Legal Definitions - established royalty

An established royalty refers to a payment that has been formally agreed upon and is currently in effect, made by one party to another for the ongoing right to use an asset. This asset could be intellectual property, such as a patent, copyright, or trademark, or a natural resource like oil, gas, or minerals. Unlike a royalty that is still being negotiated, an established royalty is a pre-existing, recognized financial obligation based on a prior agreement or contract.

• Example 1: Music Streaming Payments

  A songwriter signed a contract with a music publisher several years ago. This contract stipulates that the songwriter will receive 50% of all royalties collected by the publisher from streaming services and radio plays for their songs. Every quarter, the songwriter receives a detailed statement and a payment reflecting this agreed-upon percentage of earnings.

  Explanation: This is an established royalty because the payment structure (50% of collected royalties) was set in a prior, formal contract. The songwriter is now regularly receiving these payments as an ongoing obligation from the publisher for the use and licensing of their copyrighted musical works.

• Example 2: Pharmaceutical Patent Licensing

  A large pharmaceutical company holds the patent for a groundbreaking new drug. They licensed the manufacturing and distribution rights to a smaller company in another country under an agreement signed five years ago. This agreement mandates that the smaller company pays 3% of its gross sales revenue from the drug back to the patent-holding company each year.

  Explanation: This illustrates an established royalty because the 3% payment rate for the use of the drug's patent was previously negotiated and formalized in a licensing agreement. The smaller company is now consistently making these payments to the patent holder as an ongoing obligation for the right to produce and sell the patented medication.

• Example 3: Oil and Gas Lease

  A ranching family owns land where significant natural gas reserves were discovered. Decades ago, they entered into a lease agreement with an energy company, granting the company the right to drill and extract natural gas. In return, the family receives 1/8th (12.5%) of the value of all natural gas extracted and sold from their property, paid monthly.

  Explanation: This is an established royalty because the 1/8th payment rate for the use of the natural gas rights was fixed in a long-standing lease agreement. The energy company is consistently making these payments to the family as an ongoing obligation for extracting resources from their land.