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Need some more clarifications on 5% royalty for work-for-hire

I found multiple sources about the 5% royalty, but I want more clarifications.

comment from UnrealEngine from neogaf post.

http://67.227.255.239/forum/showthread.php?t=787406&page=3

For any user who is not selling a product, you don't owe a royalty. Here is the full list of royalty free applications for reference:

No royalties are due on the following: Ancillary products,** snip **of the product.

Consulting and work-for-hire services using the engine. This applies to architects using the engine to create visualizations as well as consultants receiving a development fee.

also

http://forum.unity3d.com/threads/235141-Unreal-Engine-4/page26

comment by noisecrime:

  1. I create a UE4 project to be installed as an interactive at a museum ( I guess its equivalent to theme park ride in the EULA).

  • I pay no royalties. - My client pays not royalties at all, not on the cost/budget of the project, nor even if they charge for admission.

  1. I create a UE4 project for mobile to be used exclusively in-house for a clients company. This might be for a utility application, or perhaps a promotion app to be used by the company during an exhibition where they show off their products. In neither case are the app sold to general public.

I pay no royalties. - My client pays not royalties at all, not on the cost/budget of the project, nor even if they charge for admission. Their reply was

No problem with your questions - you're asking good ones. The license terms are pretty radical for the industry (I know, I largely wrote the EULA!) so I can understand the double-take.

No matter what the product, there is no royalty owed on work-for-hire fees. And in the circumstances you describe below (museum installation and non-commercialized mobile app), nobody owes any royalties at all.

Does this only count for museums and attractions as work for hire, or does it also count if I am working on a game for a media company? Does the company I make the game for pay the 5% or do I pay the 5% or neither of us pays 5%?

[1]: http://neogaf+forum+post

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asked Mar 23 '14 at 03:59 PM in Legal & Licensing

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bitcrusher
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3 answers: sort voted first

No matter what the circumstances, work-for-hire fees are exempt from royalties.

If the product is not for sale (or falls under one of the other exemptions), no further royalties are owed. That's the case for the museum installation or the company mobile app only for employees.

If the product is for sale, some licensee owes royalties. The ideal solution is for the work-for-hire contractor ensure that the company who hired them and who is selling the product has at least one license so that the company can pay royalties under that license. But if a work-for-hire contractor creates a product for a fee, while that fee isn't subject to royalty obligations, if the company doesn't assume the royalty obligation under a license, then the contractor is responsible for royalty payments on sales of the product.

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answered Mar 24 '14 at 12:45 AM

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atypic STAFF
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avatar image dimitrov Oct 07 '14 at 08:01 PM

Thank you for your answer. I would like to continue the discussion.

What you said about the contractor being responsible for royalty payments sounds quite scary. When I create a game for a client of mine and get paid 5000 for it, I would not like to be responsible for the royalties that may eventually cost much more than that. My client owns the game and he sells it. I have many clients. It is very dangerous if I need to be responsible for every one of them to pay their royalties to Epic.

Isn't there another solution? I think it would be great if it's possible to create an account in the UE website for a licensee. This account should be free since the licensee does not get access to the engine or the source code etc. It should be possible to indicate which product the licensee owns and has to pay royalties for. And it should allow to link it to a developer account or something of the sort, so that the developer can check whether things are arranged. This way the responsibility for paying the royalties will not be on the back of the poor developer.

Another solution would be if UE provides some advice on how to arrange the matter legally. For example, UE can provide a template contract between freelancer and client (in which the responsibilities are made clear). In either case, the client has to agree to some terms from UE about paying royalties.

These are just two suggestions, but I expect you may have even better ideas. I hope some solution can be found. I am sure you realize that there may be a significant number of people who want to use UE for working for clients.

avatar image DanZaidan Sep 20 '16 at 07:56 PM

Hi!

Sorry for messaging you almost 2 years after the post, but I'm on a similar position (doing work-for-hire for someone who intents to sell the product) and I would love to know what solution did you come up with. Did you write a contract delegating the responsibility to pay royalties to the client? If so, can you share a template? Now that UE4 is free, by just having the client create an account makes him responsible for the royalties? It's important to make everything as clear as possible, because client relations are tricky enough without us asking them to pay 5% of their gross revenue to a company they never signed a contract with... :P

Anyway, thanks!!

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Hi Dimitrov,

Great suggestions. Thank you.

Unfortunately we cannot provide legal advice to licensees.

Handling all this with additional functionality on our website is interesting but it will take time to consider, prioritize, develop, test, etc., etc.

In the near term the simplest and most straightforward was to handle this might be for the developer (you in this case) to make sure the buyer and ultimate commercializer of the UE4 game is a UE4:Subscription licensee and is aware of the royalty obligations that go with it.

Best, -j

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answered Oct 07 '14 at 08:30 PM

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Truffle Muffin STAFF
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Hi Dimitrov,

Great suggestions.

Unfortunately we cannot provide legal advice to licensees.

Providing a solution by way of additional website is interesting but it will take time to consider, prioritize, develop, test, etc., etc.

In the near term the simplest and most straightforward way to handle this might be for the developer (you in this case) to make sure the buyer and ultimate commercializer of the UE4 game has a UE4:Subscription license and is aware of the royalty obligations that go with it.

Best, -j

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answered Oct 07 '14 at 08:31 PM

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Truffle Muffin STAFF
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