Effective royalty audits start with the license agreement

Description

Abstract: Licensing can be a significant source of revenue for clients who own patents, trade secrets and other forms of intellectual property. An effective royalty audit program protects that revenue stream. This article looks at why licensees may underreport royalties, including math or accounting system errors, misinterpretations of contractual language, and deductions of inappropriate expenses or allowances. It notes the importance of a well-thought-out audit provision. A sidebar explains that audits serve important nonmonetary purposes, as well.