I'm not sure if it would make a difference which option you choose or if you wanted another option to report your royalty income. The royalties will be reported on schedule E and the only option there to describe them is to say they are royalties. Also, if they are reported in box 2 on form 1099-MISC, then they will be considered royalties by the IRS and should be reported on schedule E. Here is what they look like on Schedule E, Supplemental Income and Loss:
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