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( Royalties)
Royalties (sometimes, running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for ongoing use of an asset, sometimes an intellectual property (IP) right. Royalties can be determined as a percentage of gross or net sales derived from use of the asset or a fixed price per unit sold. [1][2][3][4][5][6][7] but there are also other modes and metrics of compensation. A royalty interest is the right to collect a stream of future royalty payments, often used in the oil industry and music industry to describe a percentage ownership of future production or revenues from a given leasehold, which may be divested from the original owner of the asset.[8] A license agreement defines the terms under which a resource or property such as petroleum, minerals, patents, trademarks, and copyrights are licensed by one party to another, either without restriction or subject to a limitation on term, business or geographic territory, type of product, etc. License agreements can be regulated, particularly where a government is the resource owner, or they can be private contracts that follow a general structure. However, certain types of franchise agreements have comparable provisions. The owner of petroleum and mineral resources may licence a party to extract those resources, paying a resource rent, or a royalty on the value or the resultant profits. Where a government is the owner of the resource the terms of the licence and the royalty rate are typically legislated or regulated. An example from Canada's North is the federal Frontier Lands petroleum royalty regime. The royalty rate is determined as an incremental rate from 1-5 percent of gross revenues until costs have been recovered, at which point the royalty rate increases to 30 percent of net revenues or 5 percent of gross revenues. In this manner risks and profits are shared between the government of Canada (as resource owner) and the petroleum developer. This attractive royalty rate is intended to encourage oil and gas exploration in the remote Canadian frontier lands where costs and risks are higher than other locations.
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