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Re: Royalty Question

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.