Key Points to
Remember About
Royalty Auditing

Royalty Auditing Publications

Royalty Audit Checklist
by  Ray Throckmorton, CPA

Royalty Audit Checklist
by Ray Throckmorton, CPA
Les Nouvelles

Guide to
Royalty Auditing Services

by AmiCOUR IP Group

Nine Key Points About Royalty Audits:
1.  A royalty audit or license compliance examination is not an accusation of wrongdoing and should not be initiated as adversarial.  Having noted this, licensees have been known to pay past due royalties upon the mere notice of an audit.

2.  Many license terms stipulate audit cost reimbursement when audit recovery exceeds 2-5 percent.  AmiCOUR IP professionals can help you review your license at no charge in order to determine  whether your license contains an audit fee recovery clause.

3. New licensee instruction and compliance reviews may be even more valuable for international licenses.

4. Unless the patent owner files suit to force payment, recovery is normally voluntary. When litigation is required, your royalty auditor must provide credible evidence of monetary determinations including a written report and testimony. AmiCOUR stands ready to help you meet your burden of proof. Remember, CPA's and auditors alone have no legal authority to enforce a license. In addition, we can help you locate a law firm with IP litigation and royalty recovery expertise to assist in enforcement.

5. IP best practices means including audit rights in the license, then following through on a regular schedule. Audits are common after one year of reporting, but are generally possible even after patent expiration.  In fact, these post license expiration audits are also common but should be initiated as the license comes to its conclusion.

6.  Statistics show that nearly 85 percent of royalty audits result in recovery.

7.  Between 80 and 90 percent of licensees report royalties incorrectly and underpayments range between 10 and 25 percent.  (Ref: IPLS 2006 Conference-Tokyo)

8.  Special audits may be invoked even when royalties aren't owed.  For example, some license product commercialization requirements stipulate additional research and development funding levels or requirements mandating investments in FDA or other regulatory approval processes.  AmiCOUR is capable of handling these special license compliance examinations.

9.  Auditing sometimes includes engineering and quality audits designed to assure that an invention is being safely and successfully manufactured (according to specifications or safety standards) and to assure that all licensed products are included in the royalty report.  Remember, your good name (and responsibility) may be associated with every unit sold.  Our combination of accounting and engineering experts leaves AmiCOUR uniquely qualified to manage technical or scientific license or royalty auditing.

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