Payments for use of object of intellectual property right

License fee is a payment for the entitled right of use of object of intellectual property right, a subject of the license agreement.

Clause 5 of Art. 15 of the Law of Ukraine “On Copyright and Related Rights” dated 23.12.1993 defines the following forms of fees, paid to the proprietor by the user:

• single (lump-sum) payment;
• royalty
• combined payments.

“Lump-sum” payment is a single payment, which is a fixed amount and shall not depend upon the output (sale) of products (goods, works, services) using object of intellectual property right. The advantage of this kind of fee shall consist in that the Licenser (license seller) shall receive total amount in a rather short period of time without visible risks. Such payment shall be the actual price of license purchase. It can be carried out on a single basis or by parts.

Royalty is the payment of any kind, received as a fee for use of or entitled right to use any copyright on literary works, art or science works, including computer programs, other records on data carriers, video and audio tapes, cinematographic films or tapes for radio or television broadcasts; for any patent purchase, registered mark on goods and services or trademark, design, secret drawings, patterns, formulae, process, right for information concerning industrial, commercial or scientific expertise (know-how). Royalty shall not be the payment for obtaining property objects, defined in part 1 of this item, for possession and administration or ownership by the person or if the conditions of use of such property objects shall entitle the user to sell or alienate the property object by a different method or promulgate (disclose) secret drawings, patterns, formulae, processes, right for information concerning industrial, commercial or scientific expertise (know-how), except for the cases, when such promulgation (disclosure) shall be mandatory under the Laws of Ukraine. Royalty rates level in the current international trade fluctuates between 2 and 10% and amounts mainly to 3-5%. It shall depend upon economy branch, license layout, terms of agreement, volume of production, inner and export prices for the products, made under the license. Since royalty is usually paid by bank transfers, license agreements shall have bank guarantees for the part or total amount of payments with possible gradual reduction of a guaranteed amount.

Combined payment is a license payment which shall include royalty and lump-sum payment.
If the parties have decided to carry out payments for use of intellectual property by means of combined payments, the agreement shall definitely include clear calculations, under which they shall be carried out. The parties shall also be entitled to specify royalty payment order (sale fee, fixed amount, noncash payments, etc).