Being a creative, we’re more well-versed in the language of weddings, photoshop and online marketing. We can throw around terms like “JPEG,” “serif,” and “stem count” like nobody’s business, but when it comes to the side of our business that, well, actually keeps us in business, we get a little shy.
If you watch Shark Tank at all, you've probably heard Daymond John talking about royalty rates, but you may not have totally understood it. (That's why I'm here!)
Royalty rates is a term that is used in licensing agreements. A licensing agreement is the way you can memorialize your intention to allow another person or company to use your intellectual property, like a copyright, trademark or package design.
Royalty rates vary depending on your industry, but typically range from 2-6% of the wholesale price of an item that’s sold with your design on it.
So, for example, if you license your pretty ‘lil design to a phone case company, and that company sells their phone cases to Target, Best Buy or Anthro for $10 a pop, you get $2 per phone case sold if your royalty rate is 20%.
To be transparent, that’s not exactly how cleanly it works, but it’s close enough so you get the idea of how you could make a good bit of money off your designs without doing any of the heavy lifting.
Intellectual property, or ‘IP,’ refers to trademarks, copyrights, patents, trade dress and trade secrets as a collective family.
Your IP is your life blood if you create a digital product or have a brand of any kind. You know you have a brand if you have a logo, or if you could say your name and others would recognize you.
You can use your intellectual property to form licensing deals with manufacturers. They will license anything from your name, to your logo, to your designs.
Infringement is what it's called when someone takes your intellectual property, like your blog posts or photos.
The only way to know with 100% accuracy that someone else is infringing your work is to have a court say so. But, most issues don’t escalate to that level.
Typically, if there’s a matter of infringement, it’s worthwhile to get an attorney involved because an attorney can (1) shut down the infringer’s activity, so they’re not taking any more of your sales, and (2) re-coup the lost profits or other money available to you as a result of the infringer’s illegal activities.
By learning these little bits of legal knowledge, you give yourself power to negotiate, and learn how to build your business in a sustainable, profitable way. Ignorance is definitely not bliss when it comes to the law!
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