What is the royalty for software contracting?

Development Character & Animation
, , ,
1

Hello,

I have a question about whether royalties are due for the type of business we operate. We are a software development company that has recently started using Unreal Engine to develop experiences for clients (education, training, in-store visualization experiences, biomedical visualizations, architectural visualizations) for which we frequently receive more than $3000.

For these projects are we exempt from paying 5% royalty on what we receive from the client? Also, if in future projects the customer wanted to provide access to one of our delivered VR experiences as one part of a sold product (or subscription-based product), would that change the answer?

I posted some relevant info I found on the faq page below.

Thanks.

–

(From FAQ)

  • If I release a commercial product, what royalties are due to Epic, and when?
    Generally, you are obligated to pay to Epic 5% of all gross revenue after the first $3,000 per game or application per calendar quarter, regardless of what company collects the revenue. For example, if your product earns $10 from sales on the App Store, the royalty due is $0.50 (5% of $10), even though you would receive roughly $7 from Apple after they deduct their distribution fee of roughly $3 (30% of $10). Royalty payments are due 45 days after the close of each calendar quarter. Along with the payment, you must send a royalty report on a per-product basis. For more information, see here.

  • Are any revenue sources royalty-free?
    Yes! The following revenue sources are royalty-free:
    [[1]] Ancillary products, including t-shirts, CDs, plushies, action figures and books. The exception is items with embedded data or information, such as QR codes, that affect the operation of the product.[[2]]
    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.
    [[3]] Non-interactive linear media, including movies, animated films and cartoons distributed as video.
    [[4]] Cabinet-based arcade games and amusement park rides.
    Truly free games and apps (with no associated revenue).

2

If your work is custom work-for-hire (i.e., a one-off product for an individual client), then your work-for-hire fees are royalty free. In that case you’d owe nothing.

Then if your client didn’t have any revenue for that product, there is no royalty there either.

However, if, as you say, later that product is monetized (such as a subscription), then royalties would be owed on that revenue. In that case it’d be preferable if your client became a UE4 EULA licensee in which case they could take over the royalty obligation instead of you.