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Question added to topic Legal Basics For StartupsSeptember 27, 2007

Should I ask for a royalty agreement or just a consulting fee while designing something for a manufacturer?

I have been asked to consult with a large manufacturer and assist in designing system application specifications for their products. Do I ask for a royalty agreement or just a consulting fee? They are interested in anything patentable as well. They are a $4 billion operation and my company is just a small business with 25 years of experience in the area that they want to develop.
There is no right or wrong answer to this question. If you create something that gives you an intellectual property interest in the creation (such as a copyright), you will retain that interest unless the manufacturer you refer to requires you to sign a “work-for-hire” agreement. A “work-for-hire” agreement will serve to transfer all of your rights in the creation to the manufacturer for what ever compensation you may agree upon. If you do not sign a “work-for-hire” agreement, then your approval of the manufacturer’s use of the creation constitutes a “license.” You may agree upon a fixed fee for giving the manufacture the right to use your creation or you may ask for a continuing payment based upon the profits earned by the manufacturer from the sale of your creation (a royalty). Before going forward, it would be in your best interests to have the arrangement reduced to writing and reviewed by an attorney who is knowledgeable in the area of intellectual property.

Nina L. Kaufman, Esq. is an award-winning New York City attorney, edutainer and author. Under her Ask The Business Lawyer brand, she reaches thousands of entrepreneurs and small business owners with her legal services, professional speaking, information products, and LexAppeal weekly ezine. She also writes the Making It Legal blog.

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