Introduction

Licensing is the most common thing in today’s era. People usually try to licence every little property to keep it authentic and original. License is an official permission or agreement between parties to use or own something from the owner of the party. The party who uses is known as the licensee and the owner of the property is known as the licensor . Licensing is done so people cannot use others’ belongings without the certification or giving the credits to the owner. Royalty is a part of licensing.

Royalties and licensing

The aim of licensing of a property is letting the proprietor of Intellectual Property to receive an adequate sum of money based on the use of the property. Meanwhile, the licensor achieves a percentage time bound payment according to using the intellectual property. Licensing is used as a copyright, patent, trademark, designs and other intellectual certification.  It is mostly governmental.

For example, licensing a design of a company, a song of a movie or an album, a logo of a brand for the use of it in other countries, a local brand.

 Now, if we talk about royalty, it is using the property of the licensor provided, paying a fixed or considerate amount of money as a fee every time the property is used by the licensee. The owner decides the fixed amount to be paid. The payment of the property can also be a single payment or a continuous periodic payment or percentage of revenue. Generally, royalty is paid for the exchange of rights to intellectuals. But it is also exchanged for the use of tangible assets.

Paying royalties is a mutual benefit of the licensee as well as the licensor. The licensor earns money without any effort whereas the licensee uses the property of the licensor and earns benefits from it.

There are few types of royalties that are in the limelight. Like the performance royalties where the composer or producer of a song produced copyrighted music and songs and for that the licensee can use it after its payment. It is also used in TV viewerships and photography. In book royalties the author is paid by the publisher for its sale and distribution of the book. In case of mineral royalties the landlords are paid by the company for the use of the minerals found in their property. In franchising royalties, the franchisers are paid by the franchisee for the use of the business name and brandings.

The similarity between Licensing and Royalties

Basically, royalties and licensing are the members of the same house or we can say that they are the two faces of the same coin. On compiling we can say that “Royalties are usage-based payments from one party to another. Licensing fees are paid as part of an agreement that define the terms under which a tangible property is licensed for use by one party to another.”

Difference between licensing and royalties 

The major difference between licensing and royalty is on the payment system. The license would typically be contingent on paying an agreed amount of money and the royalties are paid each time whenever the property is used.

Legal Paraphernalia

The Patents Act, 1970

It states that a license agreement must be registered and there after the licensee should apply in writing to the Controller of Patents for registration of his title.

 The Trade Marks Act, 1999

Generally, thw act does not make the registration of a license agreement mandatory for the trademarks, however it definately provides for the concept of ‘registered user’. Provisions have been set forth to register any person other than the registered proprietor as the registered user for the use of the mark in commercial markets.The act also allows the registered user to file infringement proceedings in his own name for such uses..

The Copyright Act, 1957

The copyright act does not make registration of the license agreement mandatory. It also provides special provisions to the registered users for filing against any infringer, who uses the property without any licence.

The Designs Act, 2000

The Act provides an application for registration of title under a license agreement. The application is filed with the Controller within six months from the execution of the license agreement. If a license agreement in respect of which no entry has been made in the register can not be admitted in evidence in any court in proof of the title to copyright in a design or to any interest therein, unless otherwise directed by the court.

The Copyright Act, 2012

The Copyright Amendment Act, 2012, states that film performers who are mentioned in a film’s credits, the authors of certain underlying works used in films and sound recordings have a right to continuing royalties for the use of their works or live performances in certain circumstances. The assignment of the copyright in those works or the facts that they may not be entitled to the enjoyment of a performer’s right.

The Income Tax Act, 1961

Income by way of royalty is  payable by a person who is a resident of India is deemed to accrue or arise in India under Section 9(1)(vi) of the Act. Any kind of copyright, literary, artistic or scientific work, falls under the definition of ‘Royalty’ under the IT Act.

Conclusion

Recently, the news has been raised as reported in the Economic Times in 2019, that the government is considering to re-introduce restrictions on royalty payments for technology transfer in view of excessive outflow of such funds to overseas companies, sources said. A proposal in this regard will soon be circulated by the Department for Promotion of Industry and Internal Trade (DPIIT) for inter-ministerial consultation, sources said.  The government also regulates on the payments of royalty as far as possible.

With this, we conclude that the royalties are an important part of the license. Though it looks from the far that they are different but they are actually not. Paying Royalty is an easy way to get parties their part of benefits. Royalty accounts to all the records of the licensee and his transaction to prepare an analytical table which always makes it preferable over anything.