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how to make a royalty agreement
December 12, 2011 2:25 AM   Subscribe

How to make a royalty agreement?

I have done a few illustrations that a small company wishes to use in their products. We have agreed that I will be paid with royalties but no contract has yet been made. I would be very grateful if someone could advise me on how to do a contract. What should a simple contract say and what are my rights? The company has suggested 5 percent from the sales profit. Does this sound fair? Am I right that I will still keep the rights to my work and I don't have to agree on exclusivity? For how long should the contract be made for?
Any help is most appreciated!
posted by MrMerlot to Media & Arts (8 answers total)
 
You'd be much better off talking to a competent lawyer about this than trying to put one together yourself with tips from the internet -- not only because they'll help you settle on more favorable terms, but because they'll be better able to craft a legally sound contract that won't cause you any headaches in the future if things go sour with your client.
posted by Rhaomi at 2:46 AM on December 12, 2011 [1 favorite]


You are right about that and I have thought about it myself as well. However unfortunately it isn't an option for me since I can't afford a lawyers help.

Thanks for your help anyway : )
posted by MrMerlot at 3:03 AM on December 12, 2011


There are several sample contracts on line that you can look at and see how they'd work for you. You should also read through this so you get familiar with the terms you're dealing with.

I would do some asking about that term "sales profit" if that's really what they said.

Where I work, the art royalties are paid as a percentage of the sales price. If we sell the product for $1.00, the artist is paid 5% of $1.00.

If the terms are sales profit, they could sell the item for $1.00 but their profit on that item is 45 cents. If you're paid on the sales profit in that scenario, that would be a lot less money. These are the kinds of contract scenarios that bring about the phrase "penniless artist" because a disreputable company can claim there were little or no profits on items and screw you royally.

In your position, I would borrow money to consult a lawyer before I signed anything that dealt with my intellectual property. Since I am not truly in your position and not privy to your situation . . . I can only advise learning as much as you can about this company and how they do business.

Check that they are a registered corporation in good standing in their state of record, ask for their credit information and run a quick check on their references*, spend $100 or so and run a Dun & Bradstreet report, ask to speak to any other artists who license to them. If they're a public company (on the stock exchange) their latest financial report should be available.

*You're going to be doing business with this company, they should have no problem giving you their credit information. Once you have this, google the term "credit reference form" and send out these letters to their vendors in your name. This should give you a hint on how they are paying their bills and hence, how they may pay you. If the letters come back with negative comments or slow payments, you may want to reconsider doing business with this company since they may not have the cash flow to pay you in a timely manner.
posted by jaimystery at 4:49 AM on December 12, 2011


There is such a thing as pro bono legal advice for artist, and in fact the Volunteer Lawyers for the Arts has a national directory for lawyers you might be able to turn to. They'll be able to answer your questions better than us.
posted by Andrhia at 5:28 AM on December 12, 2011


Call your local graphic design college/art school and see if they can offer advice.
posted by empath at 5:59 AM on December 12, 2011


However unfortunately it isn't an option for me since I can't afford a lawyers help.

You're getting paid, aren't you? That's money you can use to pay a lawyer. This should only cost a couple of hundred bucks, and you may even be able to come up with a fee arrangement along the lines of "20% of royalties until [x] is reached," so he gets paid as you get paid.

The reason this is worth doing is that it could easily cost you way more than that if you don't get a lawyer, either because the contract doesn't pay you as much as it should, or because you forgot some term or situation and wind up getting screwed. Like, for example, whether you actually retain the copyright and are licensing the design or if you're actually conferring the copyright (and should thus be getting paid more). The two are very, very different, and you need to figure out which it is.

But no one can tell you how to do a contract (because that would be giving legal advice) or advise you as to your rights (because this isn't really that kind of situation), so really, you're going to have to get yourself a lawyer. The good thing is that once you've got this agreement, you can keep re-using it for subsequent designs.
posted by valkyryn at 6:36 AM on December 12, 2011


You're getting paid, aren't you? That's money you can use to pay a lawyer. This should only cost a couple of hundred bucks, and you may even be able to come up with a fee arrangement along the lines of "20% of royalties until [x] is reached," so he gets paid as you get paid.

If it's a small print run, I can imagine losing money on spending $200 on a lawyer.

There are sample contracts in this book.
posted by empath at 6:45 AM on December 12, 2011


Thank you very much for all of you for your help. You have changed my mind and I will look into getting some help from a lawyer. Also jaimysterys link to a site that explained how the royalty agreement works was very useful indeed.
Hopefully we will get to an agreement that will be fair for both parties.

Thank you again and all the best!
posted by MrMerlot at 2:59 AM on December 13, 2011


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