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Importance of a Legal Agreement where Royalties are concerned
Importance of a Legal Agreement where Royalties are concerned

This article will explore the significance of a Legal Agreement where the payment of Royalties are concerned and how that affects your Will

Sindy Allen avatar
Written by Sindy Allen
Updated over a week ago

To begin with it is useful to define what is meant by a 'Royalty Agreement'. A Royalty Agreement is a document used by a person who is typically known by the 'Grantor' and who is the legal owner of intellectual property.

Intellectual property may relate to copyright works, patents, designs and trade marks for instance.

The term 'intellectual property' is the broad description to describe these assets which are not 'physical' as such and are known as 'intangible assets' as they are still assets owned by a person or company but which cannot be touched/ handed over as with a 'tangible asset'.

Intellectual property is still absolutely crucial to protect as the invention/ person's thought/ design should of course be afforded the same protective legal rights that apply to physical property. Often intellectual property can be even more valuable than a person's/ company's physical assets and as a result it is strongly advised to protect the relevant asset in the form of a Legal Agreement.

The Legal Agreement will set out when a legally protected piece of work/ idea can be used by another person or company. Generally it is the creator of the work that will be the owner of the intellectual property and as such the person/ company entitled to receive any payments for its use/ royalties.

The Legal Agreement often known as a Royalty Agreement is therefore the legal contract between the Licensor and Licensee as explained above. The Licensor/owner will grant the licensee the right's to use the intellectual property, in whatever form that takes which will also be set out in the Agreement, in exchange for Royalty payments.

Typically a Royalty Agreement will be used when someone who has created an idea such as an 'inventor; wishes to license their intellectual property rights so that another party can then manufacture the invention/ idea and sell that. It can be a very fruitful relationship.

A typical Royalty Agreement will include certain information as:-

  • parties;

  • what right is being granted;

  • term of the Agreement; how long can the intellectual property be used for;

  • does the Agreement apply to a particular country/ worldwide/ any particular restrictions on its use?

  • what type of payment is being given. This can be a lump sum and royalties;

  • the royalty rate, which is usually a percentage;

  • the royalty base (defined as net or gross);

  • if there are to be any Agreement as to fees/ other considerations

In the context of Will Writing, we need to be aware of the existence of any Royalty Agreement and will need to have sight of that to understand the terms and whether the benefit of that Agreement (and potential burden to some extent) can be passed on to another person in the event of the Licensor of the Agreement passing away. These Agreements given they are set up typically for a period of time do not necessarily end on death, but that is why it is so important for the Will writer to see and understand the Agreement so this can be checked and advised upon.

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