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Non-renewable resources
Wind Royalties & Other Compensation
Patents
Toggle Patents subsection
Trade mark
Toggle Trade mark subsection
Copyright
Book publishing
Toggle Book publishing subsection
Music
Toggle Music subsection
Art royalties
Toggle Art royalties subsection
Software royalties
Other royalty arrangements
Toggle Other royalty arrangements subsection
Approaches to royalty rate
Toggle Approaches to royalty rate subsection
See also
References
External links
Royalty payment
Article
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From Wikipedia, the free encyclopedia
(Redirected from Royalties)
"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 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]
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.[clarification needed]
Non-renewable resources
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.[citation needed]
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.
[citation needed]
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 & Other Compensation

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]
Patents
Licensing of patents
Overviews
LicensingRoyalties
Types
Compulsory licensingCross-licensingDefensive Patent LicenseDefensive
terminationFair, reasonable, and non-discriminatory (FRAND, RAND)Shop right
Strategies
Catch and releaseDefensive patent aggregationPatentleftPatent monetizationPatent
poolStick licensingPatent trolling
Clauses in patent licenses
Field-of-use limitation
Higher category: Patents, Patent law
vte
An intangible asset such as a patent right gives the owner an exclusive right to
prevent others from practicing 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 license, royalties are paid to the patent owner in exchange for the
right to practice one or more of the basic patent rights: to manufacture, to use,
to sell, to offer for sale, or to import a patented product, or to perform a
patented method.
Patent rights may be divided and licensed out in various ways, on an exclusive or
non-exclusive basis. The license may be subject to limitations as to time or
territory. A license may encompass an entire technology or it may involve a mere
component or improvement on a technology.
USA
In the United States, "reasonable" royalties may be imposed, both after-the-fact
and prospectively, by a court as a remedy for patent infringement. In patent
infringement lawsuits, where the court determines an injunction to be inappropriate
in light of the case's circumstances, the court may award "ongoing" royalties, or
royalties based on the infringer's prospective use of the patented technology, as
an alternative remedy.[13] In the old days, US courts often used so-called "entire
market rule"[14] or "25% of the profits" rule.[15] However, this practice was
rejected by a federal appeals court in 1971. Instead, the courts are required now
to use a holistic approach according to Georgia-Pacific Corp. v. United States
Plywood Corp. decision.[16] The decision established 15 Georgia-Pacific factors, to
be considered, when determining reasonable royalty as a civil remedy (monetary
compensation) for patent infringement,[17][18] in the following order of
importance:
1. The royalties received by the patentee for the licensing of the patent in suit,
proving or tending to prove an established royalty.
2. The rates paid by the licensee for the use of other patents comparable to the
patent in suit.
3. The nature and scope of the license, as exclusive or non-exclusive; or as

restricted or non-restricted in terms of territory or with respect to whom the
manufactured product may be sold.
4. The licensor’s established policy and marketing program to maintain his patent
monopoly by not licensing others to use the invention or by granting licenses under
special conditions designed to preserve that monopoly.
5. The commercial relationship between the licensor and licensee, such as, whether
they are competitors in the same territory in the same line of business; or whether
they are inventor and promoter.
6. The effect of selling the patented specialty in promoting sales of other

products of the licensee; the existing value of the invention to the licensor as a
generator of sales of his non-patented items; and the extent of such derivative or
convoyed sales.
7. The duration of the patent and the term of the license.
8. The established profitability of the product made under the patent; its
commercial success; and its current popularity.
9. The utility and advantages of the patent property over the old modes or devices,
if any, that had been used for working out similar results.
10. The nature of the patented invention, the character of the commercial
embodiment of it as owned and produced by the licensor; and the benefits to those
who have used the invention.
11. The extent to which the infringer has made use of the invention; and any
evidence probative of the value of that use.
12. The portion of the profit or of the selling price that may be customary in the
particular business or in comparable businesses to allow for the use of the
invention or analogous inventions.
13. The portion of the realizable profit that should be credited to the invention
as distinguished from non-patented elements, the manufacturing process, business
risks, or significant features or improvements added by the infringer.
14. The opinion testimony of qualified experts.
15. The amount that a licensor (such as the patentee) and a licensee (such as the
infringer) would have agreed upon (at the time the infringement began) if both had
been reasonably and voluntarily trying to reach an agreement; that is, the amount
which a prudent licensee—who desired, as a business proposition, to obtain a
license to manufacture and sell a particular article embodying the patented
invention—would have been willing to pay as a royalty and yet be able to make a
reasonable profit and which amount would have been acceptable by a prudent patentee
who was willing to grant a license.
At least one study analyzing a sample of 35 cases in which a court awarded an

ongoing royalty has found that ongoing royalty awards "exceed by a statistically
significant amount the jury-determined reasonable royalty damages".[19]
In 2007, patent rates within the United States were:[20]
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%
In 2002, the Licensing Economics Review found in a review of 458 licence agreements
over a 16-year period an average royalty rate of 7% with a range from 0% to 50%.
[21][22] All of these agreements may not have been at "arms length". In license
negotiation, firms might derive royalties for the use of a patented technology from
the retail price of the downstream licensed product.[23]
Muslim Countries
In Muslim (Arab) countries, a royalty as a percentage of sales may not be
appropriate, because of the prohibition of usury (see Riba), and a flat fee may be
preferred instead.[24]
Trade mark
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 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.
In a long-running dispute in the United States involving the valuation of the DHL
trade mark of DHL Corporation,[25] 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
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").
[26]
Copyright
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.
Book publishing
All book-publishing royalties are paid by the publisher, who determines an author's
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.
Based on net receipts

Methods of calculating royalties changed during the 1980s, due to the rise of
retail chain booksellers, which demanded increasing discounts from publishers. As a
result, rather than paying royalties based on a percentage of a book's cover price,
publishers preferred to pay royalties based on their net receipts. According to The
Writers' and Artists' Yearbook of 1984, under the new arrangement, 'appropriate
[upward] adjustments are of course made to the royalty figure and the arrangement
is of no disadvantage to the author."[29]
Despite this assurance, in 1991, Frederick Nolan, author and former publishing
executive, explained that "net receipts" royalties are often more in the interest
of publishers than authors:
It makes sense for the publisher to pay the author on the basis of what he
receives, but it by no means makes it a good deal for the author. Example: 10,000
copies of a $20 book with a 10 percent cover-price royalty will earn him $20,000.
The same number sold but discounted at 55 percent will net the publisher $90,000;
the author's ten percent of that figure yields him $9,000. Which is one reason why
publishers prefer "net receipts" contracts....Among the many other advantages (to
the publisher) of such contracts is the fact that they make possible what is called
a 'sheet deal'. In this, the (multinational) publisher of that same 10,000 copy
print run, can substantially reduce his printing cost by 'running on' a further
10,000 copies (that is to say, printing but not binding them), and then further
profit by selling these 'sheets' at cost-price or even lower if he so chooses to
subsidiaries or overseas branches, then paying the author 10 percent of 'net
receipts' from that deal. The overseas subsidiaries bind up the sheets into book
form and sell at full price for a nice profit to the Group as a whole. The only one
who loses is the author.[30]
In 2003 two American authors Ken Englade and Patricia Simpson sued HarperCollins
(USA) successfully for selling their work to its foreign affiliates at improperly
high discounts ("Harper Collins is essentially selling books to itself, at
discounted rates, upon which it then calculates the author's royalty, and then
Harper Collins shares in the extra profit when the book is resold to the consumer
by the foreign affiliates, without paying the author any further royalty.")[31]
This forced a "class action" readjustment for thousands of authors contracted by

