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I have just started using Unreal Engine 4 and I have had a very good experience, though I have left the subscription now.

I've made an Android game with it and I am planning to release it, but I have some doubts about the license. Suppose I post my game on my own website for, say, $%, will I still have to give 5% of my income to Epic? How will they come to know that the game is made in Unreal Engine?

I am very confused in taking this step and I'm not really understanding what they mean by "5% gross revenue."

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    \$\begingroup\$ Whether or not Epic can "know" your game is using the engine is largely irrelevant (but there are ways to do so, both from a technical perspective and simply by knowing that the engine behaves in certain ways and looks a certain way, in general). You agreed to the license, and thus you are bound by it if you continue to use their product. Don't try to skirt the law. \$\endgroup\$ – Josh Dec 2 '14 at 15:29
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I am not a lawyer, and you should seek out an actual lawyer for a proper legal consultation.

That said, the terms of the license seem pretty clear. You may cancel your subscription, at which point you are not entitled to future updates of the engine, but you can still use the version you have:

After cancellation of your Subscription by either you or Epic, you will not be entitled to access or use future Versions of the Engine Code or Assets that Epic makes available under the License. However, cancellation of your Subscription will not affect your rights under the License with respect to any Licensed Technology you have already downloaded under the License.

However, your use of the existing version is still bound by the terms of the license, which further states that:

You agree to pay Epic a royalty equal to 5% of all worldwide gross revenue actually attributable to each Product, regardless of whether such revenue is received by you or any other person or legal entity...

Thus, you still need to pay Epic the royalties you agreed upon the release of your game regardless of whether or not you are still paying for the subscription. This applies for all forms of distribution, including self-hosting the game and selling it from your website. Failure to pay Epic on time will result in late fees being incurred, and possibly eventual legal action.

The license spells out the particulars of the royalty arrangement, including when you have to pay them and when you don't. "Gross revenue" is not your profit, it is the total amount of money your product generates before subtracting out other third-party cuts, refunds you may need to issue, et cetera. The license even gives an example:

The royalty is based on gross revenue from end users, regardless of whether you sell your Product to end users directly, self-publish via App Store, or work with a publisher. The following simplified example illustrates the application of the royalty to gross sales: if your Product earns $10 on the App Store, Apple may pay you $7 (having deducted 30% as a distribution fee), but your royalty to Epic would still be 5% of $10 (or $0.50).

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    \$\begingroup\$ Epic knows the rule, "always negotiate on the gross." Hollywood accounting makes net income/profit easily reduce-able to zero, so if they didn't insist on Gross they shouldn't really expect to get paid anything ever. +1 especially for pointing out how this effects things like app store %s \$\endgroup\$ – BrianH Dec 3 '14 at 2:15
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    \$\begingroup\$ Suppose I distribute my game for free but include in game purchases in that game, will I still have to pay them 5%? \$\endgroup\$ – Tanay Karnik Dec 3 '14 at 6:52
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    \$\begingroup\$ @TanayKarnik: The quotes in Joshs post answer your question, but you got to read them. E.g. "The royalty is based on gross revenue from end users", and "if your Product earns $10 on the App Store, Apple may pay you $7 (having deducted 30% as a distribution fee), but your royalty to Epic would still be 5% of $10 (or $0.50).". If your game generates X Dollars , whether or not on Apple Store or whatever, and disregarding how much you get from X Dollars, the royalty is still based on X Dollars. \$\endgroup\$ – phresnel Dec 3 '14 at 9:17
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    \$\begingroup\$ @phresnel actually it's if the player pays X then you owe Epic 5% of X \$\endgroup\$ – ratchet freak Dec 3 '14 at 10:15
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    \$\begingroup\$ @phresnel "if your game generates X Dollars" could be easy taken as "if I get X dollars from Apple/Google/whoever for my game". It is important that the 5% are on the money the customer pays! \$\endgroup\$ – Josef Dec 3 '14 at 12:47

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