0 Morty Asked: August 13, 2019In: Economics What is the concept of royalty fee? 0 Is it true that if there is a rip off company, like a company that makes fake Gucci clothing, they have to pay some “royalty fee” to Gucci? In: Economics Share Facebook 4 Answers Voted hems86 Added an answer on August 13, 2019 at 8:03 pm Royalties are basically a back end payment structure based on the actual profits. Typically, royalties are a % of the profits. For instance, in the USA mineral rights belong to property owners. If an oil company wants to drill on your land, the typical deal is a per acre bonus and a royalty. So, the deal might be an upfront bonus of $1,000 per acre plus a 12.5% gross royalty on production. That means on a 100 acre plot, you would get a check up front for $100,000 and then 12.5% of the gross value of every barrel of oil produced from each well on your land. So if a typical well makes 100 barrels per day at $50/bbl, the land owner would receive a royalty of $625 per day. This royalty will be paid out perpetually until no more oil is produced. This is a good deal for both the landowner and the oil company. For the oil company, it means they don’t have to pay huge sums up front and can invest more capital into drilling wells. For the land owner, it means that they don’t have to accept a one time payment and can enjoy positive fluctuations in the market, like a rise in the price of oil. In the example you give, you are talking about a licensing fee. This is similar to a royalty, but it typically refers to allowing another company to use your intellectual property or patented technology for a fee. So, a good example is in the car industry. GM invented magnetorheological shocks a few years ago, which outperform anything currently on the market. They were so good that Ferrari approached GM for a licensing agreement. Since GM doesn’t really make any cars that directly compete against Ferrari, they realized it would be better to get paid for every car Ferrari makes with these shocks. So, for every car Ferrari builds with these shocks, GM gets paid a flat rate (maybe $150, for example). With knock-off Gucci bags, they are not made with Gucci’s permission. The knock-offs don’t pay anything to Gucci. Even if they asked Gucci for permission, Gucci would say no for several reasons. Gucci bag are valuable because they are high quality and rare. 0 Reply Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp madmoneymcgee Added an answer on August 13, 2019 at 6:45 pm A royalty is just something you pay for permission to do something. Musicians get royalties from record companies who want to sell a lot of records but need a talented singer to do so. Actors get royalties from movie studios from starring in a movie and selling lots of movie theater tickets that way. A ‘rip off company’ likely isn’t paying royalties if they’re truly ripping that company off. Same as if you pirate an album or movie. 0 Reply Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp blipsman Added an answer on August 13, 2019 at 4:55 pm No, knock-offs don’t pay fees, but might have to pay penalties/fines if they get caught because what they’re doing is illegal… Where you might see a royalty fee is where companies license their name to products that aren’t their core business. Gucci makes clothing and accessories like purses. But they don’t make eye glasses or fragrances. Instead, companies like eye glass maker Luxxotica or a fragrance house might work with Gucci to develop a product in their style, and then pay a royalty fee for each pair of Gucci-branded eye glasses sold or each bottle of Gucci perfume/cologne sold. 0 Reply Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Psyk60 Added an answer on August 13, 2019 at 3:17 pm Royalty fees apply when some company allows another company to use something of theirs in exchange for some cut of the money they make. So say some company wants to make Gucci branded merchandise. So this company wants to use the name and logo which belongs to Gucci. Gucci might agree to let them do that in exchange for say 5% of the profits. That’s a royalty fee. If a company makes fake Gucci clothes that means they’re doing it without Gucci’s permission, which is illegal. Gucci could sue them and demand the money they made from it as compensation. This isn’t really the same as a royalty fee. 0 Reply Share Share Share on Facebook Share on Twitter Share on LinkedIn Share on WhatsApp Leave an answerLeave an answerCancel reply Attachment Select file Browse Featured image Select file Browse What is the capital of UK? ( London ) Save my name, email, and website in this browser for the next time I comment.