HarperCollins between November 1993 and June 1999.[32]
Music
It has been suggested that this section be split out into another article titled
Music royalties. (Discuss) (November 2020)
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.[when?]
A musical composition obtains copyright protection as soon as it is written out or

recorded. However, it is not protected from infringed use unless it is registered
with the copyright authority, for instance, the United States Copyright Office,
which is 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 exclusive rights 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.
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

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 was the case with folk songs and
American "westerns" propagated by the oral tradition.
Brief history
The ability to print music arises from a series of technological developments in
print and art histories from the 11th to the 18th centuries.
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 Gutenberg Bible . Later the printing system enabled printed music.
Printed music, until 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
d'Arezzo developed a system of pitch notation using lines and spaces. Until this
time, only two lines had been used. d'Arezzo 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. d'Arezzo also developed a system of clefs, which became the
basis for the 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 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

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 movable type was
introduced. Music with this type was first printed in the US in 1750.[33] 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.
America's 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.[34] It was its precursor,
minstrelsy, which came to be written and royalties paid for the use of popular
music.
Blackface minstrelsy was the first distinctly American theatrical form. In the
1830s and 1840s, it was at the core of the rise of an American music industry.[35]
Stephen Foster was the pre-eminent songwriter in the US 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.[36] Foster, who had little formal music training,
composed songs for Christy's Minstrels, one of the prominent minstrel groups of the
time.
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. Foster's
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¢ per printed copy sold by
them.[37]
Minstrelsy slowly gave way to songs generated by the American Civil War, followed
by the rise of Tin Pan Alley and Parlour music,[38] both of which led to an
explosion of sheet music, greatly aided by the emergence of the player piano. While
the player piano made inroads deep into the 20th century, more music was reproduced
through radio and the phonograph, leading to new forms of royalty payments, and
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 received any royalties, although the Copyright Act of
1790 was then in place.
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.
Print royalties (music)

The royalty rate for printing a book (a novel, lyrics or music) for sale globally,
or for its download, varies from 20 to 30% of the suggested retail sales value,
which is collected by the publisher/distributor. The payment is made by the
publisher/distributor and corresponds to the agreement (license) between the writer
and the publisher/distributor as with other music royalties. The agreement is
typically non-exclusive to the publisher and the term may vary from 3–5 years.
Established writers favor certain publishers/distributors and usually receive
higher royalties.
All of the royalty does not go directly to the writer. Rather, it is shared with
the publisher on a 50:50 basis.
If a book involved is a play, it might be dramatized. The right to dramatize is a

separate right – known as grand rights. This income is shared by the many
personalities and organizations who come together to offer the play: the
playwright, composer of the music played, producer, director of the play and so
forth. There is no convention to the royalties paid for grand rights and it is
freely negotiated between the publisher and the mentioned participants.
If the writer's work is only part of a publication, then the royalty paid is pro-
rata, a facet which is more often met in a book of lyrics or in a book of hymns and
sometimes in an anthology.
Church music – that is, music that is based on written work – is important
particularly in the Americas and in some other countries of Europe. Examples are
hymns, anthems, and songbooks. Unlike novels and plays, hymns are sung with
regularity. Very often, the hymns and songs are sung from lyrics in a book, or more
common nowadays, from the work projected on a computer screen. In the US, the
Christian Copyright Licensing International, Inc. is the collection agency for
royalties but a song or hymn writers have to be registered with them and the songs
identified.[39]
Foreign publishing
Viewed from a US perspective, foreign publishing involves two basic types of
publishing – sub-publishing and co-publishing occurrences in one or more
territories outside that of basic origin. Sub-publishing, itself, is one of two
forms: sub-publishers who merely license out the original work or those which make
and sell the products which are the subject of the license, such as print books and
records (with local artists performing the work).
Sub-publishers who produce and market a product retain 10–15% of the marked retail
price and remit the balance to the main publisher with whom they have the copyright
license. Those sub-publishers who merely license out the work earn between 15 and
25%.[40]
Mechanical royalties
Although the terms "mechanical" and mechanical license have their origins in the
piano rolls on which music was recorded in the early part of the 20th century, the
scope of their modern usage is much wider and covers any copyrighted audio
composition that is rendered mechanically (i.e., without human performers). As
such, it includes:
Compact discs, vinyl records and tape recordings

music videos
ringtones
MIDI files
downloaded tracks
DVDs, VHS, UMDs
computer games
musical toys etc.
Record companies are responsible for paying royalties to those artists who have
performed for a recording based on the sale of CDs by retailers.
United States
The United States treatment of mechanical royalties differs markedly from
international practice. In the United States, while the right to use copyrighted
music for making records for public distribution (for private use) is an exclusive
right of the composer, the Copyright Act provides that once the music is so
recorded, anyone else can record the composition/song without a negotiated license
but on the payment of the statutory compulsory royalty. Thus, its use by different
artists could lead to several separately owned copyrighted "sound recordings".
The following is a partial segment of the compulsory rates as they have applied
from 1998 to 2007 in the United States.[41] The royalty rates in the table have two
elements: (i) a minimum rate applies for a duration equivalent to 5 minutes, or
less, of a musical composition/song and (ii) a per-minute rate if the composition
exceeds it, whichever is greater.
Compulsory Mechanical Royalty Rates – United States

