Month End Glossary

Royalty

A royalty is a payment made by one party to another for the use of assets like intellectual property.

A royalty is typically a financial payment made by one entity (the licensee) to another entity (the licensor or asset owner) as compensation for the use of an asset owned by the latter, such as intellectual property, natural resources, or technology. For instance, musicians often receive royalties for their music sales or streaming, and authors earn royalties for book sales. Large corporations also pay royalties for the use of patented technologies or trademarks. In the context of businesses, royalties can be an important component of revenue and an indicator of the economic value of one's intangible assets.

For example, if a company develops a proprietary software, another company may pay royalties to use or integrate that software into its own systems. Another example involves mineral royalties, where mining companies pay landowners royalties for extracting minerals from their lands. This arrangement is governed by detailed contractual terms specifying the royalty calculation method, payment intervals, and duration of rights.

Thus, royalties represent an economic interaction balancing access to valuable resources or rights with their owners' fair compensation.

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