A royalty is a type of economic compensation corresponding to the use of a product subject to copyright, intellectual property or industrial property.

Through the payment of a royalty, the holder or owner of a certain private property right has the ability to obtain an economic benefit.

In this sense, the concept of private property encompasses the new existing methodologies, included in legislation on industrial property, trademarks and patents or intellectual property.

It will come from the use or economic exploitation of said product by a third party. This agreement must be made in a formal and contractual manner between both parties establishing a specific royalty rate (fixed or variable)

The name in Spanish for this concept is royalties, although Anglicism is the term most frequently used.

Types of royalty

There are different ways to present a royalty in the everyday economic sphere:

  • Setting a fixed amount or fee for the use of the product and its exploitation during a period of time previously agreed between the parties. This type of agreement is common in many markets, such as fashion and textiles.
  • Royalties established by percentage of purchase or sale. They are variable royalties that depend directly on the purchase or sale operation carried out, it is frequent in markets such as technology and communications.
  • Mixed or intermediate models suitable for different natures. Depending on the sector, there will be new modalities for the transfer of property rights. This, since the transfer of an agricultural machinery patent is not regulated in the same way as music for advertising content.

The adoption of a certain type of royalty will suppose for the contracting parties the legal possibility of carrying out the transfer of the rights over a product.

As a result, both will have the ability to benefit economically and business from this agreement.

Other common royalty uses

Although the definition of royalty covers payments between individuals derived from the exploitation of registered products, it is also common for this concept to appear in other economic activities.

Countries often establish a royalty payment system for the use of natural resources or energy. In this way, the Public Administration establishes a system of taxes for the use and exploitation of these public domain assets.

One field in which this formal relationship occurs frequently is that of franchises. In them, different parties agree to transfer a series of rights and characteristics (brand, training, machinery ...) for future economic exploitation and business development.

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