Period Royalty Rate
1909 - 1977 2 cents
1 January 1978 - 31 December 1980 2.75 cents or 0.5 cents/min
1 January 1981 - 31 December 1982 4 cents or 0.75 cents/min
1 January 1983 - 30 June 1984 4.25 cents or 0.8 cents/min
1 July 1984 - 31 December 1985 4.5 cents or 0.85 cents/min
1 January 1986 - 31 December 1987 5 cents or 0.95 cents/min
1 January 1988 - 31 December 1989 5.25 cents or 1 cent/min
1 January 1998 – 31 December 1999 7.10 cents or 1.35 cents/min
In the predominant case, the composer assigns the song copyright to a publishing
company under a "publishing agreement" which makes the publisher exclusive owner of
the composition. The publisher's role is to promote the music by extending the
written music to recordings of vocal, instrumental and orchestral arrangements and
to administer the collection of royalties (which, as will shortly be seen, is in
reality done by specialized companies). The publisher also licenses "subpublishers"
domestically and in other countries to similarly promote the music and administer
the collection of royalties.
In a fair publishing agreement, every 100 units of currency that flows to the
publisher gets divided as follows: 50 units go to the songwriter and 50 units to
the publisher minus operating and administrative fees and applicable taxes.
However, the music writer obtains a further 25 units from the publisher's share if
the music writer retains a portion of the music publishing rights (as a co-
publisher). In effect, the co-publishing agreement is a 50/50 share of royalties in
favor of the songwriter if administrative costs of publishing are disregarded. This
is near international practice.
When a company (recording label) records the composed music, say, on a CD master,
it obtains a distinctly separate copyright to the sound recording, with all the
exclusivities that flow to such copyright. The main obligation of the recording
label to the songwriter and her publisher is to pay the contracted royalties on the
license received.
While the compulsory rates remain unaffected, recording companies in the U.S.
typically will negotiate to pay not more than 75% of the compulsory rate where the
songwriter is also the recording artist[42] and will further (in the U.S.) extend
that to a maximum of 10 songs, even though the marketed recording may carry more
than that number. This 'reduced rate' results from the incorporation of a
"controlled composition" clause in the licensing contract[43] since the composer as
recording artist is seen to control the content of the recording.
Mechanical royalties for music produced outside of the United States are negotiated
– there being no compulsory licensing – and royalty payments to the composer and
her publisher for recordings are based on the wholesale, retail, or "suggested
retail value" of the marketed CDs.
Recording artists earn royalties only from the sale of CDs and tapes and, as will
be seen later, from sales arising from digital rights. Where the songwriter is also
the recording artist, royalties from CD sales add to those from the recording
contract.
In the U.S., recording artists earn royalties amounting to 10%–25% (of the
suggested retail price of the recording[44] depending on their popularity but such
is before deductions for "packaging", "breakage", "promotion sales" and holdback
for "returns", which act to significantly reduce net royalty incomes.
In the U.S., the Harry Fox Agency, HFA, is the predominant licensor, collector and
distributor for mechanical royalties, although there are several small competing
organizations. For its operations, it charges about 6% as commission. HFA, like its
counterparts in other countries, is a state-approved quasi-monopoly and is expected
to act in the interests of the composers/songwriters – and thus obtains the right
to audit record company sales. Additional third party administrators such as
RightsFlow provide services to license, account and pay mechanical royalties and
are growing. RightsFlow is paid by the licensees (artists, labels, distributors,
online music services) and in turn does not extract a commission from the
mechanical royalties paid out.[45]
UK and Europe
In the UK the Mechanical-Copyright Protection Society, MCPS (now in alliance with
PRS), acts to collect (and distribute) royalties to composers, songwriters and
publishers for CDs and for digital formats. It is a not-for-profit organization
which funds its work through a commissions on aggregate revenues. The royalty rate
for licensing tracks is 6.5% of retail price (or 8.5% of the published wholesale
price).
In Europe, the major licensing and mechanical royalty collection societies are:
SACEM in France[46]
GEMA in Germany[47]
SFA in Italy[48]
The mechanical royalty rate paid to the publisher in Europe is about 6.5% on the
Published Price to Dealer (PPD).[49]
Africa
SACEM acts collectively for "francophone" countries in Africa. For South Africa
mechanical royaltues are distributed by CAPASSO. The UK society also has strong
links with English-speaking African countries.
Australasia
In Australia and New Zealand, the Australasian Mechanical Copyright Owners Society
(AMCOS) collects royalties for its members.
Other
Mechanical societies for other countries can be found at the main national
collection societies.[50]
Performance
"Performance" in the music industry can include any of the following:
a performance of a song or composition – live, recorded or broadcast

a live performance by any musician
a performance by any musician through a recording on physical media
performance through the playing of recorded music
music performed through the web (digital transmissions)
In the United Kingdom, the Church of England is specifically exempted from
performance royalties for music performed in services because it is a state-
established church. Traditionally, American music publishers have not sought
performance royalties for music sung and played in church services–the license to
perform being implied by distributors of church sheet music. ASCAP, BMI, and SESAC
exempt church worship services from performance royalties, but make no exemption
for church-hosted concerts.
It is useful to treat these royalties under two classifications:
(a) those associated with conventional forms of music distribution which have
prevailed for most part of the 20th century, and
(b) those from emerging 'digital rights' associated with newer forms of
communication, entertainment and media technologies (from 'ring tones' to
'downloads' to 'live internet streaming'.
Conventional forms of royalty payment
In the conventional context, royalties are paid to composers and publishers and
record labels for public performances of their music on vehicles such as the
jukebox, stage, radio or TV. Users of music need to obtain a "performing rights
license" from music societies – as will be explained shortly – to use the music.
Performing rights extend both to live and recorded music played in such diverse
areas as cafés, skating rinks, etc.
Licensing is generally done by music societies called "Performing Rights

Organizations" (PROs), some of which are government-approved or government-owned,
to which the composer, the publisher, performer (in some cases) or the record label
have subscribed.
The diagram on the right titled "The Performance Rights Complex"[51] shows the
general sequences by which a song or a composition gets to be titled a
"performance" and which brings royalties to songwriters/publishers, performing
artists and record labels. How, and to whom, royalties are paid is different in the
United States from what it is, for example, in the UK. Most countries have
"practices" more in common with the UK than the US.
In the United Kingdom there are three principal organizations:
(i) Phonographic Performance Limited (PPL)

