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Question added to topic Legal Basics For StartupsMay 8, 2009

How do we setup a royalty agreement with a vendor?

I am a broker and I came across an inventor, currently selling her product online and at trade shows but is still relatively small. I have made some connects with CEO's and TV producers, I have initially asked for a $0.99/unit sold royalty fee. If she sees a huge spike in business due to my efforts, I want to make sure I am compensated correctly.
How should you write the consignment agreement? You shouldn't. Find a lawyer who understands these kinds of royalty agreements and let her do it. The reason, as you've no doubt found, is that the wording can involve intricate calculations.

Maybe $0.99 per unit is fair compensation for the initial introduction to the TV producer, but does it continue to be fair the fourth, fifth and sixth time the producer features the inventor? Does it matter if the TV segments are new segments or repeats of the same segment involving the inventor? How deeply do you want to be involved in the inventor's business so that you can verify that you're being paid what you're owed? What kind of reporting do you want to see? How often?

Improperly drafted language can raise a host of misunderstanding -- or worse, cut you out of compensation that you're rightfully entitled to. Leave this one to the experts.

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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