Under a license agreement, royalties are periodic payments made by the licensee to the licensor in exchange for the right to use an intellectual property right, such as a patent, trademark, design, software, or know-how.
Royalties can take various forms:
- A percentage of revenue or profits generated under the license.
- A fixed periodic amount (monthly, quarterly, annually).
- Payments based on usage or on the number of units produced or sold.
Their purpose is to:
- Compensate the licensor for making its intellectual property available.
- Ensure a fair share of the revenue generated from the use of the technology or know-how.
In summary, royalties are ongoing payments made to the owner of the intellectual property, proportional to the licensee’s commercial use of the property.