(ii) PRS for Music (formerly the Performing Right Society)
(iii) Mechanical-Copyright Protection Society (MCPS)
Who license music (to music-users) and act as royalty collection and distribution
agencies for their members. These funds are distributed quarterly[52] though there
can be delays depending on what PRO is being used to collect on music royalties. If
copyrights holder(s) want payment sooner they have an option to take out an advance
against their royalties with their PRO though these are based around 100%
recoupment.[53]
PPL issues performance licenses to all UK radio, TV and broadcast stations, as well
as establishments who employ sound recordings (tapes, CDs), in entertaining the
public.[54] The licensing company collects and distributes royalties to the "record
label" for the sound recording and to "featured UK performers" in the recording.
Performers do not earn from sound recordings on video and film.
PRS, which is now in alliance with MCPS,[55] collects royalties from music-users
and distributes them directly to "song-writers" and "publishers" whose works are
performed live, on radio or on TV on a 50:50 basis. MCPS licenses music for
broadcast in the range 3 to 5.25% of net advertising revenues.[56]
MCPS also collects and disburses mechanical royalties to writers and publishers in
a manner similar to PRS. Although allied, they serve, for now, as separate
organizations for membership.
The next diagram shows the sequences in the licensing of performances and the
royalty collection and distribution process in the UK.[51] Every song or recording
has a unique identity by which they are licensed and tracked. Details of songs or
recordings are notified to the PROs directly, or through Catco, an electronic
tracking system. It needs to be clarified that while blanket licenses are commonly
issued to music-users, the latter are responsible for "usage returns" – the actual
frequency of performances under the license – which then becomes the basis for the
PRO to apportion royalties to writers, publishers, and record labels. ("DIY indies"
are "do-it-yourself" independent songwriters – and, often, the performers as well –
who record and publish under their own labels). In the UK, music is licensed (and
royalties paid on it) at the track level.
There is also a separate organization in the UK called VPL, which is the collecting
society set up by the record industry in 1984 to grant licenses to users of music
videos, e.g. broadcasters, program-makers, video jukebox system suppliers.[57] The
licensing income collected from users is paid out to the society's members after
administrative costs are deducted.
There are different models for royalty collection in European countries. In some of
them, mechanical and performing rights are administered jointly. SACEM (France),
SABAM (Belgium), GEMA (Germany) and JASRAC (Japan) work that way.
In the United States, in contrast, SoundExchange, ASCAP, BMI (Broadcast Music, Inc)
and SESAC (Society of European Stage Authors & Composers) are the four principal
Performance Rights Organizations (PROs), although smaller societies exist. The
royalty that is paid to the composer and publisher is determined by the method of
assessment used by the PRO to gauge the use of the music, there being no external
metrics as in mechanical royalties or the reporting system used in the UK. Very
basically, a PRO aggregates the royalties that are due to all of the
composers/songwriters "who are its members" and each composer and publisher is paid
royalties based on the assessed frequency of the music's performance, post
deductions of charges (which are many). The PROs are audited agencies. They
"directly" pay the songwriter and the publisher their respective shares. (If part
of the publisher's share is retained by the songwriter, the publisher pays the
songwriter that part of the publisher's share).
Typically, the PRO negotiates blanket licenses with radio stations, television
networks and other "music users", each of whom receives the right to perform any of
the music in the repertoire of the PRO for a set sum of money.
PROs use different types of surveys to determine the frequency of usage of a

composition/song. ASCAP uses random sampling, SESAC uses cue sheets for TV
performances and 'digital pattern recognition' for radio performances while BMI
employs more scientific methods.
In the United States, only the composer and the publisher are paid performance
royalties and not performing artists (digital rights being a different matter).
Likewise, the record label, whose music is used in a performance, is not entitled
to royalties in the US on the premise that performances lead sales of records. The
issue of performance royalties for radio use has been a complicated matter for
decades, as broadcasters have typically worked against Congress to pass laws that
would require such payments. In 2021, Congress introduced the American Music
Fairness Act which would require radio broadcasters to pay both performers and
labels for use of their songs over the radio, with a rate schedule adjusted based
on the size of the radio station.[58]
Where a performance has co-writers along with the composer/songwriter – as in a
musical play – they will share the royalty.
In digital distribution
US regulatory provisions
Regulatory provisions in the US, EU and elsewhere is in a state of flux,
continuously being challenged by developments in technology; thus almost any
regulation stated here exists in a tentative format.
In 1970, US Court Appeals for the Second Circuit established 15 factors, that ought
to be considered in determining reasonable royalty in [[patent infringement cases
(see Georgia-Pacific Corp. v. United States Plywood Corp.)
The US Copyright Act of 1976 identified "musical works" and "sound recordings"
eligible for copyright protection. The term "musical work" refers to the notes and
lyrics of a song or a piece of music, while a "sound recording" results from its
fixation on physical media. Copyright owners of musical works are granted exclusive
rights to license over-the-air radio and TV broadcasts, entitling them royalties,
which are, as said earlier, collected and distributed by the PROs. Under the Act,
record companies and recording artists are, presently, not entitled to royalties
from radio and TV broadcasts of their music, except in the case of digital services
and webcasts where copyright owners and performers obtain royalties (see later).
This is in contrast to international standards where performers also obtain
royalties from over-the-air and digital broadcasting.
In 1995, the Congress introduced the Digital Performance Right in Sound Recordings
Act (DPRA), which became effective 1 February 1996. This Act granted owners of
sound recordings the exclusive license to perform the copyrighted work publicly by
means of digital audio transmissions but it exempted non-subscription services (and
some other services). Where the rights owner could not voluntarily reach agreement
with the broadcaster, it could avail of compulsory licensing provisions. Under the
Act, the compulsory royalty (the royalty schedule follows) was to be shared in the
manner: 50% to the record companies, 45% to featured artists, 2½% to non-featured
musicians through American Federation of Musicians (AFM) in the United States and
Canada[59] and 2½% for non-featured vocalists through American Federation of
Television and Radio Artists (AFTRA).[60] United States Congress also created a new
compulsory license for certain subscription digital audio services, which transmit
sound recordings via cable television and Direct-broadcast satellite (DBS) on a
non-interactive basis in the absence of a voluntary negotiation and agreement.
In 1998, the Congress amended DPRA to create the Digital Millennium Copyright Act
(DMCA) by redefining the above-noted subscription services of DPRA as "preexisting
subscription services" and expanded the statutory license to include new categories
of digital audio services that may operate under the license. In effect, DMCA
created three categories of licensees:
pre-existing satellite digital audio radio services

new subscription services, and
eligible non-subscription transmission services.
In addition to the above, a fourth license was created permit webcasters to make
"ephemeral recordings" of a sound recording (temporary copies) to facilitate
streaming but with a royalty to be paid.
Non-subscription webcasting royalties have also to be shared between record

companies and performers in the proportions set out under DPRA.
The Table below titled SUMMARY OF STATUTORY ROYALTY RATES FOR DIGITAL WEBCASTING –
UNITED STATES encapsulates the royalties set for non-interactive webcasting.
To qualify for compulsory licensing under non-subscription services, the webcasting
needs to fit the following six criteria:
it is non-interactive
it does not exceed the sound recording performance complement
it is accompanied by information on the song title and recording artist
it does not publish a program schedule or specify the songs to be transmitted
it does not automatically switch from one program channel to another, and
it does not allow a user to request songs to be played particularly for that user.
An inter-active service is one which allows a listener to receive a specially
created internet stream in which she dictates the songs to be played by selecting
songs from the website menu. Such a service would take the website out from under
the compulsory license and require negotiations with the copyright owners.
However, a service is non-interactive if it permits people to request songs which

are then played to the public at large. Nonetheless, several rules apply such as,
within any three-hour period, three cuts from a CD, but no more than two cuts
consecutively can be played, or a site can play four songs from any singer from a
boxed CD-set, but no more than three cuts consecutively.
Both interactive and non-interactive streaming services are required and regulated
by the Copyright Royalty Judges to pay out a minimum fee per stream. Interactive
services must pay out $0.0022 per stream while non-interactive streaming services
must pay $0.0017 per stream. These rates are set to be what these services are
required to distribute per stream and has been the rate since 1 January 2016 and
will be reevaluated after 31 December 2020.[citation needed]
The SoundExchange, a non-profit organization, is defined under the legislation to

act on behalf of record companies (including the majors) to license performance and
reproduction rights and negotiate royalties with the broadcasters. It is governed
by a board of artist and label representatives. Services include track level
accounting of performances to all members and collection and distribution of
foreign royalties to all members.[61]
In the absence of a voluntary agreement between the SoundExchange and the

broadcasters, Copyright Arbitration Royalty Panel (CARP) was authorized to set the
statutory rates as could prevail between a "willing buyer" and "willing sellers".
SoundExchange handles only the collection of royalties from "compulsory licenses"
for non-interactive streaming services that use satellite, cable or internet
methods of distribution.
To recap, under the law three types of licenses are required for streaming of
musical recordings:
(a) a performance license applicable for underlying words( lyrics) and music
(score)
(b) a performance license applicable to the streaming the sound recording
(c) a storage license for the passage of a sound recording through a file server
The royalties for the first of the above two licenses are obtained from
SoundExchange and the third from the PROs. Failure to make required payments
constitutes copyright infringement and is subject to statutory damages.
Both broadcasters involved in webcasting and pure-Internet non-broadcasters are

required to pay these royalties under the rules framed under the Act. All
webcasters are also required to be registered with the United States Copyright
Office.
SUMMARY OF STATUTORY ROYALTY RATES FOR DIGITAL WEBCASTING – UNITED STATES[62]

1. Webcaster
DMCA Compliant Service Performance Fee (per performance) Ephemeral Licence Fee
(a)Simultaneous internet retransmission of over-the-air AM or FM radio broadcasts
0.07¢ 9% of performance fees due
(b)All other internet transmission 0.14¢ 9% of performance fees due
2. Commercial Broadcaster
3. Non-CPB, non-commercial broadcasts:
4. Business Establishment Service:
Statutorily Exempt 10% of gross proceeds
Minimum Fee All Cases $500 per year for each licensee
In 2017, 82% of revenues for the entire music industry was attributed to digital
music services. Streaming accounted for 67% of revenues in the US music industry.
[63]
UK legislation
The United Kingdom adopted the 2001 Information Society Directive in 2003 and the
meaning of broadcast performance was broadened to cover "communicating to the
public". This then included music distribution through the internet and the
transmission of ringtones to mobiles. Thus a music download was a "copy" of
proprietary music and hence required to be licensed.
After a prolonged battle on royalties between online music companies such as AOL,
Napster and the recording companies (but not all of them), represented by the
British Phonographic Industry (BPI), and organizations representing the interests
of songwriters (MCPS and PRS) a compromise was reached, leading to a subsequent 3-
year interim legislation (2007) adopted by the UK Copyright Tribunal under the
Copyright, Designs and Patents Act 1988.[64] The legislation, referring to a new
JOL (Joint Online License), applies only to music purchased within UK.
The applicable royalties are given in the table below which, also includes music
downloads and music services through mobile devices. This path-breaking legislation
is expected to become the model for EU (which is yet to develop comprehensive
legislation), and perhaps even extend to the US.
Note that the legislation includes the distinction between downloads of musical
tracks from iTunes and other stores, which were considered "sales" and the webcasts
considered "performances".
In brief, the compromise reached is that songwriters will receive 8% of gross

revenues (definition follows), less VAT, as royalty for each track downloaded
bridging the demand of the artists demanding a 12% royalty rate (what was,
otherwise, the norm for a CD) and music companies holding out for 6.5%, slightly
higher than the 5.7% paid for a 79p track sold by iTunes.[65] A minimum of four
pence will be paid, in the new legislation, if tracks are discounted.
The terms used in the legislated table are explained following it.
Digital Royalties – Interim Settlement, United Kingdom – 2007

Service Royalty rate Minimum
Permanent Download 8% £0.04 per download – reducing by degrees for larger
bundles of tracks, or certain older tracks, to £0.02 (in respect of a bundle of 30
tracks+)
Limited Download or On Demand Service 8% Mobile subscription:
£0.60/subscriber/month
PC subscription: £0.40/subscriber/month Limited Subscription:
£0.20/subscriber/month All others: £0.0022 per musical work communicated to the
public
Special Webcasting
(premium or interactive service where 50%+ of content is by single band/artist)
8% Subscription: £0.0022 per musical work (if not subscription);

if the service is subscription, minimum to be negotiated
Premium or interactive webcasting 6.5% Subscription:

£0.22/subscriber/month;otherwise, £0.00085 per musical work communicated to the
public
Pure webcasting 6.5% Subscription £0.22/subscriber/month; otherwise
0.0006/musical work communicated to the public
Service Royalty rate and minimum
Mobile or Permanent downloads and other mobile services Rates and minima as per
services above, except that: For mobile Permanent Downloads, revenue is reduced by
15%
For all other Mobile services revenue is reduced by 7.5%
The above reductions to apply until prices converge with non-mobile services.
Not all music providers in the UK were part of the compromise that led to the
legislation. For those not participating – principally, AOL, Yahoo! and
RealNetworks – the Tribunal set the royalty rate for pure webcasting at 5.75%.
UK legislation recognizes the term online as referring to downloading digital files

from the internet and mobile network operators. Offline is the term used for the
delivery of music through physical media such as a CD or a DVD.
A stream is a file of continuous music listened to through a consumer's receiving

device with no playable copy of the music remaining.
Permanent Downloads are transfers (sale) of music from a website to a computer or

mobile telephone for permanent retention and use whenever the purchaser wishes,
analogous to the purchase of a CD.
A Limited Download is similar to a permanent download but differs from it in that

the consumer's use of the copy is in some way restricted by associated technology;
for instance, becomes unusable when the subscription ends (say, through an
encoding, such as DRM, of the downloaded music).
On-demand streaming is music streamed to the listener on the computer or mobile to

enable her to listen to the music once, twice or a number of times during the
period of subscription to the service.
Pure Webcasting is where the user receives a stream of pre-programmed music chosen
"by the music service provider". It is non-interactive to the extent that even
pausing or skipping of tracks is not possible.
Premium and Interactive Webcasting are personalized subscription services

intermediate between pure webcasting and downloading.
Special webcasting is a service where the user can choose a stream of music, the
majority of which comprises works from one source – an artist, group or particular
concert.
Simulcasting, although not in the Table above, is the simultaneous re-transmission

by a licensed transmission of the program of a radio or TV station over the
internet of an otherwise traditional broadcast. The person receiving the simulcast
normally makes no permanent copy of it. It is defined in the legislation as an
offline service.
'Gross Revenue', which is comprehensively defined in the legislation, summarized

here, means, all revenue received (or receivable) by the licensee from Users, all
revenue received through advertisements associated with the music service,
sponsorship fees, commissions from third parties and revenue arising from barter or
contra deals. No deductions are permitted except for refunds of unused music due to
technical faults.
The advertising revenue which is shared between the artist and music provider is
defined as:
when the advertising is in-stream;

when the music offered forms the only content of a page featuring advertising
(excluding the advertisement itself); and
when the music offered forms more than 75% of a page featuring advertising
(excluding the advertisement itself).
Synchronization
According to Joel Mabus, the term synchronization "comes from the early days of the
talkies when music was first synchronized with film".[66] The terminology
originated in US industry but has now spread worldwide.
In the UK and elsewhere, with the exception of the US, there is apparently no legal
prohibition to the combination of audio and visual images and no explicit statutory
right for the collection of synch royalties. In the US, however, the Copyright Act
defines the audiovisual format as that of combining images with music for use in
machines and there is no explicit rate set such as the "compulsory royalty rate"
for copying music. However, there are instances of courts implying the
synchronization right,[67][68] but even so, it is an amorphous colloquial
commercial term of acceptance.
Synchronization royalties ("sync licenses") are paid for the use of copyrighted
music in (largely) audiovisual productions, such as in DVDs, movies, and
advertisements. Music used in news tracks are also synch licenses. Synchronization
can extend to live media performances, such as plays and live theatre. They become
extremely important for new media – the usage of music in the form of mp3, wav,
flac files and for usage in webcasts, embedded media in microchips (e.g. karaoke),
etc. but the legal conventions are yet to be drawn.
Synchronization royalties are due to the composer/songwriter or his/her publisher.

