties (TV series). For its soundtrack, see Royalties (soundtrack).A license agreement defines the terms under which a resource or property 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.
Non-renewable resources[edit]
A landowner with petroleum or mineral rights to their property may license those rights to another party. In exchange for allowing the other party to extract the resources, the landowner receives either a resource rent, or a "royalty payment" based on the value of the resources sold. When a government owns the resource, the transaction often has to follow legal and regulatory requirements.
In the United States, fee simple ownership of mineral rights is possible and payments of 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 Canada's northern territories is the federal Frontier Lands Petroleum Royalty Regulations. The royalty rate starts at 1% of gross revenues of the first 18 months of commercial production and increases by 1% every 18 months to a maximum of 5% until initial costs have been recovered, at which point the royalty rate is set at 5% of gross revenues or 30% of net 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.[9]
In many jurisdictions in North America, oil and gas royalty interests are considered real property under the NAICS classification code and qualify for a 1031 like-kind exchange.[10]
Oil and gas royalties are paid as a set percentage on all revenue, less any deductions that may be taken by the well operator as specifically noted in the lease agreement. The revenue decimal, or royalty interest that a mineral owner receives, is calculated as a function of the percentage of the total drilling unit to which a specific owner holds the mineral interest, the royalty rate defined in that owner's mineral lease, and any tract participation factors applied to the specific tracts owned.[11]
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 lumber industry are called "stumpage".
Wind Royalties[edit]
Landowners who host wind turbines are often paid wind royalties, and those nearby may be paid nuisance payments to compensate for noise and flicker effects. Wind royalties are usually paid quarterly, semi-annually, or annually, and the royalty can be a flat rate or variable payment based on production or a combination of both.
Unlike oil and gas royalties, which typically decline over time, wind royalties often have an escalation clause, making them more valuable over time. Because there is not yet a robust body of law regarding wind royalties, the legal implications of severing wind rights are still unknown. Several states, including Colorado, Kansas, Oklahoma, North Dakota, South Dakota, Nebraska, Montana, and Wyoming, have enacted anti-severance statutes, preventing the wind estate from being severed from the surface. Regardless, the ownership of wind royalties and compensation payments can be transferred from the landowner to another party. Over time, wind royalties will be fractioned similarly to oil and gas royalties.[12]
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. Performance 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 and performance royalties. 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.[27][28]
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.
Art royalties[edit]
Resale royalty or droit de suite[edit]
Art Resale Royalty is a right to a royalty payment upon resales of art works, that applies in some jurisdictions. Whilst there are currently approximately 60 countries that have some sort of Resale Royalty on their statute books, evidence of resale schemes that can be said to be actually operating schemes is restricted to Europe, Australia and the American state of California. For example, in May 2011 the European commissions ec.europa webpage on Resale royalty stated that, under the heading 'Indicative list of third countries (Article 7.2)' :
'A letter was sent to Member States on 1 March 2006 requesting that they provide a list of third countries which meet these requirements and that they also provide evidence of application. To date the commission has not been supplied with evidence for any third country which demonstrates that they qualify for inclusion on this list.'[33] [The emphasis is from the European commission web page.]
Apart from placing a levy on the resale of some art-like objects, there are few common facets to the various national schemes. Most schemes prescribe a minimum amount that the artwork must receive before the artist can invoke resale rights (usually the hammer price or price). Some countries prescribe and others such as Australia, do not prescribe, the maximum royalty that can be received. Most do prescribe the calculation basis of the royalty. Some country's make the usage of the royalty compulsory. Some country's prescribe a sole monopoly collection service agency, while others like the UK and France, allow multiple agencies. Some schemes involve varying degrees of retrospective application and other schemes such as Australia's are not retrospective at all.
In some cases, for example Germany, an openly tax-like use is made of the "royalties"; Half of the money collected is redistributed to fund public programs.
The New Zealand and Canadian governments have not proceeded with any sort of artist resale scheme. The Australian scheme does not apply to the first resale of artworks purchased prior to the schemes enactment( June 2010) and individual usage of the right (by Australian artists) is not compulsory. In Australia artists have a case by case right (under clause 22/23 of the Act) to refuse consent to the usage of the right by the appointed collection society and/or make their own collection arrangements. Details of the Australian scheme can be gotten from[34] the website of the sole appointed Australian agency; The "Copyright Agency Limited".
The UK scheme is in the context of common-law countries an oddity; No other common-law country has mandated an individual economic right where actual usage of the right is compulsory for the individual right holder. Whether the common law conception of an individual economic right as an "individual right of control of usage" is compatible with the Code Civil origins of droit de suite is open to question.
The UK is the largest art resale market where a form of ARR is operating, details of how the royalty is calculated as a portion of sale price in the UK can be accessed here DACS
In the UK, the scheme was, in early 2012, extended to all artists still in copyright. In most European jurisdictions the right has the same duration as the term of copyright. In California law, heirs receive royalty for 20 years.
The royalty applies to any work of graphic or plastic art such as a ceramic, collage, drawing, engraving, glassware, lithograph, painting, photograph, picture, print, sculpture, tapestry. However, a copy of a work is not to be regarded as a work unless the copy is one of a limited number made by the artist or under the artist's authority. In the UK the resale of a work bought directly from the artist and then resold within 3 years for a value of €10,000 or less is not affected by the royalty.
The situation as to how ARR applies in situations where an art work is physically made by a person or persons who are not the 'name artist' who first exhibits and sells the work is not clear. In particular whilst ARR is inalienable it seems conceivable that in cases where the copyright on an artwork is transferred/sold, prior to the first sale of an artwork, the inalienable ARR right is also effectively sold transferred.
Whether resale royalties are of net economic benefit to artists is a highly contested area. Many economic studies have seriously questioned the assumptions underlying the argument that resale royalties have net benefits to artists. Many modelings have suggested that resale royalties could be actually harmful to living artists' economic positions.[35]
Australia's chief advocate for the adoption of artist resale royalties the collection society, Viscopy, commissioned in 2004 a report from Access Economics to model the likely impact of their scheme. In the resulting report, Access Economics warned that the claim of net benefit to artists was: "based upon extremely unrealistic assumptions, in particular the assumption that seller and buyer behaviour would be completely unaffected by the introduction of RRR [ARR]" and that, "Access Economics considers that the results of this analysis are both unhelpful and potentially misleading."[36]
There is simply too much computer software to consider the royalties applicable to each. The following is a guide to royalty rates:[37]
For the development of customer-specific software one will have to consider:
