Protecting the Value of License Agreements in Uncertain Times: The Role of Royalty Audits

Licensors and their legal counsel should understand the risks and benefits of royalty auditing and the factors that contribute to conducting such procedures successfully. The author highlights the “structural bias” that, over time, contributes to royalty underreporting, and the most common reasons for royalty underreporting. Licensor objections to royalty auditing are considered, and methods for selecting licensees for royalty audits are discussed. Guidance for limiting the risk of royalty underreporting is provided, and suggestions for license agreement terms are given.


Tips for When and How to Conduct an Effective Royalty Audit

Enough licensees underreport royalties, often unwittingly, that royalty auditing must form part of your TTO’s comprehensive IP strategy. The article includes a “scoring chart” to evaluate the risk of licensee non-compliance and other valuable tips for managing the royalty audit process.


License Agreements: Are You Getting the Royalties You Bargained For?

Almost all license agreements provide the right for the license to review the accounting records of the licensee. Such a review (sometimes called a royalty audit) is undertaken to ensure that all licensed products subject to royalty payments are included in the calculation of royalties due, and that the calculation process itself is correct. This article discusses the pros and cons of a royalty audit, things to expect from a royalty audit, and what you should expect from the person or firm you select to conduct the audit. The results from a survey of university royalty auditing practices are included.


Monetary Recovery in Trademark Cases

The article provides an overview of the requirements to be met en route to monetary recovery under the Lanham Act, with an emphasis on trademark litigation. The article surveys the different types of monetary recovery available and illustrates key concepts by reference to applicable court rulings.


DCF Analysis in Determining Royalty

The “analytical approach” as a means to determine a reasonable royalty in patent infringement litigation is discussed and an enhancement based on Discounted Cash Flow analysis is proposed. A DCF-based approach may more accurately reflect underlying economic realities prior to or at the time of the first alleged infringement. Such an approach is also consistent with financial theory and practice.


Preliminary Damages Assessment

Counsel often needs a preliminary assessment of damages. Experts can help counsel evaluate the link between the alleged wrongful act and economic harms. Different approaches to evaluating damages are considered. An initial list of the types of documents from each party that are relevant to such an inquiry is provided.


Lost Earnings in Age Discrimination Cases

A structure for the lost earnings calculation is given, and key variables for the calculation are identified and discussed. Other considerations, such as employee benefits and tax considerations are also highlighted. Information requirements for the analysis are suggested.


Note: The concepts addressed in these papers are not necessarily ones the author or his firm would adopt in a given matter. The financial analyses incorporated in any of the articles are for illustrative purposes only and are not based upon an industry standard or the anticipated performance of any company.