They are strictly contractual in nature and vary greatly in amount depending on the
subjective importance of the music, the mode of production and the media used. The
royalty payable is that of mutual acceptance but is conditioned by industry
practice.
It is useful to note in this connection the concept of the "needle drop" (now laser
drop) in that the synch royalty becomes payable every time the needle drops 'on the
record player' in a public performance. All openings and closings, every cut to
advertisements, every cut back from ads, all re-runs shown by every TV company, in
every country in the world generates a "synchro", although a single payment may be
renegotiable in advance.[69]
There is a category of royalty free music in the field of synchronization. This

refers to the use of music in a "library" for which a one-time royalty has been
negotiated. It is an alternative to needle-drop negotiation.
In terms of numbers, royalties can range from, say. $500–2000 for a "festival-use
license" to $250,000 or more for a movie film score. For low-budget films, which
are deemed less than $2 million, the royalties range from 3%–6%[70] or could be per
song per usage.
Audio Home Recording Act of 1992

In the US, the Audio Home Recording Act became effective law in October 1992.[71]
The law enabled the release of recordable digital formats such as Sony and Philips'
Digital Audio Tape without fear of contributory infringement lawsuits.
See also
Recoupment
Art royalties
Resale royalty or droit de suite
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.'[72]
[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[73] 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.[74] 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."[75]
Software royalties
There is simply too much computer software to consider the royalties applicable to
each. The following is a guide to royalty rates:[76]
Computer Software: 10.5% (average), 6.8% (median)

Internet: 11.7% (average), 7.5% (median)
For the development of customer-specific software one will have to consider:
Total software development cost

Break-even cost (if the software can be sold to many agencies)
Ownership of code (if the client's, he bears the development cost)
Life of the software (usually short or requiring maintenance)
Risk in development (high, commanding A high price)
Other royalty arrangements
The term "royalty" also covers areas outside of IP and technology licensing, such
as oil, gas, and mineral royalties paid to the owner of a property by a resources
development company in exchange for the right to exploit the resource. In a
business project the promoter, financier, LHS enabled the transaction but are no
longer actively interested may have a royalty right to a portion of the income, or
profits, of the business. This sort of royalty is often expressed as a contract
right to receive money based on a royalty formula, rather than an actual ownership
interest in the business. In some businesses this sort of royalty is sometimes
called an override.
Alliances and partnerships

Royalties may exist in technological alliances and partnerships. The latter is more
than mere access to secret technical or a trade right to accomplish an objective.
It is, in the last decade of the past century, and the first of this one of the
major means of technology transfer. Its importance for the licensor and the
licensee lies in its access to markets and raw materials, and labor, when the
international trend is towards globalization.
There are three main groups when it comes to technological alliances. They are
Joint-ventures (sometimes abbreviated JV), the Franchises and Strategic Alliances
(SA).[77][78]
Joint-ventures are usually between companies long in contact with a purpose. JVs
are very formal forms of association, and depending on the country where they are
situated, subject to a rigid code of rules, in which the public may or may not have
an opportunity to participate in capital; partly depending on the size of capital
required, and partly on Governmental regulations. They usually revolve around
products and normally involve an inventive step.
Franchises revolve around services and they are closely connected with trademarks,
an example of which is McDonald's. Although franchises have no convention like
trademarks or copyrights they can be mistaken as a trademark-copyright in
agreements. The franchisor has close control over the franchisee, which, in legal
terms cannot be tie-ins such as frachisee located in an areas owned by the
franchisor.
Strategic Alliances can involve a project (such as bridge building). a product or a

service. As the name implies, is more a matter of 'marriage of convenience' when
two parties want to associate to take up a particular (but modest) short-term task
but generally are uncomfortable with the other. But the strategic alliance could be
a test of compatibility for the forming of a joint venture company and a precedent
step.
Note that all of these ventures s could be in a third county. JVs and franchises
are rarely found formed within a county. They largely involve third countries.
On occasion, a JV or SA may be wholly oriented to research and development,

typically involving multiple organizations working on an agreed form of engagement.
The Airbus is an example of such.
Technical assistance and service in technology transfer

Firms in developing countries often are asked by the supplier of know-how or patent
licensing to consider technical service (TS) and technical assistance (TA) as
elements of the technology transfer process and to pay "royalty" on them. TS and TA
are associated with the IP (intellectual property) transferred – and, sometimes,
dependent on its acquisition – but they are, by no means, IP.[79] TA and TS may
also be the sole part of the transfer or the transferor of the IP, their concurrent
supplier. They are seldom met with in the developed countries, which sometimes view
even know-how as similar to TS.
TS comprises services which are the specialized knowledge of firms or acquired by

them for operating a special process. It is often a "bundle" of services which can
by itself meet an objective or help in meeting it. It is delivered over time, at
end of which the acquirer becomes proficient to be independent of the service. In
this process, no consideration is given on whether the transfer of the proprietary
element has been concluded or not.
On the other hand, technical assistance is a package of assistance given on a short
timetable. It can range variously from procurement of equipment for a project,
inspection services on behalf of the buyer, the training of buyer's personnel and
the supply technical or managerial staff. Again, TA is independent of IP services.
The payment for these services is a fee, not a royalty. The TS fee is dependent on
how many of the specialized staff of its supplier are required and over what period
of time. Sometimes, the "learning" capacity to whom the TS is supplied is involved.
In any case, the cost per service-hour should be calculated and evaluated. Note
that in selecting a TS supplier (often the IP supplier), experience and dependency
are critical.
In the case of TA there is usually a plurality of firms and choice is feasible.
Approaches to royalty rate

Intellectual property
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The rate of royalty applied in a given case is determined by various factors, the
most notable of which are:
Market drivers and demand structure

Territorial extent of rights
Exclusivity of rights
Level of innovation and stage of development (see The Technology Life Cycle)
Sustainability of the technology
Degree and competitive availability of other technologies
Inherent risk
Strategic need
The portfolio of rights negotiated
Fundability
Deal-reward structure (negotiation strength)
To correctly gauge royalty rates, the following criteria must be taken into
consideration:
The transaction is at "arms-length"

