Royalty-based licensing is a business arrangement where one party (the licensee) pays another party (the licensor) a fee based on the sales or usage of a product or service. This fee, known as a royalty, is typically a percentage of revenue generated from the licensed product. This model is common in industries like music, film, and technology, allowing creators to earn income while enabling others to use their intellectual property. In this arrangement, the licensor retains ownership of their intellectual property, such as patents or trademarks, while granting the licensee the right to use it. This can encourage innovation and collaboration, as businesses can leverage existing ideas without the need for extensive development. Royalty-based licensing can be beneficial for both parties, providing a steady income stream for the licensor and access to valuable resources for the licensee.