Chapter 9. Royalty Agreements

"9.1. INTRODUCTIONIn Chapter 5 of Volume I royalties are dealt with and several topics would appear to be duplicated in this Volume. However, Volume I may be looked upon as a general guide, whereas this Volume is a reference volume. It deals in considerable detail with specific provisions and concepts relating to royalties between private parties. This does not, however, mean that Chapter 5 can be ignored. It should be looked upon as a source of general information concerning royalties between private parties and as a negotiating aid intended to give an overview of various topics. You may well find that in its general approach it will lead you to ask a question which, hopefully, will be dealt with in this Volume .It should be remembered that royalty agreements are agreements with a particular focus, and so the concepts set forth in Chapter 1 apply to them. This chapter addresses a few considerations specific to royalties that will usually form part of an agreement rather than a stand-alone agreement.9.2. FORMAT FOR ROYALTY PROVISIONSIn many of the cases where royalties arise, they are adjunct to, or part of, other arrangements. For example, a royalty may form part or all of the consideration to be given to an owner upon purchase of his property, or it may arise if a joint venturer ceases to contribute to the venture and has his interest converted to a royalty.1 It is with such situations that this section primarily deals; if the royalty is contained in an agreement that is singularly, or primarily, concerned with creating it, then it is just a normal agreement.Commonly, by the time the right to receive the royalty arises, at least some of the other provisions of the agreement have been performed and/or become redundant. For example, in an option agreement the royalty will be a continuing obligation of the optionee, usually arising only after the option has been exercised.2 In a joint venture agreement, a royalty will often arise where the interest of a non-participating venturer has been diluted and converted to a royalty, in which case the recipient will usually become a passive party, entitled only to his royalty, and most of the rights that he enjoyed as an active venturer will cease to be effective."