There is a willing buyer and a willing seller
The transaction is not under compulsion
Rate determination and illustrative royalties
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There are three general approaches to assess the applicable royalty rate in the
licensing of intellectual property. They are
The Cost Approach

The Comparable Market Approach
The Income Approach
For a fair evaluation of the royalty rate, the relationship of the parties to the
contract should:
– be at "arms-length" (related parties such as the subsidiary and the parent

company need to transact as though they were independent parties)
– be viewed as acting free and without compulsion
Cost approach
The Cost Approach considers the several elements of cost that may have been entered
to create the intellectual property and to seek a royalty rate that will recapture
the expense of its development and obtain a return that is commensurate with its
expected life. Costs considered could include R&D expenditures, pilot-plant and
test-marketing costs, technology upgrading expenses, patent application expenditure
and the like.
The method has limited utility since the technology is not priced competitively on
"what the market can bear" principles or in the context of the price of similar
technologies. More importantly, by lacking optimization (through additional
expense), it may earn benefits below its potential.
However, the method may be appropriate when a technology is licensed out during its
R&D phase as happens with venture capital investments or it is licensed out during
one of the stages of clinical trials of a pharmaceutical.
In the former case, the venture capitalist obtains an equity position in the
company (developing the technology) in exchange for financing a part of the
development cost (recovering it, and obtaining an appropriate margin, when the
company gets acquired or it goes public through the IPO route).
Recovery of costs, with opportunity of gain, is also feasible when development can
be followed stage-wise as shown below for a pharmaceutical undergoing clinical
trials (the licensee pays higher royalties for the product as it moves through the
normal stages of its development):
Success State of development Royalty rates (%) Nature

Pre-clinical success 0–5 in-vitro
Phase I (safety) 5–10 100 healthy people
Phase II (efficacy) 8–15 300 subjects
Phase III (effectiveness) 10–20 several thousand patients
Launched product 20+ regulatory body approval
A similar approach is used when custom software is licensed (an in-license, i.e. an
incoming license). The product is accepted on a royalty schedule depending on the
software meeting set stage-wise specifications with acceptable error levels in
performance tests.
Comparable market approach

Here the cost and the risk of development are disregarded. The royalty rate is
determined from comparing competing or similar technologies in an industry,
modified by considerations of useful "remaining life" of the technology in that
industry and contracting elements such as exclusivity provisions, front-end
royalties, field of use restrictions, geographic limitations and the "technology
bundle" (the mix of patents, know-how, trade-mark rights, etc.) accompanying it.
Economist J. Gregory Sidak explains that comparable licenses, when selected
correctly, "reveal what the licensor and the licensee consider to be fair
compensation for the use of the patented technology" and thus "will most accurately
depict the price that a licensee would willingly pay for that technology."[80] The
Federal Circuit has on numerous occasions confirmed that the comparable market
approach is a reliable methodology to calculate a reasonable royalty.[81]
Although widely used, the prime difficulty with this method is obtaining access to
data on comparable technologies and the terms of the agreements that incorporate
them. Fortunately, there are several recognized[by whom?] organizations (see
"Royalty Rate Websites" listed at the end of this article) who have
comprehensive[citation needed] information on both royalty rates and the principal
terms of the agreements of which they are a part. There are also IP-related
organizations, such as the Licensing Executives Society, which enable its members
to access and share privately assembled data.
The two tables shown below are drawn, selectively, from information that is
available with an IP-related organization and on-line.[82][83] The first depicts
the range and distribution of royalty rates in agreements. The second shows the
royalty rate ranges in select technology sectors (latter data sourced from: Dan
McGavock of IPC Group, Chicago, USA).
Royalty Distribution Analysis in Industry

Industry Licenses (nos.) Min. Royalty,% Max. Royalty,% Average,%
Median,%
Automotive 35 1.0 15.0 4.7 4.0
Computers 68 0.2 15.0 5.2 4.0
Consumer Gds 90 0.0 17.0 5.5 5.0
Electronics 132 0.5 15.0 4.3 4.0
Healthcare 280 0.1 77.0 5.8 4.8
Internet 47 0.3 40.0 11.7 7.5
Mach.Tools. 84 0.5 26 5.2 4.6
Pharma/Bio 328 0.1 40.0 7.0 5.1
Software 119 0.0 70.0 10.5 6.8
Royalty Rate Segmentation in Some Technology Sectors
Industry 0–2% 2–5% 5–10% 10–15% 15–20% 20–25%
Aerospace 50% 50%
Chemical 16.5% 58.1% 24.3% 0.8% 0.4%
Computer 62.5% 31.3% 6.3%
Electronics 50.0% 25.0% 25.0%
Healthcare 3.3% 51.7% 45.0%
Pharmaceuticals 23.6% 32.1% 29.3% 12.5% 1.1% 0.7%
Telecom 40.0% 37.3% 23.6%
Commercial sources also provide information that is invaluable for making
comparisons. The following table provides typical information that is obtainable,
for instance, from Royaltystat:[84]
Sample License Parameters

Reference: 7787 Effective Date: 1 October 1998
SIC Code: 2870 SEC Filed Date: 26 July 2005
SEC Filer: Eden Bioscience Corp Royalty Rate: 2.000 (%)
SEC Filing: 10-Q Royalty Base: Net Sales
Agreement Type: Patent Exclusive: Yes
Licensor: Cornell Research Foundation, Inc.
Licensee: Eden Bioscience Corp.
Lump-Sum Pay: Research support is $150,000 for 1 year.
Duration: 17-year(s)
Territory: Worldwide
Coverage : Exclusive patent license to make, have made, use and sell products
incorporating biological materials, including genes, proteins and peptide
fragments, expression systems, cells, and antibodies, for the field of plant
disease
The comparability between transactions requires a comparison of the significant

economic conditions that may affect the contracting parties:
Similarity of geographies
Relevant date
Same industry
Market size and its economic development;
Contracting or expanding markets
Market activity: whether wholesale, retail, other
Relative market shares of contracting entities
Location-specific costs of production and distribution
Competitive environment in each geography
Fair alternatives to contracting parties
Income approach
The Income approach focuses on the licensor estimating the profits generated by the
licensee and obtaining an appropriate share of the generated profit. It is
unrelated to costs of technology development or the costs of competing
technologies.
The approach requires the licensee (or licensor): (a) to generate a cash-flow
projection of incomes and expenses over the life-span of the license under an
agreed scenario of incomes and costs (b) determining the Net Present Value, NPV of
the profit stream, based on a selected discount factor, and c) negotiating the
division of such profit between the licensor and the licensee.
The NPV of a future income is always lower than its current value because an income
in the future is attended by risk. In other words, an income in the future needs to
be discounted, in some manner, to obtain its present equivalent. The factor by
which a future income is reduced is known as the 'discount rate'. Thus, $1.00
received a year from now is worth $0.9091 at a 10% discount rate, and its
discounted value will be still lower two years down the line.
The actual discount factor used depends on the risk assumed by the principal gainer
in the transaction. For instance, a mature technology worked in different
geographies, will carry a lower risk of non-performance (thus, a lower discount
rate) than a technology being applied for the first time. A similar situation
arises when there is the option of working the technology in one of two different
regions; the risk elements in each region would be different.
The method is treated in greater detail, using illustrative data, in Royalty

