A product royalty agreement, also known as a licensing agreement, is a written document typically arranged between an inventor and a manufacturer. According to Entrepreneur.com, it gives the manufacturer the right to produce, market and distribute a product for a set period while paying the inventor a royalty.


The contract spells out the terms of the arrangement. Naming the inventor as licensor and the manufacturer as licensee, it includes such items as a brief description of the invention, its patent number, the territory that the project may be sold in, the period that the agreement remains active, the percentage of royalties and the payment schedule.


An intellectual property attorney can draft your contract. Also useful are books that contain fill-in-the-blank licensing agreements. (See Resources). But to avoid later disputes when using an agreement template, it's advisable to have an attorney review it before meeting with manufacturing executives.


Licensing and having a product royalty agreement do more than increase inventors' bank account. According to Entrepreneur.com, licensing helps manufacturers stay competitive and increase their profit.