Royalty Contracts: Why Is It Important To Have Them?
Intellectual property (IP) is an intangible creation of the human mind. These ideas, inventions, and innovations
are one’s own and can be protected under Intellectual Property law from exploitation or monetization without
permission.
Usually songwriters, authors, scientists do not have the knowledge to fully exploit the commercial use of their
patented inventions. In such cases, the Royalty contract plays a role. A royalty contract helps one to provide a
license to use his/her intellectual property for monetary compensation.
What is a standard royalty contract?
Usually, a royalty contract is signed when the licensor (innovator) wants to license the idea’s intellectual
property rights to a licensee to use the IP. It is a legally binding commitment, and it provides the licensee all
such rights to use the licensor’s intellectual property. All of this is done under specific terms and in exchange
for an agreed payment between both.
What are the benefits of having a royalty contract?
Typically, a royalty contract benefits both the licensor and the licensee. The licensor makes money by selling the
property/ product in the market, and the licensee gets a share. Having a contract is always beneficial when money is
a primary aspect of the deal.
Apart from this, there are other benefits of a contract, like:
- A contract provides proof of agreed terms and conditions by both parties,
- It involves each party's desires and obligations, which helps to build a trusting relationship,
- In case of any breach, both parties are already aware of the terms to follow,
- It outlines the payment terms, such as the profit percentage or purchase price,
- Contracts guarantee confidentiality and non-disclosure provision of sensitive information.
What are the important terms to draft a royalty contract?
Usually, terms and conditions depend on the complexity of the commitments made by both parties. It is always better
to understand the terms before getting into a contract. Below are a few standard terms, contractual obligations, and
other provision that a basic royalty contract contains:
- Parties to the contract: This section defines the parties involved in the contract. It includes names of
the licensee and licensor and their respective addresses.
- Recitals/ Preamble: It is a significant section of a contract. It outlines the contract's purpose,
specifies the parties involved, and their willingness to enter the contract.
- Terms and conditions: This is the key part of any contract. It makes the parties aware of their rights
and obligations. A standard terms and conditions section includes clauses such as:
- Rights of granting: In this section, the grantor/ licensor agrees to provide all rights to the
grantee/ licensee to use the property for an agreed period of time.
- Grantor’s representation and warranties: This section talks about the relevant documentation the
grantee should receive and also the grantor’s rights to use the property.
- Grantee’s representation and warranties: It involves specific terms that the grantee should follow,
such as maintaining the property in confidence, and shouldn’t compromise with confidentiality.
- Royalty: It speaks about the royalty rate the grantee agrees to pay the grantor while signing the
contract. This amount is basically for the rights and licenses granted by the licensor. It also includes a
profit percentage from the gross revenues.
- Profits: This section outlines the total revenue and the terms to exclude in the gross profits.
- Royalty payments: It talks about the grantee’s duties, such as keeping a record of net sales, initial
lumpsum, ongoing royalties, and other such payments.
- Term and Termination: This clause includes the contract’s effective date and rules for the contract's
termination.
- Indemnification: In this clause, either party indemnifies and holds the other party harmless from any
claim, damages, and injury under the contract.
- Arbitration: This clause explains how to resolve any disputes between both parties.
- Miscellaneous: It involves all other important clauses such as the governing law, entire agreement
clause, amendment, waiver, and notice.
- Acceptance and Signature: This section completes the contract. If both the parties agree to the terms and
conditions of the contract, then the deal will be closed with signatures.
How Revv makes drafting contracts easy?
Our contract templates are all vetted by legal professionals. This also ensures that all the important clauses are
included in the contract.
Apart from this, here are a few benefits of using Revv for contract management:
- Easy to use contract templates that are completely customizable according to your brand needs All the contract
templates are easy to edit.
- Collaborate seamlessly with stakeholders using comments or notes within the document.
- eSign and close contracts with a click
- Now drafting a contract and closing the deal is just a work of a few minutes.
With Revv, save your valuable time and remove the pain of drafting contracts from scratch!