Assessment.
The licensor's share of the income is usually set by the "25% rule of thumb", which
is said to be even used by tax authorities in the US and Europe for arms-length
transactions. The share is on the operating profit of the licensee firm. Even where
such division is held contentious, the rule can still be the starting point of
negotiations.
Following are three aspects that are important for the profit:
(a) the profit that accrues to the licensee may not arise solely through the engine
of the technology. There are returns from the mix of assets it employs such as
fixed and working capital and the returns from intangible assets such as
distribution systems, trained workforce, etc. Allowances need to be made for them.
(b) profits are also generated by thrusts in the general economy, gains from
infrastructure, and the basket of licensed rights – patents, trademark, know-how. A
lower royalty rate may apply in an advanced country where large market volumes can
be commanded, or where protection to the technology is more secure than in an
emerging economy (or perhaps, for other reasons, the inverse).
(c) the royalty rate is only one aspect of the negotiation. Contractual provisions
such as an exclusive license, rights to sub-license, warranties on the performance
of technology etc may enhance the advantages to the licensee, which is not
compensated by the 25% metric.
The basic advantage of this approach, which is perhaps the most widely applied, is
that the royalty rate can be negotiated without comparative data on how other
agreements have been transacted. In fact, it is almost ideal for a case where
precedent does not exist.
It is, perhaps, relevant to note that the IRS also uses these three methods, in
modified form, to assess the attributable income, or division of income, from a
royalty-based transaction between a US company and its foreign subsidiary (since US
law requires that a foreign subsidiary pay an appropriate royalty to the parent
company).[85]
Other compensation modes

Royalties are only one among many ways of compensating owners for use of an asset.
Others include:
buying the asset outright, possibly with a leaseback arrangement

offering the licensor an equity position in the licensee company
staged milestone payments (as in drug development and commissioned software
arrangements)
lump sum payment made to the licensor in one or more installments
cross-licensing agreements with or without cash payments, and
entering into a strategic alliance or Joint Venture.
In discussing the licensing of Intellectual Property, the terms valuation and
evaluation need to be understood in their rigorous terms. Evaluation is the process
of assessing a license in terms of the specific metrics of a particular
negotiation, which may include its circumstances, the geographical spread of
licensed rights, product range, market width, licensee competitiveness, growth
prospects, etc.
On the other hand, valuation is the fair market value (FMV) of the asset –
trademark, patent or know-how – at which it can be sold between a willing buyer and
willing seller in the context of best awareness of circumstances. The FMV of the
IP, where assessable, may itself be a metric for evaluation.
If an emerging company is listed on the stock market, the market value of its
intellectual property can be estimated from the data of the balance sheet using the
equivalence:
Market Capitalization = Net Working capital + Net Fixed assets + Routine Intangible
assets + IP
where the IP is the residual after deducting the other components from the market
valuation of the stock. One of the most significant intangibles may be the work-
force.
The method may be quite useful for valuing trademarks of a listed company if it is
mainly or the only IP in play (franchising companies).
See also
Celebrity bond
Copyright transfer agreement
Payola
Revenue based financing
Royalty-free
AuthorShare a system for charging royalties for the second hand sale of books and
other media.
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"J. Gregory Sidak, Apportionment, FRAND Royalties, and Comparable Licenses After
Ericsson v. D-Link, 2016 U. Ill. L. REV. (forthcoming)". Archived from the original
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Wiki Loves Monuments: Photograph a monument, help Wikipedia and win!

An example from Canada's northern territories is the federal Frontier Lands

Royalties in the lumber industry are called "stumpage".

Wind Royalties & Other Compensation

3. The nature and scope of the license, as exclusive or non-exclusive; or as

6. The effect of selling the patented specialty in promoting sales of other

7. The duration of the patent and the term of the license.

14. The opinion testimony of qualified experts.

At least one study analyzing a sample of 35 cases in which a court awarded an

In 2007, patent rates within the United States were:[20]

a pending patent on a strong business plan, royalties of the order of 1%

To be a franchise, the agreement must be a composite of the items:

Book-publishing Royalties – "Net" and "Retail" Compared

Based on net receipts

This forced a "class action" readjustment for thousands of authors contracted by

A musical composition obtains copyright protection as soon as it is written out or

Inherently, as copyright, it confers on its owner, a distinctive "bundle" of five

(a) to make copies of the songs through print or recordings

They take four forms:

(1) royalties from "print rights"

Print rights in music

American contribution: The Origins of Music Copyright and Royalties

Print royalties (music)

If a book involved is a play, it might be dramatized. The right to dramatize is a

Compact discs, vinyl records and tape recordings

Compulsory Mechanical Royalty Rates – United States

a performance of a song or composition – live, recorded or broadcast

It is useful to treat these royalties under two classifications:

Licensing is generally done by music societies called "Performing Rights

In the United Kingdom there are three principal organizations:

(i) Phonographic Performance Limited (PPL)

PROs use different types of surveys to determine the frequency of usage of a

pre-existing satellite digital audio radio services

Non-subscription webcasting royalties have also to be shared between record

However, a service is non-interactive if it permits people to request songs which

The SoundExchange, a non-profit organization, is defined under the legislation to

In the absence of a voluntary agreement between the SoundExchange and the

Both broadcasters involved in webcasting and pure-Internet non-broadcasters are

SUMMARY OF STATUTORY ROYALTY RATES FOR DIGITAL WEBCASTING – UNITED STATES[62]

In brief, the compromise reached is that songwriters will receive 8% of gross

Digital Royalties – Interim Settlement, United Kingdom – 2007

8% Subscription: £0.0022 per musical work (if not subscription);

Premium or interactive webcasting 6.5% Subscription:

UK legislation recognizes the term online as referring to downloading digital files

A stream is a file of continuous music listened to through a consumer's receiving

Permanent Downloads are transfers (sale) of music from a website to a computer or

A Limited Download is similar to a permanent download but differs from it in that

On-demand streaming is music streamed to the listener on the computer or mobile to

Premium and Interactive Webcasting are personalized subscription services

Simulcasting, although not in the Table above, is the simultaneous re-transmission

'Gross Revenue', which is comprehensively defined in the legislation, summarized

when the advertising is in-stream;

Synchronization royalties are due to the composer/songwriter or his/her publisher.

There is a category of royalty free music in the field of synchronization. This

Audio Home Recording Act of 1992

The UK scheme is in the context of common-law countries an oddity; No other common-

Whether resale royalties are of net economic benefit to artists is a highly

Computer Software: 10.5% (average), 6.8% (median)

Total software development cost

Alliances and partnerships