Re: Royalty Question

["Joseph J. Esposito" <espositoj@gmail.com>]

This is an interesting situation.  There is insufficient 
information in Mr. Albright's letter to be specific about royalty 
rates, but some general remarks may be helpful.

Royalty rates vary widely, with some being as low as zero and 
some (for hardcover trade books) reaching 28% of a publisher's 
net receipts, which is roughly 15% of the list price.  In the 
information services world, some rates may be higher--at least 
they used to be, but I doubt Dialog and Lexis Nexis are going to 
expose this trade data now.  I have never seen an 
across-the-industry survey of royalties, but based on my 
experience, most contracts are written in the range of 5-15% of a 
publisher's net receipts. "Pure" software products (i.e., without 
significant content) tend to be at the lower part of that range. 
Publishers that market products through channels (e.g., trade 
books through bookstores) typically pay higher royalties, at 
least in theory, than direct marketers.  I say "in theory" 
because a direct marketer's net is a trade-channel marketer's 
gross. Software vendors who work with systems integrators may use 
flat sums rather than a perscentage.  Based on the information at 
hand, a 5% royalty for "tutorials" does not seem out of line.

The terms "gross" and "net" may have multiple meanings.  A 
vendor's gross receipts may not be equal to the list price of a 
product.  It is therefore important to have the terms defined 
carefully in the contract.  Is a royalty paid even on sales for 
which the vendor cannot collect?  Are sales commissions 
deductible from the gross to get to net?  What about deals in 
which products are bundled into service contracts (common in the 
software industry)?  For such deals, a minimum per-unit royalty 
rather than a percentage of revenue is likely to be preferable.

There is one phrase in Mr. Albright's letter that puzzles me: 
"There are no IP issues."  Does that mean there is no 
intellectual property?  If so, what then is being licensed?

Joe Esposito

----- Original Message -----
From: <Glenn_Albright@baruch.cuny.edu>
To: <liblicense-l@lists.yale.edu>
Sent: Monday, August 14, 2006 6:18 PM
Subject: Re: Royalty Question

> Baruch College's library wants to give permission to a vendor 
> to market and sell certain custom made tutorials they developed 
> for us. These tutorials are free to the public and the vendor 
> will modify them (i.e. change content, branding, etc).  There 
> are no IP issues and the vender assumes all cost.  The 
> licensing agreement language has been approved and we need only 
> to determine percentages.  Are there industry (university) 
> standards that can be used to determine percentages?  We want 
> to structure it so the College receives 5% of gross and I need 
> to document support for this number.
>
> Thank you for any assistance.
>
> Glenn