What type of royalty arrangement is typically established between a licensor and a licensee?

A combination of fixed fees and ongoing royalties is a common arrangement between a licensor and a licensee because it ensures both parties have financial incentives aligned with the success of the licensed product or service. Fixed fees provide upfront revenue to the licensor, creating a sense of security and immediate compensation for the rights granted. This initial payment can help cover initial costs associated with creating or marketing the licensing agreement.

Ongoing royalties, which are usually based on sales or usage, allow the licensor to benefit from the continued success of the product. This arrangement creates a perpetual income stream as long as the licensee effectively markets and sells the product. It incentivizes the licensee to actively promote the product, as higher sales result in higher royalties.

By combining both structures, licensors can effectively manage their risk and effort while encouraging licensees to maximize the potential of the licensed product, leading to mutual benefits for both parties involved.